Countries are losing billions in value-added tax (VAT) revenues because of tax fraud and inadequate tax collection systems. The VAT Gap is the difference between what should be collected and what is collected. The VAT Gap is an indicator of the effectiveness of VAT enforcement and compliance measures, as it provides an estimate of revenue loss due to fraud and evasion, tax avoidance, bankruptcies, financial insolvencies as well as miscalculations.
EUROPE
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USA
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INDIA
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UK
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FRANCE
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CANADA
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ARGENTINA
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NETHERLANDS
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AUSTRALIA
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The VAT fraud is the fraudulent use of the VAT rules so as not to repay the tax due to the State or to receive a fictitious claim against the State. Therefore, in order to understand the mechanism of VAT fraud, it is necessary to expose the schemes of such tax. The rules may vary depending on the nature of the operation performed by the subject. There are a number of contributing factors which combine to produce a system where fraud is possible:
It occurs in multi-rate VAT situation where dealers take advantage of multiple rates by
classifying goods carrying higher rates as goods carrying lower rates.
Traders sell goods and services on a domestic market but claim to have sold them on an export market.
Genuine businesses with a turnover above the VAT registration threshold that deliberately do not register for VAT
This involves artifial fragmentation of business into smaller units to keep the turnover below the threshold limit and avoid registration under VAT.
This is the most infamous form of evasion. Here, the unit declares a price that is lower than the actual usually, the tax payer gets into an understanding with receiver
Here refers to European community frauds- where fraudsters for VST, buy goods VAT free from another
Where fraudsters register for VAT, make false claims for repayments and then abscond. This fraud is similar to a missing trader fraud.
Where genuine businesses with legitimate trading activity perpetrate a fraud by understating a portion of their sales or by falsely inflating their claimsfor the VAT on purchases to reduce tax liability
Partial input-tax credit is required to be calculated when tax-paid inputs are either used in a manufacture partly of tax-paid.
This is resorted to whenever there is little scope of undervaluation and where counting or measurement of quantity is prohibitively problematic task.
