National Awareness on the Tax Administration Act. Date: Friday 15 th - - PowerPoint PPT Presentation

National Awareness on the Tax Administration Act.

Date: Friday 15th of November 2019 Location: NATIONAL CONVENTION CENTER PORT VILA

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Presentation Outline

Today’s session details 1. Background 2. Overview of the Tax Administration Act (TAA)

a. Structure and general contents b. Details of some key areas of the new law

3. Upcoming amendments and reforms 4. Ongoing Consultation details

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Brochure/Pamphlets

 You should have with you 7 different Brochures / Pamphlets

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Policy Overview of the TAX ADMINISTRATION ACT

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This Section is summarized into two Brochures/ Pamphlets we have, which are titled:

• What is Tax Administration Act
• Meeting Our International Obligations

Details of the TAA

 The Tax Administration Act No.37 of 2018 (the TAA or Tax Administration Act) was gazette on 24 June 2019.  The TAA comes fully into force on 1 January 2020 – however;

 Record Keeping; and  Tax Identification Number rules commence immediately.

 You can access the TAA online at: https://doft.gov.vu/index.php/widgetkit/tax-policy-and-exchange- information  Official Contacts are located in the Brochures / Pamphlets

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What is the Tax Administration Act?

 Tax administration Act (TAA) - provides for harmonized procedural rules that apply to our tax laws.  Modernisation -The TAA supports the Government’s initiative to help modernise the Department of Customs and Inland Revenue and improve taxpayer compliance.  Rights and Obligations - The TAA outlines the fundamental rights and obligations

• f taxpayers and provides the Department of Customs and Inland Revenue with

expansive powers to collect information and impose penalties.  Greater flexibility - More discretion for the Director of Customs and Inland Revenue, greater use of regulations, wider powers of information collection and sharing.

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What is the Tax Administration Act? (cont.)

 The TAA is important for the government – will help to strengthen its effort in the collections and administration of taxes.  The TAA is expected to apply to all taxes administered by DCIR as well as any new tax laws that DCIR may administer in the future.

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The Tax Administration ACT is not Income Tax.

 Its Important to note that the TAA is NOT Income Tax.  The TAA deals with the ADMINISTRATION of our tax and revenue laws.  Most provisions within the Tax Administration Act is not new because they already exist in most of the current legislations administered by DCIR such as those within the VAT Act, Business Licenses Act, Import Duty and Excise tax Act, Customs Act, the Rent tax Act and a few more. What we aim to achieve in the TAA is to ensure these rules are effectively implemented in a way that benefits both the Government and Tax payers.

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Current policy Issues of concern.

General Feedback

 Government not doing enough to collect the expected revenue that is due to the state.  Lack of Commitment from Tax payers to pay their tax when due.  There are evidences of tax avoidance and lack of commitment from various taxpayers.  There are instances where rules are not applied correctly or consistently.  No Revenue Tribunal – difficult to dispute issues.

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Strengthen - Partnership

Improving the way taxes are administrated can also give confidence in the government and allows the government to strengthen its partnership with its core stakeholders such as the business community and NGOs etc.

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Meeting our International Obligations

Vanuatu Commitments to the international organisations such as the OECD Global Forum, the European Union Code of Conduct Group, AML CTF and others calls for more efficient Tax Administration. Please Refer to Brochure titles Meeting our International Obligations

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The Benefits of the Tax Administration Act

Key Benefits Better Tax Administration (modern and effective rules) Better Governance and Reporting by DCIR Consistent rules across many taxes (rulings and the Tribunal) Streamlined administrative and criminal penalties Better taxpayer service (will facilitate electronic lodgement and payment etc.

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Quick Overview of the Tax Administration Act.

• This The Next Load of presentation Aim to give a deeper perspective into

the TAA.

• Please refer to the Handouts to follow discussion on the specific sections
• f the TAA.

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Sample of the TAA Structure and Content

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Tax Administration Act IN DETAIL

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WR2

Slide 15 WR2

Willie Rex, 27/09/2019

Note:

 Remaining 5 Brochures will be feature in this remaining discussions.

