VAT administration costs Swedish companies SEK 14 billion (Euro 1.2 billion) annually
It has been a long time since a comprehensive assessment and estimation of companies’ administrative costs to comply with the VAT regulations was carried out. A new preliminary study (summary in english) by the consulting firm Trinovo estimates the annual cost to be SEK 14 billion (Euro 1.2 billion). The study covers only parts of the VAT legislation, so the total cost for companies to comply with the VAT rules should thus be even higher.
The Confederation of Swedish Enterprise has previously requested the need to map and calculate the regulatory costs in line with previous reports by Nutek in 2005 and the Swedish Tax Agency in 2006 (in English). Therefore, with the assistance of Trinovo, Confederation of Swedish Enterprise has produced a new report that provides a current cost for companies to administer parts of the VAT legislation. The findings in the report has been highlighted in several Swedish newspapers such as Dagens Industri and other media. The size of companies’ costs to comply with regulations in an adequate manner is relevant to discuss within all tax areas, but specifically within VAT. Companies act as unpaid tax collectors of someone else’s taxes. It is therefore disappointing that important simplification proposals that could reduce the time to fulfill obligations within the VAT system are consequently absent.
The study is a preliminary study and covers only parts of the VAT legislation. The focus is specifically on mixed supplies, where companies handle transactions that are both subject to VAT and exempt, as well as transactions that affect the right to deduct input VAT. The total estimated regulatory cost at the national level for these areas amounts to approximately SEK 14 billion per year (Euro 1.2 billion) and affect roughly one million VAT registered companies. The cost exceeds the Swedish Tax Agency’s allocation by SEK 6 billion (Euro 0.5 billion) for 2023 and is equivalent to about 19 200 full-time jobs based on labor costs in 2022. It is the smallest companies (1–4 employees) that account for almost 50% of the cost.
Assessments and investigations regarding input VAT is what companies, in all size segments, spend the most time on. The process for assessing input VAT accounts for 70 % of the total costs, equivalent to nearly SEK 10 billion (Euro 0.85 billion). This could involve questions regarding partial or full deduction within rental of premises, import VAT, exempt transactions, bad debts, company cars, used goods etc. The right to deduct is a fundamental pillar of the VAT system to ensure that purposes and objectives are upheld and to prevent VAT from becoming a cost burden for companies.
A comparison can be made with a study conducted by the authority Nutek in 2005. Considering that the same areas are covered, costs are adjusted to today’s price levels, and the calculation is based on the current number of companies, the costs in the present study are estimated to be 25% higher. Regardless of the reason for the cost increase, the indicative result points in the wrong direction. This simultaneously signifies that simplifications of the VAT legislation are needed more than ever.
VAT represents a significant regulatory burden for companies. Furthermore, the study only covers a fraction of the regulatory framework. International transactions are not included in the scope of the study and likely incur substantial costs. The ERP-system aspects and educational costs are addressed, but not included in the presented result. Make use of the EU VAT directives “may-cluses”, identify other member states best practices and make reality of all possible Swedish VAT reforms in order to reduce administrative costs and complexity. This should be a priority for the Swedish government.
Listen to companies’ needs for simpler and more straight forward VAT rules. It creates space to focus on more productive activities that promote growth and competitiveness.
Link to the report (in Swedish)
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