30.08.2022
According to a report published this week by the State Audit Office, a series of loopholes and shortcomings in the way the rules are applied has caused millions of euros in tax collection to be delayed.
The service conducted an audit on a sample of collection and payment transactions of the tax department. The sample was selected using a specific methodology in the context of an audit aimed at forming an official opinion on the financial statements of the Republic of Cyprus. In addition, a compliance check was carried out.
According to the report, the total amount of overdue direct and indirect taxes as of December 31, 2020, including interest and fees, is 2.34 billion euros (2.21 billion euros as of December 31, 2019), of which the amount is 1.83 billion euros (EUR 1.62 billion in 2019) refers to direct taxes.
At the same time, the amount of 510.57 million euros (594.3 million euros in 2019) relates to indirect taxes, including VAT. These amounts have not yet been confirmed by the audit service.
In connection with the foregoing, the report states that, according to the Office of Debt Management, as well as the Office of the Attorney’s Office of the Department of Taxes, between November 2014 and December 2020, the Department registered collateral in relation to debts totaling 593.1 million euros, but recovered B total 319 million euros.
In addition, between April 2015 and December 2020, the department set aside €4.18 million in savings in a bank account for unpaid taxes, preventing the account holder from withdrawing or otherwise using this amount, and collected a total of €1.39 million .
The Audit Office criticized the department for the small amount of allocated savings, noting that this reflects “the complete inability and / or unwillingness of the Internal Revenue Service to use the tool provided to it by the state.”
In 2020, total direct tax receivables and arrears, excluding interest and fees, were reported to the Audit Service by the Tax Department at EUR 1.22 billion , compared to EUR 1.06 billion in 2019. This represents an increase of 164.4 euros. million or 15.5%.
Among the most important findings of the Audit Service is an administrative court that canceled the appointment of a tax commissioner, as well as assistant tax commissioners, which could have serious financial consequences for the state.
However, it should be noted that a tax commissioner has since been appointed and the position was filled on July 1, 2022.
An additional finding was the accumulation of overdue tax revenues in excess of 2 billion euros.
In this regard, the Audit Service recommended that the Tax Department use all the tools at its disposal, including the relevant measures taken in 2014, to more effectively limit the amount of unpaid taxes.
Moreover, the Audit Service also noted the total amount of taxes subject to appeal. The Service recommended that old objections be dealt with as soon as possible and that any new objections be dealt with without delay.
The Service also found that individuals and entities failed to file their tax returns for a number of years without being charged additional taxes by the department based on the Treasurer’s decision, resulting in a loss of revenue for the state.
The Audit Service recommended that the agency request the submission of tax returns for all years and impose appropriate taxes and penalties in accordance with the law.
Another discovery was taxpayers who do not declare all or part of their income, which leads to a significant loss of income for the state. The audit service recommended that a tax investigation be carried out and that the necessary taxes be collected in accordance with the law.
The report also identified cases where companies declared a specific turnover for indirect tax purposes, but either did not declare the amount of turnover or declared a large amount of turnover for direct taxation.
The service offered to investigate all specific cases and levy taxes if necessary. The service also recommended that the tax department use the information it has and regularly compare VAT and income tax information to increase its ability to collect taxes and minimize tax evasion.
The report also cites employees in the public and broader public sector who own shares or hold director or secretary positions in private companies without proper authorization.
The Audit Service recommended that the Department ensure full compliance with relevant laws and regulations, and that those who violate them are subject to the prescribed sanctions and fines.
In addition, the service also identified internal offsets of large amounts of VAT without conducting on-site and desk audits.
It has been suggested that the Internal Revenue Service intensify its field visits in cases where taxpayers submit claims for VAT refunds and credits in combination with other types of audits.
Finally, the service stated a low level of inspection visits to the premises of persons registered in the Register of VAT payers.
The Audit Office has suggested that the department increase the number of visits to taxpayer properties to prevent tax evasion, protect government revenue, increase tax awareness, and improve compliance with related legislation.
