Sales tax collections is one of the ways a government may generate revenues for the development of the economy and financing of public works. By law, sellers are allowed to collect tax from customers whenever they purchase a product and forward the funds collected to the government. Sales tax is, therefore, a tax paid by the seller to the government for the sales of goods and services thus the amount the seller collects from consumer and pays to the government is the sale tax. If the user pays the tax directly to the government, then that is referred to as use tax. The government may offer exemptions of some goods and services from sales tax. However, some firms do not report all their sales revenue to tax official. Some of the countries with a high prevalence of sales evasion are looked at below.
Sales tax evasion is a criminal offense in Georgia. Business owners face stiff penalties, fines, felony charges, and incarceration if they fail to remit sales tax according to the Tax laws in the country. Before the enactment of the 2006 tax amendment laws, sales tax offenders were charged $300 or a three months imprisonment or both. However, after the amendment, first offenders are fined $5,000 and 12 months in prison while subsequent violation the business owner is charged $10,000 and five year incarceration. The Department of Revenue has facilitated reporting of sales tax fraud by maintaining a tax fraud hotline and a website. Despite all these efforts, firms continue to evade sales tax leading to a significant loss of revenue. 81.4% of firms in Georgia do not fully disclose sales revenue to tax officials.
The Albanian government is currently conducting a countrywide campaign against both informality in business and tax evasion. Sales tax evasion is illegal in Albania as it denies the government an opportunity to generate revenues for economic development. 76% of firms in Albania do not fully disclose their sales revenue to the authority. The government has enacted to law Tax Procedure Bill No. 9920 which aims to fight all tax evasions by increasing penalties to taxpayers. According to the new law, buyers are exempted from paying tax on goods purchased for the transaction in which no official receipt is provided by the seller. The seller is required to display in a conspicuous place this exemption failure to which he is fined 3,600 Euros. Tax audits are also carried out by audit firms and any liability found is penalized.
Tax evasion and the operations of a parallel informal economy have cost Algeria millions of dollars each year. 70.4% of firms in Algeria do not fully report their revenues to the Algeria’s Revenue authority, and so they pay less sales tax or completely evade tax. A committee comprising of tax experts was established by the Algerian Prime Minister to look into tax leakages and make a recommendation on how to reduce the high number of sales tax evasions in the country. Algeria needs to tighten its tax laws to decrease the number of sales tax evasions.
Consequences of Sales Tax Evasion
Sales tax evasion by large numbers of firms can deny governments of opportunities to raise revenues for their budgets. The existence of the black market is also a contributing factor to high sales evasion in most countries. Most countries have increased penalties for businesspersons who fail to reveal their revenues to the authorities as a means of reducing sales tax fraud.
Which Country Has the Highest Rate of Tax Evasion?
Countries with the highest tax evasion rates include Georgia, Albania, Algeria, and Macedonia.
Prevalence Of Sales Tax Evasion Around The Globe
|Rank||Country||Share of Firms Failing to Fully Disclose Sales Revenues to Tax Officials|
|13||Bosnia and Herzegovina||50.5%|
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