Tax Revenue Suite (TRS): Digital Tax Administration (DTA) for C2C

Digital tax administration of C2C taxpayers applies revenue accounting and taxation for direct sales between consumers and through online platforms.

→ Mobile app for the remote online registration of self-employed without visiting tax administration offices.
→ Integration with online platforms and banks; income, tax base and tax payable calculation.
→ Automatic mobile payment of taxes.

Transcript

1. Trusted Global Tax Gap Advisor & Digital Solution Provider for Tax Administrations Tax Revenue Suite (TRS) Digital Tax Administration of C2C Commerce including Online Platforms and Self-employed Implementing DTA for C2C along with the new tax regime for self- employed working with online platforms can move hundreds of thousands of people out of informal employment info@taxtech.digital www.taxtech.digital G101
2. 2 DTT’s Tax Revenue Suite (TRS) TRS is a suite of digital taxtech products aimed to increase the state's tax revenue Tax Revenue Suite (TRS) Digital Tax Administrati on (DTA) •DTA for B2B •DTA for B2C •DTA for C2C DRF (Digital Return-Free Tax Regime) DEA (Digital Excise Administrati on) DDA (Digital Desk Audit) DMTA (Digital Municipal Taxes Administrati on)
3. Employment Ecosystem Definitions and Structure 3
4. [1] International Labour Organization (ILO). Resolution I. Resolution concerning statistics of work, employment and labor underutilization [URL] [2] International Labour Organization (ILO). SMALL MATTERS. Global evidence on the contribution to employment by the self-employed, micro-enterprises and SMEs // International Labour Organization (ILO), 2019 [URL] 4 Employment Ecosystem Population in working age 15-64 years as defined by the International Labour Organization (ILO) By time of employment Full time Part time Unemployed By number of places of work Only at the main job Combining 2 or more jobs In relation to the employer Employees at the salary or civil contract Self-employed with the income from the customers and without employees By type of employment Formal employment (officially under the contract with social contributions) Informal employment (without registration) Employed is a person “at work” who worked in a job for at least one hour [1] formal employment informal employment Employment Self-employment Full-time or part- time employment Combining jobs When the economic situation changes, there is a flow of employment between segments
5. [1] International Labour Organization ( ILO ). SMALL MATTERS. Global evidence on the contribution to employment by the self-employed, micro-enterprises and SMEs // International Labour Organization (ILO), 2019 [URL] [2] https://ru.wikipedia.org/wiki/Self-employment [3] ILO modelled estimates and projections [URL] 5 Self-employment Self-employment is a form of receiving remuneration directly from the customers, in contrast to hired work [1] Self-employed – ”an independent worker without employees" [2] Estimating the number of self- employed in the informal segment is very difficult 1 10 100 1 000 10 000 100 000 1 000 000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Estimates of the number of self-employed by country 2010-21, By million people (ILO) [3]
6. [1] As a share of the working population. Statista, International Labour Organization. Where People Are Self-Employed Around the World. statista.com/chart/18908/self-employed-workers-by-country/ 6 Percentage of self-employed/Independent in selected countries in 2019 1 There is an inverse correlation between the share of the self-employment and GDP per Capita In high-income countries, 12.2% of workers are self-employed Self-employment rises to 80.3% in low- income countries Shows prevalence of subsistence farming Counts as self-employed people working for free in their family business
7. Economic Developments and New Threats to the Tax Administration 7
8. The Threat of the Informal Economy Because of The Transition from Formal to Informal Employment Shadow income, profit shifting, and concealment of income lead to a decrease in the tax base As a result, the tax burden on law-abiding taxpayers is growing. An imbalance in the tax burden leads to a loss of competitiveness of conscientious taxpayers, stimulating them to go into the shadows A growing share of the informal economy Reduced tax base Decrease in the tax collection A.L.Suslina , R.S.Leukhin. Fighting the Shadow Economy in Russia: Particular Aspects of Common Problems [URL] 8
9. [1] C2C stand for “Consumer 2 Consumer” - doing business between consumers 9 Systemic Impact of the Global Digital Platforms on the Economy Growth of Internet penetration, influence of global digital platforms and B2C/ C2C commerce 1 Online platforms benefit from informal employment of partners to reduce prices and increase profitability The growing threat of global non-resident digital platforms for the formal employment and the tax collection The unregistered work of international platforms—non-residents in conjunction with self-employed residents (for example, taxi drivers) stimulates the growth of the shadow economy and is a threat to the tax authorities
