Published on Voices

Tax Lessons From Peers

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Read the first of this two-part blog post here.

The idea of a peer learning network for tax administrators came when I realized that tax authorities in different countries had many of the same questions: How do we initiate risk management? How are other countries dealing with compliance issues? How do countries ensure speedy VAT refunds and yet prevent fraudulent claims? And so on.

So why not get the tax officials from different countries together and provide a platform to discuss their challenges, experiences and innovative ways of solving problems. Mix them with a dose of tax experts from developed tax systems, et voila! That’s how TAXGIP (Tax Administrators eXchange for Global Innovative Practices) was born – it provides opportunities to exchange knowledge and good practices, and share experiences.

It is interesting that the former capitals of two competing medieval empires joined hands to provide a forum for sharing knowledge on global tax issues. The first TAXGIP conference was held in December 2009 in Istanbul to exchange experiences on issues relating to risk-based tax audit. For the second conference in St. Petersburg, 50 tax policy experts and administrators from 27 countries in Europe and Central Asia were joined by colleagues from EU member states, the United States, Canada and India to discuss a range of tax problems related to SMEs. This included issues such as informality, cash transactions and under-reporting, as well as approaches to compliance gap monitoring, broadening the tax net and finding non-registered businesses. The tax peers contemplated ways to improve taxpayer service and bring it closer to small business.

Keeping the database of registered small business taxpayers and other “hard to tax” sectors up to date is extremely difficult. Still, it is necessary and recommended, despite limited revenue potential. Small business groups are highly heterogeneous -- from “micro” businesses – street traders, subsistence farmers with limited ability to pay in both fairness and practical terms – to professionals and businesses with many employers. Beyond collecting additional revenues from these groups, there are other tangible effects from taxing them, in terms of improvement in horizontal and vertical equity, and an increase in economic efficiency. There are also significant intangible effects, including higher overall tax morale. Also, bringing small businesses into the tax net can help secure their participation in the political process and improve government accountability and transparency, thus contributing to the overall state building process.

As Parviz Mammadov, a participant from Azerbaijan said: “It was useful to know that our peers throughout the region are facing the same problems and trying to tackle the same difficulties with tax compliance of SMEs. Owing to such networking and learning opportunities, we can avoid mistakes that have been made by our colleagues in other countries as well as utilize their positive experiences.”

The first conference in Istanbul had resulted in a World Bank publication entitled: Risk Based Tax Audit: Approaches and Country Experiences. For the recent conference in St. Petersburg we hope to publish a treatise on SME taxation very soon.

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