Accounts of what are necessary to expand tax base
This is a continuation from last week, and last piece on the topic. As it were, these are personal recommendations, further to what many others have undertaken already, i.e. drawing up accounts of what are considered necessary in the expansion of our tax and taxpayers base. Read on:
On presumptive taxation
In concluding last week’s comments on this aspect – in the ultimate analysis, under no circumstance should a taxpayer be allowed to hide for his entire productive life in the comforting embrace of an unduly favourable presumptive taxation system, or non-filling of returns. Progressive assimilation of these into the tax net should be not only through tax education, but also through increased risk perception regarding the likelihood of penalties being imposed.
It is equally important to ensure that small to medium enterprises which are in the normal tax system should not be allowed to migrate into the simplified system to avoid paying tax. In addition, an effective method to monitor small enterprises that opt for presumptive taxation would be to insist on their filing declaration of their accounts annually and it should be made mandatory for them to issue receipts for each transaction, with serial numbers of course.
On small and medium-sized enterprises (SMEs)
Perceived or real high tax rates, the inability to understand a complex tax system and procedures, and the lack of confidence in government’s efficiency in the use of revenues are usually key reasons for low voluntary compliance.
Therefore, tax administration measures to improve SMEs tax compliance could include quick and easy processes for registration and TIN issuance; clear and easily available information on tax registration, filing and payment obligations and procedures; a turnover based regime and audit activities that take into account specific characteristics of different groups of SMEs.
Once compliance behaviour is understood, raising compliance is likely to again call for simplified returns, with simple profit and loss statements and a simplified capital allowance so that whichever SME is selected, their audit remains fair and transparent and not prone to disputes.
Also, setting up of call centres in major TRA regional offices for responding to and resolving basic queries and visit by specialised officers in a group for SME support could be another milestone.
On retail/small traders
Informal and unorganised small traders often have a tendency not to pay taxes and most are not even TIN-registered.
A conducive environment and tax culture should be created to encourage them to pay their tax dues voluntarily. In addition to Special IDs that are being distributed to small traders, they could also be encouraged to use debit cards/mobile transaction more extensively, this way they could be attracted to enter the formal sector.
Further to that, they also would leave an audit trail of transactions undertaken by them, which could be leveraged for widening the taxpayer base.
The small retail traders could also be encouraged to enter the banking network by providing the facility of fast-tracking applications for business, educational, housing loans, etc once they are categorised as tax payers.
On high net worth individuals
Wealth tax base can be increased by following international practices, where revenue authorities, exclusively focus on high net worth individuals (HNWIs).
On this, administratively there is need for a separate unit for HNWIs within the revenue authority structure with a view to improving the understanding of different customer needs and behaviours in order to respond to them appropriately, assisting them to get their affairs right and pursuing those who bend or break the rules.
On special tax treatments
Further to what has been the approach in these recent years, there could still be a room for a comprehensive review of exemptions.
Both the ministry and revenue authority could consider measures to phase out some forms of unwarranted tax exemptions that continue in the form of various fiscal preferences.
The revenue authority could endeavor to analyse the outcomes of these exemptions and inform better decisions.
Specific economic parameters like growth rates of specific sectors, growth of businesses and households, etc could be identified and analysed for increasing the taxpayer base. Such economic parameters, once selected, could be periodically verified, improved and modified.
Cases of broad parameters should be narrowed down into more specific ones as experience in parameter analytics is gathered and consolidated.
Exemptions/deductions based on specific economic areas and industries could be minimised. If at all, investment incentives could receive a tax preference because they directly affect growth; then such incentives should be for specific periods of time. A comprehensive review of exemptions will facilitate the deepening and widening of tax base.
On survey and searches
Surveys and technology-based information and intelligence systems should be used to identify potential taxpayers. Databases from different government agencies could be used to locate those do not file tax return and also those who stopped filling for returns.
Such surveys should be based on growth trend in sectors and industries especially clusters of business units known for use of undocumented and cash transactions; expenditure and lavish life style etc. Tax administrators could develop/use software to zero-in on such behavioural indicators.
Enforcement could be strengthened to heighten the perception of the risk of being caught and of penalty for non-compliance being high. Anti-avoidance provisions should be incorporated in our tax laws and then be implemented with great care and sensitivity.
