Value added tax is an indirect tax, which means that it is paid indirectly by being included in the prices of goods and services. It is regulated by Act No 222/2004 Coll. on value added tax, as amended (hereinafter referred to as the 'VAT Act').
The tax payer and the entity that actually pays the tax are two different persons. This is because the entity that collects and remits the tax is a natural or legal person (entrepreneur - tax payer) and the entity that actually pays the tax is the final consumer, who pays it already included in the price of the goods or services.
In the case of a domestic VAT payer, the principle of operation is as follows:
1. A VAT payer who purchases various goods or services with a view to resale or use for production from another VAT payer can deduct the VAT as it is already included in the price of the goods or services he purchases. This is called input VAT and can be reclaimed from the tax office.
2. A VAT payer who subsequently sells the outputs of a business (goods or services) receives from customers the price of the goods or services including VAT. This is called output VAT and this tax must be paid by the business (taxable person) to the tax authorities.
Two situations can arise for a business:
1. Over-deduction - occurs when the input VAT is higher than the output VAT. However, it does not have to be refunded to the entrepreneur immediately, as he may incur a tax liability in the next tax period. If it does not, the excess deduction is refunded to the entrepreneur within 30 days of filing the tax return.
2. Tax liability - arises if the input VAT is lower than the output VAT. In this case, the entrepreneur is obliged to pay the tax liability by the deadline for filing the tax return.
VAT payer
Registration as a VAT payer must be made by any person who is a domestic taxable person under Section 4(1) of the VAT Act and who has achieved a turnover of more than €49,790 (inclusive) during the last 12 consecutive months at most. However, some goods and services are not included in the supply and therefore cannot be counted in the turnover.
VAT registration can also be done on a voluntary basis. In this case, it is carried out by those entrepreneurs for whom it is advantageous, for example, because of the purchase of property and trading only with entrepreneurs who are also VAT-registered.
The emergence of tax evasion and avoidance
The most frequently investigated tax fraud and evasion are cases where a business is suspected of not declaring its income or revenue. This situation may arise in the case of failure to issue an invoice or receipt from e-Kasa despite receipt of money. Thus, although the customer has paid the VAT by purchasing the goods/services, the business has not remitted the VAT to the government.
For this reason, e-Kasa was created, i.e. the on-line connection of electronic cash registers, which transmit all information directly to the Tax Administration at the moment of purchase.
The second problem that the Tax Administration is dealing with is the deduction of input VAT. Here, tax evasion occurs from fictitious documents or documents that are not related to the business activity at all.
Some of the most notorious VAT fraudulent activities are so-called carousel frauds, also known as carousel frauds. These are value added tax evasions which are known not only in Slovakia but also abroad. Their essence lies in trading within the European Union, losing and at the same time claiming excessive VAT deductions from the tax authorities, and in the absence of a (fictitious) trader.
Tax administration vs. tax evasion
The tax administration has introduced several measures to combat tax evasion. One of them is the aforementioned e-Kasa, but there are others as well:
- The "blacklist" - this is a list of VAT payers who have already had their VAT registration revoked, for example for repeated failure to file a tax return or to pay the tax due,
- Control statement - a statement used to record the necessary information from documents used for deducting or applying VAT (e.g. VAT number, document number, etc.),
- Domestic self-assessment - this consists in transferring the tax liability to the customer when the goods are supplied,
- VAT guarantee - this is the customer's liability for unpaid output tax at the supplier's outlet, if the customer knew/should have known that the supplier would not pay the tax due. Thus, if the supplier fails to pay the VAT, the obligation to pay the VAT falls on the customer;
- Anti-fraud groups and others.
However, despite various measures taken by the Tax Administration, tax evasion is still high. On the positive side, however, the trend is downwards. The most risky sectors are agriculture, accommodation and food services, industry and wholesale and retail trade.