Tax compliance cost and perception surveys

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Tax compliance cost and perception surveys
Jackie Coolidge FIAS Kigali April 2009
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What are tax compliance costs?

• Sanford
• Costs incurred by taxpayers in meeting the
  requirements laid on them by the tax law and the
  revenue authorities over and above the actual
  payment of tax costs which would disappear if
  the tax was abolished.

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Why should we care about tax compliance costs?

• Tax compliance costs add significantly to the
  cost of doing business
• Tax compliance costs can be extremely regressive
  a relatively minor burden for large firms but
  extremely onerous for small firms
• The costs and risks of tax compliance (e.g., the
  risk of incurring penalties) can deter business
  formation and formalization of informal firms.

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The traditional balance sheet for the SME Taxpayer

• Time and financial cost of compliance
  
• gt

• Benefits derived from
• formalization/compliace

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South Africa SME Tax Compliance Cost Survey
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Estimated percentage of South African businesses
deciding to stay informal
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Informality comes with significant costs for many
firms

• Percentage of informal Yemeni businesses facing
  costs to avoid tax payments/ remain informal

Source FIAS Tax Compliance Cost Survey in Yemen,
2008
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South Africa Tax Compliance Cost Surveys

• Direct survey of Smmes (small, medium and
  micro-enterprises who were registered for tax and
  had filed with SARS in 2007)
• Survey of Tax Practitioners (professional
  accountants who provide tax compliance assistance
  on a fee-for-service basis)
• Informal firms (those large enough to be liable
  for tax)

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South Africa Tax Compliance Burden

• Time and cost estimates for four main taxes
• Income Tax (IT)
• Provisional Tax (PT)
• Value Added Tax (VAT)
• Employees Tax (ET)
• Significant processes
• Registration
• Preparation, completion and submission of returns
• Objections Alternative Dispute Resolutions
  (ADRs)
• Audits, inspections written queries from SARS

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South Africa TP survey (2007)
Firms registered for VAT
Firms not registered for VAT
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Time taken by SARS to process tax returns (weeks)
VAT Income tax

• Only two provinces N. Cape and Limpopo - have
  IT return processing time above SARS charter
  specified limit,
• All provinces have VAT return processing time
  below SARS charter limit

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Time it takes to receive a tax refund on a
clients bank account (weeks)

• W. Cape is the only province where receiving VAT
  refund takes less time than specified in the
  SARS charter, in North West it takes 3 times
  longer
• IT refund takes between 1.5 to 2.5 times longer
  than stated in the SARS charter

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South Africa Incidence of inspections
Income tax
VAT
Employees tax

• VAT related inspections seem to be more frequent
  than inspections related to other taxes

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South Africa Formal vs. Informal

• About 12 of SMMEs reported having operated for
  some period before registering for tax, of which
• Almost half operated informally for more than
  five years
• About one quarter operated informally for less
  than one year
• Most informal firms have been operating for
  several years
• About 2/3 for 5 years or less
• About ¼ for 6 10 years
• Just over 11 for more than 10 years

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Perceived advantages of v. likelihood of
registration
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Yemen TCCS capacity for tax compliance
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Other Tax Compliance Cost Surveys

• Yemen (completed)
• Survey of business registered for tax
• Survey of informal firms
• Ukraine
• Survey of companies (legal entities completed)
• Survey of sole proprietors (almost finished)
• Peru
• Survey of Tax Practitioners (almost finished)
• Vietnam
• Companies (completed)
• Household firms (upcoming)
• More upcoming Uzbekistan, Kyrgyzstan,
  Tajikistan, Armenia