Motivating consumers to check invoices
This case was submitted as part of the Call for Innovations, an annual partnership initiative between OPSI and the UAE Mohammed Bin Rashid Center for Government Innovation (MBRCGI)
In order to support the operation of certified cash registers, the Financial Administration (FA) launched a crowd-sourcing campaign in 2016 for the purpose of motivating consumers to receive an invoice, take it, check whether it is correct and send it to the FA. This way, every citizen was able to contribute crack down on invoice fraud and to reduce the shadow economy (which is the part of an economy involving goods and services which are paid for in cash, and therefore not declared for tax.)
In the fight against the shadow economy, in 2016 we introduced a system in which certified cash registers are connected via the internet with the server of the Financial Administration of the Republic of Slovenia. The latter confirms and stores data on invoices issued in cash transactions while they are issued in real time. This method prevents items on issued invoices from being subsequently deleted or corrected. However, certified cash registers would not be effective if the provider of goods or services did not issue an invoice to the consumer or issued it via a register that is not connected to the Financial Administration's server.
All companies and business entities operating with cash have been obliged to use certified cash registers in Slovenia since 2016. There are more than 50,000 business entities and companies using certified cash registers, and they issue approximately 3 million invoices every day; therefore, it would be extremely difficult to implement effective supervision of potential violations only with the help of the Financial Administration's inspectors (there are 350 inspectors).
Therefore, we faced the challenge of how to motivate consumers in four tasks: to demand the receipt or an invoice upon the purchase of goods or services, to take it, check whether the invoice is accurate, and to send it to the Financial Administration. From the aspect of the Financial Administration controlling the shadow economy, it is very important that consumers check invoices, because this way consumers provide information about who issues inaccurate invoices, what these inaccuracies are, and who does not issue invoices at all. Thus, we can increase the effectiveness of supervision, because we direct inspectors on the basis of analysing the data received from consumers only to persons subject to inspections who issue inappropriate invoices or do not issue them at all. Since consumers can check issuers of invoices at any given moment, the issuers rarely decide to commit fraud at the time that invoices are issued. The probability of discovering their irregularities is therefore much higher than usual.
In addition to other measures that have been simultaneously implemented (the legal obligation to take invoices, special notifications about taking invoices at cash registers), we wanted to take a positive approach in motivating consumers to take invoices. Therefore, we implemented tax literacy activities for young people in primary and secondary schools, and organised a prize competition (random awards for tax compliance). We were aware of the fact that we would have problems attracting mass cooperation of consumers only with cash prizes. Therefore, we introduced a few novelties in the campaign, which made it interesting to collect and check invoices. We also wanted to attract younger generations, since the aim was to influence the strengthening of tax culture. In order to motivate consumers to decide to actively cooperate in checking the compliance of issued invoices, we introduced an interactive mobile application "Preveri račun" (Check the invoice), which enables simple and fun checking of invoices by scanning the QR or bar code of the invoice. Since 2016, every invoice in Slovenia has had a special QR or bar code. When a consumer scans it with a free mobile phone application, the latter is connected with the server of the Financial Administration and quickly receives information to the mobile phone whether the issued invoice has been confirmed by the Financial Administration and what data were used to confirm it. If the feedback from the Financial Administration's server matches the data on the issued invoice, the consumer confirms on the mobile phone that the invoice is a match; in the opposite case, the consumer indicates that the invoice does not match it. The consumer can also use the application to photograph the invoice. This way, the Financial Administration simultaneously receives information about the accuracy of issuing invoices from consumers.
The Financial Administration is very satisfied with the response of consumers: in just one year of this campaign, they have checked more than 21 million invoices. Considering the fact that Slovenia has 2 million inhabitants, statistically, in one year, every Slovenian checked and sent 10 invoices to the Financial Administration. In 2016, 112,887 consumers (5.6% of Slovenia's population) downloaded the application "Preveri račun" to their mobile phones to check invoices and cooperate in the prize competition. In one year, they checked the invoices of 75% of users of certified cash registers at least once. In other words: consumers used their mobile phones to check three quarters of all issuers of invoices who use certified cash registers.
What Makes Your Project Innovative?
The originality of the approach is the active role of consumers when checking invoices, through their mobile phone by scanning the invoice code. This helped the Financial Administration receive concrete and consistent information on whether the invoices were accurate, and if they were not, what the irregularities were.
Our solution activates consumers through an interactive mobile application "Preveri račun" (Check the invoice), which enables checking of invoices by scanning the QR/bar code of the invoice, consequently contributing to strengthening tax culture. The mobile application enabled consumers to connect to the Financial Administration's server in real time and check the data from the invoice. In other words: as the QR code was scanned, the application notified consumers whether the invoice was confirmed by the Financial Administration and with what data it was confirmed. If consumers desired, they were able to participate in a special prize competition by checking an invoice.
What is the current status of your innovation?
