Goals and Methods of Implementing Online Fiscalization Projects for B2C

Advantages and Risks of Online Fiscalization Projects

Many governments think about implementing online fiscalization systems for regulating B2C taxpayers. [1] It is difficult to control the retail sales of products and services to consumers in terms of taxation. The tax administration of B2C segments is extremely difficult because there are many cash payments, numerous objects of control, and an enormous number of transactions. At the same time, small and medium-sized businesses contribute significantly to the economy and to the state’s tax collection.

Implementation of online fiscalization systems is a helpful solution for the country, as it not only leads to increased tax collection but also reduces the share of shadow economy and creates fair competition for retail business.

But this implies that all retail taxpayers in the country will have to register all their sales and use certified fiscal devices, the so-called Online Electronic Cash Registers (OECRs).

This means a taxpayer will incur costs of cash registers, expendable materials (tapes), utilities, and services for its installation and maintenance. If take an exaggerated example, the state requires a citizen to install a video camera in his house at his expense, to pay for its use and provide access to online broadcasting for representatives of the state.

That is why online fiscalization projects are facing significant resistance from business, and especially from micro and small companies. Very often, implementing of such projects leads to significant political risks for the tax administration and the country’s leadership.

The government should achieve two key goals to implement an online fiscalization project successfully and with controlled risks:

• Reduce the cost of the system or create a sense of reduced cost to the taxpayer.
• Create new value for the taxpayer from the use of the collected fiscal data.

Lowering Taxpayer’s Costs

To reduce the cost of the fiscalization system for the taxpayer, it is reasonable to use the devices that he already has. For example, cell phones or desktop computers can work as fiscal equipment instead of using specialized devices. It is also possible to use integrated devices with terminals that accept payment cards, thus reducing the overall cost for taxpayers. Use of virtual or cloud cash registers accessed via cell phone or Internet-browser also allows to cut costs.

The tax administration can put a strong focus on promoting the use of electronic receipts while renouncing paper receipts. It disregards receipt printing equipment and supplies that account for a sizeable portion of the cost of owner-ship for taxpayers. Competition among vendors of retail equipment and software also helps to reduce the cost of ownership for fiscalization devices and end-user processes.

Value to the Taxpayer

It is essential to design the online fiscalization system so that it creates value for taxpayers. Tax administration can achieve that by integrating tax IT systems with commercial products supplied by its partners. Examples of such systems include:

• Inventory, warehouse, retail, and accounting management systems integrated with online cash registers.
• Systems for automatic ordering and stock replenishment based on sales analytics and real time data.Price management systems, which monitor retail prices in the given geographical location and automatically adjust prices to consider competition.
• Analytical systems and reporting on prices and consumption volumes.

Online fiscalization also enables the exchange of sales information and receiving payments for providing access to that information.

Methods to Mitigate Implementation Risks

The standard implementation model separates the government’s costs for the implementation of a centralized system of fiscalization and the taxpayer’s costs for the purchase of online cash registers, its integration and subsequent maintenance. The state usually covers own costs from the budget or uses the assistance from international institutions (the World Bank, the International Monetary Fund) or other states. Taxpayers must bear the costs of implementation of online cash registers on their own.

As an additional incentive, the government may introduce a tax deduction to compensate for the implementation costs to taxpayers. For example, several countries that have implemented online fiscalization systems have also introduced a deduction for micro-businesses. Other methods involve equipping taxpayers with online cash registers free of charge, but recovering investments in the state’s fiscalization system, for example, via monthly access fees paid by taxpayers. All these methods work well within the framework of public-private partnerships or concessions, depending on the legislation of the country.

DTT provides services for the analysis of the taxpayers’ environment, the current level of automation, the calculation of the economic feasibility of implementation, and the description of risk mitigation methods when implementing online fiscalization systems.

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[1] The term “Business to Consumer,” or “B2C,” refers to a type of commercial transaction in which companies offer goods or services directly to consumers.