Monday, October 07, 2019

Receipt lottery: how to save 10,000 hours of Czech lives a day

Some $2 million worth of time savings per month

The EET, the online realtime verification of all cash payments in Czechia to fight tax evasion, has been repeatedly criticized on this blog because it was an extra burden for the businesses and self-employed people, a sign of arrogance of the government (and of the employees towards to the economically independent folks), a risk of abuse of the data, and for other reasons.

But by now, the system – that hasn't provably reduced the tax evasion according to the data – is a part of reality and Czechs including your humble correspondent are adaptable beings. I am not even 100% sure whether it would make sense to abolish this new piece of bureaucracy now. Well, if I could, I would probably still make it optional, while telling everybody that the people using EET have a lower risk of an audit.

An hour ago, I received a surprisingly sensible response from the Czech finance minister Ms Dr Schillerová – about my proposal to improve the "EET lottery".

Someone bought butter for CZK 25 ($1.1), eggs for CZK 45.50, and CZK 70.50 was rounded to CZK 71. One crown is exactly strong enough to make the payments in integer amounts of crowns "sufficiently fine and accurate yet easy to compute with and remember". She got a receipt including the cumbersome hexadecimal BKP and FIK codes; you know, butter and eggs are basically rocket sciences.

You know, the EET works as follows. Whenever a consumer pays cash to an entrepreneur or shop anywhere in Czechia, the business is obliged to print a receipt and immediately send an electronic copy of the receipt to the finance ministry. The receipt must include the cash amount that was paid (and that will have to be taxed, that is the point), some ID of the business, date, time (HH:MM), and a long hexadecimal code BKP that may be influenced by the computer owned by the business.

The finance ministry's computer responds that it was received and produces another, quasi-random code FIK that is sent back to the business, so that the receipt may ideally be printed including the FIK code. In most cases, it is. In some situations, the registration may be delayed etc. and there are some receipts without a FIK code.

To get the tablet, printer, software, Internet connection, an average business spent several days and many hundreds of dollars. But that's already the past. One receipt takes a few seconds to be printed and given to the consumer – in most cases, it doesn't seriously differ from the receipt that was given to you before EET was introduced.

One extra mechanism that is meant to encourage the consumers to demand the receipt is the so-called EET lottery. Every receipt may enter a lottery. In the middle of each month, some receipts win. The prizes include CZK 1 million (USD 50,000), CZK 200,000, a car, and a thousand CZK 20,000 prizes – and something I forgot. The overall value of the prizes is over CZK 5 million a month (over USD 200,000).

You may send the data (amount-date-time plus the first 16 hexadecimal digits from either FIK or BKP) from every receipt of yours. About 300,000 Czechs are participating at all – a small part of the nation. They send about 16 million receipts a month. These numbers tend to decrease. You may see that the average receipt wins CZK 5 million over 16 million which is some CZK 0.30 – a penny and a half. It's the "real value" of one receipt. So it's damn obvious that if you are spending any substantial time with a receipt, it's just for fun, a case of mini-gambling – it is not a sufficient amount to justify the time that you spend with this game. Because Czechs are rational, they are rationally abandoning this lottery.

I think that the average person spends about a minute by keeping and copying the data from a receipt. It could be better if the scanning software in the smartphone apps worked well but they don't. It's really faster to copy the data manually in most cases and it's hard to do it much faster than in one minute – especially if you include some time needed to open the website and go to the "new receipt" page etc. So Czechs basically waste 16 million minutes a month with this lottery. That's some CZK 50 million if you translate it to the money, using some sensible hourly wage as the conversion factor.

Yes, note that I think that people waste 10 times more time with the EET lottery than what they get in prizes (CZK 50 million vs CZK 5 million).

There's a way to make it better, I wrote her (the minister). Make a pre-selection: only the EET receipts whose FIK starts with E – or any similar condition – will be eligible for a prize. The buyers will be able to throw away 15/16 of the receipts right away – and they will save the time. Meanwhile, the 1/16 of the receipts whose FIK does start with an E will have a much greater chance to win a prize. About a million of such receipts would be sent – so the chance would increase from 1-in-1000 to 1-in-50 to win at least those USD 1,000 prizes.

