INTRODUCTION AND
SUMMARY OF
CONCLUSIONS AND
RECOMMENDATIONS
1. The Comptroller and Auditor General (C&AG)
examines the accounts of the receipt of revenue by government
departments under section 2 of the Exchequer and Audit Departments
Act 1921. He reports on the correctness of sums brought to account
together with his report on the Appropriation Accounts of the
departments concerned. The Committee examined HM Customs and Excise
(the Department) on a number of matters contained in the C&AG's
Report on the 1996-97 Appropriation Accounts.[1]
These matters included revenue losses through smuggling, fraud
and evasion; forecasting of VAT receipts and VAT debt management;
fines and penalties; and landfill tax.
2. In 1997-98, the Department's efforts to curb cross
channel smuggling led to the detection of excise goods valued
at £55 million, compared with £29.4 million
in 1996-97. This however is only a small proportion of the total
revenue lost, which is estimated at some £950 million.
The Committee remain seriously concerned about the impact on legitimate
traders of this illegal trade in smuggled goods. The growth in
revenue losses through fraud and evasion, including cross channel
smuggling relating to alcohol and tobacco, led the Department
to carry out a review of the problem, and they have subsequently
put a number of recommendations to Ministers.
3. The large amount of revenue lost suggests that
there remains considerable scope for cost-effective deployment
of resources to bring cross-channel smuggling and other excise
fraud under better control. In addition, we would encourage the
Department to continue to:
- increase the use of criminal prosecution of smugglers;
- supplement fines and penalties with other sanctions
such as the removal of driving and haulage licences, which may
have a greater impact on some offenders; and
- seek further tightening of controls and procedures,
both within the United Kingdom and the European Union, to combat
fraudulent abuse of warehousing and transit arrangements.
3. In reviewing the forecasting of VAT receipts,
the Treasury/Department working group estimated at £2 billion
the possible impact of tax planning and avoidance on the collection
of VAT. The Department's 1998-99 target for revenue protected
through anti-avoidance measures is only £100 million
to £125 million. They should be more ambitious. On VAT
debt management, it is important that the Department continue
to pursue all debt rigorously, whether or not written off. The
current collection target for large payers, at 95 per cent by
the due date, gives allowance for special circumstances that may
affect traders' timeliness of payment. The Department should consider
whether too much leeway is given to large payers, and whether
they should set a more rigorous target.
4. Our more detailed conclusions and recommendations,
based on our enquiries, are as follows:
On revenue losses through smuggling, fraud and
evasion
(i) We welcome the improved rate of detection
for cross-channel smuggling in the last two years, in which both
the number of detections and their excise value have nearly doubled.
The Department should set demanding targets to maintain this momentum
(paragraph 16).
(ii) The Department are committed to liaison
with other agencies both at home and abroad, including United
Kingdom police forces and EuroPol. Combatting cross channel smuggling
and other excise fraud often requires co-operation between Member
States and where necessary the Department will need to seek changes
to European procedures as well as changing their own procedures
(paragraph 17).
On VAT receipts
(iii) In the light of the 1997-98 results
and the recommendations on forecasting made by the joint departmental/Treasury
review, the Department are committed to review their VAT forecast
accuracy target. We believe that the Department should set an
accuracy target no broader than the one per cent target set for
non-VAT taxes and duties (paragraph 26).
(iv) The Department have been giving increased
attention to tax avoidance, both through staff training and through
the use of private sector expertise on tax planning. While traders
have a legitimate concern not to pay more than they should, we
would encourage the Department to redouble its efforts against
all artificial attempts to minimise tax liability (paragraph 27).
On fines and penalties
(v) The Department's Legis programme is reviewing
relevant legislation in order to rationalise policies and procedures
for common revenue processes. Nearly five years after it started,
however, it has done little to bring about a coherent set of fines
and penalties. This programme should be completed as soon as possible,
so that proposals to update the law can be brought before Parliament
(paragraph 32).
On the landfill tax
(vi) The Department did not achieve their
target of visiting all registered operators in 1997-98 but, based
on visits covering some 98 per cent of tax collected, the level
of under-assessment was not significant in terms of the overall
tax take in 1996-97. We note that the level of detected fraud
is low (paragraph 39).
(vii) Entrust Ltd, which oversees payments to
environmental bodies attracting rebates of the tax, has been in
existence for less than two years. The Department consider it
too early to draw conclusions about the quality of the company's
approval and monitoring procedures. We expect the Department to
carry out a review of effectiveness of the work of Entrust Ltd
within the current year, and to repeat such reviews at regular
intervals (paragraph 40).
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