Originally posted by Toni Piehl as LinkedIn article on April 20th 2024.
Finnish government’s decision to change Value Added Tax rate into a decimal number is causing a lot of additional work in Information Technology (IT) systems to ensure they support decimal numbers. Urgency for this change management work is increasing.
Decision for VAT increase
Finnish government has made a decision this week to change the standard Value Added Tax (VAT) rate from 24% to 25,5%. This tax rate is applied to most products and services sold to consumers and businesses with exceptions for those in lowered VAT tax rate of 14% (e.g. food, restaurant services) or lowest VAT rate of 10% (e.g. medicines, taxi services, books, newspapers, hotels). Changing the VAT rate percentage is common practise which has been already included as a requirement when planning and implementing IT systems. The biggest change in this week’s decision is introduction of decimals into the VAT rate which is an EU first for standard rate VAT. In Europe there is a single country, Switzerland, with decimals in the standard rate VAT. There are four countries though which have decimals in reduced VAT (France, Ireland, Slovenia and again Switzerland).
Effect on IT systems
For IT systems integers are much easier and faster, they require less memory and therefore space, compared to floating numbers which require 4 times as much memory. This memory optimising may have led to IT systems which don’t support decimals without changes in code, databases, integrations and user interface fields.
Decimal support implementation
Partly the reason for not implementing decimal support may be the allocated development budget which may not leave product owner with time to write detailed requirements, such as the requirement to support decimals in the VAT rate fields, as those have not existed before. Based on the use cases seen so far developers have had justified reasons to use the smallest possible space to store every piece of information, which is 8-bit integer capable of storing numbers 0-255 – which is hopefully enough for any tax rate. In the future there is a need to support decimals which take 32-bits in minimum if floating numbers are used, which is 4 times more than when using integers. Many developers have surely already implemented a method for storing VAT rates in numbers including decimals, but just as certain is that there are implementations which are approaching the topic from point of view to optimize memory use and performance. There are also other, more creative ways, of storing decimals to VAT rates but those easily require additional data field and nevertheless need changes implemented in code. And all changes need to be properly tested.
Effects of VAT including decimals
Independent of the reasons for not implementing decimal support thus far – or even if it’s implemented – all IT systems in Finland are required to be verified. This effort could be compared to Y2K verification where aim was to ensure that year 2000 is not causing problems in IT systems, as some developers were saving memory or not aware that systems developed decades ago would still be running at turn of millennium, and year 2000 would have been interpreted as year 1900.
Implementing change starts with authorities
As first step all tax authority systems must support decimals in VAT rates. In addition, all public economy actors must support decimals in their IT systems, also in APIs and in all other integration methods.
Changes in organisations
IT systems are in daily use in corporations, companies, other orgnisations as well as systems made for consumers and all systems must support VAT rates with decimals. This effort is not limited to boundaries of Finland but also companies which are engaged in goods and services sales to consumers (B2C) in Finland, all international actors’ consumer invoice rows need to show value without VAT, and also price with VAT included. This is also true for international suppliers with Finnish customers (B2B) if they are not part of the EU VAT tax exemption system, international trade may include VAT or the invoice total may include VAT of the destination country in invoice total, which is payable by the business buying goods or services.
CRM and other systems
There are also Customer Relationship Management (CRM) systems, warehouse management systems, and order management systems which all must support VAT to be able to follow value of storage and most profitable suppliers or resellers.
Changes in Integrations
Different integrations between IT systems need to be reviewed as many of them don’t support decimals but require use of integers. A valid example is Paytrail, which is the biggest payment operator in Finland between webstores and their customers. Open-source Application Programming Interface (API) documentation is stating that decimal support was not selected for development in 2022 and is still not implemented.
Mobile applications
Not to mention use case specific mobile applications in use for example for travel expense management and reporting, all of which need to support decimals in VAT rates.
Point of Sales (POS) Terminals
Also, every resellers’ Point of Sale (POS) terminals and their embedded databases must support decimals – and receipt printing must support requirement to add a one more digit to receipt VAT field – to continue operations when the new tax legislation becomes effective, which is still within this year. Latest comments from politicians are mentioning wished timing for legislation to become effective is this autumn. When deducting summer vacations from number of working days between now and autumn time there is definite urgency in starting change management immediately.
Verification of successful change
This verification effort is about reviewing all IT systems and ensuring that they support decimals in VAT rates on code level, database level, API level and in user interface as well as in system backend. This means potentially changes in numerous systems and their unit and systems internal integration testing, end-to-end testing as well and integration testing between IT systems as well as end user testing with real VAT values to find, isolate and correct all rare corner cases. This effort is urgent and should be started now to be ready in time.
