The VAT Challenges

Costs of VAT collection outweighs the value of VAT Collected! Successful VAT collection remains elusive because traditional methods are still being used for collection in today’s complex world of commercial transactions and sophisticated products. Tax compliance costs have been a concern for centuries. There are many common challenges in taxation in every country:

A. Administrative (or ‘enforcement’) public sector costs
  1. Budgetary costs of revenue department(s)
  2. Costs incurred by other departments in providing information
  3. Judiciary and other costs related to dispute resolution
  4. Interest costs (of ‘loans’ extended by legal lags in collection)
B. Compliance costs incurred by private sector
  1. Direct costs incurred by taxpayers or ‘taxpayer costs’(time, labour cost, expert advice, other)
    • in complying with legal obligations (“involuntary” or unavoidable costs)
    • in tax planning and attempting to evade (“voluntary” or avoidable costs)
    • psychic costs (stress, anxiety, frustration)
  2. Costs incurred by third parties (information providers, voluntary helpers)

Compliance & administrative costs

Excessive legal reporting obligations due to fixes of an outdated VAT system. The costs of VAT compliance are a major administrative burden for businesses

Stress & frustration

Taxpayers suffer stress, anxiety and frustration as a result of attempting to comply with their tax obligations.

Efficiency costs

Efficiency costs (variously referred to as deadweight losses or excess burden), involving tax-induced market distortions.

Operating costs

The costs to the government (ultimately borne by taxpayers) of administering and collecting the taxes (usually referred to as “administrative costs”)