Director General, Mauritius Revenue Authority (MRA) M.S. Lal has said that the Pakistan tax authorities can broaden the tax-base by abolishing turnover threshold for sales tax registration, use of third party information and clear income tax jurisdiction powers for assessment and audit of taxpayers.
Lal, who was former Member, Tax Policy and Reforms, Central Board of Revenue (CBR) has made valuable contribution in chalking out reform policy for Pakistan tax system. He is currently in Pakistan and visited the board on Monday to share his experiences in revamping the tax system of Mauritius.
In an exclusive interview with Business Recorder, he stated that MRA has completed all reform initiatives like 'functional-based organisational structure', automation, integration and matching of information within one year as compared to CBR reform program to be completed till 2009.
Sharing some interesting data, he said that 13,000 units are registered with the VAT department of MRA. Over 98.7 percent are regularly filing sales tax returns, showing remarkable compliance level. A uniform income rate of 15 percent would be applicable on companies, individuals and corporate sector by 2009. Fast track VAT refunds were paid in seven days to the taxpayers. All VAT and income tax refunds were credited in the taxpayers' bank accounts.
He said that integration of taxes through systems like Integrated Tax Management System (ITMS) remained top priority in implementation of reforms in any tax administration of the world.
The CBR could focus on known businesses where minimum turnover threshold is creating problems in increasing value added tax (VAT) registration. For example, out of 523 jewellers in Mauritius, only 26 were paying VAT due to turnover threshold of Rs 2 million. Minimum registration threshold was abolished bringing all jewellers into the tax net. Similarly, professionals were brought into the tax net by abolishing the minimum registration threshold. The CBR may remove minimum threshold of registration for certain potential sectors.
He said that both the Indian and Pakistan tax laws are being drafted on the same lines and their departments are facing the same problem of tax compliance and cultural resistance. However, India has comparatively raised the number of return filers manifolds due to utilisation of third party information.
Once the taxpayer knows that the department has enough information to confront him, his compliance would automatically improve. Third party information mechanism should be in place even if CBR does not want to utilise the system. It would act as an effective deterrent to improve tax compliance. In Pakistan effective enforcement of National Tax Number (NTN) is necessary for data verification as done in Mauritius through Tax Account Number (TAN).
He also said that the income tax law should be more simplified to bring clarity in issues like audit, investigation, enforcement and jurisdiction of taxpayer.
On speedy implementation of reforms, head of MRA explained that the tax evasion has been effectively controlled through collection of data from external sources and its subsequent matching with the declarations of returns. It is common that evasion and under-reporting of taxes is committed by self-employed professionals and businessmen. For example, MRA had maintained data of doctors paying taxes and non-compliant taxpayers.
We have collected information from hospitals about their daily earnings and cross matching of data helped in working out their actual income. In another example, advocates/barristers were brought into the tax net through collection of information from the last two year's cause lists available with the Supreme Court of Mauritius. The income of buyers of new expensive cars is checked through TAN and data matching is also verified in property cases.
About case selection for audit, he said that Income Tax Act, 1995 has given enough powers to the MRA to select any case for audit and taxpayer can object audit due to ample powers in the law.
The MRA does not accept any tax payment where TAN is not provided by the depositor. To attract investors he said that the business registration of new taxpayer with MRA and all other government departments is done in only three days. "The people don't move, but the information circulate for them". An investor does not have to move for registration with the health and environment departments, police, income tax, Value Added tax and other offices, as all registration are done under one roof. Similarly, all customs related issues including clearances by health and agriculture ministries is also done under one-window operation.
The MRA has acquired comprehensive IT integrated system, which was initially tested at Large Taxpayer Units and the same was replicated to medium and small taxpayer units in a systematic manner. Income tax and VAT have been integrated and activities like gambling, lotteries and horse racing are being administered under one unit. The concept of common identifier number has been implemented in the country.
Except customs, all other units ie investigation, operation, are shared services for all units. As a result of reforms, MRA employees have been brought down from 1482 to 1062 persons showing 28 percent efficiency in manpower. The Human Resource initiatives like work processes, defined job description etc have reduced overtime to 50 percent.
Ratio of support staff is 1:10 against 10:1 in Pakistan. In MRA, there are only 11 attendants for 12-storey building, as no one has personal dedicated attendant. During his visit to the CBR, tax authorities of both the countries agreed on mutual assistance in customs related matters.