Analysis of the practical implementation of the mechanism of unaccountable form of VAT calculation

Palamarchuk Oleg Olegovich Leading Expert Specialist, Federal Tax Service 23 Neglinnaya str., Moscow, 127321, Russia olegpalalamar17@yandex.ru Other publications by this author

Introduction.

The relevance of this work lies in the fact that the concept of the current tax calculation procedure was introduced in the last century and is aimed at calculating the tax by the taxpayer, followed by the preparation and filing of a tax return. Modern technologies raise the question of the effectiveness of the tax calculation procedure in a new way, and also make it possible to shift this function to the fiscal authorities. In this regard, the author in the previous article proposed the concept of an unaccountable form of VAT calculation ^[1], the essence of which was as follows: to amend the tax legislation, according to which the VAT tax declaration is canceled (along with the purchase book and sales book, journals of invoices issued and received), the functions of calculating the tax are transferred tax authorities, and taxpayers are required to issue invoices, regardless of whether the relevant sale is taxed or not (if the sale is not taxed, then a mark "Without tax" is affixed). Invoicing will be carried out only through electronic document management operators, who will automatically transfer these documents to the tax authorities for their calculation of tax and issue a notification of tax payment to the taxpayer with an attached calculation of the amount of calculated VAT.

This approach has the following advantages over the current tax calculation procedure:

1. It will save business from the need to comply with frequently changing legislation, as well as comply with a large amount of current regulations;

2. Reduce the risks of VAT evasion ^[6];

3. The invoice will replace the primary documents (invoices for payment, acts of work performed, invoices) since its revision will allow this document to be supplemented with the function of the primary document. At the same time, replacing the invoice with a universal transfer document (UPD) is impractical since the UPD, as well as the invoice, does not have all the details necessary to take into account all the features of VAT application;

4.     It will allow to cancel the notification of the application of VAT exemption, since the tax authorities will automatically determine the persons who are entitled to apply such an exemption (according to Article 145 of the Tax Code, such exemption is voluntarily applied to persons whose revenue for 3 consecutive months did not exceed 2 million rubles). However, this concept implies the replacement of the right to mandatory exemption from VAT, as it will create the potential for the cancellation of tax returns for other taxes, primarily corporate income tax.

However, the current regulatory framework contains a large amount of norms regulating the procedure for calculating taxes ^{[12, 13]}, which, in the case of the introduction of a new VAT calculation mechanism, will require taking into account all these norms in the invoice. If the invoice does not take into account all the norms of VAT legislation, this circumstance may lead to incorrect calculation of VAT by the tax authority and, consequently, an increase in shortfall in federal budget revenues. VAT is also one of the main sources of income to the federal budget and the consolidated budget as a whole ^[1], which requires special attention to the implementation of the proposed concept, since in case of mistakes, the federal budget may lose significant revenues. This fact is confirmed by Figure 1, which shows that VAT has a large share in state revenues ^[1]. Therefore, the proposed concept requires a preliminary calculation of such losses. Since there are many rules and benefits, losses will be incurred from a variety of factors – each benefit and norm. This requires an analysis of government revenues for each item.

Figure 1. The amount of VAT revenues in the federal and consolidated budget of Russia by year in millions of rubles

Source. Compiled by the author in a previous article based on data from the Ministry of Finance of the Russian Federation ^[1]

The need for digital transformation is reflected in a variety of scientific papers, including dissertations. For example, in the dissertation for the degree of Candidate of Economic Sciences "Improvement of the VAT tax administration system in the Russian Federation", V. A. Stroiteleva proposed the concept of introducing digital VAT administration. And although the concept proposed in the work relates to a slightly different topic, it confirms the need to revise the current mechanism for calculating VAT ^[7].

The need to digitalize tax administration in general, that is, not only administration, but also declaration, is being paid attention not only by public authorities, but also by many scientists ^[14]. Thus, Doctor of Economics S. G. Sinelnikov-Murylev, Candidate of Economics N. S. Milogolov and Candidate of Economics A. Y. Bergerov in a scientific article in 2022 "Digitalization of tax administration in Russia: opportunities and risks" ^[9] saw technological progress and introduced tax monitoring as the first prerequisites for the introduction of automated tax calculation the stage of digitalization of tax administration. Scientists have also drawn attention to the complexity of tax legislation to such an extent that a large number of value judgments are required for every detail of taxation: what is taxed and what is not, what falls under the benefit and what is not.

