1 / 25

Financial and Tax Reporting for MSMEs Development

Financial and Tax Reporting for MSMEs Development. Samir AGOUMI FCM President Amman- 18 June 2013. Outline. Some information about FCM Financial and Tax Reporting: Accounting and Tax Schemes Compliance Costs Solutions?. 2. FCM. Created in 1999;

fleta
Download Presentation

Financial and Tax Reporting for MSMEs Development

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Financial and Tax Reporting for MSMEs Development Samir AGOUMI FCM President Amman- 18 June 2013

  2. Outline • Some information about FCM • Financial and Tax Reporting: • Accounting and Tax Schemes • Compliance Costs • Solutions? 2

  3. FCM • Created in 1999; • Represents the accountancy profession in the Mediterranean area; • 22 professional institutes of accountants from 18 Mediterranean countries, more than 320.000 professionals; • Acknowledged Grouping of IFAC. 3

  4. The Regional Dimension: • Regional dimension increasingly important => economic spaces do not coincide with national boundaries • Where regional dimension => regional profession stronger • Cumulative, reinforcing impact on country level activities • Bring international perspective to attention of country regulators 4

  5. Mission &Objectives/1 • Promote co-operation among the professional accountancy bodies in the region; • Share knowledge in relation to professional common interests; • Assist members to achieve/improve professional and quality assurance standards in compliance with IFAC requirements; • Ensure that the regional interests and opinions are considered on an international level within the profession; • Promote visibility of professional themes within the region and dialogue with policy makers; • Promote the value of reliable and comparable financial information in the Med Region. 5

  6. Mission & Objectives/2 • To contribute to economic development in the Mediterranean region and; • To work towards the implementation of a more integrated market between the Mediterranean countries. 6

  7. FCM Activities • Network => Exchange of Info & Best Practice among MBs; • Forum => Conferences, Seminars, Workshops, Studies & Research; • Specific Targeted Action => Such as Mentoring, Twinning Programmes, etc.. • Support to IFAC Compliance Programme 7

  8. MED Region • Critical factors: • Strategic dimension/focus/coordination of cooperation activities, • Trade not Aid, • Convergence of regulations, • Support to SMEs, • Trade Agreements, • Institution building. 8

  9. Financial & Tax Reporting Overview • Linksbetweenfinancial and taxreporting • Compliancecosts • Taxburden vs. complianceburden • Formal economy vs. Informal economy • Business dimensionvarieswidelyamongSMEs • Userneedvary (investors vs. providers of finance) • Possiblesolutions • Conventionalapproach • Oldideasfornewtimes • A freshperspective

  10. Financial & Tax Reporting Financial Reporting = TaxReporting? • The case forassociatingtax and financialreportingisatttractive • Alignmentbringssimplicity, cutscompliancecosts and reducesavoidance • But • Financial Reporting (FR) and TaxReporting (TR) havedifferingobjectives • The mainpurpose of FR (IFRS in particular) istoprovide a true and fair view of the capacity of a business to generate profits • The mail purpose of TR is to raisemoney for the governement in conformity with policy objectives (e.g. redistribution of income, incentives, correction of market inefficiencies)

  11. Financial & Tax Reporting Financial Reporting • FR isessentialto a wellfunctioning market economy • FR standardsshouldnotbeundulyinfluencedbyimproperexternalfactors, suchastax policy considerations • Convergence of FR regulationis a major policy objective • G20 Cannes, amongothers • Suchconvergenceispoorlycompatiblewith strong linksbetweenfinancial and taxreporting • Studies show that the use of IFRS asbasisfortaxationis far frombeinganoptimalsolution and itresults in anincrease in the complexity of taxreporting (An accounting and TaxationConundrum, World Bank – CFRR). • Italianexperiencewithintroduction of IFRS (extendedto separate FS, not just consolidated FS) clearlyconfirmscomplexity of assessingtaxes on IFRS reporting.

  12. ComplianceCosts TaxBurden vs. ComplianceBurden • High taxburdenisnotnecessarily due to high taxrates • Taxcompliancecosts can addsubstantiallyto the overallcosts of keeping a small business in the formal economy • Compliancecosts are largely regressive • Researchindicatesthat the costs of complyingwith the tax system can put a particularly high burden on small business in the formal economy • The majority of empiricalstudies on the growth of informal economy conclude thattax and social security compliance are key factorsdiscouraging Micro and SmallEnterprisesfromoperating in the formal economy • Althoughthisistrue in bothdeveloped and developingcountries, the size of the problem (the informal economy) isquitedifferent in developing, developed and transitioncountries

