A recent report issued by the European Parliament highlights the administrative challenge and cost of VAT compliance. As the report by the European Parliamentary Research Service points out: “European Commission surveys constantly report that the current EU tax system and in particular VAT is one of the main administrative challenges for businesses, both in terms of its complexity and in terms of the burden of compliance that it imposes.”
As the report notes, VAT compliance is particularly challenging for SME’s. Smaller businesses “often lack internal expertise to deal with all the detailed tax requirements involved with doing cross-border trade.”
Moreover the report notes that some EU Member States have “an excessively costly and heavy multi-layered administrative system” in place.
The report underscores the need to streamline VAT regulations and bureaucracy.
The disproportionate burden of VAT compliance
The report notes that while tax compliance in general is administratively intensive, VAT compliance can be especially burdensome. For example, research indicates that “VAT data collection costs represent 57% of tax compliance costs on average, against 44% for corporate income tax.”
VAT recovery: slow compliance and refund times
In addition to meeting VAT compliance obligations, the VAT recovery process is also administratively intensive and time-consuming. Analysing World Bank Data, the report found that in 2020 it took over nine hours for the average EU business to comply with VAT refund requirements. It takes over 17 weeks on average to obtain a refund.
VAT compliance for the 21st century
As the Parliamentary Report points out, lawmakers can ease the administrative burden on SMEs by simplifying VAT compliance regulations.
At the same time, advances in VAT compliance technology makes it simpler and more cost-effective for small and medium businesses to meet complex VAT rules.
For example, a UK government survey found that the new Making Tax Digital electronic VAT compliance requirements actually reduces the time businesses spend managing VAT. However, there’s an important caveat. MTD is only beneficial if companies have the appropriate VAT compliance technology in place.
Making VAT compliance easier for all businesses
Vatglobal’s powerful VAT technology makes meeting your VAT compliance obligations simpler, faster and easier for any business. Our suite of digital tools lets you manage VAT compliance more efficiently and affordably, everywhere you have VAT obligations.
Get in touch with Vatglobal to find out how your business can cut the cost of VAT compliance.