Financial Crime World

Effective Compliance Risk Management Strategies: Lessons from Poland

Introduction

In an effort to combat tax evasion and promote economic growth, the Polish government has implemented a comprehensive compliance risk management strategy that has yielded impressive results. This article highlights the key initiatives undertaken by the National Revenue Administration (NRA) in Poland and their impact on reducing the Value Added Tax (VAT) gap.

The VAT Gap Challenge

Between 2010 and 2015, Poland was losing approximately €8 billion due to large-scale VAT fraud, under-reporting, avoidance, and other forms of evasion. This not only deprived the government of much-needed revenue but also had a negative impact on critical public services such as healthcare, education, and infrastructure.

Reform Initiatives

In response to this challenge, the Polish government undertook several reforms aimed at improving tax compliance:

Creation of the National Revenue Administration (NRA)

The NRA was created to bring together various departments under one umbrella, streamlining tax administration and improving efficiency.

Large Taxpayer Office (LTO) Establishment

A central LTO was established to apply a modern holistic compliance risk management approach. This concept encourages taxpayers and tax administrations to work collaboratively to reduce errors on tax returns and provide tax certainty for taxpayers.

Key Achievements

The implementation of the LTO has been successful, with the VAT gap more than halved between 2015 and 2018 from 25% to 9.9%. Poland is now recognized as one of the top three performers in the EU in reducing the VAT gap.

Performance Dashboards and Debt Management

The NRA has developed its own performance dashboards and improved tax compliance and debt management, further enhancing its effectiveness.

Global Implications

Poland’s experience has significant implications for other countries, particularly those with similar challenges in tax compliance. The World Bank’s TAX DIAMOND tool can be applied globally to assess the operational effectiveness of various aspects of the NRA’s operations.

Knowledge Spillovers

The Polish success story has also inspired knowledge spillovers that will be applied in Nigeria to help their Federal Inland Revenue Service develop a compliance risk management system for VAT.

Key Takeaways:

  • Poland’s National Revenue Administration (NRA) has made significant strides in reducing the Value Added Tax (VAT) gap.
  • The creation of the Large Taxpayer Office (LTO) and its cooperative compliance approach have been key to this success.
  • Poland is now recognized as one of the top three performers in the EU in reducing the VAT gap.
  • The World Bank’s TAX DIAMOND tool can be applied globally to assess tax administration performance.
  • Poland’s experience has inspired knowledge spillovers that will be applied in Nigeria to help their Federal Inland Revenue Service develop a compliance risk management system for VAT.