Combating the phenomenon of fictitious invoices / State Comptroller
The money laundromat operates under the enormous eye of the state and covers crime and finances terrorism/ShutterStock
Imagine for a moment that we were exposed here to a serious crime, one that kills thousands of law-abiding citizens every year, civilians who are killed on the roads, who are dying waiting for life-saving medical treatment, who need medications that are not included in the health basket, who stand shivering in stairwells, in the absence of a safe room in their homes, or who watch their children receive a poor education in school, as a result of a low level of instruction – and know that their chances of turning them into a tool that helps generate future income are nil.
What would you say about such criminals? You would probably demand to know their identity and ask why nothing is being done against those to whom the cumulative damage they cause, even in human life, is greater than any damage caused by an enemy rising up against us to destroy us.
Unlike terrorists, for example, their weapons are not Kalashnikovs and RPGs, but notepads and pens – and in the age of green invoices, even that is not enough – a keyboard will suffice.
Let's get to know them a little - and no less than them, what they do or don't do to fight them: From the comptroller's report:
"Apart from the financial aspect, an unequal distribution of the tax burden due to tax evasion, including reducing the tax liability through fictitious invoices, causes frustration and harms the ethics of tax payments of tax payers in Israel.
"In addition, the distribution and deduction of fictitious invoices is a central component of the serious crime of crime families and criminal organizations in Israel. These organizations use fictitious invoices as a cover for their criminal activity and to disguise the wealth obtained as part of 'legitimate' activity listed on the invoice."
What is a fictitious invoice, how is it created and how is it used to defraud the Tax Authority?/Official website, State Comptroller's Office
Crime Squared
Yes, you recognized correctly. These are tax criminals who fight each of us with fictitious invoices.
Let's stop for a moment and clarify a few things. The desire to keep in our private pockets as much of the fruits of our labor as possible is legitimate. To a certain extent, one can show understanding even to those who try, here and there, to bend the rules - registering their off-road motorcycle as a delivery vehicle in their private business, the new sports clothes as taking out clothing, and the taxi in which they took the child to judo class as a business trip...
This does not refer to those who are usually targeted by the tax authorities, being an easy target - such as the carpenter who agreed with you to submit an invoice for only a quarter of the value of the work he performed, the gardener who is willing to accept only cash and the tinsmith who arranged the knock on the wing of the car.
These are all very small tax offenders, usually hard-working people trying to survive. If they are caught, they will be punished, of course, but the problem is that their perception covers up the really big and heavy criminals, those who cause billions in damage, but laugh all the way to the bank and key influential positions in Israeli society.
How many billions, you asked? So here: "The total collection from assessments regarding fictitious invoices in 2019-2022 was only about NIS 180 million, compared with estimated minimal damage to the state treasury in VAT terms of NIS 2.51 billion per year." This is stated in the State Comptroller's report, which deals with the Tax Authority's war against the phenomenon of fictitious invoices.
Here is a little more data, this time in percentages, that will illustrate the magnitude of the omission: "In audit files in which investigative actions were carried out or in cases in which a criminal offense is involved, and the amount of the offense exceeds NIS 150,59, an offense discovery report must be opened, which means referring the audit file to the legal department of the Tax Authority for examination in the criminal proceeding.
It emerged that in 598% (1) of the 019,3 assessment files regarding fictitious invoices for which DGA was opened, no indictments were filed and no ransom was imposed. The total assessment charges in these cases were about NIS 2.450 billion. It also emerged that the Tax Authority's legal department did not file indictments in 2009 cases opened between 2018 and <>, and they were closed without imposing a criminal sanction of filing an indictment or holding a ransom."
A computerized system has been developed to assist in detecting, discovering and identifying the distribution of fictitious invoices, but it is updated manually, if at all/ShutterStock
The perimeter fence
The Tax Authority actually set up a system, called System A, whose job is to identify suspicious signs of companies' activity (by the way, today with regard to artificial intelligence, this is a system that can be so streamlined that it will immediately surface such signs – and across the entire breadth of economic activity in Israel), but hold tight: the system is not integrated with the Tax Authority's field units, and in any case, the comptroller found, it has not been updated for about six months.
As a result, they held tight: "The VAT offices and tax assessors did not handle 1,992 alerts on suspicion of 'deduction' (alerts about dealers suspected of withholding input tax from fictitious invoices), which is 66% of the alerts on suspicion of 'deduction' entered into system A (3,021)"
And there is also system B, I know it's difficult, but please try to stay alert, because things are creepy, no less. System B is designed to investigate and verify suspicions, which will enable the Income Tax and VAT to operate. But:
"Although development of the system began in 2018, the system is still not in use. As a result, with the exception of the 309 alerts that were checked and entered into System A, Unit A did not check thousands of alerts that arose from System B, including thousands of critical alerts, and did not flood the alerts in System A. "
You see? About six years ago, development began on a system that is not yet in use and costs (by implication, by means of loss of revenue from real tax collection) billions. Now take this scenario to the private market, look around everyone at the organization in which they are employed and think about whether such a thing can happen when the private pocket bleeds cash. Isn't it? But in the public system, it's cheap money, the money collected from salaried employees and self-employed people who are honest citizens, who pay taxes legally.
This money could have been ours: moving to a more spacious apartment, changing the car to a newer and safer model, spending a family summer vacation in a nice destination, or even just to increase the number of children's extracurricular activities, not to mention expensive tutoring in English and math, for example.