After a few days, she responded (maybe it was her people but it looked like she is in control and follows the stuff), apparently understanding my proposal clearly, and raising objections:

* There are EET receipts without a FIK code (the "regular regime" has FIKs, the "simplified regime" is offline, the reporting is delayed by up to 5 days, and there is no FIK), so the "yes-E/no-E" separation cannot be done for them (for the "simplified regime" receipts)
* And indeed, you can't safely replace the criterion from FIK to BKP because the businesses have some power over the choice of the BKP and they could increase the chance that their clients win the lottery.

Those were totally sensible objections that indicate a nontrivial level of expertise at the ministry. Well, they have introduced the lottery at the beginning so they must understand something about it... The "proof that such an expertise exists" at the ministry is surely a positive aspect of (even) a harassing policy such as the EET. But I am pretty sure that certain ex-ministers (we could disagree which ones, however) wouldn't be capable of understanding the proposal and raising legitimate objections. They couldn't do it personally and they wouldn't even have the right people over there who have enough expertise. Or these competent people wouldn't affect the e-mails.

Needless to say, there is an easy fix of my proposal:

* Receipts without a FIK code go to the lottery
* Receipts with a FIK code not starting with an E aren't eligible in the lottery
* Receipts with a FIK code starting with an E go to the lottery with the weight of 16, i.e. in 16 copies, i.e. they have a 16 times greater chance to win than the receipts without a FIK code

One could decide whether the "16 copies" means that in principle, you can really win more prizes than one with such receipts – if you are really lucky – I would personally find it a somewhat better idea to make things really simple. There could be a filter that cuts the maximum number of prizes that you win to 1. My opinion isn't strong about this detail. It's rather unlikely that a receipt wins twice. Alternatively, you could change the weight 16 above to 1 and 1 to 1/16 – the FIK-less receipts would undergo a 1-in-16 random selection before they would be included.

(The relative weight 16-to-1 could be adjusted to make things more fair, e.g. because a larger number of FIK-ful receipts would be entered, or it could be adjusted to encourage the businesses to switch to FIKs etc.)

With this setup, a receipt with a FIK and without a FIK have the same chance to win as they had before the adjustment of the rules – before you look whether there is an E in the FIK code. A part of the random choice is already made at the moment when the receipt is printed for you – you either get the E at the beginning of the FIK code, or you don't. If you do get an E, your chance in the monthly lottery is much higher than it used to be. If someone tries to register a non-E-FIK receipt, he is told that the chance is zero, so everyone learns about the reform quickly.

The result is that 15/16 of the receipts with a FIK (and a great majority of receipts have a FIK) may be thrown away within seconds – which are needed to see that the FIK code doesn't start with an E. The lucky receipts with an E at the beginning are more exciting. Some 15 million minutes of the Czechs' lives would be saved each month – which may be translated to some $2 million a month of "real savings" for our economy. These are not some $2 million that are moved from someone's pocket to another pocket. These two millions are really saved because they're currently being wasted by the lottery whose chances to win are too small.

Other finance ministry stuff: Minister Schillerová celebrated the improved Moody's rating for Czechia, to Aaa3, a few days ago. The previous improvement of the Moody's rating occurred in 2002. I do care about it a little bit. So we're the best and only post-communist country with such a high rating – currently on par e.g. with Belgium. It's somewhat bizarre that it came now, exactly when the government expenses are getting a bit out of control. The mandatory spending grows by some 7% a year, clearly much faster than the economy.

Note that these populist changes – 7% a year, wow – are much faster than the changes resulting from the changed demographics. People often scream about the catastrophe of the aging population, depopulation etc. All this alarmism is complete nonsense. First of all, the Czech population is going up (and set new post-war records), although it's due to the (white) immigration – Ukraine, Slovakia etc. But even without the immigration, the decrease of the population would be tiny (some 0.2% a year) and the decrease of the productive people would also be tiny, below 0.5% a year.

Clearly, modified pensions etc. that change the mandatory spending by 7% are much more important for the financial sustainability of a country than some slow changes in the life expectancy or the overall population! It's too bad that so many people can't figure this fact out – the alarmism about the aging population or decreasing population etc. is just another reflection of the irrationality and mathematical illiteracy of the bulk of the Westerners.

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