Uncovering Higher Revenues and Piling Up of Overdue Taxes in Audit Office's Report on the Tax Department
In a recent report, the Audit Office has highlighted a concerning issue of tax arrears totaling €3.1 billion, with approximately €1.4 billion at risk of not being collected [1]. The report, titled "Audit of the Tax Department," points to delays and insufficiencies in enforcement and auditing by the Tax Department as the primary reasons for the accumulation of unpaid taxes [1].
The report underscores the importance of timely and effective collection measures, emphasising the need for substantial audits of companies with tax debts that have been neglected [1]. This move aims to reduce the accumulation of unpaid taxes and enhance the department’s ability to secure owed revenues before they become irrecoverable.
One of the key areas of concern identified by the Audit Office is the lack of reconciliation mechanisms between various subsystems and the main accounting system (FIMAS), leading to incomplete or inaccurate revenue confirmation, especially concerning VAT [1]. The report also highlights inadequate tracking of VAT collections on behalf of other countries.
Furthermore, the report points out accounting errors such as misclassification of €4.3 million as income, which contributed to complications in revenue accounting [1]. The Auditor General also underscores the importance of citizens' submitted complaints in combating tax evasion.
The reduction of outstanding taxes contributed to a sharp rise in state income from €4.6 billion in 2021 to €6.9 billion in 2024. However, this increase was achieved without substantial audits or income reassessments [1]. The report also indicates that the imposition of taxes outside the legal time frame for reassessment by the Tax Commissioner indicates underutilization of available legal tools.
The Audit Office's review focused on the accurate presentation of the state's financial statements and the Department's compliance with legislation. The report finds that there were delays in remitting amounts concerning third parties (e.g., OSS, GHS), with no corresponding clarifications in the financial statements [1]. The Department has also failed to detect and monitor non-submission of income tax returns by individuals and legal entities for multiple tax years.
Despite these findings, the Auditor General, Andreas Papaconstantinou, commends the Tax Commissioner for their constructive stance on providing information and investigating cases raised by the Audit Office [1]. The report concludes that strengthening audit activities and improving the timing and effectiveness of collection efforts are crucial steps towards addressing the issue of significant tax arrears.
[1] Audit Office Report, "Audit of the Tax Department," 2023.
- The report suggests the necessity for substantial audits of companies with tax debts, as delays in collection attempts may lead to irrecoverable losses, hindering the development of the economy.
- The EU, on reviewing the state's financial statements, found inadequate tracking of Value Added Tax (VAT) collections on behalf of other countries, which is a matter of concern in international finance and business.
- To improve the department's ability to collect taxes efficiently and accurately, addressing accounting errors, such as misclassification of income and development of reconciliation mechanisms, between various subsystems and the main accounting system (FIMAS), is essential.
