The amnesty on interest and penalties which was introduced by the Zambia Revenue Authority (ZRA) on 24th April 2017, came to a close on 31st July 2017.
During this period, taxpayers were expected to submit outstanding tax returns and pay all principal tax liabilities for tax periods prior to 1st March 2017, after which all interest and penalties accrued for the said period would be waived in full. Taxpayers were expected to pay all outstanding principal liabilities within the amnesty period. In instances where taxpayers have not been able to settle the principal liabilities before 31st July 2017, the ZRA has offered an opportunity of settling such tax liabilities in installments by entering into Time-to-Pay-Agreements (TPAS) with taxpayers to be settled before 31st December 2017.
Notwithstanding this extension, the deadline for time-to-pay agreements remains 31st December, 2017 and all other rules will remain as announced by the commissioner general during the launch of the amnesty campaign on 24th April, 2017
Information posted to the UK government website on 3 August 2017 notes that an online service is now available for appeals which can be made directly to the First-tier Tax Tribunal, such as indirect tax appeals or applications for enquiry closure notices. The online appeal system may also be used in the case of appeals that were made first to HMRC, for example for most direct tax issues, but are then lodged with the Tax Tribunal because agreement cannot be reached with HMRC.
Using the online service the taxpayer can lodge an appeal and receive an acknowledgement with a reference number, and has the option to upload documents in support of the appeal. The taxpayer can at a later date revisit the appeal lodgment if necessary to find further information. As the information is validated when it is input to the system, applications are less likely to be rejected for incomplete or incorrect information.
Taxpayers have the option of using HMRC’s statutory review process before taking an appeal to the Tribunal. If an appeal is not making progress taxpayers may also consider alternative dispute resolution where there is a dispute about the facts and communication has broken down. In this case a third party mediator may help to resolve the impasse.
On 20 July 2017 the OECD published the latest edition of its publication Revenue Statistics in Asian Countries. This covers trends of revenue statistics in Indonesia, Japan, Kazakhstan, Korea (Rep), Malaysia, Philippines and Singapore between 1990 and 2015. The publication looks at tax ratios, tax structures and taxes by level of government, with a special feature on electronic services in tax administration. Of the countries covered Japan and Korea are members of the OECD but the other countries are not OECD members.
Developing countries need to mobilize government revenue to provide funds for public goods and services including health, education and infrastructure. Taxation is a reliable source of revenue compared to diminishing levels of development assistance and volatility of non-tax revenues relating to commodities. The tax-to-GDP ratio measures the total tax revenue of a country as a proportion of GDP. According to UNESCAP in 2014 a minimum tax-to-GDP ratio of 25% is essential for a country to become a developed economy.
The report points out that tax-to-GDP ratios tend to be lower in Southeast Asia compared to Japan and Korea. The main factors explaining this are low tax compliance in many of the countries (apart from Singapore) and narrow tax bases due to a high number of tax exemptions and incentives introduced to attract foreign investment. The survey shows that tax-to-GDP ratios in the surveyed countries range from 11.8% in Indonesia to more than 32% in Japan, all lower than the OECD average of 34.3% in 2015. All the countries other than Japan and Korea had tax-to-GDP ratios below 18%.
Tax-to-GDP ratios are affected by various domestic and international factors including the importance of agriculture in the economy; the presence of natural resources; openness to trade; the size of the informal economy; powers of the tax administration; levels of corruption; and tax morale. International factors such as tax policies of other countries can also affect the tax-to-GDP ratio.
The tax structure refers to the different taxes that contribute to total revenue. This is an important indicator because different taxes have different social effects. The structures in Japan and Korea are evenly divided between the main categories of tax revenue. In Korea 30.3% of tax revenue is from taxes on income and profits; 26.6% from social security contributions and 28% from taxes on goods and services. This structure is similar to the OECD average. In Japan almost 40% of total tax revenue is from social security contributions and a little below 20% of revenue was from tax on goods and services in 2014.
Indonesia, Malaysia, Philippines Singapore and Kazakhstan derive their tax revenue mainly from taxes on goods and services and taxes on incomes and profits. Together these make up more than 75% of their total tax revenue.
The share of value added tax (VAT) in total tax revenues increased significantly in most Asian countries between 2000 and 2015 including in five of the seven countries surveyed. However the percentage share of VAT revenue in Kazakhstan has decreased mainly owing to a decrease in the VAT standard rate from 20% in 2000 to 12% in 2015. The percentage contribution from VAT also decreased in Korea. The share of VAT to total revenues in the countries remains smaller than the OECD average of 20% (except in Indonesia) partly owing to lower VAT rates in many countries.
In all the countries surveyed the share of corporate income tax revenue in their total tax revenue is higher than the OECD average of 8.8% in 2014. The figures is around 13% for Japan and Korea and higher in the other countries, ranging from 23% in Indonesia to 42.5% in Malaysia. The share of personal income taxes to total revenue rises from 9.4% in Kazakhstan to 21.5% in Indonesia. The Southeast Asian countries and Kazakhstan receive a higher proportion of total tax revenue from corporate income taxes than from personal income taxes, whereas Japan and Korea have a higher proportion from corporate income tax.
