What Do We Know About the Compliance Costs of the Tax System? Arindam Das-Gupta.

Slides:



Advertisements
Similar presentations
Financial and Managerial Accounting
Advertisements

Tax Amnesty FTB/CPA Liaison Meeting October 28, 2004.
Income Tax Gap Overview Income Tax Gap Overview FTB/CSEA Liaison Meeting September 17, 2004.
INTRODUCTION TO PUBLIC FINANCE MANAGEMENT Module 4.1 -Revenue Administration.
Presented by: Ram Saran Pudasaini DDG,IRD.  PI-13 Transparency of taxpayer obligations and liabilities  PI-14 Effectiveness of measures for taxpayer.
Making the IRS Work Jonathan B. Forman University of Oklahoma College of Law Roberta F. Mann University of Oregon School of Law.
G Personal Finance G  Almost 31% of an individual’s paycheck is deducted  Taxes are the largest expense most individuals will have 
CHAPTER 15 International taxation. Contents  Introduction – Main types of taxation  Corporate income tax and dividends  Deferred taxation  International.
North Carolina Society of Enrolled Agents
Principles of Good Tax Policy Annette Nellen San José State University.
Ministry of Economy and Finance Public Revenues and Taxes Department Main features of the new Income Tax Law December 2009.
Return-Free Tax Systems and Taxpayer Compliance Costs Presentation to the President’s Advisory Panel on Federal Tax Reform by Eric J. Toder Urban Institute.
Next page MAKING TAXES LESS NASTY Make them Transparent Make them Fair Minimize Efficiency Losses and Leaks Minimize Collection Cost.
©2007 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. Chapter.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license.
Ukrainian Business Environment (TAXATION) Lecturer Anatolii N. Shysh The Chair of Statistics and Economic Analysis.
Taxing the Informal Sector Katherine Baer Fiscal Affairs Department International Monetary Fund.
Chapter 12 Tax Administration & Tax Planning Income Tax Fundamentals 2008 Gerald E. Whittenburg & Martha Altus-Buller Student’s Copy.
Centre for Tax Policy and Administration Organisation for Economic Co-operation and Development Tax Burden Indicators for Labour (Taxing Wages model) and.
Definition of a tax What is a tax?
Understanding Your Paycheck and Tax Forms
1. PPE & Intangible assets (Software) 1.1Did not review the residual values & useful live of assets Capex spend was low during austerity period and some.
Chapter 1 Federal Income Taxation - An Overview Federal Income Taxation - An Overview ©2008 South-Western Kevin Murphy Mark Higgins Kevin Murphy Mark Higgins.
1 Discussion of “What Can We Infer About a Firm’s Taxable Income from its Financial Statements?” by Michele Hanlon Conference on Public Disclosure of Corporate.
ACCOUNTING FOR TAXES ON INCOME June 20, AGENDA  The old story  Deferred tax: mandatory recognition?  Losses and deferred taxation  Tax holidays.
Challenges for tax compliance 6 August
Tax Compliance Report January 30 th, Major Themes of Study IRS and other states also have income tax compliance issues. Estimating the level of.
Personal Tax and Social Security in cross-border situations Bulgaria 2010 Nevena van Kuyk.
 An orderly analysis, investigation, inquiry, test, inspection, or examination along a “paper trail” in the search for fraud, embezzlement, or hidden.
INTERMEDIATE ACCOUNTING Chapter 18 Accounting for Income Taxes © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated,
© 2008 Thomson South-Western CHAPTER 3 MANAGING YOUR TAXES.
Alabama Department of Revenue Christy Vandevender Tax Policy & Research Division.
Financial Accounting and Its Environment Chapter 1.
Taxable Income from Business Operations
Revenue Policy and Administration Public Finance and Management Course, World Bank, May 1, 2006 Richard M. Bird.
Enhancing Market Integrity Taxation 17 May 2006MENA/OECD Investment Programme Cairo, Egypt.
What is accounting? Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events.
Tax Administration Diagnostic Assessment Tool POA 5: TIMELY PAYMENT OF TAXES.
Legal framework Look at the legal compliance and framework a business is subject to.
BUSINESS INCOME. Introduction  Manufacture, Trading  Profession  Adventure in the nature of trade.
© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license.
Chapter 16 Efficient and Equitable taxation.
Flow of Presentation  Balance of Payments (BOP) Survey  Q & A  Annual System of National Accounts (SNA) Survey  Q & A.
1 M O N T E N E G R O Negotiating Team for Accession of Montenegro to the European Union Working Group for Chapter 16 – Taxation Bilateral screening: Chapter.
Chapter 36 Financing the Business Section 36.1 Preparing Financial Documents Section 36.2 Financial Aspect of a Business Plan Section 36.1 Preparing Financial.
Tax Law and Tax Accounting Economics and Management School Lanzhou University of Technology.
OVERVIEW OF THE TAX GAP 8 June OVERVIEW OF THE TAX GAP | 8 JUNE What the Tax Gap Is  The Gross Tax Gap is the amount of true tax liability.
A2 - 1 Accounting Income and Assets: Accrual Concept.
Citizenship-based taxation and related reporting requirements:
Accounting for Income Taxes
© National Core Accounting Publications
Taxable Income from Business Operations
Understanding Your Paycheck and Tax Forms
Financial Statements and Accounting Concepts/Principles
Reforming Tax Expenditure Programs: a view from the trenches
FAS 109: Accounting for Income Taxes
Understanding Your Paycheck and Tax Forms
Kevin J. Collins, CPA/PFS, MST
helping to create effective and efficient tax systems
Principles of Good Tax Policy
Understanding Your Paycheck and Tax Forms
International Experience in Tax Policy Design and Enforcement
© 2013 John Wiley & Sons, Ltd, Accounting for Managers, 1Ce, Ch 4
Taxation in Company Accounts
©2008 Prentice Hall, Inc..
©2009 Pearson Education, Inc. Publishing as Prentice Hall
Provisions of Turkey Tax Amnesty Law
©2010 Pearson Education, Inc. Publishing as Prentice Hall
Fiscal Literacy.
© The McGraw-Hill Companies, Inc., 2007 McGraw-Hill/Irwin Fundamental Accounting Principles Wild/Larson/Chiappetta 18th Edition.
Presentation transcript:

What Do We Know About the Compliance Costs of the Tax System? Arindam Das-Gupta

Outline The cost of collecting taxes What are compliance costs (CCs)? Why do CCs matter? CCs: International evidence Recent estimates for India Determinants of CCs How to reduce CCs? How to estimate CCs?

