Download This PaperFiji – Mandatory Digital Invoices Real-Time VAT Compliance
92 Tax Notes International 697 (2018)
25 Pages Posted: 13 May 2020
Date Written: April 20, 2018
Abstract
Fiji, the largest of the Pacific Island Countries (PICs), is implementing a comprehensive digital invoice regime with the goal of the automatic, real-time and encrypted reporting of all taxable transactions, business-to-business (B2B), and business-to-consumer (B2C).
Fiji’s technology reform is intended to increase VAT compliance. It has attracted global attention because the technology reform has been undertaken along with a 40% reduction in the VAT rate, an expansion of the VAT base, and a prediction that VAT revenues would increase.
This paper considers the mechanisms Fiji has put in place to increase basic revenue flows. A second revenue stream, derived from applying the lessons learned in the current technology reform to cross-border trade in services and low-value goods, is forthcoming. The applications in that study will follow reforms in New Zealand and Australia (the so-called NetFlix and Amazon Taxes) and suggest that these efforts would be more successful if they were to be implemented in the same manner that Fiji has approached its current technology reform.
From a high level, Fiji envisions a business-government digital partnership producing “… an electronic system [designed to] transmit[s], receive[s], record[s], analyze[s], format[s], store[s], and monitor[s] fiscal data.” The partnership is comprised of (a) the “Authority’s system,” the TaxCore, and (b) the mandatory electronic fiscal device (EFD), that is, the system “… used by taxpayers in operating their business,” The strength (and the uniqueness) of the Fiji VAT is in its real-time data collection, its data protection, and its data retention capabilities. When fully implemented these technological reforms promise to capture lost revenues in Fiji of at least FJ$185 million. The amount could be much higher, but it is unlikely to be lower.
There are exceptional efficiencies in tFiji’s comprehensive digital invoice regime. Fiji will be the first VAT jurisdiction in the South Pacific, and one of the few globally to secure real-time, encrypted reporting of all taxable transactions, business-to-business (B2B), and business-to-consumer (B2C). Many of the traditional VAT frauds are simply unworkable in this system. Enforcement flows directly from the technology.
A considerable amount of the auditing function in Fiji will be automated through proof of audit concept. Its use of digital counters is unique, as well as the use of E-SDCs and V-SDCs around the TaxCore. Fiji is the classic example (in the tax world) of where the Code (meaning the computer code) is the law.
Keywords: Fiji, VAT, Value Added Tax, VAT Monitoring System, VMS, Digital Invoice, Tax Core, Proof of Audit, Counters, Zapper, Phantomware, Electronic Sales Suppression, Sales Data Controller, External Sales Data Controller, Virtual Sales Data Controller
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