Given the advancement of Information Technology, VAT Recovery automation should have happened in many countries. However, it has not yet happened. Why?
We explore the question in some detail, in this article.
For most of its life, Value Added Tax (VAT) recovery (or VAT refunds, if you like), has been a much involved and paper-intensive process. Of course, it is understood that we deal with Governments, and they have been known to be notoriously bureaucratic. Even today, many of them are steeped in cumbersome paperwork.
Fortunately, we are beginning to see a little light, at the end of the tunnel. European nations see the need to cut across the processes of the past and rapidly move into the 21st century – the age of modern technology.
The good news is that they have given themselves deadlines for the implementation of the process.
Complete Automation Of VAT Recovery
It appears that complete automation of VAT refunds is still some years away. This is simply because refunds are not a top priority for VAT Authorities in most countries.
VAT continues to be the main Fiscal instrument of income for several governments, including some advanced European Union (EU) countries. Obviously, they would rather keep the VAT, than refund it.
Automation of refunds, therefore, has never been priority number one.
Unification of VAT Processes
In the European Union, there has been talk of unification of VAT processes. In other words, make the various VAT rates in all the EU countries uniform. If such uniformity could happen, it would for instance, make VAT applied to Hotel expenses a flat 20% (if such a rate is chosen), in the entire EU.
It makes good Fiscal Policy sense, even though BREXIT, and similar undercurrents in a few other countries, made any unification process more challenging.
Given the various issues, my view is that the unification of VAT in the EU is not going to happen in the very near future.
The Need to Go Paperless – Incentive for VAT Automation
It is common knowledge that many multinational companies have moved or are in the process of moving towards paperless environments. It will not only save trees and the earth’s precious environment but also work towards more efficient intra-company processes.
Many corporates commenced work on the task of going paperless, in the mid-nineties and are today, well into their projects to do so. Governments in the Persian Gulf had also taken the opportunity to learn from others’ inefficiencies and launched their own e-Government schemes in the nineties. They did not want to make the mistakes of bureaucracies the world over.
With these paperless efforts in view, there will be pressure on governments to minimise the paper processes involved as well. It is a matter of time before governments fall in line and automate their taxation processes.
Blazing the Trail
Leadership for the automation of VAT processes and VAT refunds will come from the EU countries. Scandinavian countries and governments are rapidly moving towards automation of many processes. The EU will indeed be ahead of the curve.
Germany has moved the 13th directive (VAT refund involving EU countries to non-EU countries), refund mechanism to an online electronic system. It makes for partial automation of the refund process. Spain has also been actively working on automation and processes that will involve a lot more of automation. Many more countries are expected to follow.
Where does all of this leave companies in paperless environments, wanting to file for, and obtain VAT refunds? The companies’ own internal processes have already allowed for original invoices to be destroyed. They are the very documents that several governments need, to process VAT refunds. They are fundamental to the process.
In some cases like the Scandinavian countries, all is not lost. VAT recovery companies will hopefully be able to talk to them and get them to accept scanned copies of the original invoices. The process however has not been clearly laid out as yet.
In conclusion, the move to VAT recovery automation of processes, including refunds, will eventually have to happen. It will help both governments and companies the world over.
It may take a few years, but governments will implement the required changes within their own convenient timeframes.
More Resources And Information
- Comprehensive information on VAT refund – Coromandel SAS.
- Recover your VAT expenditure in Europe – a blog post on VAT refunds – Coromandel SAS
Updated 16 August 2023 © Mano Chandra Dhas
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