Use of monthly tax return data

Monthly tax return data Data used in the production of Short Term Business Statistics Value added tax indices for turnover, exports, domestic turnover Employer’s payments wage and salary indices Data is also used in National Accounts and Business Register Monthly tax return data is very comprehensive. It includes all enterprises that are liable to pay taxes or those who are regular wage payers 25.2.2019

Finnish tax system; Value added taxation and employer payments Tax liability Commercial selling of goods and services, imports, farms All employers paying wages and salaries are obliged to withhold earned income tax from wages and salaries and to pay social security contributions Exemptions Small scale activity: annual turnover < EUR 8,500 Health care, social welfare, education, financial and insurance services, real property, lotteries and money games, performance fees Non-regular wage and salary payer 25.2.2019

Periodicity VAT return Primary producers and visual artists: annual reporting and payment Others: monthly tax return and payment Return for employer payments Regular wage and salary payers: monthly tax return and payment Non-regular wage and salary payers: annual reporting and payment 25.2.2019

Monthly tax return data Arrives at Statistics Finland once a month from the National Board of Taxes Every file contains data for 6 months: the reference month and 5 previous months. Therefore the indicators for turnover and wages and salaries may be revised 5 months after the first publication The first delivery contains about 90% of the total sum of turnover/wages and salaries. 25.2.2019

Data processing Checking the general validity of data tax bases (22%, 17%, 8%), overall tax base overall turnover = overall tax base + tax-exempt turnover + sales of goods to other EU member states Calculation of variables Checking of double data records Correcting tenfold and hundredfold numbers 25.2.2019

Data checking - “mechanical” and manual All systematic and logical errors are corrected automatically in SAS programs = “mechanical” checking VAT: ‘tax-exempt turnover’ misunderstood as tax base -> estimation of correct values by combining variables Employer payments: Double wages Manual checking Comparing the actual amount of taxes paid by bank transfer to other variables => Special variables to indicate the inaccuracy in the data record After corrections the data is uploaded to the Sybase database 25.2.2019

Problems with monthly tax return data The data is vulnerable to changes in legislation and accounting practices, which affect the figures and may become a source of bias Other errors in administrative data: changes in the business structure Some enterprises are not tax liable or are not required to report monthly (small scale activity, health care, etc.) Human errors in filling the forms, errors in the optical reading 25.2.2019

Changes in monthy tax return data in 2010 Companies with yearly turnover less than 50 000 euros will no longer be in monthly data. If the yearly turnover is less than 50 000 euros, but more than 25 000 euros, companies will report quarterly. If the yearly turnover is less than 25 000 euros, companies will report yearly. But if such company is also an employer, the reporting will be quarterly. Payments will no longer be divided into VAT payments and employer’s payments. 25.2.2019

The purpose of the project To develop new methods for quality analysis and automatic correction of the monthly VAT and employer payments data automatic recognition and/or correction of 1) mergers and split-offs 2) changes in accounting practices and 3) outliers Due to reformation of legislation in 2010 it is needed to investigate and develop a method for using quarterly data in monthly production of short term indicators 25.2.2019

Prospective methods

Industrial production index (IPI) and tax return data Significant part of small and medium sized enterprises in certain industries are left outside the IPI Recent indications that the output of enterprises left out is developing differently Turnover of small and medium sized enterprises from tax return data Tax return data increases the coverage of the IPI No increase in response burden 25.2.2019

Problems - Current month T Data from previous month T-1 Incomplete Possibly incorrect Tight schedule Limited resources Lengths of comparable time series are limited 25.2.2019

Solutions Use of NACE group level data Automated checking Data dependent acceptance regions for turnover or for statistics depending on turnover Estimation of the real level of turnover for Month T-1 and Month T SAS-implementation 25.2.2019

Data processing 25.2.2019

Automated checking - Mean absolute deviation 25.2.2019

Automated checking - T2 chart 25.2.2019

Filtering - Kalman filter - Previous month 25.2.2019

Filtering - Kalman filter - Filtering error 25.2.2019

Estimation - Kalman filter - Predicting current month 25.2.2019

Estimation - Kalman filter - Prediction error 25.2.2019

Firm level use of these methods Mean absolute deviation Problems with large variation of turnover T2 chart Problems with the length of turnover timeseries needed CPU time requirements can be substantial Further tests are needed 25.2.2019