 Tax Identification Numbers (TIN)  Keeping Business Records in Vanuatu  Revenue Tribunal  Tax Agents  Penalties and Enforcements

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PART 2 Division 1 & 2 – Taxpayer Identification Numbers (“TIN”)

 The TAA provides for the issue to, and use by, taxpayers of a taxpayer identification number (“TIN”).  A TIN is a single identifier that can be used for the purposes of all taxes. In broad terms, the issuing of a TIN is the general basis for taxpayer

• registration. TINs provide the opportunity for a “one-stop-shop”

approach to taxpayer registration, thereby reducing compliance costs and

• ver time

 It can be used as an identifier for other Government purposes. The TAA provides the legal framework for this.

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Taxpayer Identification Numbers (“TIN”) – Part 2 (Cont.)

 Regulations for the issue and use of TINs are in the final stages of development and will be available to for public consultation in the near future.  The current CT number may be used as the new TIN. Alternatively, a new number, which may include imbedded check numbers to reduce possible transcription errors, may be used. DCIR will be consulting on this in the near future.

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Record Keeping requirements – Part 3

 Section 8 provides for the general rules in relation to records required to be kept by all individuals and entities carrying on business with real economic activity in Vanuatu.  This is necessary to ensure that Vanuatu has consistent record keeping and retention rules that apply generally and meet OECD Global Forum standards. These rules will apply to all entities including international companies and similar.  DCIR will help businesses ensure they keep records properly. Compliance  Businesses must keep records. Businesses that do not keep their records properly will be liable to penalties. They will actively work together with key stakeholders to ensure they keep records.

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What are the Minimum Records to keep?

All businesses and investors must keep records that correctly explain all transactions you enter as a business or investor. The records must:  enable the financial position of the person to be determined with reasonable accuracy at any time; and  allow financial statements to be prepared; and  be maintained in a manner so as to enable the person’s tax liability under the tax law to be readily ascertained.

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What are the Minimum Records to keep? (Cont.)

 Records include all source and underlying documents relating to transactions entered into by the person, including, invoices, purchase orders, delivery dockets, receipts, contracts, and Customs documentation.  Records can be kept overseas, but must be provided if required by the Director. This covers

• nline records etc.

 Records must be retained for 5 years (or such other time as may be prescribed) after the end of tax period to which they relate. This is longer if you are disputing a tax return or have an appeal in progress etc.  If an entity ceases to exist (e.g. a company is liquidated), all directors, partners, trustees, and controlling members of the entity as the case may be must ensure that the records of the entity are retained for the required period.

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Official Languages

 English, French, and Bislama are the official languages of the tax laws and the Director may refuse to recognise any communication or document that is not in an official language.  Related to this is the requirement under section 8(2)(a) that a taxpayer must maintain the records required under the tax laws in English, French, or Bislama.  Any price tags, brochures, or signage on or in the business premises of a person must contain information concerning pricing in English, French, or Bislama.  This does not prevent pricing information from being in any other language. In other words, price tags, brochures, or signage as to pricing can be kept in any language as long as it is also kept in an official language of the tax laws.

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Returns and Assessments (Part 4 & 5)

 Tax returns such as VAT returns, Customs declarations and Rent Taxation returns are key documents that must be filed on time.  Each tax law will tell you what returns you must filed and when they must be filed. The TAA gives the Director the power to:  require a taxpayer to file a tax return in advance of the normal due date for filing the return in cases when there is a risk that the return will not be filed by the normal due date for the return. This applies, for example, when a company has gone into liquidation or a taxpayer is about to leave Vanuatu permanently.  to grant a taxpayer an extension of time to file a tax return.

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Returns and Assessments – Part 4 & 5 (Cont.)

Self Assessment - a self-assessment taxpayer who has filed a self- assessment return (such as a VAT return) is treated as having made an assessment. If you don’t lodge a return, the Director can make an assessment of the tax you owe. This is is referred to as a “default assessment”. The Director can amend a taxation assessment. Section 17 sets out how the Director can amend a taxpayer’s self-assessment.

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Tax Agents (Part 14 – Division 3)

 Section 76 of the TAA provides that a Tax Agent can be an Individual, Partnership or Company wanting to provide tax agent services. Tax Agents exists to provide Services that a business owner cannot deliver due to lack of skills.  A Company means a body corporate.  Tax agent services include:-

· the preparation of tax returns on behalf of taxpayers; · the preparation of notices of objection on behalf of taxpayers in relation to the tax laws; · the provision of advice to taxpayers on the application of the tax laws; · representing taxpayers in their dealings with the Department(DCIR) in relation to the tax laws; · the transaction of any other tax-related business on behalf of taxpayers with the Department in relation to the tax laws

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Tax Agents (Continued)

 Registration

 An individual, partnership or company wishing to provide tax agent services may apply in writing to the Director(DCIR) using the approved form.

