Vanity
February 2020
Of the deadly sins, I think that vanity is the most insidious. It’s everywhere. In the UK we think we are doing well in our growing use of all that the internet offers: we watch the iPlayer, more of our shopping is done online than in almost any other country, and we interact with the government online. Surely, we are in the vanguard of enlightened digital development?
That’s vanity, I’m afraid. If we lift our eyes above the horizon for a moment, we will see that other countries are well ahead of us, and it might surprise you to know that Russia is one of them.
Take, for example, tax collection. It is a truth universally acknowledged that the more accurate information a government has on our finances, the happier it will be and the more likely it is to collect the correct amount of tax that is due and collect it on time.
The Russians know this; they have been overhauling their elderly and corrupt tax collection system, moving it online. They have started by revolutionising the collection of VAT in the retail industry.
In the UK, most shops submit quarterly VAT reports and pay the amount of VAT due at that time. Frequently there are mistakes, delay and muddle; occasionally there is fraud.
Not in Russia, at least not now. Every single shop has been obliged to buy electronic tills that are connected, via the internet, to Russia’s Federal Tax Service. These tills report every single transaction to the government, however small, as it happens.
This means that assessing the amount of VAT due is done instantly, and it is collected immediately, rather than waiting for a quarterly VAT return.
The overall effect has been remarkable. Government cash flow has been improved and mistakes, evasion and fraud have been greatly reduced. As a result, the government’s VAT income has increased by about 20%, a huge amount.
There’s all that data, too; using sophisticated computer analysis can identify likely frauds, and which tax inspectors are suspiciously ineffective at collecting overdue tax.
It also means that they can spot retail trends at once and calculate the real rate of inflation as it happens; they can see the price of everything, all the time.
The growing number of Russian self-employed and their clients are now being encouraged to join the system. This will make it more difficult for traders to do jobs for cash, off the books. If a Russian employs a window cleaner and reports the payment through this system, their conscience is clear, and the window cleaner pays the right amount of tax. Even Uber drivers in Moscow are connected, through the central Uber database.
There are concerns, inevitably, about privacy; do you really want the government knowing what you spend all your money on? Perhaps not, but when you think about it, this is a natural development; for many years our salaries have been reported to the government by our employers and tax is deducted before we see the money. This new expansion to the world of VAT and the self-employed that has been made possible by the internet is only to be expected.
Indeed, I suspect it is inevitable. HMRC has already implemented a ‘Making Tax Digital’ plan, which requires VAT registered business to keep digital records. In October 2019 the Office of Tax Simplification issued a policy paper recommending that HMRC should work towards something similar, initially for the self-employed, but the rest of us will be embroiled in it one day, mark my words.
Politicians are always casting around for ways to increase their income from tax without increasing tax rates, and this sort of thing will be too tempting to ignore. Like it or not, the future of tax is digital.
A few links...
Policy paper from the Office of Tax Simplification: Tax reporting and payments review
https://www.gov.uk/government/publications/ots-tax-reporting-and-payment-arrangements-review
Federal Tax Service
of Russia
https://www.nalog.ru/eng/
Making Tax Digital – Overview
https://www.gov.uk/government/publications/making-tax-digital/overview-of-making-tax-digital
383