VAT Revenue Ratios
The VAT Revenue Ratio (VRR) is the difference between VAT revenue collected and the VAT that could be raised if the VAT standard rate was applied to the whole potential VAT base and all revenue was collected. Of the countries surveyed Japan, Korea and Singapore have quite high VRRs above 65%, mainly owing to the relatively broad VAT base in those countries. The report notes that these countries do not have many reduced rates whereas many OECD countries have one or more reduced VAT rates. This leads to a lower average VRR among OECD countries generally, currently measured at 56%.
On 12 July 2017 the IMF Deputy Managing Director Mitsuhiro Furusawa, speaking in Indonesia, commented on the importance of international tax developments for economic growth in Asia. He stressed the importance of revenue mobilization and international tax reform for achieving stronger, more inclusive growth, noting that the Asian region confronts various issues in its pursuit of continued growth including the issue of domestic revenue mobilization.
He noted that the World Economic Outlook published in April increased the forecast for global growth to 3.5% in 2017 and 3.6% in 2018, an increase from the 3.1% growth in 2016. The outlook for growth in Asia is the strongest in the world and Asia has been the most important contributor to global growth for several years. Investment in infrastructure and public services is supporting growth across Southeast Asia, and growth in the Asian region as a whole is expected to reach 5.5% in 2017.
Challenges facing Asia include uncertainty about the economic policy direction in some of the world’s advanced economies and the risk of inward-looking policies that could affect regions that have benefited from global economic integration. Market volatility could result from changing monetary conditions and from any unexpected developments in China’s economic rebalancing.
Longer-term challenges include the trillions of dollars in infrastructure investment that will be required if Asian countries are to achieve the status of advanced economies. There are also challenges resulting from demographic change and the increased healthcare and pension spending required by rapidly aging populations. The requirement to sustain inclusive growth when faced by lower commodity prices will require further economic diversification.
Domestic revenue mobilization is therefore very important. Increased revenue and public spending are important for economic growth. Tax revenues are relatively low in Asia and this could be a problem for continued growth. IMF analysis suggests that there is a minimum tax-to-GDP ratio of around 15% required to produce a real increase in growth and development. On average, most countries in the Asian region consistently fall below a ratio of 15 percent.
Strengthening revenue mobilization to collect an adequate amount of tax will require a wide range of policy and administrative measures. This could include making the value-added tax more effective and developing property taxation.
Current international tax issues facing Asia include corporate tax competition, cross-border tax issues, legal tax avoidance and illegal tax evasion. Competition for foreign direct investment could lead to a race to the bottom with countries competing for investors. There has been insufficient coordination among Asian governments on the issue.
The expansion of economic integration among the ASEAN countries with the development of the ASEAN economic area led to aggressive tax planning by multinational and regional companies. There has also been aggressive competition among countries of the region through the grant of tax exemptions and incentives.
Internationally increasing attention has been paid to corporate tax avoidance through complex tax planning. Measures taken by the international community include the adoption of automatic exchange of tax information as the international standard and the G20/OECD project on base erosion and profit shifting (BEPS). However BEPS does not address some of the international tax issues that are relevant for developing countries, for example the indirect transfer of assets (e.g. by sale of shares in companies holding assets). BEPS also does not resolve the problems arising from tax competition between countries.
The IMF is working with developing countries to develop ways to combat artificial profit shifting of profits and the transfer of assets to low-tax locations. It is also working to restrict damaging tax competition. The IMF is working on the issue of indirect transfers of assets and is cooperating with the OECD, World Bank, and United Nations through the Platform for Collaboration on Tax.
There is a very fine balance between establishing a tax system attractive to investment and protecting against damaging tax competition. Governments need to cooperate on a regional basis to resolve the issue of damaging tax competition. This work can reinforce domestic measures to protect tax the tax base and reduce spillovers from tax competition.
Following feedback from parliament including the Treasury Select Committee, business and professional bodies the UK government is delaying the introduction of a compulsory digital tax system for certain businesses and landlords.
The system called Making Tax Digital is intended to provide a streamlined online system to for maintaining tax records and providing information to HMRC. Under Making Tax Digital businesses would eventually be required to file quarterly tax returns online. Taxpayers would have an overview of all their tax affairs in one place, making it easier for them to offset overpayments on one tax against liabilities on others. The analysis of the information would also enable HMRC to more easily detect non-compliance and will therefore reduce their administration costs.
The timetable for introducing Making Tax Digital has been changed to give businesses more time to adapt to the changes. Under the revised timetable businesses with a turnover above the value added tax (VAT) threshold (currently GBP 85,000) will be required to keep digital records for VAT purposes from 2019 onward. Digital records for other taxes will not be required from business until 2020 at the earliest.
Businesses and landlords with a turnover below the VAT threshold will be able to choose when to move to the new digital system.
A trial of the digital system for VAT will start before the end of 2017, beginning with small-scale testing and then a wider trial starting in Spring 2018. There will therefore be more than year of testing before any businesses are obliged to use the system. After the changes to VAT reporting take effect from April 2019 businesses above the VAT threshold must provide their VAT information to HMRC through Making Tax Digital software.
According to a statement by the Swiss Federal Council, Switzerland and France have resolved a number of questions concerning the exchange of tax data. The statement confirmed that the authorities had succeeded in agreeing on common solutions.
The Federal Council stated that Switzerland and France are currently in a position to comply with information exchange on request in all pending and subsequent cases, in line with the OECD standard.