Hands off VAT!

In the late seventies, the Fiat Strada was advertised as the first car to be: ‘Designed by Computer, Silenced by Laser, Built by Robot.’ A British satirical magazine at the time added, alongside a picture of a totalled Strada: ‘Driven by Italians.’

Welcome to the latest proposal from the Israeli Tax Authority masquerading as the Israeli Government.

Following the entry to office of the new coalition, the last few weeks have seen the publication of multiple proposed amendments to the tax laws. One day last week, in a classic example of ‘The Lord giveth, and the Lord taketh away’, there were two very different proposals. One was an indisputably wonderful suggestion to reduce bureaucracy on freelancers making less than around NIS 100,000 per year, by adding to their existing exemption from VAT registration relief from filing a tax return (assuming they had no other reason to file one); expenses of 20% of income would be assumed, data would be entered in the tax authority’s system for working out the liability of individuals employed simultaneously by more than one employer, and Bob’s-Your-Uncle (an appropriate expression in this country, as Lord Bob Salisbury’s nephew was Arthur Balfour of Declaration fame.) The other involved we, the rest of the commercial taxpaying public, being presented with another noble, but considerably less indisputably wonderful, proposal to streamline our VAT reporting.

VAT is a very efficient tax. It is easily administered and easily changed. As a regressive tax it is also entirely unfair, placing an unfair burden on the all-consuming poor, but since when did that bother any 21st-century western government? Being easy to administer, it is also easy to fiddle – and not every fiddle is as elaborate as the mobile phone carousel frauds that have plagued the EU this century, or the transformation of gold coins into gold bullion that drove the British courts to distraction around the time Fiat Stradas were breaking down the length and breadth of the United Kingdom. Despite elaborate bookkeeping requirements, almost every day there are reports of criminal court cases in Israel involving the simple issue of invoices for work done that are never reported, and expense invoices forged by those reclaiming VAT.

Enter the proposed legislation. While it undoubtedly makes life more interesting for tax inspectors to uncover fraud, those who make the big decisions are mature enough to prefer to prevent the naughtiness in the first place and leave the potential crooks to live in poverty and peace. So, somebody came up with the idea of requiring that invoices over NIS 5000, which the recipient seeks to reclaim the VAT thereon, carry a unique number issued by the authorities. It will, therefore, be necessary for suppliers to apply online to the tax authorities for a number before issuing each invoice. Should the authorities refuse, there is a process for appeal, and in some circumstances it will even be possible – at the discretion of the authorities – for the recipient to issue a self-assessment invoice both paying and reclaiming (a zero sum game) VAT, while the service provider issues their invoice without VAT.

Call me a pessimist, but I can’t get out of my head the vision of a Fiat Strada driving around the Colosseum in Rome waiting to collide with Cary Grant and Audrey Hepburn riding a  Lambretta. If there were a genuine chance that this system would work automatically for the 95% of registered VAT dealers who are serial law abiders (entering details on a website and receiving a number immediately), I would be all for it. However, there is too much text in the proposal pointing towards too much human intervention – Chekhov’s pistol appearing in the first act, undoubtedly to be fired in the second.

Efficient and fast invoicing is fundamental to a working economy. Whatever the motive, bureaucrats must not be allowed to interfere with this process. I hope and pray I am proven wrong, but – with all the goodwill in the world – this is a recipe for a mangled mess. A Fiat Strada up a lamppost. No thanks.