 Renewal of Registration

 Application for renewal of a tax agent must be made in the approved form with the prescribed fee by the 7th of December of each year or any later date as the Director may allow.

 Communication

 Any communication between the registered tax agent and the Director, in terms of filing a tax return or other document on behalf of the taxpayer, or otherwise communicate with the Director on behalf of the taxpayer is deemed to be carried out by the taxpayer.  Should the tax return filed or communication made be false or misleading, and it is proven that the fault was done by the registered tax agent; then it is deemed that the tax agent is responsible.

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Tax Agents (Continued)

 Limitations on providing tax agent services

 No other person other than a registered Tax Agent can demand or receive any fee for providing tax agent services unless that person is a legal practitioner providing tax agent services in the course of undertaking legal work other than the services specified in paragraph (a) of the definition of tax agent services in section 76.

 Cancellation of tax agent registration

 Once a Tax Agent no longer wishes to renew their registration, they must notify the Director in writing within 7 days of ceasing to meet the conditions in section 77 of the TAA.

 Licensed Bookkeepers

 This is separate from tax agent registration as a tax agent does not necessarily prepare the financial accounts of their client.

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Take a Break!

Back in 15 Minutes for: Consequential and other amendments and upcoming amendments and reforms

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Tax Rulings - Part 12

 Director may make a public ruling setting out how a tax law will be applied.  Must be made in consultation of the DG of MFEM .  Public Rulings state the Director’s opinion on the interpretation of a tax law to:

 Give guidance and consistency in the application of the law; and  help taxpayers understand the law (particularly for the purposes of making self- assessments).

 A public ruling will be of general application and not specific to a particular taxpayer or taxpayers.

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WR1

Slide 29 WR1 Public rulings provide taxpayers with certainty and protection if they follow the ruling as it applies to them. However, taxpayers who ignore public rulings may face severe penalties and interest. Note that public rulings are binding on the Commissioner of Taxation (the Commissioner). They may offer some protection against having to pay a tax shortfall in the event that the ruling is found to be incorrect if the taxpayer relies on it. The Commissioner may exercise his discretion about imposing a penalty on top of a tax shortfall where the taxpayer has drawn upon and relied on incorrect information contained in other publications. However, where these booklets and pamphlets are not classed as a “binding ruling”, a tax shortfall resulting from a taxpayer relying on it when it may be incorrect would still need to be paid.

Willie Rex, 27/09/2019

Tax Rulings (Cont.

 Public Rulings bind the Director to apply the law as stated in the Ruling  A public ruling is binding on the Director until withdrawn in accordance with section 54. The Director cannot assess a taxpayer contrary to a valid ruling that applies to the taxpayer.  Tax Rulings must be published in the DCIR website and clearly identified as a ruling. They can be withdrawn as a result of law change, court decisions.  If Director withdraws a ruling, taxpayers can apply it up to the time of withdrawal  Other advice (brochures, flyers, published by the Director) are NOT binding – but, if you follow them in good faith, penalties will not apply if that advice is changed or incorrect. .

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Revenue Tribunal – Part 14 – Division 2 Please Refer to Brochure titled Revenue Tribunal for more information.

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Objections and Appeals (Part 7)

The director must give a statement of findings and reasons if he refuses an application by a taxpayer. Taxpayers have a clear process to seek review of revenue and reviewable decisions.  Revenue Decisions are administration decisions such making a tax assessment, amendment of a VAT return etc.  Reviewable Decisions are:

• Decisions made, or treated as having been made, by the Director on an application

by a taxpayer for an amendment to a self-assessment.

• An objection decision made by the Director. This is the main example of a

reviewable decision.

• A decision by the Director under section 51 (issuing of a tax clearance certificate),

77 (application for tax agent registration), 78 (application for renewal of tax agent registration), or 81 (cancellation of tax agent registration).

 A taxpayer dissatisfied with a revenue decision object to the Director against that decision only under Part 7.  The Director must consider all objections and make a decision.

