The Revenue Commissioners are efficient in collecting VAT but need to improve compliance among small traders and tackle those operating in the black economy, the Office of the Comptroller and Auditor General has concluded.

According to a C&AG report, published yesterday, the Revenue collects 90 per cent of VAT due from all traders and almost 100 per cent in the case of "large liability traders".

However, the Comptroller and Auditor General, Mr John Purcell, says the Revenue needs to review the operation of the annual accounting scheme for small traders. "It would appear that many small traders take prolonged credit by ignoring initial demands for payment and only pay at the later stages of the collection process," says the report.

In terms of auditing, the report says the Revenue is right to direct its policy at groups where tax is considered most at risk. However, it says more random audits should be done to establish estimates of the overall level of compliance.

"Better use could be made of information from audit activity and from the Companies' Registration Office (CRO) to assist in detecting unregistered traders," the report states.

It does not accept the view that due to the high level of "inactive or dormant companies on the CRO data", matching it with lists of active traders would be of little benefit. "Revenue should consult with the CRO to identify how this information might be refined to be of assistance in detecting liable unregistered companies." Mr Purcell says VAT audit activity is good value for money and if more resources were given to the area, the VAT yields would be higher.

The Revenue Commissioners yesterday welcomed the report and said it represented an "independent confirmation of the success of the various initiatives which have been taken in recent years".

In regard to the report's comments about lack of knowledge of the black economy, the Revenue Commissioners said measuring the size of the black economy is "difficult". It adds that it is devoting considerable resources to the area and some recent measures include the setting-up of a mobile revenue service, a special inquiry programme to detect unregistered traders and joint operations with the Department of Social, Community and Family Affairs.