– Audit cases not selected in fair manner
By: Kiana Wilburg
Earlier this year, an assessment of the tax administration systems employed by the Guyana Revenue Authority (GRA) was conducted by a team from the International Monetary Fund (IMF).
The team found several worrying weaknesses within the Authority.
In the area of accurate reporting in declarations, GRA received a ‘D’ Grade which indicates the lowest level of performance in the eyes of the IMF tax team.
The report notes that there is no automated crosschecking of internal and external information to detect and deter inaccurate reporting. There are no proactive initiatives to encourage accurate reporting. Significantly, the team found that GRA does not monitor the extent of inaccurate reporting in any of the core taxes.
The team also provided reasons for giving the revenue authority a ‘D’ Grade for the aforementioned areas.
The IMF team said that GRA’s audit programme is de-centralised and does not include a range of audit types and audit methodologies.
“The annual audit programme covers all core taxes but is not clearly weighted towards large taxpayers. The audit manual, reportedly updated more than 20 years ago, is not made available to auditors and is not used to set or monitor performance standards.
“Except for self employed cases, audit cases are not selected centrally or based on assessed risks. There has been no evaluation of the impact of audits on levels of taxpayer compliance.”
The team also noted that there is no large scale automated cross checking of internal or external information to detect and deter inaccurate reporting. It said that information from GRA’s Customs Department is “used on an ad hoc basis” to validate amounts reported for Personal Income Tax (PIT) and Corporate Income Tax (CIT).
With regard to proactive initiatives to encourage accurate reporting, the team found that there is no system of public or private rulings nor are cooperative compliance arrangements in place to facilitate GRA’s clarification of tax issues. It said that there is also no legal framework to support the issuance of binding rulings.
As it relates to GRA’s proclivity to monitor the extent of inaccurate reporting in core taxes, the team stated that there have been no compliance gap studies for Value Added Tax (VAT).
The IMF team was also careful to impress upon the importance of accurate reporting in declarations.
It said that tax systems rely heavily on complete and accurate reporting of information by taxpayers in tax declarations. It said that tax administrations therefore need to monitor tax revenue losses regularly from inaccurate reporting, especially by business taxpayers, and take a range of actions to ensure compliance.
The team said that these actions fall into two broad groups: verification activities (e.g., tax audits, investigations, and income matching against third party information sources) and proactive initiatives (e.g., taxpayer assistance and education, and cooperative compliance approaches).
If well designed and managed, the team stressed that tax audit programmes can have far wider impact than simply raising additional revenue from discrepancies detected by tax audits.
The IMF also stressed that detecting and penalising serious offenders serve to remind all taxpayers of the consequences of inaccurate reporting.
“Also, prominent in modern tax administration is high-volume automated crosschecking of amounts reported in tax declarations with third party information. Because of the high cost and relative low coverage rates associated with traditional audit methods, tax administrations are increasingly using technology to screen large numbers of taxpayer records to detect discrepancies and encourage correct reporting.”
“Proactive initiatives also play an important role in addressing risks of inaccurate reporting. These include adoption of cooperative compliance approaches to build collaborative and trust-based relationships with taxpayers (especially large taxpayers) and intermediaries to resolve tax issues and bring certainty to companies’ tax positions in advance of a tax declaration being filed, or before a transaction is entered.
A system of binding tax rulings can play an important role here.”
Finally, on the issue of monitoring the extent of inaccurate reporting across the taxpayer population generally, the IMF team said that a variety of approaches are being used.
It said that these include: use of tax compliance gap estimating models, both for direct and indirect taxes; advanced analytics using large data sets (e.g., predictive models, clustering techniques, and scoring models) to determine the likelihood of taxpayers making full and accurate disclosures of income; and surveys to monitor taxpayer attitudes towards accurate reporting of income.
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