For a long time self-employed workers and small companies have asked the Finance Ministry to let them claim their VAT tax upon invoicing, not at set three month internals. Their goal was to not have to pay taxes too far in advance.
Still, once the initiative was put into effect, only 4% of the self-employed workers and small businesses took advantage of it. In gross numbers, that is barely 25,000 self-employed and 37,000 small companies. This is a ridiculously low amount of workers, who typically have government contracts. Several factors explain the botched tax measure. First, the workers and companies have to jump through a lot of hoops. The Tax Agency should mind its own rules and procedures, but also respond to taxpayers needs with equal zeal. Generally, this method is lacking.
The Service Provider Payment Plan is another factor influencing how companies and self-employed workers use the VAT de caja. The Plan's positive effect has eased savings stress for small companies and the self-employed and makes them a little less hungry for cash. But pressure from clients is the main reason the VAT change will be rejected -- specifically, small clients, who have warned that they will either shave some services or charge more to make up for losses.
Why? Because the new method would reduce the companies' financial margins. For the Finance Ministry, the failure is just relative bad news, because the VAT de caja puts tax revenues in their hands faster, which means that they will hold the money longer before issuing refunds. The Agency has not anticipated the problems associated with companies and self-employed workers not taking advantage of the tax benefits it offered.
