Key Features of the Effective Online Fiscal System for Retail Tax Administration

By?Anatoly Gaverdovsky?

Chairperson and Founder, Digital Tax Technologies

How Does the Online Fiscal System Work?

Implementation of online fiscalization?[1]?projects is a complex and challenging task, because they affect not only a considerable number of retail taxpayers, but also their buyers—citizens of the country. Consequently, governments should entail complex efforts to achieve the project’s objectives, including reducing the share of the shadow economy and increasing a tax revenue.

There is one simple fact, to deceive the system and not transfer data to the tax authorities, the seller does not need to be a hacker. All he needs is just not to issue a fiscal receipt or simply not use a cash register.

Therefore, the creation of one centralized system for collecting fiscal data without proper enforcement on issuing valid fiscal receipts does not bring the desired impact. Instead, it may cause an additional burden for bona fide taxpayers who meet the requirements of the law.

The Structure of the Online Fiscal System

The online fiscal system is a complex organizational and a technical initiative, consisting of the following key elements:

• Online cash registers registration and de-registration system. Allows to associate the taxpayer with the?cash register?and set the business address and other details. The address can be either the geographic location of the cash register installation or an internet address for e-commerce businesses. Other details may specify the tax regime, excisable trade, betting activities and other parameters that are important for tax administration.
• A centralized system for receiving and storing fiscal data..
• Analytical system?for calculating taxable revenue based on the fiscal data.
• Public control system?that allows citizens to use a?mobile application for fiscal receipt verification?and filing a complaint if the retailers fail to issue a valid receipt. That application may also support integration and data exchange with popular e-commerce and financial platforms in the country e.g., to provide a consumer with cashback, discounts, and other incentives in exchange for sharing receipts data.
• The field management system for the territorial tax inspectors. It helps to find, map, and describe all existing retail business in the territory to build an actual retail registry. Then the system can verify it against the registration data of retail taxpayers and cash registers.
• An internet search system to monitor online presence and activities of retail taxpayers.. Any business needs of customers and will advertise over the internet. Performing an active search for such activities allows to collect additional data on the retail taxpayers who should use cash registers.
• Electronic communication system to interact with taxpayers. A substantial number of retail taxpayers leads to the sizable number of tax violations. To build a scalable control system it is necessary to digitize all communications with the taxpayers. It will also eliminate dependencies on the human factors and exempts tax inspectors from the mundane activities.

The Role of the Public Control

It is important to understand that the buyer’s motivation to demand a valid fiscal receipt is the basis for the success of the online fiscalization project. Otherwise, it is easy to deceive the tax administration system just by not issuing a fiscal receipt. For the expensive and complex products and services the product return and warranty policies already support the buyer’s motivation to ask for a receipt. Any others will require implementation of other incentives, for example, if the person registers receipts in the tax application:

• Unconditional tax deduction for all fiscal receipts. As an example, a 1% deduction on a purchase can be a great driver for the shoppers to demand receipts for all kinds of goods.
• Deduction for some categories of goods and services, such as medicines or education.
• Participation in the state and private lotteries for the buyers.
• Access to the third-party loyalty programs, cashback, and discounts.

The digital tax administration platform?should supply an open API for connecting third-party applications from the tax ecosystem members. Submitting receipt by the authenticated tax application user confirms the purchase. Ecosystem participants may use this data with consumer consent to deliver personalized cashback, promotions, prizes, and other mechanics, which will drive consumers’ demand.

In addition, buyers can provide tax administrations with the feedback on the retailers’ activities. Like a non-use of cash registers or the failure to present a fiscal receipt.

New Retail Formats

With the development of the Internet, digital platforms, and the growth of digital literacy of the citizens, commerce is also not standing still and is constantly evolving and changing. Whereas in the 1990s the basis of trade was in bricks and mortar stores, standalone or combined into shopping centers, nowadays trade is going online to websites or online aggregators (marketplaces).

With the emergence of the pandemic, the development of the internet commerce has accelerated. During last decade digital online aggregators appeared not only in the e-commerce, but also in the last mile delivery, transportation, real estate, and many other areas, also expanding payments over the internet.

Aggregators are reaching the international level and operate across the globe as non-residents, receiving payments to banks in other countries, which leads to the blurring of the tax base for domestic markets. Online fiscalization projects should support current and future changes in local business environment and commerce formats.

Specifics of Online Fiscalization in eCommerce

Internet commerce has caused the seller to have no physical contact with the buyer. Sales of the digital service conducted over the internet. Physical items delivery requires a third-party logistics company or individuals that have no relations with the seller. The absence of contact between buyer and seller deprives the seller of the ability to issue a paper fiscal check. That leads to the need to issue an electronic check and send it to the buyer’s email address or cell phone number in the form of an electronic message.

Besides, e-commerce solutions are very highly loaded, scalable, and deployed not in retail point of sales, but remote data centers. That requires high performance fiscalization devices without printing capabilities, which should also work in data centers and support thousands of transactions per second.

Online aggregators from the perspective of business and tax authorities function as agents in relation to suppliers (principals). The online fiscalization system must support the issuance of electronic fiscal receipt by an aggregator (agent), but also assign the revenue to the supplier (principal). Accounting for such business scheme requires a special structure of the fiscal check.

The emergence of international aggregators in the country poses a significant threat to the tax revenues of the country, as they can conduct their activities with complete peace of mind from abroad.

That requires the introduction of localization requirements for aggregators, taxation of suppliers that may or may not be local companies and taxation of the aggregator itself, which earns on its commission and apply the proper solutions for fiscal purposes to make financial flows transparent to the tax authorities.

[1]?Fiscalization?— is fiscal law designed to avoid retailer fraud. Countries introduce fiscal law regarding cash registers to control the grey economy by enforcing compulsory reporting of all transaction to the tax authorities. According to fiscal law, an appropriate fiscal receipt must be printed and given to the customer. Source: Definitions.net, URL:?https://www.definitions.net/definition/fiscalization.

Online fiscalization?requires the fiscal data must be submitted to the tax administration either in the real time or within predefined timeframe, e.g., during 24h window.

ABOUT DTT

Digital Tax Technologies?is an international expert in tax gap minimization, a trusted global digital transformation advisor & solution provider for national tax administrations.

We help tax administrations around the world to reduce the tax gap, improve tax revenue collection and reduce the share of the shadow economy.

Our mission is to increase global fiscal transparency, improve tax compliance and administration, and ensuring fair competition and welfare.

Our team consists of experts with experience in digital tax administration advisory and implementation in various European, CIS, Middle East, and African countries.

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