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### Voluntary compliance and self-assessment: overview
- Modern tax administrations seek to optimize tax collections while minimizing administration costs and taxpayer compliance costs.
- Voluntary compliance is achieved when the tax administration:
  - adopts a service-oriented attitude toward taxpayers, and educates and assists them in meeting their obligations;
  - creates strong deterrents to non-compliance through effective audit programs and consistent use of penalties;
  - is transparent and seen by the public to be honest, fair, and even-handed in its administration of the tax laws.
- Experience shows that voluntary compliance is best achieved through a system of self-assessment.

### Review scope and main findings
- Scope: income tax compliance and taxpayer self-assessment in 10 SSA countries: Botswana, Ghana, Kenya, Lesotho, Liberia, Malawi, Nigeria, Rwanda, Tanzania, and Zambia.
- Objective: identify common implementation gaps and challenges, and draw broad lessons for tax administrations implementing or strengthening income tax self-assessment.
- Key findings:
  - All countries have introduced self-assessment principles in the income tax law but the legal authority is not being consistently applied.
  - Many countries continue to rely heavily on “desk” auditing all or a majority of income tax returns.
  - Risk management practices remain largely underdeveloped and/or underutilized.
  - Opportunities exist to enhance the design and delivery of client-focused taxpayer service (TPS) programs, change the attitude of tax officials, enhance trust in taxpayers, and engage with the private sector and other stakeholders.
  - Much work is still needed to strengthen and implement selective risk-based ex-post controls.

### Economic and fiscal context (key observations)
- Fiscal balance: central government revenue currently falls short of expenditures by unsustainable margins in most countries (except Botswana, Nigeria, and Zambia).
- Donor dependence: Liberia, Malawi, Rwanda, and Tanzania continue to rely very heavily on donor financing, which is volatile.
- Policy implication: fast-growing economies will be required to rebuild fiscal and external buffers without unduly affecting key social and capital spending.
- Tax revenue performance:
  - In 9 of the countries (Lesotho excluded), total central government tax revenue averaged about 16.9 percent of GDP during the period 2008 to 2010.
  - Comparator: OECD (32-member) average was 25.4 percent during the same period; these countries also collect, on average, an additional 10 percentage points of GDP in social contributions, bringing their tax-to-GDP ratio to about 35 percent.
  - Income tax currently accounts for over 7 percent of GDP in seven countries in the review.
- Trend: Income tax revenue has been on a growth trajectory in recent years in many of the countries under review.

### Revenue productivity and international comparisons
- General: revenue productivity for income taxes is low by international standards, especially for corporate income tax (CIT).
- Productivity indicators (2011/12) for CIT and PIT:
  - Botswana (low-middle-income): CIT productivity 0.32; PIT productivity 0.43
  - Ghana (low-middle-income): CIT productivity 0.09; PIT productivity 0.10
  - Kenya: CIT productivity 0.13; PIT productivity 0.16
  - Lesotho (low-middle-income): CIT productivity 0.51; PIT productivity 0.35
  - Liberia: CIT productivity 0.09; PIT productivity 0.29
  - Malawi: CIT productivity 0.10; PIT productivity 0.41
  - Nigeria: CIT productivity 0.03; PIT productivity N/A
  - Rwanda: CIT productivity 0.08; PIT productivity 0.18
  - Tanzania: CIT productivity 0.06; PIT productivity 0.16
  - Zambia: CIT productivity 0.08; PIT productivity 0.17
  - SSA average: CIT productivity 0.10; PIT productivity 0.13
  - Low-income Economies Group: CIT productivity 0.09; PIT productivity 0.14
  - High-income Economies Group: CIT productivity 0.17; PIT productivity 0.21
- Observation: PIT productivity tends to be higher than CIT productivity, reflecting the dominance and ease of collecting payroll tax (pay-as-you-earn).

### Paying taxes and administrative burden
- World Bank Doing Business Paying Taxes Index: Botswana, Liberia, Rwanda and Zambia are ranked favorably; Kenya and Nigeria rank poorly.
- Implication: scope exists to reduce the administrative burden of paying taxes through tax administration reforms.

