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Module 4.1 - Revenue Administration

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5 views

Module 4.1 - Revenue Administration

Uploaded by

maryan9625
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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INTRODUCTION TO PUBLIC FINANCE

MANAGEMENT

Module 4.1 -Revenue


Administration
Module map
Module outline
• Tax policy and Revenue administration
• Main categories of taxes
• Conditions for effectiveness, transparency and
due process
• Institutional arrangements
• Revenue Forecasting

3
High risk of Fraud and Corruption

• Tax Authorities handle large amounts of money and


considerable scope for waste & corruption if insufficient
oversight & accountability:
• Effective internal & external audit & legislative
oversight function.
• Fraud and Corruption needs to identified and
assessed

4
Tax policy and tax revenue administration

• Tax policy determines


• The total tax burden
• The structure of tax revenue and the relative share of each tax
• The basis and the rate of each tax

• Revenue administration fulfils the following basic tasks:


(all areas prone to fraud and corruption)
• Identification of the taxpayers
• Calculation of the tax basis, establishment of tax due by the
taxpayer
• Tax collection
5
Module outline
• Tax policy and Revenue administration
• Main categories of taxes
• Conditions for effectiveness, transparency and due process
• Clarity of tax obligations
• Effective measures for taxpayer registration & tax assessment
• Effectivene collection of tax payments
• Institutional arrangements
• Institutional arrangements for tax collection
• Organisational aspects of revenue agencies
• Revenue Forecasting

6
Categories of revenue
• Direct vs indirect tax
• Direct tax: usually collected on the basis of a nominal
enrolment, periodic, usually supported and paid directly by
the tax payer (except wage tax/social security contribution)

• Indirect tax: linked to a specific event (e.g. the purchase of a


consumption good), it is supported by the consumer but
paid by the seller.

7
Classification of Revenue
1 Total Revenue
1.1 Taxes
1.1.1 Taxes on income, profits, and capital gains
1.1.2 Taxes on payroll and workforce
1.1.3 Taxes on property
1.1.4 Taxes on goods and services
1.1.5 Taxes on international trade and transactions
1.1.6 Other taxes
1.2 Social contributions
1.2.1 Social security contributions
1.2.2 Other social contributions
1.3 Grants
1.3.1 From foreign governments
1.3.2 From international organisations
1.3.3 From other general government units
1.4 Other revenue
1.4.1 Property income
1.4.2 Sales of gods and services
1.4.3 Fines, penalties, and forfeits
1.4.4 Voluntary transfers other than grants
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1.4.5 Miscellaneous and unidentified revenue
Module outline
• Tax policy and Revenue administration
• Main categories of taxes
• Conditions for effectiveness, transparency and
due process
• Institutional arrangements
• Revenue Forecasting

9
Running Head 12-Point Plain, Title Case

Conditions for effectiveness, transparency and


due process

Effective
Transparent taxpayer
registration Effective tax
tax liabilities
and collection
(PEFA PI 13)
assessment (PEFA PI 15)
(PEFA PI 14)

Citizens have a clear understanding of their tax obligations


and comply with registration and assessment requirements
Tax agency is able to collect all tax due
Transparency of Taxpayer Liabilities
Clarity & Comprehensiveness of tax liabilities
Requirements
(1) Clear and comprehensive legislation with limited discretionary
power of tax agency
(2) Easy access to understandable information on tax liabilities
and administrative processes
(3) Existence and functioning of tax appeal mechanisms

11
Effective Tax Payer Registration and Assessment

• Controls in taxpayer registration system  those who


should be registered, are registered. Registration then
enables assessment.
• Unique tax payer identification system
• Database with linkage to other relevant government
systems
• Occasional surveys
• Effective penalties for non-compliance
• Effective system to audit self-assessments

