RiR 2006:10 Summary Excise duty control - mostly advertising Summary Introduction Excise duties are special sales taxes on specific goods and services, such as energy, alcohol, tobacco and advertising. Not only do the excise duties provide a means whereby the state can influence patterns of consumption and production, they also represent an important source of income to the state. The income that the state receives from excise duties amounts to approx. 7 % of total tax income in Sweden. . In recent years the excise duties have brought in between SEK 85 000 and 90 000 m annually. Energy tax, alcohol tax and tobacco tax are the excise duties of most importance to the government’s finances. In 2004, energy tax accounted for around SEK 65 000 m of the total revenue from excise duties. In addition the energy taxes are legally complicated. They were followed by alcohol tax and tobacco tax, contributing approx. SEK 10 000 m and 8 000 m respectively to total excise duty revenue. Other excise duties are therefore of very modest importance to the national budget. For example advertising tax accounted in 2004 for about SEK 1 000 m of total excise duty revenue. The number of taxpayers in the excise duty field is relatively small relative to other tax areas. In 2004 those registered as liable for tax totalled approx. 8 000 businesses, roughly half of them being registered for advertising tax. The Riksdag and the Government require taxes and charges to be secured in a legal and financially efficient manner at the same time as simplicity is to be sought and criminality prevented. Compliance checks, which are one of the Tax Agency’s instruments for ensuring attainment of the goals of the Riksdag and the Government, are intended to prevent and remedy errors and fraud so that the state receives the expected revenue. The Swedish National Audit Office (SNAO) notes that the Government has not pronounced specifically on the purposes and nature of excise duty control. Instead the Government issues general directives on the nature of general tax control. These directives are to some extent contradictory. The Government has not set targets with regard to giving priority to large companies, international transactions and economic crime in the Tax Agency’s appropriations directive. These targets have been stated by the Riksdag and the Government in committee reports and budget bills. In the excise duty area there are a number of companies with very large tax bases for taxes of major budgetary importance. The SNAO therefore considers that the Government ought to have specified precisely the policy towards major companies in the Tax Agency appropriation directive. In the context of the Government’s general goals for tax compliance the Tax Agency should on its own account set goals capable of being monitored and decide how feedback on these can be achieved. The Tax Agency has not given any specific information on excise duty control in its annual report since 2003. The SNAO recommends the Government to formulate goals for checking tax compliance in the Tax Agency’s appropriations directive consistent with the recommendations of committee reports and budget bills. In addition the Government ought regularly to request feedback from the Tax Agency and supply information to the Riksdag on the development and result of excise duty controls. The overall question in the SNAO´s audit is whether the Tax Agency is carrying out excise duty control in a manner sufficiently effective to keep the risk of major loss of tax revenue to a minimum. The SNAO notes that the Tax Agency has not reported any strategy clearly focused on excise duty control. Moreover the National Tax Agency lacks knowledge of the size of the “tax gap” (the difference between the assessed amounts of tax and the tax that it is possible to charge according to fiscal law) in the excise duty field. The National Audit Office also notes that the National Tax Agency’s monitoring of excise duty control is inadequate. Limitations and shortcomings in the Tax Agency’s present IT support for excise duties result in that the outcome of the extended form of checking known as “desk check” cannot be reliably assessed. The monitoring of excise duty audits also shows failings. The failings in the Tax Agency’s monitoring of excise duty control mean that the authority lacks appropriate information for determining priorities. The SNAO does not consider the Tax Agency’s internal management of excise duty control suitable for its purpose. This gives rise to a risk that the Tax Agency is not carrying out its excise duty control effectively. This means that the Tax Agency is not reducing the risk of major loss of tax revenue in the excise duty area. The SNAO therefore recommends the National Tax Agency to devise a coherent and clearly focused strategy for excise duty control. As a basis for such a strategy the Tax Agency should prepare current calculations of the size of the tax gap in the field of excise duties. The Tax Agency ought also to compile reliable total statistics from the data from its checking of each specific excise duty. The National Audit Office also recommends the Tax Agency to supply the excise duty control function with practical IT systems for case processing, risk analyses and monitoring and also to improve its time accounting. The SNAO also queries the efficiency of the Tax Agency’s organization of excise duty control. Responsibility is at present divided between the Large Companies Tax Office’s Ludvika unit (the Excise Duty Office) and the audit units in Stockholm, Gothenburg and Malmö. These units are unable to choose between desk checks and tax audit as forms of control, which reduces the flexibility of the control. It has also emerged that 41% of the Excise Duty Office’s recommendations of tax audits do not lead to a tax audit at all. The SNAO therefore recommends the Tax Agency to create forms of work that permit the use of the most practical form of control. Furthermore the Tax Agency ought to improve coordination between the units within the authority that work with excise duty control. The SNAO also questions the actual priorities chosen by the Tax Agency for audit work in the excise duty field. This is because the authority has attached comparatively great importance to the control of advertising tax and little to the control of energy tax. Bearing in mind the fact that in the case of, for example, energy tax large companies account for more than 90 % of the total excise duty collected, the SNAO believes that there is a risk that the Government’s large income flows in the excise duty area are not being adequately checked. It has also emerged in the course of the audit that the proportion of tax audits that do not lead to proposals for tax amendments (zero audits) is higher in the excise duty field than in other tax areas. The SNAO considers that the high proportion of zero audits indicates an inefficient use of the Tax Agency’s most ponderous and resource-demanding form of compliance check. The SNAO recommends the Tax Agency in its planning and selection processes in the excise duty field to place greater emphasis on taxpayers who handle large tax bases with regard to excise duties of importance to state finances where legislation is complicated. The Tax Agency should also attach greater importance to risk analyses and systematic planning generally. For an efficient use of resources the authority should also investigate the causes of the high proportion of zero audits in the excise duty area.
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