Last year, nearly 70.5 thousand taxpayers did not receive personal income tax relief on time because the State Revenue Service (SRS) was not using the information at its disposal.
Similarly, payment of pensions in full to almost five and a half thousand disabled retired people has been delayed for several years due to poor cooperation between public authorities resulting in the fact that tax reliefs are not applied automatically. However, bureaucratic and incomprehensible barriers make bona fide patent payers break the law without even realising it. The audit by the State Audit Office of the annual report of the state revealed such a situation, which actually has been detected previously as well.
“The SRS must take a step towards the population to reduce unnecessary administrative burden and ensure that all incomes are received duly every month rather than in a year or years. The automatic granting of non-taxable minimum for the purposes of personal income tax and tax reliefs require improvements, including disabled retired people. It is clear that every single euro of their monthly income is crucial for each of those people. The process of registering patent payers also must be simplified so that it becomes understandable to population, convenient, and corresponds to the opportunities of modern technologies,” stresses Auditor General Elita Krūmiņa.
More than 70,000 taxpayers did not receive income tax relief last year without any justification
Just like during the audit in 2016, the State Audit Office established that at least 5,486 disabled retired people did not receive the full amount of their due pension in 2018. The average reduction was 7.40 euros per month because the State Social Insurance Agency (SSIA) did not apply a personal income tax relief on disability in the calculation of the pension. Those individuals will only be able to recover their overpaid personal income tax in 2018 by submitting their annual income tax return. Although the Saeima amended the Law on Personal Income Tax urgently at the end of 2017, the SRS and the SSIA have not been able to ensure that the SSIA applies tax reliefs correctly each month and that the retired people receive more money on hand every month.
Realising that the use of the electronic data system (EDS) of the SRS and familiarity with specific laws can cause problems for different groups of the population, the State Audit Office carried out additional tests to determine how Personal Income Tax (PIT) relief (for instance, for dependents) and projected non-taxable minimum is applied to individuals working in only one workplace. After the test, the State Audit Office concluded that the SRS did not use the information at its disposal. As a result, at least 70,486 individuals did not receive their PIT relief and the projected non-taxable minimum in 2018. The monthly income of those people decreased by an average of 25 euros simply because they had not recorded their only place of income in the SRS EDS. Those individuals overpaid personal income tax of 20.8 million euros in 2018, which they can only recover by submitting an annual income tax return, furthermore, only if the individual is aware of his or her legal rights and can operate in the EDS environment. The SRS considers that filing an annual income tax return is significant because it confirms the will of an individual to recover the overpaid tax. However, the State Audit Office draws attention to the fact that individual e-skills and physical abilities can often hinder the expression of that will. Besides, filing a tax return in those cases is an additional burden and inconvenience to both the population and the SRS while administering and refunding the overpaid personal income tax.
Patent payers become offenders without their knowledge
The SRS and the Ministry of Finance should also simplify the registration system of patent payers by shaping it more convenient and efficient, thus following the principles of good governance and reducing the administrative burden. The audit found that understanding and complying with the requirements are not easy at all for artisans, hairdressers, photographers, and other individuals who choose to pay taxes in a simplified way, by paying patent fee only, to avoid tax conflicts with the SRS. At present, situations arise when an individual makes a payment and works in the belief that he or she is a patent payer but has not settled the formalities, id est, he or she has not submitted an application to the SRS. Economic activity without application is a violation that the SRS must control and prevent. Such an approach is cumbersome, bureaucratic, as it creates administrative burden for the population and wastes resources of the SRS.
The State Audit Office calls for the elimination of the identified deficiencies in the administration of PIT and for ensuring the operation of the SRS in a more citizen-friendly manner by utilising all the information and technological resources available to the SRS efficiently that would allow individuals both to benefit from tax reliefs in due time and to pay taxes easily when running a small business.