Nukhba terrorists, in the force that carried out the murderous attack of October 7. What does they have to do with fictitious invoices? It turns out he exists/IDF Spokesperson
Wicked and good for them
This money is being stolen by criminals, criminals who reach into the national pocket attached to the private wallet of each of us. If our home were broken into or pocketed out of our pockets, we would call the law enforcement authorities, but in the case of theft through the tax system, the law enforcement authorities have become accomplices to the crime, if not actively then at least by turning a blind eye. But for such a failure, which costs us billions, no one took to the streets to shout "shame, shame, shame." This crime is an orphan.
We will leave the final words to the State Comptroller: "The phenomenon of fictitious invoices has been expanding over the years. The use and trade of fictitious invoices causes minimal damage, in VAT terms, estimated at NIS 2.51 billion annually to the state treasury. In addition, distribution and deduction of fictitious invoices are a central component of serious crime committed by crime families and criminal organizations in Israel, and constitute a means of financing terrorist organizations."
Yes, terrorism, you heard that right - the main thing is that we roll over the countries of the world that allow Muslim charitable organizations to cover up the transfer of funds for digging Hamas tunnels - when all this is happening under our noses as well.
If you deceived the tax authorities, will a policeman come? So that's it - in most cases not even a researcher/ShutterStock will come
Enforcement that is a joke
The Comptroller also examined the activities of the Tax Authority's Investigation Unit. A neglected unit, lacking standards and means, unable to hold even a finger in the dam. Let's refresh for a moment the data, as it appears in the auditor's report.
According to the report, the scope of Israel's shadow economy is 22% of GDP, which was $488.5 billion in 2021 (the percentage calculation is based on a World Bank study of Israel in 2010, adapted to 2021 data).
What else was found? In 453 cases opened by the Investigation Unit, no indictments were filed.
Say how many white-collar offenders have gone unpunished? I wish it would end here – and not only because beneath that white collar hides extensive criminal terrorism activity, but also real terrorism: 79% of financial service providers in the Arab sector, for example (usually referring to "change" companies, check discounting, etc.) found "deficiencies" – a nice word to describe the money laundromat.
Bitcoin. How many cases do you think have been opened over three years for tax evasion using online currencies?/ShutterStock
Stealing with Bitcoin
The Chief Economist at the Ministry of Finance, Shira Greenberg (who has since left her position), estimated that 200,5 Israelis are involved in trading in virtual currencies, which is legal of course, but in many cases may cover up prohibited activity.
Now let's assume that only 10% of them are supposed to be suspects. How many have we reached? To 000,15 "potential criminals"? Well, how many cases have been opened for tax offenses in trading in virtual currencies? Come on, throw away a number... Even if I had asked you to guess, it is doubtful that you would have won: only 5 cases. This, too, was held tight – not in one year, but over three years. Namely - 350 bags per year.
We won't drop the entire case on Tax Authority investigators; sometimes it's an unfair battle between high-net-worth criminals and a depleted authority: in the Jerusalem District, for example, which includes nearly 20,100 taxpayers, only about <> investigators are in charge of the investigations. Crazy.
And suppose there were a hundred of them, any reasonable reader would say to himself, given the startling numbers. What would this "alert squad" do in the face of thousands of criminals who crossed the fence on the way to everyone's wallet? And this may be the place to understand the psychology of the process:
you don't have to capture everyone. Between symbolic to non-existent enforcement, as is currently carried out by Tax Authority investigators, and <>% enforcement, which is not achieved even in totalitarian countries, there are several stations. Enforcement that will create deterrence is enough to cause the prone offender to think twice before committing a tax offense – and this is what the Tax Authority should strive for.
Knesset building. Will there be a single decent MK there who will raise the banner of the fight against economic crime, which claims more Israeli lives than all the terrorist organizations combined?/Image adaptation, Noam Moshkovitz
Killing thousands a year
There will always be those who manage to fool the system, usually thanks to creative tax planning that will stand the test of the courts (although they tend to interpret the law in favor of the system), there will always be those who disappear without being caught, but the system is obliged to ensure that there is enforcement that creates deterrence to the extent that the reasonable person does not want to get in trouble.
There are elements of investigation here, and not just the plumber or electrician caught pushing a NIS 200 bill into their pocket, instead of issuing an invoice for NIS 234 (including VAT) that is taxable. There are elements of indictments here, there is also an element of deterrent punishment: for some reason, criminal law in Israel tends to spare tax offenders. The State of Israel is failing them all.
Would you say we have bigger troubles? Perhaps, but some of these criminals walk among us proudly, ordering "boxes" for the various parties and thus in effect "buying" Knesset members. What are the MKs doing – or in order not to suspect ministers, God forbid, say: What might some MKs do? Press for the appointment of associates to key positions, ones that will allow the dedicated and reliable investigator to understand that there are files that should always be left at the bottom of the pile on his desk. You don't need more than that.
No one died from it, allegedly - but only seemingly. Because the money needed for the system is life-saving equipment in hospitals, he is another social worker who will treat those who are prone to falling into a life of crime, he is another dedicated investigator who will know how to talk to a victim of a sexual offense without causing her further trauma, another special education aide, another traffic policeman who will know how to remove dangerous drivers from the road before claiming innocent lives, not to mention another anti-tank protection system for an armored personnel carrier that roars through the streets of Khan Yunis. Don't tax offenders kill? You made us laugh - they kill more than any other criminal, even if not directly.
And when they laugh all the way to the bank, on the way to another successful vote census, they corrupt and manipulate the public system, the country that so many have faithfully mobilized to defend its borders.
If there is a decent MK in Israel (preferably from a party that does not hold primaries in the current system, which is lost), he must not let the State Comptroller's report raise dust like most of his predecessors. The sovereignty and governance of a state are not only expressed in its security aspect, but also in its ability to effectively enforce a system of laws that is the ceramic vest of all of us.
- More on the subject:
- Money Laundering
- Tax Authority
- State Comptroller
- Fictitious invoices
- enforcement