The problems at the Tax and Customs Administration pose a threat to the Dutch treasury. The collection of a third of all annual tax revenues, or EUR 100 billion, is ‘high risk’ due to the agency’s shortcomings in both implementation and enforcement of tax legislation.
According to the Tax Authorities, the ‘continuity of tax revenues’ may be ‘endangered’ by the inadequate execution of mass processes, such as the determination of assessments and the collection of receivables (‘execution risk’). Inadequate supervision also poses a risk, as citizens and businesses may end up paying too little tax (‘enforcement risk’).
That appears from internal pieces That NRC obtained after an appeal to the Open Government Act (Woo). It is about the so-called compliance map which the Tax and Customs Administration has drawn up every year since 2020 and which were only known internally until now. In these reports, the service maps out “how sure [we zijn] that the tax revenues structurally enter the treasury,” the service writes.
The most recently published compliance map, from June 2022, shows that the Tax and Customs Administration qualified both risks as “high” for five types of taxes: for sales tax, corporate income tax, income tax, inheritance tax and gift tax, which together account for almost 100 billion euros in revenue . A spokesman for the service says in a response that “inventorying risks is emphatically different” from the question of whether the feared dangers “actually occur”.
The payroll tax and motor vehicle tax (together 164 billion) have implementation weaknesses, while the dividend tax, transfer tax and vehicle purchase tax BPM (together 10.5 billion) have problems with enforcement. Only with two smaller taxes – the insurance tax and the energy tax, which together amount to 10 billion euros – is the risk ‘low’ in both implementation and enforcement.
For the first time, the compliance maps provide more insight into how acute the problems are according to the Tax and Customs Administration itself. Experts from all levels of the service are involved in the development. Their findings go beyond the internal analyzes previously revealed by NRC, which stated that outdated ICT could jeopardize public finances within three years.
Also read this story: The situation at the Tax and Customs Administration is critical
The internal documents show that – apart from the problems with ICT – there are more escalating risks. For example, the complexity of tax law has only increased in recent decades, even with taxes that were previously relatively easy to understand. The service calls that “remarkable”.
Internet sales and crypto
Existing legislation also does not always correspond to the ‘economic reality’. For example, taxing income from internet sales and crypto currencies falls short. In addition, the service has to process large numbers of corrections such as objections, appeals and tax refunds, while there is an increasing staff shortage.
According to the service, these problems have consequences for the ability to collect tax debts. In recent years, the outstanding tax debt of citizens and companies has “increased sharply” to 44 billion euros, according to the documents. This partly concerns tax deferrals granted during corona, but an amount of 25 billion was also outstanding before the outbreak of the pandemic in 2020.
Inquiries with the Ministry of Finance show that this concerns, among other things, ongoing objection procedures (9.5 billion euros) and unpaid claims, which require reminders and other coercive measures (6.5 billion). According to the compliance maps, in both cases there is a risk that the Tax and Customs Administration will definitively miss out on part of this income. In a response, the ministry states that every year 0.6 percent of all taxes turn out to be irrecoverable, which would amount to 2 billion euros for 2023.
In addition, the risks associated with implementation and enforcement also increase billions in uncollected taxes that are simply not ‘seen’ by the tax authorities. This so-called compliance gap mainly exists in small and medium-sized enterprises. In 2023, the service there is estimated to miss out on 4.7 billion euros. Finance emphasizes that this is only 4.3 percent of the total expected revenue, and that tax morale among individuals is even higher (0.4 percent non-compliance).
At the same time as the documents were made public, State Secretary Marnix van Rij (Fiscal Affairs, CDA) sent a letter to the House of Representatives, in which he emphasized that the compliance maps are “just one of the tools” on which to base policy. “The compliance map is therefore not an isolated and all-determining instrument that the Tax and Customs Administration uses to make choices.”
A version of this article also appeared in the newspaper of July 13, 2023.