VAT Lottery: In Slovakia, Real Lottery Prize Goes to Tax Man
19 April 2014
When Jozef Lazarcik, a 35-year-old factory worker, heard his number called on national television here recently, he pumped his fists, hardly believing his luck.
He had registered only nine receipts with Slovakia’s new tax lottery, and yet he had just won a new car. Over the last 10 years, Slovakia’s revenue from value-added taxes, a type of sales tax, has declined. But hiring auditors and pursuing individual merchants and service providers in court is expensive and slow. So last fall, the government decided to put a lottery in the mix. The idea is to enlist average citizens to collect receipts from their purchases and register them with the government, creating a paper trail for transactions and forcing restaurant and shop owners to pay the sales taxes they owe.
As Slovakians register their receipts for the lottery, a computer will also tell them if a merchant has issued a receipt with a fake tax identification number, so they can report suspected fraud. For any purchase worth more than 1 euro, or about $1.38, Slovakians can enter their receipts in a monthly lottery to win €10,000, a car or a chance to be a contestant on the Slovakian version of “The Price Is Right.” Tax officials say the lottery is already having a big impact, and other European countries that are also struggling with the collection of value-added taxes have considered it — including Portugal, which started its own tax lottery on Thursday.
In Slovakia, about 450,000 people have taken part, registering about 60 million receipts, officials said. Complaints about merchants who will not give receipts have skyrocketed. In the six months before the lottery began, the government received about 300 such complaints, officials said. In the first few months after it started, that number rose to 7,000. Value-added taxes are an important source of income for European countries, but collecting them has grown more and more difficult during the economic crisis.
A recent report for the European Commission found that uncollected value-added taxes in the European Union — a measure known as the value-added tax gap — amounted to about $267 billion in 2011. Across the bloc, that gap increased by five percentage points on average since the onset of the debt crisis in 2008. But for some countries — especially Greece, Ireland, Latvia, Portugal, Slovakia and Spain — the problem has been particularly acute.
A decade ago, Slovakia was able to collect about 80 percent of taxes due, said Peter Golias, the director of Ineko, a nonprofit economic research group here. That figure is now about 60 percent, putting Slovakia in a league with Greece for the poorest record on the collection of value-added taxes.
Tax collection began to increase early in 2013 and rose more sharply after the lottery began. Officials say they collected about $512 million more in 2013 than in 2012. How much of that is a result of the lottery may never be clear. But Mr. Kazimir said that it was surely a big factor, and that it had cost only about $276,000 to get the lottery going. He said the new influx of complaints had already proved that it was not just small businesses that were cheating: Chain stores have also been caught giving fake receipts.
In Portugal, too, the value-added tax gap has grown since the start of the economic crisis. Having asked for a bailout of about $108 billion in 2011, it is under pressure from its creditors to do better.
Portuguese officials believe their tax lottery will be especially effective because gambling is popular among Portugal’s 10 million inhabitants, who are already among the biggest participants, in terms of spending per capita, in the EuroMillions lottery shared by nine European countries. Over the past decade, the Portuguese have spent an average of about $1.2 billion a year on EuroMillions.
Paulo Núncio, the Portuguese secretary of state for tax affairs, said the government was counting on the new lottery to raise its tax revenue by about $830 million to $1.1 billion. Even before the start of the Portuguese tax lottery, it was generating excitement. In the food court of the Amoreiras shopping mall in Lisbon recently, customers ordering hamburgers joked that their lunch order could result in a new car.
The lottery project has drawn criticism from some Portuguese opposition politicians who say it is a capitalist tool to turn citizens into tax inspectors.
Diogo Ortigão Ramos, a partner at the law firm Cuatrecasas, Gonçalves Pereira in Lisbon, said the lottery also raised “questions of compatibility with E.U. law.” For the time being, though, the European Commission has not addressed this issue. Portuguese merchants say they have already seen a change. João Raposo, a restaurant owner, said customers were increasingly asking for a full tax receipt, when “five years ago nobody would have bothered.”