The cost of collecting taxes Include “welfare costs, opportunity costs, psychic costs, social costs and so on” (Evans and Walpole, 1997) Costs of taxation (Yitzhaki-Slemrod). –Excess burden of taxes –Excess burden of tax evasion –Tax administration costs (substitute) –CCs and avoidance costs.

What are CCs? Citizen’s costs of meeting tax obligations Excludes actual taxes paid and excess burdens. Includes avoidance (“tax planning”) and evasion costs. Includes costs if taxpayers, non-filers, third parties (banks, tax withholders, helping others) Components:

What are CCs? - 2

Types of CCs Mandatory versus voluntary…...and quasi-voluntary costs In-house versus external Gross versus net –Cash flow benefits –Tax deductibility Private versus social –Bribes –Tax deductibility OVERALL versus from SPECIFIC provisions or procedures

Administration costs versus CCs Substitutes Other things equal, social cost considerations should dictate the choice between compliance requirements and administration responsibilities –EG: Official versus self-assessment Other things may not be equal… –Documents enclosed with tax returns –Desk versus field audits

Why look at CCs? Three of Adam Smith’s canons of taxation relate to CCs: ‘Certainty’, ‘Convenience’, and ‘Economy’. Policy uncertainty and complexity lead to higher CCs Raises the effective tax rate… without any revenue benefits Induces non-compliance and raises administration costs CC Assessments now mandatory in some countries

International evidence: Individual income tax

International evidence: Business income taxes

Estimates for India - Individual IT

Estimates for India - Individual IT - 2 Estimates for India - Individual IT - 2

Estimates for India - Corporation IT

Features of individual CCs in India Time costs: Non-salaried: 88 hours; Salaried: 28 hours; plus 3-4 hours helping others. – Approx. 11 hours (USA); 27 hours (NZ) –“Conservatively” valued in cost estimates Monetary costs: Even if time compliance costs are excluded monetary compliance costs are large compared to other studies –Median % of tax paid: 52% (non-sal); 1.6% (salaried) Advisor’s are used more to deal with tax uncertainty and administrative procedures rather than tax planning. Incidence of bribe payment and bribe quantum are high, especially so for non-salary earners. –Refunds, clearances and permissions Harassment of assessees is widespread. –Delayed refunds, PAN cards

Features of company CCs in India 62% benefit from compliance requirements: income statements & balance sheets are better prepared. 50% find audit requirements helpful in detecting dishonesty. Scrutiny assessment and accounting requirements are major cost items. 70%, especially small companies use external assistance. External costs: 39%. Voluntary costs: 19% to 43% of gross CCs Typical company has 12 to 14 open assessment years. –10 to 11 assessment years locked in disputes. –Each extra disputed year raises legal compliance costs by 5.7%

CCs and indicators of company size

“Hot spots” Legal requirements –Audit requirements –Tax deduction at source –International tax provisions –Loss carry forward and set off –Valuation of perquisites to employees –Others:export concession claims; non-resident withholding; inconsistencies with Companies Act, depreciation provisions, free trade zone reporting; Minimum Alternate Tax Administrative procedures –Refunds –Scrutiny assessment procedures –Accounting for TDS –Appeals and litigation –Completion and filing corporation tax return –Obtaining IT clearances and approvals

How to reduce CCs? Framework Overall CCs only show if broad tax reform is needed CCAs of specific administration procedures or legal provisions can suggest specific reforms MECF framework Applied in Poapongsakorn et. al. to taxpayer surveys

How to reduce CCs of the individual IT? Tax policy process reform to reduce instability and uncertainty Tax structure simplification –More presumptions? Simpler administrative procedures –Improved taxpayer services Institutional reform of tax administration If this does not reduce compliance costs…abolish Individual IT?

Reducing corporation tax CCs Net private CCs can be reduced, on average, to zero, if refunds delays and associated corruption are tackled –Strengthen penalties for IT officials –Institutional reform as for Individual IT Reduce complexity and ambiguity of tax law. Reform procedures for international transactions Streamline clearances and permissions. Streamline dispute resolution Alleged bribe taking by appellate authorities to give favourable judgments?

How to estimate CCs and their impact? Questionnaires/interviews needed Questionnaires cannot be long So clarity about objective crucial –Overall CCs - interesting but not so useful? –Impact of recent reform? –Tax reform or administrative reform? –Specific provisions and procedures? CCAs for specific items most promising

How to estimate CCs and their impact? -2 Taxpayer (individual, or business) sample –Random sample of taxpayers –Use (short!) questionnaires for taxpayers –PRETEST PRETEST PRETEST 2-3 versions for clarity and length…and focus groups –3 questionnaires: Canvassed/mailed with no evasion or bribe questions Anonymous mailing for non-compliance and bribes with a few extra questions to match samples Canvassed “bridge” questionnaires Canvassed/mailed questionnaires from a sample of third parties Tax practitioners sample on costs and activities Data from tax administration on enforcement, detected non-compliance and disputes if needed

Thank you