At the same time, in a number of countries, including Hungary, the practice of automated tax calculation is being gradually introduced ^{[17, 18]}, which was discussed in more detail in the previous article ^[1] and confirms the need for the development of the concept of digital tax calculation by fiscal authorities. Significant progress in this direction in European countries has been made since the introduction of the period of self-isolation ^[19].

The purpose of this work is to identify VAT transactions with the maximum risk of incorrect calculation of VAT by the tax authority through an invoice received through an electronic document management operator. At the same time, the analysis of the dynamics of various VAT indicators used to identify patterns is not the purpose of this work, but is required to identify transactions with the greatest risk of incorrect VAT calculation by tax authorities, which will allow paying special attention to such types of transactions when developing a mechanism for calculating VAT by tax authorities.

The scientific novelty is the expediency of introducing an unaccountable form of VAT calculation, which is proved in terms of the risks of increasing the shortfall in federal budget revenues (caused by incorrect filling in of an invoice by a taxpayer or calculation of tax by a tax authority on such an invoice), which is explained by the magnitude of the risk of budget losses at the level of 30%, which can be minimized by making changes to tax legislation and finalizing invoices.

The limitation in this work is the lack of a proposed mechanism for calculating taxes, taking into account all the features of Chapters 21 of the Tax Code, since this issue does not relate to the topic of current work and can be continued in the next article.

Methodology for analyzing federal budget revenues from VAT

For the purposes of analyzing the total and quantitative indicators of VAT, statistical tax reporting will be used, which is presented in form 1-VAT. This form was approved by the order of the Federal Tax Service of Russia ^[15] and consists of several sections, as well as appendices. For the purposes of analysis, this work will use the section "VAT" (containing an aggregated tax calculation, which reflects the tax base and the calculated amount of tax in terms of tax rates, as well as deductions and recovery), Appendix 1 (amounts for each tax benefit) and Appendix 2 (amounts for each of the transactions taxed by the rate is 0%).

The 1-VAT report is compiled for different tax periods and at different dates, but has 3 main periods:

1.     As of February 1 of the year – includes VAT amounts calculated for the 4th quarter of the previous year;

2.     As of January 1 of the following year – includes VAT amounts calculated for the 4th quarter of the previous year and 1-3 quarters of the current year;

3.     As of February 1 of the following year - includes VAT amounts calculated for the 4th quarter of the following year;

This report shows the amounts of tax payable for the current year. So, the taxpayer calculates the tax for the 4th quarter of last year and pays it in the 1st quarter of this year. Further, in the 4th quarter of this year, the taxpayer pays for the 3rd quarter of this year, and in the 1st quarter of next year - for the 4th quarter of this year.

Since this work analyzes the calculated amounts of VAT, and not paid, all tables are compiled in the following order: from each indicator of the report for the 1st quarter of last year and 1-3 quarters of this year (report as of February 1 of this year), the corresponding indicator is deducted from accounting for the 4th quarter of last year (report as of 1 January of the following year) and the corresponding indicator for the 4th quarter of the current year is added (report as of February 1 next year). Such calculations are performed on each line of the three specified reports, which turns the report indicators from the amount paid into the calculated amounts.

Analysis of federal budget revenues from VAT by types of taxable transactions

         Having dealt with the methodology of compiling the tables used for analysis, it is necessary to proceed to the consideration of VAT indicators. Table 1 shows data on the VAT tax base in thousands of rubles for 2020-2022 in the context of tax rates, which shows that in 2020 the total tax base amounted to 47,370 billion rubles, in 2021 - 56,342,113 billion rubles (by 8,971 billion rubles or 15.92% more compared to last year), and in 2022 - 66,817 billion rubles (10,472 billion or 15.67% more than in 2021). As a result, the total amount of the tax base for the period under review increases annually by more than 15% per year. At the same time, a significant share of the total amount falls on the tax base formed when sold at a tax rate of 20% - 71.28% in 2020, 70.72% in 2021 and 68.76% in 2022. The share of the tax base at the basic rate has been slightly reduced over the period under review. At the same time, the share of the tax base formed during the implementation at a tax rate of 10% decreased from 5.19% in 2020 to 5.14% in 2022, similarly, the share is decreasing from the calculated tax rates. At the same time, a significant increase in the share occurred for advances: from 17.7% in 2020 to 20.21% in 2022, an increase of 5,097 billion rubles or 60%.