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Objections and Appeals (Cont.)

 If a taxpayer is dissatisfied with objection decision or any other reviewable decision, they can challenge that decision by applying to the Revenue Tribunal for review of the decision under Section 71.  Still dissatisfied? You can appeal to the Supreme Court and then on to the Appeal Court if the Appeal Court gives permission.  Some decisions can be appealed directly to the Supreme Court. These are limited to urgent issues such as decisions to seize property, or a decision to prevent a taxpayer leaving Vanuatu.

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Objections and Appeals (Cont.)

 The Revenue Tribunal is being established and funded by the Government.  It will be independent and is intended to provide affordable timely review of taxation decisions.  Until it is established, the Supreme Court will perform this role.  Some rules

• Taxpayers are limited to their grounds of objection (so be thorough). Must get

Tribunal or Court permission.

• Time limits apply
• Burden of proof is on the taxpayer.
• Special rules apply to ensure the Director makes prompt decisions. If Objection

decision is not made in 60 days, you can elect to treat it as disallowed and you can proceed to the Tribunal.

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Objections and Appeals (Cont.)

Assessment/ Amendment

• Not happy? Object to the

Assessment

Objection

• Not happy with the

Objection Decision?

• Appeal to the Revenue

Tribunal

Supreme Court

• Not happy with the Tribunal

Decision?

• Appeal to Supreme Court on

law issues.

Appeal to Appeal Court

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• Not happy with the

Supreme Court decision?

• Seek leave to appeal

to Appeal Court

Enforcement & Compliance

Access to information, lodgement and payment

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DCIR officers are NOT Police Men. They are friendly and they will want to help you so your business complies with our Tax laws.

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Enforcement and Compliance

 The role of a modern tax administration, such as DCIR is to encourage taxpayers to voluntary tax compliance by making it easy to pay taxes and difficult to avoid them.  Director has effective powers to access information and to enforce the tax laws - including registration, lodgement of correct returns and payment of tax.  The TAA provides for a range of administrative measures, including penalties that can be appropriately applied to encourage compliance.  Taxpayers who deliberately seek to avoid their obligations can be subject to higher administrative penalties and ultimately criminal prosecution.

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Integrated approach to compliance

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Tax Clearance Certificates (Part 11)

Taxpayers must produce a tax clearance when required by regulations. For example, it is expected that regulations will require a person to produce a tax clearance to apply for a Government tender.

• Director must issue the Certificate or notice of refusal

within 14 days.

• Deals with current debts only. To get a certificate, must

have no outstanding debts or payment arrangement in place.

• Director does not do audits to establish debts.
• Valid for 12 months.
• May be revoked by the Director

Access to information and Summonses (Part 10)

The Director has power to access premises and seize documents

• Only the Director and specially Authorised Tax Officers are permitted to exercise

this power

• No warrant is needed but the Taxation Officers must have Identification
• Normally in business hours – but not required (Director will be reasonable)
• Notice is not required
• Records and documents can be seized and/or copied (receipts provided)
• Taxpayers must provide reasonable access and provide information necessary to

facilitate access (eg provide passwords etc), provide power etc.

• Decision to obtain access is not a revenue or reviewable decision – can go directly

to court for urgent injunctions.

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Access to information and Summonses (Cont.)

The Director’s access and summons powers override any rule of law relating to:  privilege (e.g. legal professional privilege or the privilege against self- incrimination); or  relating to the public interest in relation to the access to premises or places, or  the production of, or access to, property (such as a data storage device) or records (including in electronic format). The access and summons powers also overrides any contractual duty of confidentiality, such as a bank’s contractual duty of confidentiality in relation to customer records. As stated above, the only limits on the exercise of the power are that it must be exercised for the purposes of administering a tax law and the general law requirement that an administrative power is exercised in good faith.

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Lodgement of Tax Returns and Documents

 It is expected that a person required to file a document will do so in accordance with the law.  Failure to file a registration form, tax return or other document (generically termed tax returns) will be a key focus into the future.  A penalty will apply for not filing returns as required.

