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Tax compliance cost surveys Jacqueline Coolidge ITD Conference, Manila March 2 - 5, 2010

Tax compliance cost surveys Jacqueline Coolidge ITD Conference, Manila March 2 - 5, 2010. What are tax compliance costs?. Enterprises’ tax compliance and statistical reporting costs – these are NOT amounts of taxes paid, but costs :

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Tax compliance cost surveys Jacqueline Coolidge ITD Conference, Manila March 2 - 5, 2010

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  1. Tax compliance cost surveys Jacqueline Coolidge ITD Conference, Manila March 2 - 5, 2010

  2. What are tax compliance costs? • Enterprises’ tax compliance and statistical reporting costs – these are NOT amounts of taxes paid, but costs: • of working time spent by accountants and other staff on calculation taxes, preparing all reports, providing explanations to tax authorities, trips to tax offices • for purchasing, installation and maintenance of corresponding equipment (cash registers) and programs (on workflow automation) • for purchasing all necessary forms of reporting, etc. • for outside consultants • Enterprises’ tax compliance and statistical reporting costs – these are NOT amounts of taxes paid, but costs: • of working time spent by accountants and other staff on calculation taxes, preparing all reports (including statistical), providing explanations to tax and statistic authorities, trips to these bodies • for purchasing, installation and maintenance of corresponding equipment (cash registers) and programs (on workflow automation) • for purchasing all necessary forms of reporting, etc. • for outside consultants

  3. Why should we care about tax compliance costs? • Tax compliance costs add significantly to the cost of doing business • Tax compliance costs can be extremely regressive: a relatively minor burden for large firms but extremely onerous for small firms • The costs and risks of tax compliance (e.g., the risk of incurring penalties) can deter business formation and formalization of informal firms.

  4. Examples of TCCS • South Africa • Yemen • Ukraine • Peru • India (Bihar) • What data did we get and how did we use it???

  5. South Africa Tax Compliance Burden • Time and cost estimates for four main taxes: • Income Tax (IT) • Provisional Tax (PT) • Value Added Tax (VAT) • Employees’ Tax (ET) • Significant processes: • Registration • Preparation, completion and submission of returns • Objections & Alternative Dispute Resolutions (ADR’s) • Audits, inspections & written queries from SARS

  6. Regressive Compliance Cost Firms registered for VAT Firms not registered for VAT Source: FIAS Tax Compliance Cost Survey South Africa, 2007

  7. South Africa: Formal vs. Informal • About 12% of SMEs reported having operated for some period before registering for tax, of which: • Majority operated informally for less than five years • About one quarter operated informally for less than one year • Most informal firms have been operating for several years: • About 2/3 for 5 years or less • About ¼ for 6 – 10 years • Just over 11% for more than 10 years

  8. Informality comes with significant costs for many firms • Percentage of informal Yemeni businesses facing costs to avoid tax payments/ remain informal Source: FIAS Tax Compliance Cost Survey in Yemen, 2008

  9. Yemen TCCS – capacity for tax compliance

  10. Reported incidence of bribes to tax officials by businesses in Yemen(2008)

  11. Estimated profit reported for tax purposes in Yemen

  12. Tax morale (agreement with statement, scale 1 – 5) in Yemen, 2008

  13. Ukraine TCCS – incidence of inspections

  14. South Africa: Incidence of inspections Income tax VAT Employees’ tax • VAT related inspections seem to be more frequent than inspections related to other taxes

  15. Advantages and disadvantages of simplified regimes – Peru: reasons offered … ….Not to file under RER … to File under RG N=1302 n=1289

  16. Bihar: On an average, over assessment of VAT liability is observed in 1 out of every 5 cases… % of cases of over assessment ; Base - 181 Almost half of the intermediaries believe that high assessment is given to 10-25% of the businesses… Level of over assessment ; Base - 181 More than 2/3rd of the tax intermediaries estimate that the extent of over assessment upto 25% of the VAT amount

  17. Most businesses believe that ”Achieving tax collection target” is the main reason officials give a high assessment, and “correction” to be the second reason Base – 181 respondents However, almost 25% of the intermediaries believe the “main reason” for this move is aimed at making personal gains… 17

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