One statement that can be made with certainty in any developing\u00a0country\u00a0like Albania or Serbia\u00a0is that its tax administration should be improved.<\/p>\n
As does\u00a0much conventional wisdom, this one hides some deeper truths. One truth\u00a0about VAT is that many countries do not meet the preconditions necessary to\u00a0run a good self-assessment system. \u00a0In addition, the degree\u00a0of policymaker and even public support needed to improve VAT administration\u00a0seldom exists.<\/p>\n
The few large formal-sector firms that account for\u00a0most VAT revenues may support measures to extend the weight of the tax\u00a0to their relatively untaxed competitors in the informal sector, but they react\u00a0adversely to any measures that tighten the system as it applies to them. Small\u00a0firms caught in the system complain both of the untaxed competition and,\u00a0often with justice, of the high compliance costs imposed by VAT.<\/p>\n
Those who\u00a0are outside the VAT net are usually happy with their status. The public at\u00a0large could not care less about the problems of the tax administration. Often,\u00a0VAT has a bad name as being an unfair tax, and anything government does\u00a0to improve it may be seen as being done to the people rather than for them.<\/p>\n
The conditions for improving VAT administration are thus far from propitious. There is no magic\u00a0formula for creating public support for better tax administration. At some\u00a0basic level, what is really required is to strengthen the legitimacy of the\u00a0state. This is not a process that happens overnight anywhere.<\/p>\n
Nonetheless, there are some promising experiences around the world and\u00a0some feasible ways in which the critical and difficult job of collecting\u00a0adequate revenue for public purposes can be improved from within, as\u00a0it were.<\/p>\n
The creation and development of a modern tax administration are\u00a0always and everywhere difficult and time-consuming tasks. It took centuries\u00a0for Western countries to get to where they are today, and where they are being\u00a0hardly fiscal nirvana.<\/p>\n
Improvements need not occur at a geological pace,\u00a0however. The experience of a few countries, such as Chile, show that, when political conditions are right and the will to effect serious change exists, the\u00a0process of putting into place a substantially better tax administration can\u00a0be accomplished in a decade or so.<\/p>\n
Unfortunately, many countries\u00a0began their modern tax systems with an unpromising legacy of state-private\u00a0relations, with almost no trained officials, and in a very difficult political\u00a0and economic setting. It is not surprising that there is still much to do in\u00a0most such countries.<\/p>\n
Moreover, all too often developments over the years\u00a0have made the task facing even the most motivated, competent, and honest\u00a0tax administration difficult: the lack of consistent support from political\u00a0leaders, constant changes in tax legislation, fundamental problems with the\u00a0legal and judicial system, the rapidly shifting level and structure of private\u00a0activity, and so on and on.<\/p>\n
Nonetheless, there are always things that can be\u00a0done to improve VAT administration.<\/p>\n
One obvious but unduly neglected issue in most countries, for example, is\u00a0that good administration of any tax requires serious analytical foundations\u00a0based on sound information and intelligent analysis. One must understand\u00a0a problem in order to solve it.<\/p>\n
Virtually without exception, major change and\u00a0improvement in both tax policy and administration in any country require\u00a0a solid analytical foundation in the form of a more systematic approach to\u00a0assembling and analyzing data.<\/p>\n
The beginning of wisdom is to identify the\u00a0size and nature of problems as carefully and fully as possible.<\/p>\n
Tax administrations\u00a0in all countries operate within hard budget constraints: to get the\u00a0most from what they have, they need to allocate resources as efficiently as\u00a0possible.<\/p>\n
Efficiency is not a luxury in countries like Albania and neighbor countries with us. It is an essential tool\u00a0in the fight to become, as citizens\u00a0richer than before. To administer VAT efficiently, one needs\u00a0not only to estimate the VAT gap but also to decompose that gap by both\u00a0the sector of economy (energy, agriculture, services, etc.) and the nature of\u00a0the problem (nonregistration, false registration, non-filing, under reporting\u00a0of sales, over reporting of purchases, nonpayment, etc.).<\/p>\n
