On February 1, the new system for detailed online value-added-tax reporting was launched. This is the first stage in implementing a major procedural reform which was legislated in July 2009.
The reform changes the whole system of filing VAT returns with the Israeli Tax Authority.
The aim is to combat fictitious invoices by requiring businesses to list all their purchase and sales invoices and the identity numbers of their suppliers and customers.
In this way, if the parties report the same transaction differently, the Tax Authority can quickly spot the discrepancy and pounce. Presumably, the system has its limitations if neither party reports the transaction at all or one is not in business, e.g. private individuals, children.
In the EU, VAT fraud is a major headache running to billions of euros, and similar identification concepts are being introduced for intra-EU trading, combined with ‘‘destination reporting‘‘ by business customers in many cases (they have a vested interest in claiming expenses and handing over the VAT on those expenses).
Detailed rules have now been published in Israel, which even cover imports and exports. The reform is being implemented in stages, according to the type of activity and level of revenues of each business, starting in 2010 with businesses which keep double entry books and have revenues over NIS 4 million in 2009. By 2012, all VAT returns will be on the new system.
Online reporters are supposed to use an electronic signature, usually referred to as a ‘‘smart card‘‘. Smart cards are obtainable at present from one company – Comsign, telephone 03-6443620, website: www.comsign.co.il.
In order to make things easier, the Tax Authority has announced that online reporting for the months of January and February 2010 can be done without a smart card – in fact no smart card reporting facility exists for January.
If you are a business with revenues over NIS 4m. in 2009 and double entry books, but didn‘t receive a letter about online reporting from the Tax Authority, you must nevertheless go into the Tax Authority‘s website personal area, register and generate a password for the online system. (Harshama LeSherut VeKabalat Sisma). And if you have questions, the Tax Authority has a telephone hotline – its phone numbers are *4954 and 02-5656400.
You can also email your questions to: email@example.com What could be easier?
The reform does impose a big reporting burden on businesses and their accounting software needs updating accordingly.
Let‘s hope the new system will collect lots of uncollected tax making as possible to reduce taxes and the national debt.
As always, consult experienced tax advisors in each country at an early stage in specific cases.
The writer is an international tax specialist at Harris Consulting & Tax Ltd.