​The working group at the Ministry of Finance has prepared amendments to the VAT-related risks assessments addressing the problems of business

The working group at the Ministry of Finance has prepared amendments to the VAT-related risks assessment aimed to increase its efficiency and speed of operation as well as to address the challenges business is facing due to gaps in its implementation.

The Ministry of Finance openly cooperates with business community and experts to solve the problems which diligent businesses are facing and, at the same time, to prevent tax fraud which results in losses to the state budget. The system for the assessment of VAT-related risks was launched to disrupt existing possibilities for non-diligent VAT-payers to evade taxation. The system is also an integral part of the system for automated VAT-refund. The Ministry of Finance deems it inappropriate to terminate the systems, since it would result in the resumption of the third-party liability, additional tax checks and cancellation of the tax credit for companies.

The expert group at the Ministry of Finance which also engages representatives of business associations has conducted a thorough analysis of real cases when the registration of tax bills was suspended and detected 6 key problems affecting business due to existing system implementation gaps. Following that, a draft law and a draft decree of the Ministry of Finance were prepared aimed to solve these problems. These draft regulations offer the following:

• To reduce the number of cases when the registration of tax bills submitted by companies from the real sector of the economy is suspended, the so-called “cut-off” criterion shall be stipulated – tax burden at the level of 2%-3% (instead of the current 5%);
• The senior official of the Main Department of the State Fiscal Service will be entitled to resume the registration of tax bills at their discretion within 24 hours after the suspension of the registration. Doing so, they shall respect the criteria meant to identify “real transactions” based on information already available in the SFS databases. Thus, these officials will be enabled to resume the registration of tax bills submitted by companies from the real sector of the economy which were suspended by mistake. At the same time, this regulation only has limited corruption risks, because the right to unblock tax bills within 24 hours without demanding additional paperwork does not create pressure on business;
• The SFS will be entitled to request additional paperwork with a mandatory remark which exactly document the SFS commission is missing to make the final decision. This regulation is aimed to settle cases when the SFS refuses to resume the registration of tax bills due to the incomplete paperwork presented by taxpayers; taxpayers who were denied the registration of their tax bills in the first months of the system operation and who disputed that in the administrative or court procedure will be able to re-apply to the SFS commission to check the previously submitted documents; the receipt form will contain information about the documents which are recommended to be submitted to the commission for each type of transaction, which will help reduce the number of mistakes;
• The SFS shall receive the right to change the risk criteria upon a mandatory agreement with the Ministry of Finance. This will speed up the implementation of the amendments to the system.

The Ministry of Finance and the SFS jointly monitor the operation of the risk assessment system on a permanent basis and make necessary changes to address possible defects in its operation. 

As previously reported, the Ministry has already implemented the following steps jointly with the SFS:
1) the respective regulations were changed to solve problems of agricultural companies through the automatic registration of their process cards:
• Possible problems for diligent taxpayers whose tax burden is higher than 2% were prevented through the automatic registration of their process cards;
• Process cards can now be submitted by taxpayers prior to the suspension of the registration of their tax bills to prevent suspension in the future;
• Criteria were changed to disrupt manipulations with risk factors and manipulations with corrective calculations and preferential transactions as well as to prevent fake VAT credit.
2) draft law No. 7240 was submitted introducing the principle of “silent consent’ – tax bills shall be registered automatically, if the tax authority fails to examine them within 5 days;
3) the personnel of the SFS Central Office was increased by 150 persons to ensure the timely processing of requests and complaints regarding the suspended registration of tax bills;
4) checks were initiated to investigate possible abuse of office by SFS employees which resulted in a fake VAT credit.

The Ministry of Finance also stresses that it is crucial to create an analytical financial investigation service to be able to tackle economic crimes, including VAT manipulations, more effectively. This will be a strategic step for the country helping improve the business climate and fostering economic development.