Taxation – Customs’ VAT fallout

Increased tax avoidance has been partly blamed for a continuing reduction in VAT receipts from large traders.

The Public Accounts Committee report said it was ?worrying? that additional tax revenue of #333m discovered by Customs & Excise during large-trader audits in 1996/1997 remained below the 1992/1993 level of #350m at constant prices.

They were also concerned these companies contributed a declining proportion of total VAT each year, adding: ?We note that tax planning by large traders may have contributed to these effects.?

The committee said that in assessing evidence from Customs, ?we sometimes struggled to get a clear picture from the detailed explanations we received?, and called for straightforward performance measures and targets.

The report adds: ?In our view, clearer thinking is needed. It is worrying that the department seemed not to have a tight grip on the underlying reasons as to why receipts from large traders have fallen from 38.5% of net VAT collected in 1993/1994 to only 32% in 1996/1997.?

Customs was also criticised for being unsure about the role of tax avoidance and weaknesses in the planning, testing and recording of large trader audits.

MPs demanded progress towards better estimations of revenue flows to provide a basis for more meaningful monitoring and measurement of Customs? performance.

PAC chairman David Davis said: ?Large traders consti-tute only 0.1% of the trader population, but are responsible for 32% of net income, thus the Department must get the assessment of these traders right. We were not convinced that the current approach to targeting is sufficiently robust.?

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