How to reform the tax authorities for SMEs
Here are some ideas for a reorganization of the tax system: overcome the mechanism of advances and tax credit; cancel tax returns. The speech by Marco Salustri, national councilor of Unimpresa
The down payment mechanism in Italy dates back to the late 1970s. In particular, reference is made to law no. 97/1977, in article 1 of which, states: "Starting from 1977, taxpayers subject to Irpef or Irpeg must pay in November of each year, as an advance on the tax due for the period of 'tax in progress, an amount equal to 75 percent of the tax relating to the previous period, as indicated, net of deductions and tax credits and withholding taxes, in the tax return presented for the same period. If the return was omitted for the previous period, the deposit is commensurate with 75 percent of the tax corresponding to the total income that should have been declared, net of tax deductions and credits and withholding taxes ". This system was conceived, from the beginning, for the sole purpose of obtaining an advance collection, in favor of the State, on the taxes produced by the hypothetical income of the companies for the following fiscal year, to the current one, thus forcing them to a very significant economic sacrifice. Businesses must pay taxes each year both on the basis of the tax income actually produced, and on a future income, of which they are not sure, which, in fact, drastically reduces the liquidity necessary for the reinvestment of profits. Taxes should be paid exclusively on the income actually generated and without denying the deductibility of costs if actually inherent and without providing tax advances that fuel tax evasion. This form of thought, on the part of the Italian tax authorities, has characterized the tax system from the late seventies to the present day. By way of example, take the rules that characterize the tax credit. Every apparent contribution that the State has wanted to grant to taxpayers has always gone through an investment by the taxpayers themselves and then a tax credit is recognized. In other words, companies must advance sums, by way of example but not limited to, for investments in new technologies and equipment, research of foreign markets and feasibility plans to then be granted a credit to be used in offsetting against future taxes. A system that, even if apparently guarantees an advantage for companies, always and in any case implies an advance payment for them in order to obtain it.
All of this is due solely to cash needs and the inability to develop balanced tax policies. A valid alternative, which can reverse this mechanism, should be to reduce tax rates and allow companies, in proportion to the reduction, to invest in their field and on the basis of the corporate purpose.
If at first the tax revenues for the State are reduced, however, companies are allowed to grow in their sector and to have, consequently, a greater tax base on which to apply the IRES rates in all the years following that of departure. In fact, this procedure reverses a mechanism that penalizes companies' accounts and significantly increases tax evasion. Entrepreneurs, always having to anticipate taxes, both due to the law on advances and to benefit from any tax credits, will try to "hide" wealth to avoid having to pay disproportionate taxes, if compared to actual income. It is a spiral that forces companies to remain micro and unable to compete with similar realities across borders. Furthermore, this antiquated fiscal machine has deconstructed in companies the ability to make economic forecasts for the future.
Entrepreneurs are more focused on paying less tax than on how to invest the little left in their coffers and set aside for industrial planning, through the business plan tool. He is worried that this degeneration of attitude, in entrepreneurs, is also affecting medium-sized companies, where the owners, often represented by family members and relatives, make their decisions "nose" and broadly, without being aware of the progress of net financial position of their company, nor of the balance sheet ratios essential for the bank rating.
The abandonment of the tax recovery system for the processing of taxes for IRES purposes has also become impracticable. It is a distorting mechanism for businesses and a very high risk of tax evasion. The costs for businesses should be recognized in full if they are actually inherent. It is expensive for companies to draw up a statutory and fiscal balance sheet. Drawing up a statutory financial statement is a complex procedure that must comply with all the rules imposed by the civil code and by the accounting principles developed by the OIC (Italian accounting body).
The next phase requires the application of the regulatory obligations dictated by the consolidated act of direct taxes in order to take back to taxation all those costs that the tax system does not recognize as fully deductible even if inherent to the business of the company. A cumbersome, complex process that could be subject to cost manipulation to reduce the tax base, on which to apply IRES. On the contrary, a virtuous example that rewards businesses is the one developed in the United States to improve the relationship between the taxpayer and the revenue agency. Businesses use accounting software called QuickBooks. QuickBooks is a cloud device in which companies enter costs and revenues typical of their business. The Revenue Agency has full access to it and carries out random checks to understand whether the expenses and revenues are inherent or not to the business of the company. In case of legitimate doubt, the agency asks the entrepreneur for explanations and, if the answers are not fully satisfactory, the costs that have not found correct justification are taken back to taxation. This very simple method could be applied to all Italian SMEs. Please note that, only for tax matters, our IT system is among the most advanced in the world but, at the same time, it is partially, improperly or uselessly used. A cloud system for SMEs that crystallizes accounting records would be a form of transparency that would improve the relationship of taxpayers with the revenue agency and if well structured, with the reduction of the IRES rate, it would significantly increase revenues for the State. increase competitiveness of businesses and significantly reduce the scourge of tax evasion.
With these revolutionary tax approaches, a series of advantages would be obtained: transparency between the taxpayer and the taxman; immediate tax checks; reduction of tax evasion; cost reduction for companies that would no longer have to draw up two balance sheets; a more equitable taxation, based on costs and revenues actually achieved and, last but not least, the elimination of tax coercions, such as the deduction of interest expense for tax purposes and ISAs (former sector studies). In this way, cash taxation would become really feasible.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/come-riformare-il-fisco-pro-pmi/ on Wed, 02 Dec 2020 06:40:06 +0000.