Taxpayer Newsletter Inland Revenue Department

Quarterly Edition October 2013

Phone: (688) 20239, 20235(Ext 1235); Email: [email protected]

th

10 PITAA Annual Meeting 2013 The 10th Pacific Island Tax Administrators Association (PITAA) Annual Meeting was held on the 10th– 12th September 2013 at the Forum Fisheries Agency Conference Center, in Honiara, Solomon Islands.

Mr Joseva Leano was also able to attend the meeting along with other PACTAM Tax Advisers in the region with funding assistance from AusAID.

The theme for this year’s Meeting is “Working in Partnership to Improve Compliance & Administration”.

to add to its initial audit result the amount of $318,793.09 thus increasing the total audit result to $967,987.88 of completed audits.

being audited, whereas a Single Audit is simply the audit of a single tax type. Staffs were able to gain training of 2 PEs each for the 2 different Audit Types.

The objectives of the Meeting were to finalize the PITAA Strategic Plan and Operational Issues, countries to share their experiences of Tax Reform, and deliberate on Improving Tax Compliance in the Pacific.

The meeting was attended as usual by the Director of Inland Revenue with full funding assistance by PFTAC. Also in attendance were representatives from 16 PITAA member countries. The Tax Adviser

Public Enterprise Audit Results Since our last newsletter edition of July 2013, we reported that the Department had obtained an amount of $649,194.79 as a result of the 3 Public Enterprises’ (PE) audits conducted.

The above audits conducted were a combination of Integrated and Single Tax Audits. An integrated Audit is where more than one tax type is

The IRD has now completed the audit of its 4th PE and has been able Integrated Audit Results Number of PEs PAYE 2 $245,170.72 Single Audit Results 2 $418,088.74 Total Audit Result

Illustrated below is the breakdown of results as per type of Audit Conducted.

Net Profit Tax Nil

Consumption Tax $157,497.68

Room Tax $147,230.74

Total Result $549,899.14

N/A

N/A

N/A

$418,088.74 $967,987.88

Private Sector Audits The IRD is currently making preparations for the Private Sector Audits to commence in 2014. This preparation includes the updating of the RMS through data postings, inputting of new taxpayers information, and at the same time using the opportunity to do data cleansing.

neglected as the only three staff have been out conducting audits and no one has been able to make progress on these other necessary tasks.

This work has unintentionally been

The emphasis for taxpayers is that

Once work on the RMS is finished, staff will use this information to send out compliance profile letters to individual taxpayers regarding the planned Audit.

they start compiling their financial records in readiness for the Tax Auditors. The audit will be focussed mainly on the Medium and Large Taxpayers who in accordance to the IRD categorisation are those taxpayers with turnovers exceeding $100,000.

Tax Revenue Collection for 2013 (Jan – Sep) Tax Type Income Tax

Est 2013 1,500,000

Est Jan-Sep 1,125,000

Actual Jan-Sep 1,010,473.79

Variance 489,526.21

Audit Result 663,259.46

Actual+Audit 1,673,733.25

Net Profit Tax

1,900,000

1,000,000

736,982.19

1,163,017.81

-

736,982.19

Consumption Tax

250,000

187,500

62,243.50

187,756.50

157,497.68

219,741.18

Presumptive

36,000

27,000

7,720.00

28,280.00

-

7,720.00

Room Tax

30,480

22,860

4,332.20

26,147.80

147,230.74

151,562.94

Penalties

30,000

22,500

-

30,000

-

-

3,746,480

2,384,860

1,821,751.68

1,924,728.32

967,987.88

2,789,739.56

Total Revenue

Page 1

October 2013

Inland Revenue Department

Summary of Revenue Collection

Revenue Collections since January this year have not improved as projected. An analysis of the situation was done to closely identify the risks so possible solutions could be and listed below are some of findings:  Income Tax – we estimate that we would be able to just about meet the estimated $1.5m  Net Profit Tax – we are expecting $1.9m from one of our large taxpayers being their tax payable for their 2012 profits.  Consumption Tax – even though taxpayers have been very compliant with their filings the amounts paid by them were relatively low whilst others claimed for refunds. Unless, these taxpayers are audited, there is no way of knowing whether they are correctly complying or whether they are actually understating their tax liabilities.  Presumptive Tax – reminders will be sent to those who have not filed and paid to do so before the year ends. 

Room Tax (RT) – the audit of the biggest room tax taxpayer has already been completed thus payments should be expected for 2013. However, since RT has dropped to 3% there has been a reduction in collections.

RMS7 Upgrade Possibilities A system engineer from Data Torque (NZ) Limited, Mr Tom O’Toole visited the country for a week in August 2013 and was able to address all of the outstanding administrative issues and most importantly provide the much needed training for staff. More importantly, Tom was able to update the staff on their new version of the RMS which is the RMS 7 which the staff found interesting especially in regards its Case

Workflow Module (for Audits and Debt Management).

countries have all upgraded their versions to RMS7. The only reason Tuvalu IRD has not been able to upgrade to RMS 7 is mainly due to the high costs associated with acquiring this upgraded version.

Of the seven Pacific Island Countries using RMS, Tuvalu is the only country left still using the old version of RMS whilst the other six

Tuvalu Inland Revenue pleas with its donor partners to assist with the funding of this much needed upgraded version.

Incentives NOT Exemptions In terms of attracting investors, there is an urgent need to amend the legislations to make it attractive for investors to invest. Section 13(2) and Schedule 3 of the Income Tax Act provide for investment allowance.

remained un-utilised introduction in 1992.

since

its

has

Too many times blanket tax exemptions were given out by government officials in the past which were counterproductive and did nothing to improve revenue collection and neither did it improve

Since the introduction of the Income Tax Act in 1992, a key provision has been the withholding tax to be collected from non-residents. This is in the form of withholding tax and the key provisions are section 37 and 38. However, it appears that these key sections have never been applied on the earnings of non-residents whose

income earned in Tuvalu would come under the definitions of withholding income applying the above sections. Schedule 5 of the Income Tax Act lists the different withholding incomes and the rate of withholding tax to be charged as shown below: Dividend – 15%, Service Fees – 15%, Specified Alimony Payment – 30%,

However,

this

provision

economic development in general. The department has now been tasked to make the necessary arrangements to have these incentives ready to be passed in the December 2013 Parliament Session.

Taxing Non-residents Gross income other than dividend, service fee or specified alimony payment – 30%. The Department has arranged some tax clearance processes and procedures with Treasury in regards confirmation of the liability of this tax.

Penalties for 2014 The IRD will activate the imposing of penalties and enforcement of recovery measures as stipulated in the Revised Income Tax Act 2009, to commence on the 1st of January, 2014

for all tax payable for that specific year.

prepared to accordingly.

enforce

penalties

With the postings and data cleansing work now being carried out by tax officers on RMS, the IRD will be fully

Public is hereby advised to take heed of this and to fully comply with their tax obligations.

Disclaimer – This publication has been prepared for the purpose of quick information dissemination to IRD taxpayers and staff on important tax matters. Information is current at time of printing. Additional information may be obtained from our office. The information contained in this publication should not be used or relied upon as a substitute for detailed advice or as a basis for formulating business decisions.