Your Taxes: Big Brother is watching your online life

“It’s hard for me to find the receipts for what I sell on the Internet.”

By LEON HARRIS
August 8, 2019 21:02
3 minute read.
Calculating taxes

Calculating taxes. (photo credit: INGIMAGE)

The Israeli Tax Authority revealed on July 28 that it spends time on Facebook, to the detriment of some taxpayers. The ITA also spends time in the physical world in our offices at times – and it is not tea and scones they are after.

For example, posts on Facebook and Instagram of a bridal dress store went viral and the ITA read the reviews of customers who bought dresses in the store. ITA officials then checked out those reviews to the books of the store and even contacted the customers. Lo and behold, sales amounting to NIS 20,300 weren’t recorded in the store’s books. When quizzed about this by the ITA, the store proprietor replied, “It’s hard for me to find the receipts for what I sell on the Internet.” The conversation which followed with the ITA was probably equally hard.

What’s it all about?

Israel has detailed bookkeeping regulations which require prompt recording of all revenues. The ITA likes to regale us with such tales of how they go out and about and detect businesses that don’t always manage to book items of income straight away.

Is that all?

No. In another incident, the ITA sleuths came across a bank transfer of no less than NIS 176,000 which escaped the notice of the owner of a software development house because it wasn’t recorded by way of a receipt or invoice. When asked about this not insignificant amount, the company owner replied, “I didn’t go into the bank and I didn’t notice it.”

In another case involving a blinds business, seven post-dated checks totaling NIS 28,000 did not make it into the books. The taxpayer explained, sort of, “I didn’t cause any trouble, I showed you the checks.”

A lawyer was also caught when asked to produce unbanked checks in his office. He produced a check for NIS 3,429 which was not yet recorded in his books. When asked to explain this, he replied, “To help the client I took the check and didn’t get round to issuing a receipt.” Needless to say, lawyers are held to a higher standard. They are expected to uphold the law, including the tax law.

These incidents occurred when the intrepid eagle-eyed ITA officials recently conducted book inspections in industrial, commercial and service businesses in the Tel Aviv-Jaffa area. Out of 91 such inspections, 9% failed to record income as required. The ITA routinely conducts such surprise visits across Israel with a view to “collecting “true tax” and increasing tax equality among Israeli citizens” (but they’ll stop at no one).

The ITA also checks out Interior Ministry records looking for people of working age in Israel who do not appear to be working and paying tax. They may then receive a tax registration form in the mail, also known as the “last-chance form.”

So what are the rules?

Unlike other countries, Israel has detailed bookkeeping rules for businesses and customer billing rules. Approved Israeli software or printed books must be used – not Excel, Word, QuickBooks or Sage. Otherwise, the ITA not only levies fines, it can also estimate taxable income, which is never good for the taxpayer.

As for post-dated checks, receipts should be issued for them immediately, and invoices are generally required when the check matures or the work is done. Goods transported on the roads must be accompanied by an invoice or a delivery note.

In practice, smaller businesses typically outsource their accounting and tax reporting to an accountant or bookkeeper who has all the approved software and can deal with the filings by the middle of each month. They must let the accountant or bookkeeper have all the paperwork on a regular basis. They should also provide read-only access to their bank accounts and credit card accounts on the Internet. Larger businesses usually have in-house accounting departments.

Comments

The moral is that businesses need to keep good books and write up income and post-dated checks immediately upon receipt. The end of the year is not an option. And don’t forget your Facebook and Instagram successes must be successfully recorded in the books, too.

As always, consult experienced tax advisers in each country at an early stage in specific cases. The writer is a certified public accountant and tax specialist at Harris Horoviz Consulting & Tax Ltd. Leon@h2cat.com.


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