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Tax hikes may lead to increased fraud

Tuesday 4 January 2011 - by Nicola York

Switzerland, Portugal and Poland are among the nine countries that have approved VAT rises to come into force this week.

Industry commentators say that fragile consumer confidence could be hit by the rises which are likely to add 1 to 2 per cent onto inflation rates and could even lead to increased VAT fraud.

Nine countries, mainly in the European Union, have hiked VAT rates including the UK, Slovakia and Israel.

Switzerland's rates are rising from 7.6 per cent to 8 per cent while Portugal's are rising from 21 per cent to 23 per cent.

One of the conditions of the ECB-led bailout of Ireland was that it hike VAT from 21 per cent to 23 per cent over the next three years.


The maximum VAT rate allowable under EU rules is 25 per cent.

Richard Asquith, head of VAT at compliance firm TMF Group, says: "International governments had been plotting for many years to raise indirect taxes such as VAT to subsidise cuts to job-creating business taxes such as corporation tax and employee taxes.

"The current economic storm has pushed this ambition upfront. We can expect more increases in 2011 as more countries come under financing pressure.

"Another risk will come from the likely increase in VAT fraud, which has dogged the EU VAT system in the past five years, costing billions. These new increases will mean potential higher gains for fraudsters."


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