Once the relative magnitude of the various problems facing VAT administration\u00a0is better understood, the first and easiest step is to change the tax\u00a0law to reduce the scope of these problems as much as possible, even at the\u00a0expense of violating conceptual purity and economic logic. Examples are the\u00a0suggestions for exempting agriculture and raising thresholds.\u00a0Few VAT problems can be solved by such containment measures, however.<\/p>\n
If studies are done on an industry basis\u00a0(as they should be), they may help to establish industry norms (such as e.g.,\u00a0refund claim levels), deviations from which should give rise to further examination\u00a0of such firms. Comparative information of this sort is essential in\u00a0determining the risk profile (with respect to noncompliance) of taxpayers\u00a0who are of different sizes, operate in different lines of business, and have different\u00a0patterns of tax-relevant activity. Taxpayers in stable, well-established\u00a0businesses with good compliance records are, by definition, much less likely\u00a0to offend than those in new, variable businesses with no established record of\u00a0good compliance.<\/p>\n
On the other hand, it is important not to impose unnecessary\u00a0and unreasonable barriers to new businesses simply because they are\u00a0new although it must be recognized that newness is definitely a risk factor\u00a0from a fiscal perspective.<\/p>\n
A delicate line has to be walked in this respect. Of\u00a0course, all such risk profiling of taxpayers is simply a guide to the proper allocation of administrative resources. It is an ingredient in\u00a0good tax administration, not a substitute for it.<\/p>\n
Even in the relatively few such countries in which detailed VAT data are\u00a0available in an accessible form, two characteristics are noticeable. First<\/em>, considerable\u00a0effort is generally required to put such data to any useful purpose,\u00a0whether to analyze and improve the effects of VAT structure or to monitor\u00a0and improve VAT administration. Secondly<\/em>, few developing or transitional\u00a0countries have the resources or, it seems, the desire to make such an effort.<\/p>\n This situation is curious.<\/p>\n Tax administrations need to keep a close watch on\u00a0trends and changes in taxpayer behavior to be able to allocate administrative\u00a0resources effectively and to develop appropriate audit strategies. Data gathering\u00a0and analytical capacity are clearly essential to do this. Yet not only do\u00a0units devoted to such purposes seldom exist but even those most concerned\u00a0with improving VAT administration seldom place much emphasis on the\u00a0need to improve matters in this respect.<\/p>\n One reason may be that those at the top of the tax administration give\u00a0higher priority to other apparently more pressing needs such as dealing with\u00a0issues concerning specific taxpayers or involvement in policy design. Good\u00a0administrators may have useful, even essential, input into policy design.<\/p>\n But they should not be given major responsibility for policy design. That is not their job. Nor should good managers be involved in specific\u00a0taxpayer issues. Their task is to set up the system correctly, including\u00a0appropriate dispute settlement mechanisms, not to become involved in particular\u00a0cases.<\/p>\n","protected":false},"excerpt":{"rendered":" One statement that can be made with certainty in any developing\u00a0country\u00a0like Albania or Serbia\u00a0is that its tax administration should be improved. As does\u00a0much conventional wisdom, this one hides some deeper […]<\/p>\n","protected":false},"author":2,"featured_media":6655,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[9756],"tags":[8936],"class_list":["post-7402","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog","tag-tax-systems"],"featured_image_src":{"landsacpe":["https:\/\/altax.al\/wp-content\/uploads\/2017\/11\/vat-underpinning.jpg",249,202,false],"list":["https:\/\/altax.al\/wp-content\/uploads\/2017\/11\/vat-underpinning.jpg",249,202,false],"medium":["https:\/\/altax.al\/wp-content\/uploads\/2017\/11\/vat-underpinning.jpg",249,202,false],"full":["https:\/\/altax.al\/wp-content\/uploads\/2017\/11\/vat-underpinning.jpg",249,202,false]},"yoast_head":"\n