Tax Administration Diagnostic Assessment Tool. Module 7: TIMELY PAYMENT OF TAXES

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1 Tax Administration Diagnostic Assessment Tool Module 7: TIMELY PAYMENT OF TAXES

2 Desired Outcome of POA 5 Taxpayers pay their taxes in full on time. Taxpayers are expected to pay taxes on time according to the law and procedure laid out Tax laws and administrative rules specify payment requirements, including due dates, payment methods and who is required to pay. Failure to pay on time may result in penalties, interest or prosecution, as well as follow up action for debt recovery. The aim of the tax administration is to attain high rates of voluntary on-time payment and low incidence of tax arrears. This requires monitoring of amounts owed and quick follow up actions when payment is delayed

3 POA 5: Good Practice in Timely Payment of Taxes Prompt write off of uncollectible debts Use of tax clearance to access government contracts, grants and subsidies Effective arrears/debt management approaches, including arrears management IT system Extensive use of tax withholding at source from salary, interest and dividend incomes International Good Practices in POA 5 Use of call centers and e- mails to contact debtors Use of advance payment regimes to ensure that taxes are paid during the year in which income is earned Specialized enforcement unit with power of enforced collection, including from third party, and obtaining liens over assets Wide use of electronic payment methods Appropriate levels of interest and penalties for late payment and nonpayment

4 Performance Indicators for P5: Timely Payment of Taxes High Level Indicator P5-12: Use of electronic payments M1 P5-13: Use of efficient collection systems M1 P5-14: Timeliness of payment M1 P5-15: Stock and flow of tax arrears M2 The extent to which core taxes are paid electronically The extent to which withholding at source and advance payments are used Number of VAT payments made by the due date in percent of total number of VAT payments due Value of VAT payments made by due date in percent of the total value of VAT payment due Value of total core tax arrears in FY end in percent of total core tax revenue collection for FY Value of collectible core tax arrears in FY end in percent of total core tax revenue collection for FY Value of core tax arrears more than 12 months old in percent of value of all core tax arrears Dimensions

5 Definitions VAT payments due: All payments required to be made by the entire population of active VAT taxpayer, both in terms of self assessment, or administratively assessed as a result of audit, and includes penalties and interest that may become due. Number of payments due: Number of payments required to be made by the entire population of active VAT taxpayer. If, for instance, all active taxpayers are required to make 12 payments in a year, the number of payments due is 12 times the number of active taxpayers. Value of payments due: Amount of payment due from all active taxpayers, both from self assessment and as a result of audit, interest and penalties. Electronic payment: Includes payment made in person by a taxpayer to a bank or post office that are then electronically transferred by the bank/post office to the Treasury account. Value of total tax arrears include all amounts of tax, penalties and accumulated interest. Value of collectible tax arrears include total amount of tax, interest and penalties which are not subject to collection impediments, such as where: (i) collection has been stayed due to appeal ; (ii) amount is not legally recoverable due to bankruptcy; or (iii) arrears are otherwise uncollectible.

6 Scoring P5-12: Use of electronic payment methods A Electronic payments account for more than 75 percent of the total value of collection for each of CIT, PIT, VAT and PAYE B Electronic payments account for more than 50 percent of the total value of collection for each of CIT, PIT, VAT and PAYE C Electronic payments facilities are used for at least one of the 4 core taxes D The requirements for a C rating are not met or information insufficient

7 Scoring P5-13: Use of Efficient Collection Systems Withholding at source is in place for employment income (PIT) Advance payment arrangements are in place for all business income (CIT and PIT) A Withholding or mandatory reporting /disclosure requirements in place for interest and dividend incomes

8 Scoring P5-13: Use of Efficient Collection Systems Withholding at source is in place for employment income (PIT) Advance payment arrangements are in place for all business income (CIT and PIT) B No withholding or mandatory reporting /disclosure requirements in place for interest and dividend incomes

9 Scoring P5-13: Use of Efficient Collection Systems Withholding at source is in place for employment income (PIT) Advance payment arrangements are in place for all business income (CIT only) C No withholding or mandatory reporting /disclosure requirements in place for interest and dividend incomes

10 Scoring P5-14-1: Number of Timely VAT Payments The number of VAT payments made by the statutory due date in percent of the total number of VAT payments due over a recent 12-month period Number of VAT payments made by the due date x 100 Number of VAT payments due A Ratio is 90 percent and above B Ratio is 75 percent and above up to 90 percent C Ratio is 50 percent and above up to 75 percent D Requirements of a C rating are not met OR information insufficient

11 Scoring P5-14-2: Value of Timely VAT Payment The value of VAT payments made by the statutory due date in percent of the total value of VAT payments due over a recent 12-month period Value of VAT payments made by the due date x 100 Total value of VAT payments due A Ratio is 90 percent and above B Ratio is 75 percent and above up to 90 percent C Ratio is 50 percent and above up to 75 percent D Requirements of a C rating are not OR information insufficient

12 Scoring P5-15-1: Stock of Total Arrears Value of total core tax arrears at fiscal year end in percent of total core tax revenue collection for the fiscal year Value of total core tax arrears at the end of FY x 100 Total core tax collected for FY A Ratio is below 10 percent B Ratio is at least 10 percent and up to 20 percent C Ratio is at least 20 percent and up to 40 percent D Requirements of a C rating are not met OR information insufficient

13 Scoring P5-15-2: Stock of Collectible Arrears Value of collectible core tax arrears at fiscal year end in percent of total core tax revenue collection for the fiscal year Value of collectible core tax arrears at the end of FY x 100 Total core tax collected for FY A Ratio is below 5 percent B Ratio is at least 5 percent and up to 10 percent C Ratio is at least 10 percent and up to 20 percent D Requirements of a C rating are not met OR information insufficient

14 Scoring P5-15-3: Value of Old Tax Arrears Value of core tax arrears more than 12 months old in percent of value of all core tax arrears Value of core tax arrears more than 12 months old x 100 Value of all core tax arrears A Ratio is below 25 percent B Ratio is at least 25 percent and up to 50 percent C Ratio is at least 50 percent and up to 75 percent D Requirements of a C rating are not met OR information insufficient

15 Checklist of Questions and Evidence for POA 5 Table 17 of the Field Guide