Digitalisation : it’s working well for tax fraudsters

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Digitalisation has already made so many aspects of our lives easier. Unfortunately, fraudsters would also heartily agree with that statement. Particularly those fraudsters focussing on tax fraud.

Digitalisation has already made so many aspects of our lives easier.

Unfortunately, fraudsters would also heartily agree with that statement. Particularly those fraudsters focussing on tax fraud.

In the world of tax fraud, innovative new technologies have been very efficient in combating traditional fraud. In Belgium, for example, the Federal Public Service Finance department uses multiple analytical techniques to detect VAT fraud, which has reduced losses by 98%, from as much as 1.1 billion euros in 2002 to just under 19 million euros in 2012. The tool allows proactive detection of companies at risk and enables the tax authorities to take appropriate safeguards.

But tax faudsters now also operate in the digital fraud area. And this is where the digital ‘double-edged’ sword becomes clear.

These smart technologies are giving rise to new types of digital tax fraud including fraudulent e-filings of tax returns across geographies, ‘Zapping’ – using software programs to automatically skim cash from electronic cash registers or point of sale systems and the growing usage of third-party payroll processors where unscrupulous parties siphon off taxes due to the state.

Capgemini’s analysis of these new digital tax frauds shows that inaction is not an option for tax authorities. We have modelled the evolution of tax fraud, taking into account new incidences of fraud enabled by digital technologies. Our findings are sobering for tax authorities. In a scenario where tax authorities continue to fight new tax fraud with conventional tools, we estimate digital tax fraud in the US will rise from $32 billion to $49 billion by 2020. Similarly, in the EU, we estimate it will surge from $15 billion to $25 billion. And of course the value of fraud is in effect lost revenue to the state and the tax payer.

In continued times of limited GDP growth and economic restraint, governments cannot ignore this outflow to the unseen ‘dark’ economy.

For detailed analysis and ideas to tackle the challenges, read our full report here 

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