10. The Changing Role of Online Platforms and B2C / C2C e-Commerce in the Economy: Threats and Opportunities for the Tax Authorities Online platforms can benefit from the informal employment of their B2B partners. Tax evasion increases the profits of the taxi driver, courier and online platform, which allows lower prices for end users to increase market share More and more people are participating in the C2C economy and using digital platforms as a primary or secondary source of income Uberization and online platforms are driving this change: they provide an easy way to attract and monetize customers Many items to control Increasingly, personal income is moving out of the sight of the tax authorities Opportunities for cooperation between the tax authorities and digital platforms Online platforms make the transition from formal employment to informal work and self-employment easier. This increases the number of tax audit objects and makes the work of tax authorities more difficult 10 Online platforms—non-residents and self-employed residents Tax Administrations
11. Online Platforms—Non-residents in Conjunction with Self- employed Residents: a Threat for a Tax Administration Online platforms (non-residents) and self- employed residents Challenges of the Tax Administration An international taxi aggregator provides a service in the country and receives a percentage of each trip without paying local VAT. The driver receives income that he does not report to the tax authorities (NO) A non-resident owns real estate and rents it out through an international online platform. Platform and non- resident income do not create tax revenue An influential blogger on an international platform (YouTube, Instagram) with millions of followers. The platform and the blogger receive ad revenue that is not reported to the tax authorities An informal or self-employed seller in the market does not issue a check to the buyer and does not pay taxes on the proceeds. Millions of individuals are objects of control. Lack of motivation for the buyer to demand a fiscal receipt from the seller Many cash settlements and a very large number of small transactions Lack of motivation for international platforms to include local taxes in the check and declare income There is no way to significantly increase the number of inspectors for total control 11 Tax authorities should cooperate with digital platforms to localize their business on the territory of the state and obtain information about their clients to form a tax base
12. Growth of C2C Marketplaces During the COVID-19 pandemic1 Used goods volumes up in all categories On horizontal sites (eBay, Kleinanzeigen, Facebook Marketplace) and specialized sites (Lithuanian Vinted for used fashion items) Millions of users during the quarantine began to sell unwanted goods on the Internet As they developed, some sites began to monetize their platforms by charging buyers (Mercari, Vinted, wallapop) C2C growth trend promises to be long-term [1] C2C e-commerce: Could a new business model sell more old goods? McKinsey, 09/23/2021 [URL] [2] For sale announcements only [3] Consumer products only 12 Number of ads on European C2C marketplaces (100 = Jan 2020)
13. 13 Other Influencing Factors Driving Change in the Economy Economic crisises Pandemics Inflation Lead to a decrease in real incomes and purchasing power of the population and stimulate employment shift to the shadow sectors of the economy and C2C-commerce
14. 14 Digital Tax Administration of Online Platforms and Self- Employed: New Opportunities for the Tax Authorities Localization of the business of online platforms on the territory of the state and obtaining information about their clients to form a taxable base Introduction of special tax regimes and digital tax administration for online platforms and the self-employed at the national level The goal is to simplify tax administration and stimulate the legal activities of self-employed and online platforms. These efforts can reduce the number of informally employed in a country by 30-40% in 2-3 years and increase the tax base by 3-5 times
15. Key Principles of the Special Tax Regime for the Self-employed 15
16. Special Tax Regime for the Self- employed (SEs) Goals • Legalization of taxpayers who were in the shadows due to complex tax procedures and lack of motivation to pay taxes • Reducing the burden on tax officials • Growth in the number of taxpayers, the tax base and the collection of tax on professional income of the self-employed Indicators • Number of registered self-employed taxpayers • The tax base • Accrued taxes (“Professional Income Tax”) • Amount of debt Objectives • The tax authorities are unable to carry out full-fledged control work with millions of SEs • It is necessary to create an attractive regime for the self- registration of taxpayers 16
