ISSUE: Non-compliance with tax rule and VAT

NON-COMPLIANCE: Non-compliance may not result in "additional tax." The law, rules, regulation, or any of such codification laid by the state may only impose penalty. The penalty is generally stated as a fixed amount or as a percentage of the amount owed. The law or rules cannot say "for any failure to comply with 10% VAT, the violator must pay an additional 5% as VAT." This type of provision shows that the state exceeds its scope of power. The law may say, on the other hand, "for any failure to pay 10% VAT, the violator shall pay 50% penalty of the amount owed." In fact, this is how the various states in the US has in practice (for those having VAT, i.e. sales tax).

FUNCTION OF TAX: The main function of tax is to raise revenue for the state. For that reason, the power to levy tax is a sovereign power and should not be transferred or delegated. However, VAT is an exception to this rule because VAT is collected by sellers/merchants and remit that tax to the state. For sellers this is both accepting responsibilities as well as securing a new privilege. Accepting new responsibility because the money collected must be remitted to the state as a tax revenue. New privilege because a non-state entity can exercise sovereign power.

   Assume now that the sellers collected VAT but fails to remit to the state. Can the state impose addition tax on the seller? No. There is no legal basis for such an action. or such failure, the seller may be prosecuted criminally and civilly and be force to pay damages and penalty, i.e. VAT collected (under restitution), interest that could have earned during the period of non-remittance (opportunity cost), and penalty (reformation of conduct & deterrence for others not to follow) or revocation of the privilege or license to collect VAT or license to operate business.

INTENTIONAL VIOLATION WITH NO PENALTY: Sellers with the duty to remit VAT but failed to do so---sometimes get away with the violation. The state may find out of the violation only through an audit process. Sellers population with the duty to collect VAT undergoes routine audit sampling. In the US, for instance, the window of time frame for audit is 5 years. If the seller collects VAT for 7 years without remitting, the government can force the remittance only 5 years back. The seller would pocket the 2 years as "extra revenue." This is seen as a fair exchange. On one hand the 5 years window limitation serves as a guard against government abuse of power. On the other hand it also forces the government to be vigilant in tracking "those to whom it had delegated its sovereign power." By not being adequately vigilant it must forego that loss of revenue for 2 years from "that seller."

PENALTY FOR NON-COMPLIANCE: There is no additional tax for non-compliance. Only penalty is allowed. If there is a penalty, the penalty must clearly stated in the law. The law of each jurisdiction may be different, but this is the common principle in all modern states.

EXCEPTION: The exception to the above explanation is income tax. The failure for a seller to remit VAT tot he state may result in additional income tax. For instance, if the seller's gross receipt is $110,000 in a jurisdiction where the VAT is 10% and the seller's income tax is 30% on taxable income. Assume further that the seller's deductible expense is $20,000. QUESTION: Can there be additional tax? In a sense yes, but different kind of tax, but an adjustment of income tax liability. In this case, the seller pocketed $10,000 and the gross earning was $100,000. The seller reports taxable income as:

Sales       100,000

Expense  20,000

IBIT           80,000

Tax rate    30%

Tax due    (24,000) ..... This is what seller reports to the state. Seller pockets 10,000. However, if its has been discovered by the state, the auditor may assume $0 VAT collected and treat the entire 110,000 as gross revenue. The state's position follows:

Sales       110,000

Expense 20,000

IBIT          90,000

Tax rate 30%

Tax due (27,000) .... There is an addition "tax due" in income tax liability for failure to remit VAT. this additional liability is 3,000 or (27,000 - 24,000 = 3,000).

NOTE: VAT and other taxes may not be treated in the same right. Some may argue that VAT is not based on the sovereign power to tax, but based on "policing power." i.e. Amend. X, US Const.

It varies by country. Which countries are you analysing? Here in Belgium and I suppose Europe, non compliance with VAT is considered fraud and you will b liable to pay the missing VAT plus a penalty which varies by gravity and circumstances but can be very hefty.

It varies among countries. In Indonesia, it's regulated by VAT Act No. 42 Year 2009.

It depends on the specific country’s legal regulation. Eg. VAT in Kosovo is regulated almost identically with the EU directives on VAT).

Obligation for VAT arises when these situations occur:

1. When goods are invoiced (although goods/services are not paid, nor accepted)

2. When payment is made (although goods/services are not billed, nor accepted)

3. Where goods are accepted (goods / services are not paid, nor billed).

In either of these three cases, there is an obligation for VAT.

Tax period for VAT, is a monthly period

It is worth mentioning that VAT paid by the final consumer.

Companies only play the role of intermediary between the consumer and the government. The VAT is collected from consumers and delivered to the government.

Varying by country there are some VAT exempted products, as well as some taxed with difference tax rates, eg: Great Britain has three VAT rates: 0 percent for essential goods; 5% utilities; and a standard rate of 20% for other products.

Hello,  well usually  Latin America and in particular in Venezuela  non compliance of VAT has two variants the payment failure pure and simple, that triggers penalties and moratorium interests (that are 20% higher that the banks loan interest) and also failure on all non monetary compliance that the VAT encompasses, such as proper invoice issuing, proper keeping of tax records (the Vat sales book and the VAT purchases book)  that may be punished by penalties and also with temporal closure of the establishment. The latter usually causes severe damages, much more that the actual pecuniary fines that may be applicable. 

https://www.researchgate.net/publication/305451240_Adoption_of_e-Government_Services_Exploring_the_Case_of_Electronic_Tax_Filing

Article Adoption of e-Government Services: Exploring the Case of Ele...

In Kenya, whenever one make a taxable supply, the supply is the output and the tax charged is the output tax. If a taxpayer purchases taxable supplies for furtherance of the business, the supply becomes input and the tax paid is the input tax.

The taxpayer should then subtract the input tax attributable to the taxable supplies from their output tax (tax paid during the sale of the supplies) and pay the difference to the Commissioner of VAT. If the input tax is greater than the output tax, the taxpayer should carry forward the difference as a credit to their next VAT return.

However, failure to comply with these rules, leading to instances such as late/ non-payment, result to a penalty charge of 2% interest on the amount payable compounded on a monthly basis.

Consumer tax Everyone has more money. Must pay more for the balance of wealth in the community and its percentage in different countries.