Reverse VAT planned for construction industry

System would prevent tax fraud

Jyrki Katainen

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A system of reverse value-added tax is to be implemented in Finland next year.
      Minister of Finance Jyrki Katainen (Nat. Coalition Party) promised at Parliamentary Question time on Thursday that a bill on the matter would be drawn up early in the year.
      The announcement apparently came as a surprise to MP Jukka Gustafsson (SDP) who had put forward a question on what the government plans to do about the “grey economy”. It was a surprise to the rest of the left opposition, many of whose MPs erupted into spontaneous cheers.
     
Reverse VAT is a model that has long been advocated by the political left, but the construction industry, and Finance Minister Katainen have previously taken a dim view of it.
      Currently VAT is paid by subcontractors, who add it to their bills, and the main contractor can deduct it from the company’s taxes.
      Even if the subcontractor fails to pay the tax, the main contractor can claim the deduction.
      In a reverse VAT system, the main contractor pays the VAT, thus avoiding the danger of tax fraud.
      Officials responsible for fighting corporate crime have been calling for such a model for years.
     
A working group of the Finnish Tax Administration studied the possible impact of a reverse VAT system about three years ago. The group did not reach a consensus, but a majority felt that a reverse VAT would increase tax revenues.
     A minority felt that the yield of the tax might actually decline because of new possibilities for tax fraud.
     Prosecutors in Helsinki have criticised politicians for not moving fast enough on fighting problems linked with illegal labour and fraudulent sale of receipts.
     
The Confederation of Finnish Industry (EK) and the Confederation of Finnish Construction Industries have opposed a reverse VAT, saying that other means should be employed against economic crime.
     The organisations say that the change would deviate from normal VAT, that it would not suit Finland well, and would cause problems in interpretation.


Previously in HS International Edition:
  Recession brings more economic crime to Helsinki (30.3.2009)
  Prosecutors fault politicians for ignoring problem of untaxed work (6.6.2007)

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