         From the presented data, it is concluded that most of the invoices are issued at a tax rate of 20%, which is the simplest and less erroneous way to reflect the amount of tax compared to transactions taxed at a tax rate of 10%, 0%, non-taxable or taxable by a tax agent, commission agent. Consequently, the risks of incorrect invoice preparation apply only to 29% of the amount of invoices issued in 2020, 30% in 2021 and 32% in 2022. In the case of incorrect reflection of settlement rates or other tax rates, the risks are greater.

Table 2 shows data on the amount of tax to be restored and payable by the tax agent (including for the sale of raw hides and scrap metal), as well as VAT deductible, which was not deductible when exporting goods due to the lack of supporting documents. From the presented data, it follows that significant amounts of various indicators affecting the calculation of VAT are attributed to the restoration of tax and tax agents. These operations are difficult to automate, since it will be difficult for the tax authority to determine the moment when the invoice will need to be restored and whether the seller is a tax agent or a seller according to the invoice. It is possible to eliminate these points by finalizing the invoice, which will allow you to determine these points. However, adding only additional details will complicate filling out the invoice and increase the risk of making mistakes when filling out, which will lead to incorrect calculation of tax.

The amount of tax deductions in 2020, based on table 4, is 43,429 billion rubles, which is 91.67% of the tax base (47,370 billion rubles, based on table 2). Similar indicators are observed in 2021 – 91.42% and in 2022 – 90.83%. Therefore, the most important thing for the correct calculation of tax is the availability of a function for automatically determining the invoice received by the buyer for its acceptance for deduction. Currently, a taxpayer does not have the obligation to accept an invoice (the amount of incoming tax) for deduction, but has such a right. Replacing the right to an obligation will simplify the calculation procedure, but not every invoice can be claimed for deduction, but only if the activity for which the products were purchased under such an invoice is taxable. According to the invoice, it is impossible to determine for which activity products are purchased according to such a document, and adding such a detail - marking to which activity the purchased goods are sent is also impractical and complicates filling out the document, as well as increases the risks of making mistakes.

Based on table 4, the amount of VAT payable to the budget in 2020 amounted to 7.2 trillion rubles (Table 1), in 2019 as a result of an increase in the tax rate from 18% to 20% ^[2], as well as price increases (not inflation indicated by the Bank of Russia, but price increases for each type of product which makes a significant contribution to the growth of tax revenues), increased by 2 trillion to 9.2 trillion rubles, that is, by 27%. At the same time, federal budget revenues for the same period increased from 18.7 trillion rubles to 25 trillion rubles - by 6.3 trillion rubles or 35%. Consolidated budget revenues for the same period increased from 48 trillion rubles to 53 trillion rubles – by 5 trillion rubles or 25%.

No less important in assessing the risks of implementing the proposed concept is the analysis of the number of tax returns submitted, since each declaration contains a certain number of invoices reflecting different tax rates, different types of transactions and different taxpayers. An error in each invoice can lead to a distortion of the amount of tax payable to the budget. However, the analysis of the number of tax returns is a separate topic that will not fit into the scope of this article.

