RIGA - Tax collections are running behind expectations this year by 0.7 percent, adding to criticism already revealed in the State Controller's report - Tax Specialists 's from within the Latvian SRS (State Revenue Service). The report shows the Service poorly supervising the budget revenues, and unreasonably refusing to return VAT refunds to claimants.
The SC (State Controller) found that the SRS has not provided effective control of over 8,608,000 lats (12.2 million euros) of budget revenues. This has resulted in the state not receiving at least 2,398,000 lats for the budget. Infringements were found after inspecting, randomly, SRS work practices.
Changes to Latvia's tax laws, which were adopted in the beginning of 2009, are not fulfilling expectations.
"The SRS can not be blamed for the government's decision to raise VAT rates," the representative of SRS Communication Department told The Baltic Times.
"Prime Minister Valdis Dombrovskis also admits that it was wrong decision," representative added.
Auditors noticed that the SRS does not provide qualitative supervision. Last year state companies missed tax payments for 2007 of at least 2,295,000 lats.
However, the SRS insists that the SC press release is again exaggerated and SC's conclusions are ungrounded. A conclusion that SRS has poorly supervised the budget revenues cannot be based on imperfections in 13 cases out of several hundred thousand cases. There are no tax administrations in the world that are able to control 100 percent of all tax payers. SRS representative also points out that 97 percent of all VAT refunds have been paid back and that SRS has the legal rights to deny VAT refunds or delay them in cases of criminal investigations, audits etc.
The International Monetary Fund analysts stressed that in times of crisis it is undesirable to implement radical reforms to the SRS. The other countries managed to avoid budget cuts in the tax administration sector, but unfortunately due to the SRS reduced budget, reorganization is inevitable.
In its turn, Ministry of Finance says that reform will cut the expenses and improve tax gathering for the state. This in effect is also modernizing Latvia's tax office structure, bringing it into line with how much of the rest of Europe works. It is also an attempt to restructure the tax code to improve collection effectiveness and make it a fairer and broader based tax system.
From the beginning of this year, the SRS has already cut about 300 employees. After the implementation of all reforms the staff should be reduced by at least 1,200.
In August, the Ministry of Finance indicated the structure of SRS they are willing to achieve. According to the director's assistant of communications department of the Ministry of Finance, Aleksis Jarockis, the structure of the State Revenue Service has been developed by the Ministry of Finance.
"The reorganisation project provides that the General Director of the SRS will have only two deputies. One of them will be responsible for tax areas, and will supervise the main fiscal administration activities, and the other will be responsible for the main customs office activities," said Jarockis.
The reform considers that the administration of tax audit will be conducted in both structures of the SRS. The plan looks to unite the Customs Criminal Board and the Financial Police Department. This point of the reorganisation has undergone rigid criticism from officials. The new department will be under the direct supervision of the General Director of the SRS.
Vladimirs Vaskevics previously headed the Customs Criminal Board at the SRS, in 2008. However, after charges of concealing income, of especially large amounts, the security police, on the request of the anti-corruption bureau (KNAB), blocked Vaskevics' access to state secrets. After repeated loud comments, Vaskevics was then re-appointed, but to the post of Deputy Director of the SRS. The post was specially created for Vaskevics.
Repse remarks "the SRS should work with people with faultless reputations. One of requirements for the chief of the new structure will be a good reputation and knowledge. I am not happy that, in the SRS, there are still those working, whose names appear in various criminal cases," comments Repse.
According to Vaskevics, SRS is against the present plan from the Finance Ministry. "Unification of the Customs Criminal Board and the Financial Police Department, in the conditions of crisis, is favourable to organized crime," Vaskevics said. "Experts at the IMF with whom I communicated and as mentioned in IMF's report were against radical reforms concerning the two mentioned structures," he added.
"The Customs Criminal Board is deeply integrated into the customs system, it cannot be pulled out simply, to be united with the Financial Police Department," Vaskevics insists. "Wrong reforms will weaken the SRS. That is favourable only to criminals," he continues.
The General Director of the SRS, Dzintars Jakans is alarmed about the fact that SRS is the only state institution ever in Latvia, whose structure is decided by politicians not experts.
The next step, after re-structuring the SRS, will be to make changes to the tax code. Changes to come include taxing of capital gains and taxes on dividends for residents. A draft of the law expects to include VAT changes, with a possible progressive tax on income.
