What is Sales Suppression Technology (SST)
Taxpayers should comply with their tax obligations, but a select few taxpayers engage in tax evasion and fraud. These practices can lead to billions of lost revenue annually, putting strain on both the economy and other taxpayers.
Sales Suppression Technology: The Basics
Tax fraud can happen in a variety of ways, but sales suppression is one of the most common methods of tax evasion. SST can be complex, or it can be as simple as not reporting income. Cash businesses, such as a restaurant that may have high cash volumes, may fail to record some sales.
Cash isn't as easily tracked as payments done through credit or debit cards.
Electronic sales suppression technology has also come into existence. Fraudsters will go through great lengths to not pay all of their taxes. Electronic suppression will:
- Alter transaction evidence
Electronic suppression can alter cash or credit transactions without leaving any evidence of the alteration behind. Transactions can also be under reported through various means, such as cancelling the transaction after it occurred.
Lack of proper data makes it impossible for tax authorities to assess a business's proper tax requirements.
Electronic Sales Suppression Tools
Editing accounting books or pocketing cash transactions is easier to spot than electronic suppression methods. Technology makes it easier to commit tax fraud, and there are two primary tools that are being used in electronic SST:
Phantomware is software that the fraudster installs in a cash register. The software is not easily accessible, and is accessed by the owner or installer of the software through a hidden menu. Operating in the background, the software will capture the transaction data before it's logged into the cash register.
For example, a customer pays $50 for goods:
- Phantomware logs the data before it's registered
- Phantomware holds the data until the business owner goes through the menu
Phantomware can manipulate the sales after a transaction. The $50 sales may be logged as $30, allowing the owner to effectively skim $20 off the proceeds untaxed.
The presence of Zappers is also becoming more common. Zappers are external programs or devices that connect to the cash register. External programs, accessed online, are a popular choice for Zappers.
Much like Phantomware, Zappers allow for transaction records to be manipulated.
Phantomware and Zappers pose a problem for tax authorities because the cash registers do not have the Phantomware or Zappers shown. Manuals will not disclose the presence of these tax evasion systems.
Hidden away, these systems can:
- Alter sales amounts to be lower
- Delete entire sales records
Zappers have been created as sales suppression as a service. What this means is that the business owner can use a foreign Zapper to control sales. These Zappers operate over the Internet and pose even more problems for tax authorities because they can:
- Delete transactions
- Replace sales data
- Alter transactions
Foreign Zappers are so sophisticated in nature that the business owner can use them to crash a hard drive. Service providers, offering the tax evasion service to the business owner, are oftentimes out of the jurisdiction of the tax authority.
Business owners that engage in fraud can hide their involvement in the tax evasion because it's difficult to attribute the actions to the owner.
Data Recording Technology
Data recording technology is a main tool in the fight against sales suppression. The technology records all sales data immediately and securely as the transaction occurs. If the power goes out, the data remains safely preserved.
These tools are called by many names, all meaning the same thing:
- Fiscal memory device
- Sales recording module
- Fiscal control unit
- Fiscal device
Data recording technology can come pre-built into the cash register or it can be installed into an existing cash register. These same tools often send data directly and automatically to tax authorities. Cash registers send the data directly to server systems in either scheduled transfers or real time.
Automatic data transfer allows tax authorities to assess and audit data remotely.
Data recording technology plays an integral role in many economies:
- Belgium has an 8% increase in restaurant sales reported
- Hungary's VAT revenue increased by 15%
- Rwanda's VAT revenue increased by 20%
- Sweden's income tax revenues are estimated to grow by €300 million
Businesses also benefit from this form of technology. Business owners are often victims of employee theft, which involves many forms of sales suppression. Tools that share, record and store data also reduce the risk of audits.
Governments also benefit from data recording. Quebec is a prime example. The province reduced the time it takes to audit a restaurant from 70 hours to a mere 3 hours thanks to the province's sale recording module.
Quebec has now been able to increase the number of inspections to 8,000 per year, up from just 120. Audits are now being done remotely, too. Businesses no longer need to suffer from production loss due to copying hard copy documents. Businesses also suffer from fewer business interruptions and less time lost.
Costs in Fighting Sales Suppression Technology
Sales suppression technology can be prevented, but it's a costly endeavor. Easy implementation, effectiveness and affordability are key to fighting sales suppression. Costs are decreasing over time, with many off-the-shelf solutions being utilized.
Business owners or manufacturers can use these solutions to integrate the data recording technology into their cash registers.
Several factors go into the cost of integration:
- Point of sale system type
- Degree of modification required
- Size of the market
Costs can range from €30 - €1,000 or more, depending on the factors above. Tax authorities will also suffer from immense costs to enforce implementation. Authorities will also need to determine their own technical responsibilities resulting in costs, including:
- Certifying cash registers
- Inspect modifications
- Remote access costs
- Transaction data costs
Tax authorities can also opt to use data analytic tools that can detect unusual data being sent to tax authorities. These tools would use pattern recognition to be able to detect any anomalies or unusual activity.
Sales suppression technology is becoming more sophisticated and complex, but data recording technology is leading the fight against this form of tax fraud. Easy installation, costs and adaptation are key to ensuring that tax authorities can fight back against tax fraud.