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How Russia shrank the VAT gap from 20% to less than 1%

The rock star status Mishustin achieved in tax enforcement came from his results. During his tenure, the share of Russia’s value-added tax (VAT) that went uncollected by tax authorities reportedly shrank from around 20 percent to less than 1 percent, likely one of the world’s lowest. By contrast, a typical advanced economy like the United Kingdom would tend to have a VAT gap closer to 10 percent.

Under Mishustin’s leadership, Russia’s Federal Tax Service (FTS) achieved these results through the deployment of dragnet technology that collected data on virtually every single transaction in Russia. New legislation required the submission of all business-to-business invoices. After a successful pilot program, the FTS started in 2017 to require all retail establishments to use “online cash registers” that automatically transmitted data on all transactions to the tax authorities in real time. Even if it happens in Siberia, any transaction in Russia registers in the FTS database in under 90 seconds. The FTS then applies artificial intelligence to this encompassing universe of transaction-level data to identify likely tax evaders.

Source: foreignpolicy.com

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