ZAMBIA REVENUE AUTHORITY

1. ZAMBIA REVENUE AUTHORITY Voluntary Tax Compliance Cooperative Compliance Model The Experience of Zambia By Priscilla Chitatu Banda

2. Outline of Presentation Introduction The Need for the program Work done Lessons Learnt Approach to the work Future plans Conclusions 2

3. Introduction • A Cooperative Compliance model has not been part of Zambia’s overall taxpayer compliance risk management strategy • In 2016, a decision was made to commence the development of a tailor model of the Cooperative Compliance • Zambia has taken advantage of the existing help available of a pilot project under University Of Vienna, WU Global Tax Policy 2016 CATA Technical Conference

4. The Need for a Cooperative Compliance Model • Zambia operates a self-assessment system. • Zambia does not have a 100% administrative assessment system. • A risk based approach is applied to audits. Cases are selected based on a risk assessment criteria. • Once a taxpayer has been selected for audit, the Authority will normally cover prior periods up to five years depending on the risk identified. 2016 CATA Technical Conference

5. The Need for a Cooperative Compliance Model This approach raises certain concerns especially for taxpayers that wish to comply such as the • uncertainty of the tax liabilities associated with the open years until ZRA has reviewed those years • difficulties in the retrieval of historical records • Resource allocated to a normal audit • penalties and interests arising from audit findings 2016 CATA Technical Conference

6. The Need for a Cooperative Compliance Model ZRA also recognizes that a well functioning cooperative compliance model will result into • correct taxes being paid at the right time • more audit resource being available to audit taxpayers that need to be audited • improved commercial understanding of the taxpayers and the sectors in general 2016 CATA Technical Conference

7. Work done ZRA is still in the pilot phase and the following have already been done • Selection of taxpayers to be invited • Invitation letters have been sent out to selected taxpayers • Responses have been received and initial meetings held to discuss on the detail of the work and approach. • A draft MOU has been done reflective of how the program will run 2016 CATA Technical Conference

8. Lessons Learnt • Zambia thought it worthwhile to start small • Starting small meant making decisions over having • a small number of large taxpayers from selected sectors • the program running in the current structure of ZRA • only domestic taxes being part of the program with the possible exclusion of Transfer pricing matters 2016 CATA Technical Conference

9. Lessons Learnt • In view of the cooperative program being new, consideration given: • to begin with taxpayers from well regulated industries • to avoid industries and taxpayer with past bad publicity • explain the concept to the taxpayer before sending a formal invitation • for taxpayers with parents in jurisdiction that have the program 2016 CATA Technical Conference

10. Approach to the work • Broadly the work approach being adopted is such that • Focus will be on the most recently filed return • Concluded works on the most recent filed return will then be applied to years not audited while taking into account significant changes that have taken place in those years 2016 CATA Technical Conference

11. Approach to the work • Specifically the work approach to be adopted with regard to recently filed and subsequent returns will include the following steps: 1. ZRA obtaining commercial awareness of the taxpayer 2. Self-evaluation of tax risk by the taxpayer 3. ZRA reviews the taxpayer’s self-evaluation 4. Agreeing on the tax risk with the tax payer 2016 CATA Technical Conference

12. Approach to the work • Specifically the work approach to be adopted with regard to recently filed and subsequent returns will include the following steps: 5. Taxpayer comes up with a proposed Tax Control Framework to address the tax risk 6. ZRA reviews the Tax Control Framework 7. New and significant tax risk is brought to the attention of ZRA 2016 CATA Technical Conference

13. Future plans • Zambia hopes to proceed as follows: 1. Have the MOU signed with the identified business 2. Have the first cycle of the program run for a period of 12 months. 3. Have the program evaluated with the assistance of WU Global Tax Policy Center. 4.It is hoped that subsequent to the pilot phase, the cooperative compliance program will then be opened up to a larger number of taxpayers based on them meeting certain specific criteria. 2016 CATA Technical Conference

14. Conclusion The 2008 and 2013 OECD reports relating to cooperative compliance identifies seven pillars for the program to function well. Developing countries may not score very well on all the attributes. Even in such cases it is worthwhile to try the program. What is key is for the countries to factor in the identified weaknesses as they design a tailor made cooperative compliance program. 2016 CATA Technical Conference

15. End of Presentation Thank you