Workshop: Public Institutions’ and CSOs’ Role in Countering Tax Evasion and Fraud

On 18 February 2015 the Center for the Study of Democracy (CSD), in collaboration with the Center for Research and Policy Making (CRPM) organized a workshop dedicated to the public institutions’ and CSOs’ role in countering tax evasion and fraud in Skopje. Dr. Marija Risteska, President of the Center for Research and Policy Making and Ms Ana Mickovska – Raleva, Analyst at CRPM welcomed the participants and presented the initiative for analyzing the trends and manifestations of the hidden economy in Macedonia, financed by the European Instrument for Democracy and Human Rights (EIDHR).

Mr. Ruslan Stefanov, Director of the Economic Program at the Center for the Study of Democracy presented CSD’s experience in monitoring the hidden economy at national and regional level, implemented since 1998. He welcomed the stronger stance that the EU is taking on the issue and underlined that a single country cannot tackle the problem without relying on its partners. Mr. Stefanov stressed that analyzing the hidden economy is important due to three reasons: (a) it shows the overall level of efficiency of the state and the trust between society and the institutions; (b) the hidden economy affects the most vulnerable groups; and (c) not all of the hidden economy is negative and governments should not necessarily target the newly created businesses. In that respect he noted that the transition from control-based to compliance governance is a challenge for all countries in the region.

Ms Slavica Kiroska, Deputy Chief General Inspection, Public Revenue Office (PRO) underlined that the Public Revenue Office is historically perceived as repressive body, however it is currently working on changing its image as public organization providing high quality services and efficient collection of taxes. The Office aims to encourage the voluntary payment of taxes. It started to differentiate between the different types of taxpayers, and to target its measures towards the key risks groups. The Contact Center at the PRO provides information and consultations to taxpayers. The Office also collaborates with the business sector, informs it about the new rules adopted in the legislation, and trains companies to work with the new electronic systems for payment of the taxes. The electronic process has proven to be highly beneficial. It decreases the risk of human errors, saves time for collecting and analyzing tax information and identifies potential fraud risks. According to the available data, the taxes paid voluntarily increased from 77,000 in 2007 to 237,399 in 2013. The adopted electronic system contributed to a large degree for this positive result. At the moment all company taxpayers are connected electronically and similar system is being prepared for the physical persons. Ms Kiroska presented the work of the IT Forensic Laboratory, which performs financial and accounting analysis of the taxpayers, and evaluates the information from the electronic system. She underlined that Macedonia has adopted the reverse charge system aiming to tackle the tax evasion and VAT fraud.  In conclusion she noted that the General Tax Inspectorates prepare annual and monthly control plans, including risk indicators for all types of taxpayers.

Ms Suzana Petrovska, Sector Manager at the Macedonian Financial Police presented the role of the financial police in detecting tax fraud and other forms of crime according to the provisions in the Criminal Code. The Financial Police works in the areas of money laundering, corruption, computer crimes, tax evasion, etc. Financial investigation is implemented every time when there is a criminal investigation in order to discover the source of the illegally obtained funds. The Financial Police can enforce and apply special investigation methods with the approval of the public prosecutor. The public prosecutor is in charge of the pre-trial procedure. Ms Petrovska highlighted that the Financial Police has online access to the real estate and cadaster registers, and most classified registers, which greatly facilitates its work.

Mr. Emil Shurkov, Analyst at the Center for Research and Policy Making presented an analysis of the policies and data from a survey on the hidden economy, tax evasion and fraud in Macedonia. He stressed that these phenomena affect the most vulnerable groups such as the young unemployed, and the poor. The tax evasion is evaluated at 1 trillion Euros in 2013 or 7.9% of the EU-28 GDP. According to the survey, 1/3 of the employed receive “envelope wages”, and more than half of the employed have “contracts with hidden clauses”. A total of 58.6% of the business respondents recommend that more effective incentives for the business are applied in order to decrease the tax evasion and 60% of the companies consider the taxes higher than they should be; 55% of the respondents declare that frequently or sometimes the companies hide their turnover and evade taxes. In 2013, 110 irregularities were detected by the financial police, totaling 11 million Euro in lost revenues. They include tax evasion, falsifying documents, money laundering, destroying business journals, abuse of positions, unlawfully privileging creditors, etc. Mr. Shurkov concluded that there are positive trends observed in the size of the collected taxes, however systematic problems persist such as not issuing of fiscal receipts, VAT manipulation and tax evasion.

Mr. Ruslan Stefanov, Director of the Economic Program at the Center for the Study of Democracy highlighted that a major problem for the business presents the uncertainty of the legislative changes, and the quality of the service provided by the tax administration. He underlined that the administration should be able to check in several weeks if the return of a VAT credit contains fraud risk or not, and proceed with the payments without further delay. The tax rates are not high, however due to the fact that few people pay social securities, the Macedonian tax revenue and financial system is difficult to sustain. He recommended public oversight over the work of the tax authorities ensuring that all fraudulent companies are investigated and there is no political protection.

Ms Daniela Mineva, Research Fellow at the Economic Program of the Center for the Study of Democracy presented the EU initiatives in countering VAT fraud. She noted the need of speeding up the VAT refund process and the need of further increase of the excise duties. She also presented the key conclusions from the EC regular reports for Macedonia, which list as positive developments the use of electronic tax returns, the introduction of the reverse charge system, the changes in the Law on Personal Income Tax aiming at more flexibility, and the intensified inspections.

The discussion focused on the policy options for tackling the hidden economy and tax evasion. The participants underlined the necessity of social dialogue, and intensified collaboration between all stakeholders. Dr. Marija Risteska, President of the Center for Research and Policy Making concluded the discussion with the suggestion for setting up of a task force on countering the hidden economy in Macedonia, which will include the government, the employees’ organizations, trade unions and the CSOs.

Agenda (Adobe PDF, KB)

Presentation by Ms Daniela Mineva, Research Fellow at the Economic Program of the Center for the Study of Democracy on the EU Policies on Tackling Tax Fraud and Tax Evasion (Adobe PDF, 596 KB)
Presentation by Mr. Emil Shurkov, Analyst at the Center for Research and Policy Making on the Dynamics of Tax Evasion in Macedonia (Adobe PDF, 922 KB, in Macedonian)



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