17. Digital taxation – top quality taxtech mobile app 1-month tax period Remote identification (through passport and selfie photo) Automation of tax calculation and tax payments (incl. no returns) The ability to work with individuals and legal entities (including foreign online platforms) Legal proof of income (for loans, visas, etc.) Low tax rates – 4-6% Tax releif Concept of the Special Tax Regime for the Self-employed 17
18. Principles of the Special Tax Regime for the Self-employed 18 5. Ability to work with legal entities, incl. foreign Allowing sales to legal entities significantly expands the scope of the tax and simplifies the work of legal entities with self-employed 4. Motivation for legalization The taxpayer receives social bonuses that depend on the amount of taxes accrued, which makes registration profitable and increases the motivation to use the regime 3. Minimum tax period The minimum tax period is 1 month, which allows you not to accumulate tax debt and makes payment more comfortable for the taxpayer 2. Reasonable tax rate The established tax rate is reasonable in the understanding of the taxpayer, which allows him to agree with the expediency of paying taxes 1. Simplicity and transparency Self-employed pays taxes only when it has income
19. Principles of the Special Tax Regime for the Self-employed 19 9. Online communications and technical support for taxpayers The system of technical support and communication with taxpayers creates a feeling of a "live" system and that the tax service helps to solve possible problems 8. Simplified registration A taxpayer can register and register for tax within a few minutes from a mobile application without special knowledge and additional funds (does not require a qualified electronic signature, CEP) 7. Automation of tax calculation and payment The ability to link and pay tax with a bank card allows you to reduce the automation of the process and reduce dependence on the actions of the taxpayer 6. Ease of reporting of the income and minimal compliance efforts Reflection of income is provided by integration with partner banks and automation of income registration
20. Automation of the Calculation of the Tax Payable The taxpayer is only required to generate a fiscal receipt for each taxable activity. To eliminate the risk of non- issuance of a receipt, it is possible to monitor a bank account to which the taxable income is received 20 Generate a fiscal receipt for each sale in the tax application Specify the payer and the amount of income Send an electronic receipt to the buyer or transfer it on paper Within a month Before the certain date in the next month Before the certain date in the next month Information about tax accruals is available in the application or on the website The application will automatically calculate the amount of tax payable Pay the accrued tax in a convenient way or automatically deduct it from the linked bank card
21. An Example of the Approach to Reduce the Share of the Gray Taxi Market in Partnership with Online Taxi Aggregators STAGE 1 STAGE 2 STAGE 3 Gray taxi market Drivers are registered by the aggregator and receive licenses Aggregators and drivers work legally and pay taxes Most private drivers work without licenses and do not pay taxes To receive orders from aggregators, the driver must become an individual entrepreneur, self- employed or be an employee of a taxi company Using the aggregator application increases the share of electronic payments (convenient, hygienic) Registered taxi companies and drivers receive vehicle licenses Taxi companies pay personal income tax and social contributions for their employees Sole proprietors pay taxes on income and contributions The self-employed pay income tax Aggregators pay taxes on the income/value- added/profit 21
22. Digital Tax Platform for the Communications with the Self- employed Full digital identification of the tax environment in a single data warehouse Simple and convenient registration of self-employed: tax registration and assignment of TIN Identification of all professional earnings of the self-employed Motivation for registration and obtaining the official status of self-employed (tax deduction) Creation of a single point of communication with taxpayers and partners Personal account of the taxpayer on the tax website Integration with the public services portal Mobile application for the self-employed API for integration with partners TIN The self-employed digital tax administration platform creates a simple and convenient mechanism for registering an self- employed, automating monthly tax calculation, invoicing and receiving payment 22
23. Technical Solution Tax Administration IT System APIs* for Partners Taxi Aggregators Freelance portals Prof. Services Banks Telecoms Self-employed 23 My Tax Application * API – Application Program Interface
