Big Data Analytics could help UK Government tackle £15 billion gap in VAT and excise duties
High-performance, predictive analytics could deliver future Christmas gift to UK Government
With high pay-out potential and seemingly low risk, customs fraud is big business across Europe. At a time when the UK Government is set to roll out new taxation laws for 2015 yet still fails to balance the budget, big data analytics could reduce the annual £15 billion VAT and excise duty gap, according to SAS UK & Ireland, the leader in business analytics software and services. The 'gap' is the difference between what's payable and the amount actually received, and a major reduction would represent a nice Christmas present for the Government.
In the UK, the annual 2012-2013 tax gap was estimated by HMRC to be 6.8 per cent or £32 billion in tax liabilities that weren't paid. More than £12 billion of that comes from failure to pay value added taxes (VAT), and some £2.9 billion is estimated to be lost on excise duties. Criminal activity, tax evasion and the hidden economy are all significant contributors and account for nearly half (45 per cent) of the total tax gap.
Other EU member states have used high-performance analytics to reduce fraud with significant results. Belgium has cut losses in carousel fraud, a type of VAT fraud, by 98 per cent, saving almost €1 billion every year. Using advanced analytics, the Belgian government has gone from €1.1 billion in VAT fraud in 2002 to just €18.5 million in 2012.
Approximately $6.9 trillion worth of goods are imported into the EU each year. Customs officers have an increasingly difficult time detecting fraud across such high volume freight traffic. Rather than relying solely on officers' detective skills, customs agencies have moved to a rule based system with database searching. However, with manpower stretched thin and highly complex tariffs, smugglers continue to out manoeuvre around them time and again.
Smugglers use several creative methods to avoid taxation. One example is paying for a certificate of duty for one case of alcohol and then using that same certificate for every other case in a very large shipment. With the tax gap in alcohol duties approaching £1.3 billion, more sophisticated fraud detection practices could save the UK a huge amount of money. It's a sobering thought as we head into the festive period when a considerable amount of imported alcohol is consumed! Paper based, manually assessed systems are not enough to stop the tidal wave of customs fraud as our markets becomes increasingly global.
Simon Dennis, Director for Central Government at SAS UK & Ireland suggests, "Customs officials need to look beyond individual shipments to search for supplementary information that can warn of suspicious activities. Doing this manually is time consuming and the chance for human-error is high."
Agencies also need to synthesise information from multiple sources, including other customs, tax offices and law enforcement agencies and often, such data sharing isn't optimal or timely.
Advanced data analytics enable custom officials to rank import and export transactions and manage association information to then create risk scores in real time. Systems will highlight relevant data so field offices may then deploy appropriate staff to best match threat priorities, as well as direct agents to ask the right questions. Transactional data history can then be applied to identify new risk mitigation rules for future shipments. These techniques can also help to exclude the vast majority of innocent citizens and businesses helping to reduce the workload on over burdened officials and improving the customer service for us all.
"Using high-performance, predictive analytics governments can efficiently detect and prevent fraudulent shipments and crack down on organised crime. Most importantly, they can significantly reduce the tax gap and funnel that much-needed money to programmes and services for British citizens," Dennis said.
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