Since June 1 , the telecommunication services sector was also included in the pilot program. By the end of , a total of 5. In , this reform reduced tax liabilities of the new VAT taxpayers by Consequently, the VAT reform has had far-reaching strategic significance by stimulating growth and promoting competitiveness among business sectors. Preferential treatments for small-scale and marginal profit businesses continued Since August 1 , small-scale VAT and Business Tax taxpayers with monthly turnover below 20, RMB have been temporarily exempted from their respective VAT and Business Tax liabilities.
In , this policy was further extended to the end of Since January 1 , this preferential treatment has been granted to those with an annual taxable income of , RMB or less.
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In , tax reduction for small-scale and marginal profit enterprises totaled Resource Tax Reform moving along On May 1 , Resource Tax on rare earth, tungsten and molybdenum started to be collected on ad valorem basis throughout country. On February 1, , batteries and coating materials became subjected to Excise Tax. About STA. Tax System. Economic development often increases the need for new tax revenue to finance rising public expenditure. At the same, time it requires an economy to be able to meet those needs.
More important than the level of taxation, however, is how revenue is used. In developing economies high tax rates and weak tax administration are not the only reasons for low rates of tax collection. The size of the informal sector matters as well; the tax base is much narrower because most workers in the informal sector earn very low wages.
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Efficient tax administration can help encourage businesses to become formally registered, thereby expanding the tax base and increasing tax revenues. In many transition economies in the s, the failure to improve tax administration when new tax systems were introduced resulted in the uneven imposition of taxes, widespread tax evasion and lower-than-expected tax revenue. Compliance with tax laws is important to keep the system working for all and supporting the programs and services that improve lives.
One way to encourage compliance is to keep the rules as clear and simple as possible. Overly complicated tax systems are associated with high tax evasion. High tax compliance costs are associated with larger informal sectors, more corruption and less investment. Economies with simple, well-designed tax systems are able to boost businesses activity and, ultimately, investment and employment. Tax administration is changing as the ecosystem in which it operates becomes broader and deeper, mostly owing to the vast increase in digital information flows.
Tax administrations are responding to these challenges through the introduction of new technology and analytical tools. They must rethink how they operate, offering the prospect of lower costs, increased compliance and incentives for compliant taxpayers. In , Tajikistan launched the Tax Administration Reform Project and, as a result, the country built a more efficient, transparent and service-oriented tax system. The modernization of IT infrastructure and the introduction of a unified tax management system increased efficiency and reduced physical interactions between tax officials and taxpayers.
Following the improvement of taxpayer services, the number of active firms and individual taxpayers filing taxes has doubled and revenue collections have risen strongly. A taxpayer in Tajikistan spent 21 days in complying with all tax-related regulations, compared with 33 days in A low cost of tax compliance and efficient procedures can make a significant difference for firms.
In Hong Kong SAR, China, and Saudi Arabia, for example, the standard case study firm would have to make only three payments a year, the lowest number of payments globally. However, the time it takes a company to comply with VAT requirements varies widely. Research shows that this is explained by variations in administrative practices and in how VAT is implemented.
Compliance tends to take less time in economies where the same tax authority administers VAT and corporate income tax. The use of online filing and payment also greatly reduces compliance time. Frequency and length of VAT returns also matter; requirements to submit invoices or other documentation with the returns add to compliance time.
Tax Administration and the Small Taxpayer
Streamlining the compliance process and reducing the time needed to comply with the requirements is important for VAT systems to work efficiently. Filing the tax return with the tax authority does not imply agreement on the final tax liability. Often, the ordeal of taxation starts after the tax return has been filed. Postfiling processes — such as claiming a VAT refund, undergoing a tax audit or appealing a tax assessment — can be the most challenging interaction that a business has with a tax authority.
Businesses might have to invest more time and effort into the processes occurring after filing of tax returns than into the regular tax compliance procedures.
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The absence of an efficient VAT refund system for businesses with an excess input VAT in a given tax period will undermine this goal. VAT could have a distortionary effect on market prices and competition and consequently constrain economic growth. Refund processes can be a major weakness of VAT systems.
This view is supported by a study examining VAT administration refund mechanisms in 36 economies worldwide. The study found that statutory time limits for making refunds are crucial but often not applied in practice. Delays and inefficiencies in the VAT refund systems are often the result of fears that the system might be abused and prone to fraud. That is also one of the reasons why, in some economies, it is not uncommon for a claim for a VAT refund to automatically trigger a costly audit, undermining the overall effectiveness of the system.
It performs a general industrial and commercial activity and it is in its second year of operation. The case study scenario has been expanded to include a capital purchase of a machine in the month of June. This number excludes the 28 economies that do not levy VAT and four economies where the purchase of a machine is exempted from VAT.
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In other economies businesses are only allowed to claim a cash refund after carrying forward the excess credit for a specified period of time four example, four months. The net VAT balance is refunded to the business only after this period ends. The legislation in other economies — typically those with a weaker administrative or financial capacity to handle cash refunds — may not permit refunds outright. Instead, tax authorities require businesses to carry forward a claim and offset an excess amount against future output VAT.
Insofar as procedural checks are concerned, in 77 of the economies which allow for a VAT cash refund in the Doing Business case scenario, a claim for a VAT refund will probably lead to an additional review being conducted before approving the VAT cash refund. Effective audit programs and VAT refund payment systems are inextricably linked. In Canada, Denmark, Italy and Norway a request for a VAT refund is likely to trigger a correspondence audit, which requires less interaction with the auditor and less paperwork.
By contrast, in most economies in Sub-Saharan Africa, where an audit is likely to take place, taxpayers are exposed to a field audit in which the auditor visits the premises of a taxpayer. As far as the format of the VAT refund request is concerned, in 53 of the economies the VAT refund due is calculated and requested within the standard VAT return submitted in each accounting period.
In the other economies, the request procedure varies from filing a separate application, letter or form for a VAT refund to completing a specific section in the VAT return as well as preparing some additional documentation to substantiate the claim. In these economies, businesses spend on average 3. Economies in Europe and Central Asia also perform well with an average refund processing time of These economies provide refunds in a manner that does not expose businesses to unnecessary administrative costs and detrimental cash flow impacts.
Doing Business data also show a positive correlation between the time to comply with a VAT refund process and the time to comply with filing the standard VAT return and payment of VAT liabilities.
This relationship indicates that tax systems that are harder to comply with when filing taxes are more likely to be challenging throughout the process. Tax audits play an important role in ensuring tax compliance. Nonetheless, a tax audit is one of the most sensitive interactions between a taxpayer and a tax authority. It imposes a burden on a taxpayer to a greater or lesser extent depending on the number and type of interactions field visit by the auditor or office visit by the taxpayer and the level of documentation requested by the auditor.
It is therefore essential that the right legal framework is in place to ensure integrity in the way tax authorities carry out audits. A risk-based approach takes into consideration different aspects of a business such as historical compliance, industry and firm-specific characteristics, debt-credit ratios for VAT-registered businesses and the size of a business in order to better assess which businesses are most prone to tax evasion.