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Late Filing Penalty (- Part 8 -Division 2)

If you don’t file a tax return or other document by the due date, a late filing penalty can be imposed by the Director. The penalty is:  A fixed amount depending on the legal status of the taxpayer. If the taxpayer is an entity (mean a company, partnership, or trust), the penalty is expected to be VT50,000 and, for an individual, the penalty is expected to be VT30,000.  Plus a daily penalty for the period that a tax return remains unfiled. Daily penalties apply after 7

• days. If the taxpayer is an entity (a company, partnership, or trust), the daily penalty is VT5,000

and, for an individual, the daily penalty is VT3,000. Can’t lodge on time? Request an extension.  The Director has power to remit the whole or part of a late filing penalty in appropriate cases.  The imposition of a late filing penalty is an alternative to prosecution of an offence.

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Encouraging Payment - Late payment interest

Taxes should be paid on time to avoid late payment interest. Late payment interest is imposed if tax is paid late. Late payment interest compensates the Government for being out of funds as a result of tax not being paid by the due date. It differs from late payment penalty imposed under Section 87, which punishes a taxpayer for the wrongdoing associated with not paying tax by the due date.

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Temporary closure of business (Part 8 - Division 3)

This Director or a specially authorised officer may temporarily close a taxpayer’s business premises for up to 14 days if the taxpayer has regularly failed to file VAT returns or pay VAT due. The power to temporary close down a taxpayer’s business premises is a serious power intended to be used only as a last resort to improve taxpayer compliance. The power cannot be used when there has been only a one-off failure. There must be a frequent pattern of failure to justify using the power. Can be applied if:  A taxpayer has failed to file a VAT return by the due date and this is the third such failure by the taxpayer in the previous 12 months or sixth such failure in the previous 2 years; or  A taxpayer has failed to pay VAT by the due date and this is the third such failure by the taxpayer in the previous 12 months or sixth such failure by the taxpayer in the previous 2 years. The Director’s decision to issue a closure notice is neither a revenue decision nor a reviewable

• decision. This means that the normal remedies for judicial review of administrative action (including
• btaining injunctive relief) are available to the taxpayer to challenge the decision.

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Temporary closure of business (Cont.)

The Steps the Director must take are: Step 1 - The Director must give a notice in writing – This is a warning and gives the taxpayer time to comply. The business premises will not be closed if, within 7 days of getting a notice the taxpayer files all outstanding VAT returns and/or pays all outstanding VAT owing (incl. penalties etc.). Step 2 – if the taxpayer fails to comply with the warning notice, the Director may issue a notice (referred to as a “closure notice”) to close down the whole or part of the taxpayer’s business premises up to 14 days. Step 3 - The Director must seal the closed business premises and affix a notice to the front

• f the premises in a conspicuous place specifying the matters in the Regulations. This is

VERY public and will be advertised! The Director must immediately arrange for reopening of the premises and removal of the notice from the premises if, within the 14-day period of closure, the taxpayer fully complies with the notice.

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Administrative Penalties and Offences (Part 15)

 Wider range of administrative penalties that can be applied in increasing levels to encourage compliance.  If appropriate, the Director can, as an alternative to administrative penalties take steps to prosecute taxpayers for offences.  Administrative penalties quickly add up to a significant amount if taxpayers do not comply.  Criminal prosecutions are extremely serious and can result in significant fines and prison.  Read the TAA for more details!

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Tax Shortfall Penalty (Part 15 – Division 2).

A person is liable to a tax shortfall penalty if they make a statement to a taxation officer that is false or misleading in a material particular or omits from a statement any matter or thing without which the statement is false or misleading in a material particular; that statement results in them paying less tax than they otherwise would have paid. The difference is called the “tax shortfall”. Example – deliberately filing a VAT return that understates sales. A may be liable for a tax shortfall penalty equal to:

• if the statement or omission was made deliberately or recklessly - 75% of the tax avoided;
• in any other case - 20% of the tax shortfall.

The percentage rate of a tax shortfall penalty imposed is increased by 10 percentage points if second time it has applied; or 25 percentage points if it is the third or a subsequent the penalty has been applied to a person. The percentage rate of a tax shortfall penalty reduces by 10 percentage points if the person voluntarily discloses to the Director the statement or omission before: the Director gives advice of the shortfall penalty or commences an audit. The penalty can be avoided if the person did not know the statement was false or clerical error etc. Penalty interest for late payment remains payable in all cases.

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THE END!

Thank you for your participation at today’s session

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