Reasonable Heroes Always Take a Detour

In previous articles, we discussed how valuable financial information is for tax administration and how banks resist providing this data on the regular basis.

Looking at international tax systems, we can see just a few countries overcome this barrier. So, what tax authorities can do? Should they petition parliament or the central bank, or organize conferences to exchange experience with their foreign colleagues?

The other way around is to create incentives for taxpayers to provide financial data to tax authorities voluntarily. This requires the creation of proper tax incentives. Then the taxpayer himself will ask the bank to send this information to the tax administration:

• Introduce a tax regime where the tax base is determined on a cash basis rather than on an accrual basis^[1].
• Tax authorities should calculate taxpayers’ liabilities without asking them to fill out and submit a tax return.
• Elimination of the tax return will also eliminate the tax audit, as tax obligations are calculated by the tax authority.
• Include voluntary disclosure of banking information on the criteria for identifying conscientious taxpayers.
• Allow voluntary disclosure of banking information to speed up VAT refunds.

[1] For more information about the cash method: A new approach to digital VAT administration. Anatoly Gaverdovsky. URL: https://taxtech.digital/2022/12/05/virtual-vat-accounts/