The Albanian government has decided to spend over 1.9 billion lekë to improve the way cash register data are reported to the General Directorate of Customs and Taxes, as it has determined that the current data are often “erroneous” and insufficient to calculate the revenue of a business.
At the end of July, Tax Control operatives flooded the country’s beaches and tourist areas and, after putting thousands of establishments through the strainer, shut down for 30 days dozens of bars, restaurants, and hotels that did not give customers VAT tax receipts.
VAT receipts are provided by the cash registers, a very expensive system of financial reporting that transmits data in real time, from a business’s machine to the Tax Directorate.
However, though Albanians have paid millions of euros during the last 8 years, both as entrepreneurs and as taxpayers, to prop up this fiscal system, data released by BIRN show that it doesn’t work.
Meanwhile, the government, which continues to penalize businesses for not using this system, seems to believe that a new, 1.9 billion lekë (€15 million) investment will turn things around.
The National Agency for Society’s Information (AKShI), an institution subordinate to the Council of Ministers, recently announced the opening of a tender intended to fix the functionality problems of the controversial cash register system, a system first established in 2010. This system brought mind-boggling profits to a handful of state-licensed companies that sold and performed maintenance for cash registers. It did not, however, bring about any noticeable improvement in the state budget or the quality of fiscal management.
The tender announcement lists 13 serious problems that exists in the current system, including what it calls reporting “errors” and “difficulty in obtaining data concerning revenue by date, month, year…”
This is one of the largest investments in the country’s fiscal management system, while the financial convenience of this investment remains suspect, as it is unclear whether or not the new system will yield an increase in income.
BIRN asked the General Directorate of Customs and Taxes for further information on the current cash register system’s issues and details of the cost and efficiency studies for the new system, but did not receive a response.
Cash registers did not halt tax evasion
In 2007, the government decided to establish a real time transmission, electronic cash register system, one that many countries have tried, decades ago, and have then dismissed as financially unsustainable. In theory, cash registers print a receipt for goods or services paid for by the client, and, in real time, create an electronic receipt that gets transferred to the Directorates-General of Customs and Taxes at the end of a business day. In theory, the total of these receipts helps tax institutions to calculate the subject’s revenue and what taxes it must pay. When cash registers were first installed in 2010, the government of the time claimed that this new system would automatically prevent tax evasion and would increase state budget income.
However, from the beginning, the installment of cash registers was badly coordinated. Some state-licensed companies began selling simple calculator machines, claiming that the law passed by the government did not specify what kind and capacity of cash registers they had to sell.
A total of 160 thousand cash registers were sold, at an average price of €300 apiece. They cost Albanians tens of millions of euros in total. However, after the registers were installed a problem emerged. Tax institutions did not have the technical capacities to gather and store all the data coming in from the registers.
A private donation by cell phone providers, who profit off of the cash register system via the SIM cards needed to transmit data installed in every register, established a system called Nexus. The Tax Directorate claims that these cash registers are fiscalized, that is, they measure a business’ revenue in order to calculate tax obligations. However, the tens of million euros spent on cash registers did not bring about any significant increase in the tax revenue, be it coming from the internal VAT, or the Profit Tax. Today, similarly to the pre-cash register years, over 76% of the VAT comes from imported goods, and only 24% from internal revenue.
The tender announcement laments the fact that the current cash registers, being purchased by businesses for €300 apiece, are of bad quality, and can’t automatically close off a business day.
“In many cases, there have been problems with low-quality transmission modems,” says the tender description.
“In cases where standard fiscal machines transmit more than one day’s date in the same file, and the file contains multiple rows marked as 10, only the first row is loaded onto the system (row 10 of the first day.) The rest of the rows, containing the daily revenue for the other days, do not load. This affects every report on the revenue of a cash register making a daily, monthly, or annual report difficult,” the report further states.
The most expensive investment ever
The tax administration has invested in IT before, and its large investments, when selected to be used, have been hailed as tax evasion-fighting miracles. The latest case of an expensive investment was in 2015, when around €16 million were spent to create an electronic system called Cots, that was supposed to, on the one hand, manage electronic communication and self-declaration of businesses with regards to taxes, and, on the other, provide tax institutions with data analyzing capacity, including risk management.
Electronically gathered data facilitates speedy analysis, which, via algorithms and mathematical formulas, is then able to locate “red flags” in certain transactions or businesses that may be attempting tax evasion. Tax inspectors may then focus their skills on the field, by investigating specifically those businesses that raise these “red flags.” For example, when a business is consistently reporting low annual profits, for several consecutive years, then this constitutes a red flag, as it is thought that, under normal circumstances there would be variation in annual profit rates.
The €16 million spent on Cots seem to not have been enough, as the Tax Directorate intends to spend another €15 million to improve the Nexus system, with this current tender.
In fact, the proposal for a VAT concession, presented by the Ministry of Finance in January, 2016, intended, precisely, to replace the Nexus system used for transferring data from cash registers to the tax administration. The concession did not take place, as the government eventually withdrew.
The Albanian tax and Customs administration may easily be considered as one of the costliest administrations in the world when it comes to expenses for data collection. The Organisation for Economic Co-operation and Development (OECD) frequently carries out analyses regarding the efficiency of its member states’ tax administrations, in order to determine which countries manage to collect taxes by spending the least.
According to OECD, the tax administration usually spends about 1% of a normal country’s tax revenue. Currently, in Albania, the cost of tax and Customs institutions, and accompanying systems, has reached 2.1% of the total revenue. This cost, however, includes only budget expenses, not private ones, like the millions spent by businesses on cash registers that, seemingly, have not worked properly for the last 8 years, and now require €15 million more, in the hopes that, one day, they may function.
The new system requested by the Tax Directorate is Oracle. The winning bidder will have to deliver its product within two years of the date it wins the concession, and provide maintenance for another 2 years. The tender will open for bids on September 17, 2018.
This article first appeared on Reporter.al, translation by Exit