Generalized reverse charge would push VAT collection to over 600,000 economic operators, which can lead to collapse, says an expert in the field

The information published in the public space regarding the generalized reverse taxation as a measure of increasing the budget revenues are incomplete, many of the arguments made in favor of this mechanism being devoid of logic and knowledge regarding the functioning of the tax. Fiscal consultant Mariana Vizoli, associate teacher at ASE and former director in the Ministry of Finance (within the Directorate that elaborates VAT legislation)

“If we take the scenario of generalized reverse taxation, VAT is no longer collected on every link of the transaction chain and if the last link is a company that goes bankrupt, insolvency (frequent cases), the VAT is already lost. By assuming that these companies, before entering insolvency, had deliveries to individuals, NGOs), for which they collected the VAT, but not having liquidity did not pay the VAT to the budget, at the time of insolvency (including those due to the budget) enter the credental table and the vast majority are canceled in the reorganization process, ”explains Mariana Vizoli in an analysis on this topic.

Therefore, she says, the VAT system based on fractional payments has a logical meaning and that is why it replaced the old ICM (tax on the movement of goods), which was collected only on the last link.

This system of fractional payments ensures the collection of VAT from each link on the transaction chain, not only from the final consumer. Another basic principle is VAT deductibility for operators who carry out economic activities and leading to the transaction chain to bear the VAT only for the difference between collected and deductible.

Romania has the experience of 2007 when it applied the reverse taxation to all imports of goods outside the EU.

“At only 6 months old, the customs found that the VAT revenues had dropped drastically due to fraud, and the measure was eliminated. Why were there losses of income? Because the import was not paid, many of the imports being placed on the black market without taxation, since the importance was no longer interested in deducting VAT, because it did not pay it. “VAT from A to Z. Practical guide. 2nd edition”.

This phenomenon would be repeated in the scenario of applying generalized reverse tax.

It continues: “In addition to the fraud, the void of revenues to the state budget is very high, at least in the first months of application. The generalized reverse taxation would push VAT to the retail system. As the state budget is mostly fueled by the payments of the taxpayers from the sales on the B2B relationship, that is, between two economic operators, it would not need a consumer. stabilize until the system would be balanced. “

Currently, about 40% of VAT revenues are powered by the big taxpayers (about 2,000).

According to the analysis, the generalized reverse taxation would involve the renunciation of VAT collection on the sales chain and the dispersion of VAT collection only in the retail system, ie from over 600,000 economic operators, which would lead to collapse. It is impossible to control and would require a huge control device.

“I do not see how they would not lead to the void of income if we suddenly lose the revenues from the big taxpayers on the B2B relationship and we rely on the income collected from the final consumers from 600,000 economic operators. Even if between them there are great taxpayers, let us not forget that there are on the territory of Romania, there are no impressive network,” Vizoli.

The black market is a phenomenon that neither the reverse taxation, but can favor it. I had the example of the imports that have passed on the reverse tax. It favored the black market: the non -payment VAT in the customs was completed, in many cases, with the placement of goods on the black market, without any taxation, neither VAT nor other taxes. This can be confirmed by the customs organs at any time.

I also tried the reverse taxation to bankruptcy/insolvency companies in 2008, and I had a failure, so we have examples.

The most important consequence will be at utility providers

The most important consequence of the generalized reverse tax would be manifested in the suppliers of utility, electricity, gases, water. Companies that do such operations currently receive VAT invoices for purchases, which they decrease from the tax collected.

In this way, the pressure is lower, because the payment VAT is only a difference between the deducted VAT and the collected VAT.

“In the generalized reverse tax system, the big utility distributors would receive invoices without VAT, but would collect VAT in deliveries to the population. And yes, here they would already have a great pressure, there is a high rate of non -attachment of the invoices from the population or delays, which would make these companies finance the VAT from the natural resources. proceed to approx.

For more details, see the analysis.