ben sopel - s3. · pdf filesales integrity program • ontario’s ministry of finance...

Ben SopelDirector, Sales Integrity Program

Ministry of Finance

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Ben SopelDirector, Sales Integrity ProgramOntario Ministry of Finance

Electronic Sales Suppression

Small Business Innovation Challenge | Partnering Forum

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Overview

• About the Sales Integrity Program• The Challenge • Background and Current State• Problem Statement• Desirable Outcomes


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Sales Integrity Program

• Ontario’s Ministry of Finance (MOF) has launched a sales integrity program to address the problem of electronic sales suppression (ESS)

• In June 2017, MOF established a project office to manage the design and implementation of the sales integrity program

• The program’s focus is to increase the integrity of transactions at the point of sale and enhance the data analytical capability to identify ESS


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Electronic Sales Suppression


When ESS is leveraged:

Select items are deleted from the electronic transaction record, falsifying the number of taxable transactions and allowing an individual to retain the difference in cash

The transactions are also reordered so that nothing seems amiss to the tax authorities, or business owner if ESS is undertaken by employees

• ESS is one of the most effective business-to-consumer sales suppression tactics which involves the manipulation of point-of-sale (POS)/electronic cash register (ECR) systems

• ESS is an underground economy (UE) activity that refers to the deliberate and illegal practice of underreporting income, primarily to avoid the payment of taxes

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Implications of ESS - Case for Change


Un-level playing field Creates an un-level playing field for those businesses that choose to pay their fair share of taxes

Reduced business income Reduces businesses income when employees use sales

suppression schemes to steal money

Reduced government tax revenue

Reduces tax revenue used for essential government services

Risk for businesses Creates a risk for business owners when employees use these schemes and are discovered by tax authorities

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Times are Changing……


POS platforms are many, and

constantly growing, e.g. Online POS,

Mobile POS, Cashier-less POS

etc.

ESS technology is advancing, making

detection more challenging, e.g. Phantom-ware,

Zappers etc.

Payment technology is

becoming more and more

advanced, e.g. EFT, Online etc.

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Magnitude of the Problem• UE activity for 2013 totalled $45.6 billion in Canada or about 2.4% of gross

domestic product (GDP), by Statistics Canada

• Three industries (i.e. residential construction, retail and hospitality) accounted for more than half of the total UE where cash transactions are common

• The total value of the UE in Ontario was estimated to be $16.7 billion or about 2.4% of GDP, similar to national GDP ratio

• Quebec implemented tamper-proof secure recording modules in the hospitality sector to combat ESS; Revenue Quebec estimates the program will have recovered more than $2 billion in taxes by 2019 that otherwise would have been lost


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ESS Solutions


ProhibitCertify

RecordTransmit

Ban and prohibit sale and use of ESS software / devices

Require all POS systems to be certified against tampering

Require all POS systems to record all sales transaction data

Require all POS systems to record and transmit all transaction data to tax authority

Not widely implemented.

Used in Rwanda, Slovakia, Italy,

Hungary

Used in Quebec, France, Belgium, Austria, Sweden

Used in Germany, Netherlands,

Greece

Current state in Ontario

• Multiple jurisdictions have designed and implemented solutions to combat ESS primarily focused on the certification of POS/ECR systems and/or the secure recording of sales transactions

• These solutions have largely been designed by tax authorities leaving an opportunity for innovative technology companies to determine if alternate solutions are feasible

Electronic Tax Register Electronic Fiscal Printer

Sales Control UnitElectronic Signature Device

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Problem Statement


• Recognizing the importance of a fair and competitive market and to ensure the integrity of the sales tax system, there is an identified need for a cost-effective, user-friendly and secure means of ensuring sales transactions are recorded and sales taxes are being remitted in line with tax obligations

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Desirable Outcomes


The solution should:

create a verifiable, tamper-proof record of completed taxable transactions

enable transaction records to be accessed easily for audit purposes and to identify ESS

be fully automated, with no manual processing and minimal process burden on businesses

protect consumer privacy

be easy to integrate into existing and emerging sales platforms/systems

address evolving payment and business models

be scalable

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Additional Considerations


To encourage adoption the solution may include end-user benefits such as:

decreased sales tax reporting effort by automating accounting and reporting

requirements

provide increased protection against employee related theft

simple integration with existing business accounting software

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ben sopel - s3. · pdf filesales integrity program • ontario’s ministry of finance...

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