The positive effects of the active campaign with regard to checking and sending invoices to the Financial Administration is reflected in the increased number of applications for social security insurance, as a result of which payments of social security contributions and the prepayment of income tax have also increased. This is partially attributable to the Financial Administration using data from certified cash registers to control undeclared work and undeclared employment.
We estimate that EUR 21.2 million added to the state budget, which can be confirmed with the increase in general government revenue. In 2017 and 2018, we are continuing with the campaign and placing greater emphasis on encouraging consumers to take invoices from companies and business entities that implement services at home (e.g. painters, plumbers, parquetry experts etc.). These services are the most at risk of invoice fraud, and are very difficult to control, since services are provided at home behind closed doors.
Collaborations & Partnerships
The officials of the Financial Administration implemented tax literacy activities in primary and secondary schools, raised awareness among young people, and improved their tax culture. The Government Communication Office assisted us in advertising and communication via social media. For the sake of credibility, the winners of the prize competition were drawn by the Slovenian Lottery. External services providers designed the application that used by consumers to check invoices.
Users, Stakeholders & Beneficiaries
The campaign targeted all consumers in Slovenia, so the campaign aimed to be as extensive and diverse as possible. The campaign mostly focused on young people, who were encouraged via various communication channels to be active and to put every effort into fighting against the shadow economy. Primary and secondary schools invited us to improve the tax culture of pupils and students by way of lectures.
Results, Outcomes & Impacts
- We exceeded our annual plan’s initial goal of 4 million consumer-checked invoices, as we received more than 21 million invoices in one year. In comparison, Slovenia has 2 million inhabitants, 5.6% participating in this initiative.
- 86% of all checked and invoices sent to the Financial Administration were sent via the mobile application, which exceeded our goal of 50% invoices sent via the mobile application and not by normal post in envelopes.
- 75% of all issuers of invoices were checked in one year (2016).
On the basis of the high response of consumers with regard to the participation, we have learned that individuals can voluntarily implement obligations if they are appropriately motivated and know how they profit from this. No one enjoys paying taxes, let alone implementing services (e.g. check invoices). Therefore, we had to make a major move forward in the individual's perception that taxes are important for everyone because they ensure an appropriate standard of living.
Challenges and Failures
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The main challenge was to inform and motivate consumers in 4 tasks: to demand an invoice when purchasing goods or services, to take it, check whether the invoice is accurate and to send it to the Financial Administration (FA). At the start of the campaign, we envisaged 3 issues in particular that could put the project at risk. Due to the nature of its work (collection of taxes), the FA is not a very popular authority with the public, which could be an obstacle in motivating consumers to participate in verifying invoices on a voluntary basis. Consumers and others-also media, could view the campaign as a way of denouncing or snitching on entrepreneurs or companies. We faced the possible misconception that we would spend taxpayers' money on the campaign (including prizes). With the help of a positive campaign where we did not use the argument of force and power, but used a carrot instead of a stick, we successfully eliminated all threats.
Conditions for Success
Several matters were essential for the campaign's success. There was quite a lot of courage needed for us as a state authority to abandon the safe way of strictly requiring the observance of legal provisions and use a more alternative path of motivating consumers to check invoices. We did not get any assurance that the public would support our efforts, nor that the invested financial means would be repaid. Therefore, we dedicated a lot of time and effort to analysing the matter before implementing the campaign. We studied the theory in this field, similar practices in other countries, and past experience in Slovenia. We tried to avoid all assumed problems and mitigate those that we could not avoid. It was also very important that all involved persons believed in the project and were convinced that it was good and worthy of working extra hours on it.
In our opinion, a similar campaign for motivating consumers or taxable persons, where the repressive authority uses a carrot instead of a stick, can be used in several areas. The mentioned best practice has also been introduced by the Financial Administration in other similar areas where we try to motivate tax payers to fulfill their tax obligations on a voluntary basis. Currently in the field of eTaxes, where we motivate natural persons to submit various forms via our electronic eTaxes portal instead of sending them by normal post.
However, it is essential that, despite the experience that we have already had with such practice, we do not miss any step during the preparation for implementation. A lot of attention must be dedicated to all necessary analyses, since this makes the implementation successful.
A legal provision entered into force with the start of the campaign, stipulating that consumers must take an invoice; in the opposite case, they are fined by the Financial Administration with a fine of EUR 40.00. This threat presented a great challenge for the media campaign that was based on the positive motivation of consumers to take invoices.
The issue was resolved by Financial Administration inspectors only warning consumers about their obligation and not fining anyone. This fact was extensively communicated, so that this obstacle was eliminated. Since the Financial Administration did not use repressive measures, although it could have, it obtained the sympathy of consumers and also their voluntary collaboration to check invoices.
Despite an intensive campaign, the Financial Administration did not manage to obtain the support of some known opinion makers, who only viewed the activities of checking invoices as a way of denouncing and snitching on entrepreneurs and companies.