  13. ComplianceCosts TaxComplianceCosts – mainfactors

  14. ComplianceCosts TaxComplianceCosts – mainfactors

  15. ComplianceCosts ComplianceCostsas % of Taxable Turnover – UK Taxcompliancecosts are regressive Smaller Companies => HigherCosts Source: Sandfordet al., Administrative and ComplianceCosts of Taxation, 1989 (data referto 1986-87)

  16. ComplianceCosts Total TaxComplianceCosts – EU Source: EuropeanCommission, EuropeanTaxSurvey, WorkingPaper 3/2004 (estimate)

  17. ComplianceCosts Shadoweconomy as % of GDP (taxcomplianceas a keyfactordiscouragingMSMEs from formal economy) Schneider, Klingmair, ShadowEconomiesaround the World: What do WeKnow, WorkinkPaper 403, Johannes Kepler University, Linz

  18. ComplianceCosts RegionalVariations in Size of Informal Economy Schneider, Klingmair, ShadowEconomiesaround the World: What do WeKnow, WorkinkPaper 403, Johannes Kepler University, Linz

  19. Business Dimension Micro&Small vs Medium • A centralconsiderationisthatrecognising the diversity of MSMEsiscritical to sensibletax reporting and financial reporting design • A key feature of the MSME sectorisheterogeneity • The key challengesrelatetoSmall and Micro ratherthan Medium sizedenterprises • Needs of MSMEsand users of FR vary with the size of an MSME • Micro and Small MSMEsmostfrequently use FR to access finance (users are mostlybanks and state-guaranteedloanschemes) • Providers of finance (Micro and Small) vs. investors (Medium)

  20. Conclusions Some ideasbeingdiscussed • International initiativestopromotesmall business developmentunanimouslyemphasize the importance of tax/financialreporting system reform (EC, OECD, WB, etc.) • Review of differentreportingrequirementstowhichSMEs are subject, in ordertosimplify and consolidate requirementsasmuchaspossible (EC) • Nature of reports, theirfrequency, period of timethatrecordshavetobekept • Simplifytaxadministration • Taxadministrationis more oftencitedas a problemthantaxrates (OECD) • Simplification and exemptionfrom FS filingrequirements (proposedrevised 4th and 7th directive, simplification project, EC) • AuditexemptionforSmallSMEs (proposaltoincreasethresholdsforstatutoryaudit, proposedrevised 4th and 7th directive, EC)

  21. Conclusions Some risksmightarise… • Lesstransparency • Publishingauditedfinancialstatementshelpsfoster a culture of transparency and makes rating of creditworthiness and transactionseasier • Access to finance likelytobecome more difficult • Banks (especiallyafter Basel II and even more so with Basel III) needtorely on reliable, auditedfinancialstatementsto base theirdecisionsupon • Access to finance hasalwaysbeen a criticalfactorforSMEs; so much so thatstate-guaranteedloansschemeshavebeen set up in manyjurisdictions • Duringcurrentfinancialcrisis, bankliquidityisreducedtodangerouslevels and veryfewresources are availablefor SME lending, asitisperceivedas more risky and lowergrade, unlesssupportedbygoodfinancialevidence

  22. Conclusions A fresh look at compliance • Publishingauditedfinancialstatementsincreasestransparency and makestransactions and accessto finance easier • The cost of preparing, auditing and filingfinancialstatementsis a heavyburden on the smallerSMEs and needstobe offset by some kind of advantage • SMEswhoundertaketocomplywithregulationsshouldberewardedwithanhigherdegree of reliability and trust by the TaxAdministration • Some TaxAdministrationsalreadyhavetakensteps in thisdirection…

  23. Conclusions More compliance, more advantages… • Holland • The TaxAdministrationoffersan “IndividualCompliance Agreement” program • Companiessigningthisagremeent, undertake, amongotherthings • toprovide “a system of internal control, internal audit and external audit aimed at preparing and filing acceptable tax returns” • The Tax Administration, in turn, offers several advantages, e.g.: • adjusts the form and intensity of its supervision to the quality of internal control, internal audit and external audit; • ensures timely payment of tax refunds; • issues its interpretation of the legal consequences as soon as possible after receipt of a point of view taken or to be taken, as much as possible in consultation; • will clarify and explain why specific information is requested and mutually agree on the response period

  24. Conclusions As a better alternative to reducingcompliancerequirements: • Eliminate duplicate filing of information • Converge taxreporting and financialreportingas far aspossible • Introduce advantages for SMEsthatwill offset the cost of compliance and auditing: • Easieraccesstocredit (includingstate-guaranteedloanschemes) • Acknowledgement of higherreliabilitybyTaxAuthorities, includingquickerrefunds, priorityhandling of matters, reduced chance of taxaudit, etc.

  25. THANK YOUwww.fcmweb.org

More Related