Cost-benefit analysis of tax administration reforms in Finland.

Abstract

In Finland, over 98% of the compliance costs incurred by VAT-registered entities are borne on micro, small and medium taxpayers. The Finnish Tax Administration (FTA) project "Design and Implementation of a New VAT Reporting Model" is an analysis of three interventions to enhance the current tax administration system. The three interventions are to expand the information collected on the VAT return (stage 1), to introduce electronic reporting of VAT invoices by all taxpayers to the FTA (stage 2), and finally, for the FTA to pre-fill the VAT returns for small, medium and micro taxpayers (stage 3). A Cost-Benefit Analysis approach is used to evaluate these proposals for potential implementation by measuring the potential costs and benefits of each stage of the reforms. The project's main aim is to increase tax revenues (reduce the tax gap) and reduce the economic costs associated with administration and compliance with the value-added tax (VAT) legislated obligations. Of the three interventions evaluated, the largest net economic benefits are created by the administrative pre-filling of the Value Added Tax returns.