12
Effective collection of tax payments (1)

• Tax liabilities still unpaid at end of FY should be


paid in next FY.
• Tax collections should be transferred to Treasury-
controlled accounts (daily)
• Tax collections submitted to Treasury must be
consistent with assessments. Any inconsistency
needs to be checked

13
Module outline
• Tax policy and Revenue administration
• Main categories of taxes
• Conditions for effectiveness, transparency and due
process
• Clarity of tax obligations
• Effectiveness of measures for taxpayer registration & tax
assessment
• Effectiveness in collection of tax payments
• Institutional arrangements
• Institutional arrangements for tax collection
• Organisational aspects of revenue agencies
• Revenue Forecasting 14
Example of institutional arrangements
• General directorate for customs and indirect taxes: bases
the taxation and collects
• Taxes and duties on imports and exports
• VAT on imported goods
• Domestic taxes on fuel products
• Excise duties
• General directorate of taxes: assesses the tax due and
sometimes collects
• Direct taxes
• Domestic VAT
• Land tax, etc.

15
Tax recovery: two main variants
1. Revenue administration establishes the tax base, the tax due
and issue a request of payment.
• 1.1 In some countries (francophone), the Treasury collects the tax
• 1.2 In others the revenue agencies collect the tax
2. The taxpayer assesses the tax due and pays it, generally to
the revenue agency
Often the case for Corporate tax, VAT.

•
16
Organisational aspects of revenue administration
(1)
Two models:
• Revenues are administered by administrative division
of the ministry of Finance
• Autonomous, or semi-autonomous under MOF,
revenue agencies/authorities have been established in
the interests of efficiency;
• May have separate salary structure;

• Hiring & firing does not have to be approved by civil


service MDA covering MDAs
• Not subject to same control regime as for MDAs;
17
Organisational aspects of revenue
agencies (2)
• Revenue administration usually organised along functional
lines, particularly: Inspection, data processing, internal
audit and administration.
• Common to have Large Taxpayers Unit (LTU), a small
number of taxpayers may represent a large proportion of
all tax collected.

May include natural resourced-based


companies, or these may be covered by
separate unit.
• Customs Dept. may have Enforcement Unit (anti-
smuggling). 18
Module outline
• Tax policy and Revenue administration
• Main categories of taxes
• Conditions for effectiveness, transparency and due process
• Clarity of tax obligations
• Effectiveness of measures for taxpayer registration & tax
assessment
• Effectiveness in collection of tax payments
• Institutional arrangements
• Institutional arrangements for tax collection
• Organisational aspects of revenue agencies
• Revenue Forecasting

19
Revenue forecasts and projections (1)

• Importance of acurate revenue estimates


• Legally the amount of revenue budgeted for year t is
only a forecast
• For the preparation of the budget: determination of the
expenditure ceilings depends on it
• For medium-term consistency (e.g. evolution over time
of revenue in case of tariff reduction and introduction of
VAT)

20
Revenue forecasts and projections (2)
• How to do it?
Projections of revenue in the budget documents of the
previous years may serve as a starting point
• If macro-economic determinants have changed they must be updated
• If changes in tax policies are proposed they must be incorporated
Basis identity: revenue of tax i (TR) is tax base (TB) times tax rate
(t):
TRi = TBi x ti
From one year to the next:
TRi = TBi x ti + TBi x ti

In many cases it is necessary to start from scratch (combine


macroeconomic projections)
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Resource Rich Countries

• Narrow tax base


• Susceptible to market volatility
• Specialist tax departments
• High potential for corruption/fraud
• May use resource income from commodities other
than taxation.
Main Messages

• Efficient revenue administration essential to mobilisation of


resources necessary to finance public services.
• Taxpayers need clarity on tax obligations.

• Revenue agency needs to ensure tax payers are registered


and comply with tax obligations, and that tax revenues are
collected & deposited promptly in central treasury account.
• Large scope for tax evasion and avoidance, and corruption in
revenue collection; care needed prior to devolving
responsibility to an autonomous revenue agency.
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