24. How it Works with Taxi Aggregators 24 Tax Administration Systems Taxi Aggregator’s Platform Self-employed Driver Taxi Passenger My Tax Application API Payment for the ride Transportation Service Issues receipts to the passengers Payment for the service Sends receipts to the Tax Systems Can pay income tax for the drivers Income statistics Professional income tax accrual for the period Sees tax payables Can pay tax from the app / delegate to Aggregator
25. 25 Roadmap Towards Digital Tax Administration of Digital Service Aggregators and their Self-employed Users 1 Establish a new tax regime for all self-employed citizens, convenient for them, not for the tax authorities. 2 Tax regime for self-employed must embrace: Fairness Unburdeness Convenience Value 3 Distinguish between aggregators that process orders and payments going through them, and aggregators that process just orders. 4 Fiscal receipt should follow any order fulfilled by the self-employed on any tax regime. 5 Aggregator’s partner (agent) can issue receipt on behalf of the aggregator, but the tax should be assigned to the service provider, not the aggregator. 6 Create a motivation for consumers to demand fiscal receipts from self-employed via lotteries, cashback, personal income tax refund etc. 7 Implement return- free regime as the tax administration have all data to calculate the tax. 8 Make paying self- employed tax simple and convenient with tax mobile application and linked credit card. Create a unified tax regime for all self-employed working with all digital platforms, not just for one specific segment
26. 26 Recommendations 01 Legalization, not the tax revenue (side bonus), should be the major objective 02 Put the taxpayer's needs ahead of those of the tax authorities 03 Even if starting a business were simple, people would still face a mental hurdle to become entrepreneurs 04 Eliminate obstacles to commercial activities 05 Engage partners and create a digital ecosystem 06 Consider legalizing incentives for both buyers and sellers
27. «My Tax» Application and Tax Administration Analytical System Key capabilities and features 27
28. 28 «My Tax» Application for the Self-employed Registration as a taxpayer and conducting business does not require visiting tax administration and takes 5 minutes via the website and mobile app. As the payment for their work or services, taxpayers can accept cash payments and use personal banking accounts with no restrictions. Upon receipt of income, the taxpayer registers it in the application. Application generates a receipt that taxpayers can (but are not obliged to, if not asked) transfer to the clients. Application collects information from the taxpayer to calculate taxes and notifies him about the tax payment deadlines. After the reporting period (calendar month) is closed, the tax administration automatically calculates the sum of professional income and accrues the amount of the tax payable. A self-employed can pay the tax in the same application with a linked credit card in a few seconds. No need to file a tax return.
29. «My Tax» Application: Registration of the Self-employed 29 1. Self-registration
30. «My Tax» Application: Registration of the Self-employed 30 2. Data Verification 3. Registration Confirmed 80% of applications are processing within 3 seconds
31. The tax base (monthly income) is calculated automatically based on the receipts that are generated in the application for each sales transaction Creating a sales receipt Taxable income and tax payable Estimated tax for the current period to date Tax due for the completed tax period Income for the current period to date «My Tax» Application: Receipts, Total Income, Tax Payable 31
32. Enable Auto Payments Payment Menu 32 «My Tax» Application: Payments and Automatic Payments Payment methods: By debit/credit card Through a bank account created by the app Automatic payments available No fees
33. Self-employed can generate official confirmations of their income through the application: Their status (for KYC procedures of their buyers and banks) Their annual income (for loans, visas, etc.) Buyers can also check the status of sellers through the tax website or API «My Tax» Application: Proof of the Self-employed Status and Income 33
34. About Us Digital Tax Technologies (DTT) is an international expert in tax gap minimization, a trusted digital transformation advisor & solution provider for national tax administrations. We help tax administrations around the world to reduce the tax gap, improve tax revenue collection and reduce the share of the shadow economy. Our mission is to increase global fiscal transparency, improve tax compliance and administration, and ensure fair competition and welfare. Our team consists of experts with experience in digital tax administration advisory and implementation in various European, CIS, Middle East and African countries.