Enhanced relationship and horizontal monitoring for tax administration

Enhanced relationship and horizontal monitoring for tax administration

In recent years the enforcement policy has tried to shift from control based on an absence of trust to monitoring through trust. But, until now this policy direction remains yet a dream non-true. The government still stands time by time above the citizen, rather to stand side by side with him. In fact, the Tax and Customs Administration’s should aim to establish relationships based on trust.

Citizens and businesses want fewer rules and increased responsibility. Businesses also indicate that the Tax and Customs Administration’s thinks too much in terms of conflicts rather than solutions. In a nutshell, the Tax and Customs Administration’s and businesses used to have insufficient trust in one another and consequently shared little information.

Since this situation is present and part of culture of administration of doing the job, the moment when we discuss should be the proper time to present the modern tools to improve the behavior of tax and customs administration’s.

One model that will serve to resolve this problem of the Tax and Customs Administration’s should be a method known as Horizontal Monitoring.

This model is based on experience from the Dutch tax and customs administration, which in 2010 has launched a pilot version of an enhanced relationship project, called Horizontal Monitoring, with the main purpose of improving the relationship with a selected group of large taxpayers that are willing to comply voluntarily. The key characteristic of such an enhanced relationship is that it transforms the standard methods of vertical taxpayer supervision into a horizontal partnership.

Key elements of it are mutual trust, understanding and transparency. One manifestation of horizontal monitoring is the conclusion of enforcement covenants with Very Large Businesses. These covenants include agreements about the manner and intensiveness of monitoring and the way in which the parties work together. The agreements are not merely on paper but are also and perhaps even more so about the attitudes taken by both parties.

A covenant is based not only on trust but self-regulation as well. This is entirely in keeping with the premise of allowing businesses a greater degree of responsibility. It is also in accordance with the rules designed for other purposes, i.e. corporate governance and financial reporting.

Why, the method of horizontal monitoring for Albanians?

Since 2011, a number of leading companies have run into problems or have even become insolvent. Some other companies had a lot of problems with the accounting and fiscal books, since they were part of evasion scandals. Common to all these companies was the lack or irresponsibility of internal and external control systems. With an in-control statement’, a management board affirms that it is in control of the processes taking place in its business.

Even, in the statutes of companies is provided enough room for internal control, requiring that businesses continuously monitor their own risks, there’s still is going on the same routine of making the role of internal and external audit not correctly and following strictly the standards.

All this not good situation should bring the Tax and Customs Administration’s in the position to appreciate that it would be impossible to continue on the basis of the old working methods. In the period when we’re discussing about this method are happening incidents in the business community which have a great influence on the opinions on companies about how should be and how is it the corporate governance in Albania.

Horizontal monitoring is not autonomous: it is an element of responsive enforcement.  It should be introduced by the Ministry of Finance together with a new supervisory philosophy as a new form of supervision of taxpayer compliance with tax obligations. The introduction of horizontal monitoring marks a major cultural change in the manner in which the Tax and Customs Administration’s gives shape to the performance of its core duties of assessing, auditing and collecting taxes and dues.

The Tax and Customs Administration’s in this regard should to conclude agreements with businesses in the private and public sector, which are based on mutual trust, understanding and transparency and which lay down the required attitude and tax behaviour, as well as the manner in which supervision is conducted and the intensity of the supervision.

The horizontal monitoring is a Dutch nomination of the enhanced relationship international theory, which represents a modern approach of the tax administration to taxpayers and tax intermediaries. Even though this concept is relatively new, it has already proven successful in several countries, and is leading to improved cooperation between tax administrations and taxpayers.

It is resulting in better supervision and a higher level of voluntary tax compliance.

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