Estimation of the amount of shortfall in federal budget revenues in case of incorrect filling of the invoice and calculation of VAT

                     Since VAT elements, in addition to non-taxable transactions, are also transactions taxed at a tax rate of 0%, for the purpose of assessing the cost risk of incorrect invoice filling (in the case of practical application of the concept of an unaccountable form of VAT calculation), it is advisable to analyze transactions taxed at a tax rate of 0%. Thus, table 5 presents data on the application by taxpayers of benefits by types of transactions provided for in paragraph 2 of Article 146 and paragraphs 2, 3 of Article 149 of the Tax Code. From the presented data, it can be seen that a significant proportion of transactions exempt from VAT account for loans in the financial market (a quarter of all exempt transactions), the gratuitous transfer of residential buildings, the attraction of deposits by banks, the sale of religious items, as well as services provided in electronic form. Thus, special attention should be paid to preferential transactions when developing the proposed concept, since incorrect reflection may lead to erroneous tax calculation. Significant amounts of benefits are provided for services provided in electronic form, which will also require revision of the invoice, which is necessary for the correct calculation of tax on the invoice. In addition, there is an increase in the amount of benefits applied ^[3], which also occurred in earlier years, such as 2016 ^[4].

                     It is important to note that the increase in the tax benefits applied may also lead to a complication of tax control, which has been noticed by many scientists ^[5][6]. In addition, the Russian Ministry of Finance also drew attention to the significant increase in the benefits applied, despite the fact that its task is to maximize state revenues ^[16].

Table 6 shows data on the amount of VAT deductions taxed at the 0% tax rate. It follows from the table that more than 50% of such deductions are for the export of goods and more than 12% for imports, as well as 9% for the re-export of goods (export of previously imported goods). Also, a significant share is accounted for by operations within the country, but taxed at such a rate. During the period under review, the amount of tax deductions attributable to the 0% tax rate increased from 1,477 billion rubles to 2,626 billion rubles – by 1,149 billion rubles or 43.76% of interest. However, in 2022 there was a significant reduction to 1,937 billion rubles – by 687 billion rubles or 26.19%, which is explained by the foreign policy situation. In general, foreign trade turnover subject to VAT accounts for insignificant amounts of tax deductions: 3.40% in 2020 (the percentage of the amount in the "Total" line and the total amount of tax deductions from Table 4), 5.09% in 2021 and 3.19% in 2022. In addition, export transactions account for a smaller amount, but a larger amount, which also reduces the risk due to the fewer transactions required for the preparation of invoices.

Figure 2 shows that the largest amounts of non-taxable transactions fall on loans in the financial market, transactions for the gratuitous transfer of residential buildings, the restoration of VAT, attracting deposits, as well as the export of goods. However, the analysis itself does not relate to the topic of this article and is carried out in order to determine the operations that should be paid special attention to when building the concept of an unaccountable form of VAT calculation, which is explained as follows: if for a certain operation the amount of VAT is, for example, one ruble, and for another, for example, one billion rubles, then in case of incorrect filling of the invoice for the first transaction or incorrect calculation of tax by the tax authority for such an operation, the budget will lose one ruble, and in the second case - one billion rubles. Thus, special attention should be paid to the procedure for filling out an invoice for the provision of financial services, the gratuitous transfer of residential buildings, the restoration of VAT, attracting deposits, as well as the export of goods.

Conclusions and further directions of research

Thus, taxpayers during the tax period make up a significant number of invoices, about 70% of which contain transactions taxed at a tax rate of 20%, which reduces the risks of incorrect filling of the invoice, affecting the correctness of the calculation of tax by the tax authority, At the same time, the taxpayer does not have the obligation to accept the invoice (the amount of incoming tax deductible), but has the right to do so. Replacing the right to an obligation will simplify the calculation procedure, but not every invoice can be claimed for deduction, but only if the activity for which the products were purchased under such an invoice is taxable. According to the invoice, it is impossible to determine for which activity products are purchased according to such a document, and adding such a detail - marking to which activity the purchased goods are sent is also impractical and complicates filling out the document, as well as increases the risks of making mistakes. These circumstances indicate a significant variety of types of transactions and features reflected in the VAT declaration. These features complicate the introduction of unaccountable VAT, since it will be difficult to determine, for example, the moment when the invoice will need to be restored and whether the seller is a tax agent or a simple seller. It is possible to eliminate these points by finalizing the invoice. However, adding only additional details will complicate filling out the invoice and increase the risk of making mistakes when filling out, which will lead to incorrect calculation of tax. Therefore, invoices should contain the ability to automatically determine all the features of tax calculation.

A further area of research may be the detailed development of the procedure for drawing up an invoice and calculating VAT by tax authorities, taking into account all the features of Chapter 21 of the Tax Code.