### Social and development implications
- Mobilizing and utilizing additional domestic resources efficiently has major social implications.
- Selected MDG indicators (selected country values as reported):
  - % of population living below $1.25 (PPP) a day: 28.6 (Ghana), 43.4 (Kenya), 83.8 (Liberia), 73.9 (Malawi), 63.2 (Nigeria), 67.9 (Rwanda), 68.5 (Tanzania), 47.5 (Zambia).
  - Net enrolment ratio in primary education: 87.3 (Botswana), 84.2 (Ghana), 84 (Kenya), 73.7 (Lesotho), 97.5 (Malawi), 57.6 (Nigeria), 98.7 (Rwanda), 92.7 (Zambia).
  - Under-5 mortality rate (deaths per 1000 births): 25.9 (Botswana), 77.6 (Ghana), 72.8 (Kenya), 86 (Lesotho), 78.3 (Liberia), 82.6 (Malawi), 124.1 (Nigeria), 54.1 (Rwanda), 67.6 (Tanzania), 82.9 (Zambia).
  - Maternal mortality rate (deaths per 100,000 live births): 160 (Botswana), 350 (Ghana), 360 (Kenya), 620 (Lesotho), 770 (Liberia), 460 (Malawi), 630 (Nigeria), 340 (Rwanda), 460 (Tanzania), 440 (Zambia).
  - % of population using an improved water source: 96 (Botswana), 86 (Ghana), 59 (Kenya), 78 (Lesotho), 73 (Liberia), 83 (Malawi), 58 (Nigeria), 65 (Rwanda), 53 (Tanzania), 61 (Zambia).
- Conclusion: improved domestic revenue mobilization is critical to address development gaps.

### Tax administration reform components and role of self-assessment
- Typical reform components implemented over last two decades:
  - shifting from tax-type to function-based organizational structures;
  - establishing a strong headquarters (HQ) function to develop operational policies and oversee field operations;
  - segmenting taxpayers to better understand characteristics and develop compliance strategies;
  - modernizing tax legislation, including harmonizing tax administration procedures;
  - implementing systems and procedures based on the principle of self-assessment and ex-post risk-based controls;
  - automating tax procedures to support integrated administration of all domestic taxes.
- Implementing all six components is crucial; this paper focuses on the fifth component: income tax self-assessment.

### Approaches to Income Tax Assessment: administrative assessment system
- Administrative assessment system: onus on tax administration to examine returns and financial statements ex-ante, calculate tax payable, and notify taxpayers via a notice of assessment.
- Key features:
  - Taxpayers report annually via tax return and financial statements.
  - Tax returns and supporting financial statements are reviewed and verified by tax officials.
  - Tax administration decides the tax liability and notifies the taxpayer.
  - Taxpayers pay or object; administration reconciles assessments and payments.

---

### 9. Administrative assessment systems — challenges and observations
- General: administrative assessment systems are resource-intensive and tend to be ineffective.
- Identified challenges:
  - Costly to administer because of the high level of intervention of tax officials.
  - Resource limitations mean checks are often ineffective in detecting unreported income.
  - Taxpayer education and assistance programs are often not well developed.
  - Penalties tend to be lower, inconsistently applied, or open to negotiation.
  - Less tax collected overall because of insufficient focus on highest revenue risks.
  - High level of disputes with each step presenting negotiation opportunities.
- Prevalence: administrative assessment systems remain common in many countries, including advanced countries (examples listed in source).
- Evidence/examples:
  - Australia review (D'Ascenzo, 1993) found: assessing business and company returns cost more than revenue gained; little deterrent effect; disputes costly and clog appeals; low job satisfaction for assessors.
  - Dispute volumes: Austria – 145,440 (cases in 2011); Denmark – 93,448; Germany – 4,149,543; Netherlands – 439,033; Norway – 82,270; Portugal – 49,756 compared to self-assessment countries: Australia – 24,513; Japan – 8,463; Korea – 5,905. (OECD, 2013).

### Singapore as an exceptional administrative (official) assessment system
- Singapore’s official assessment system (OAS) relies on technological capacity to capture source data and electronic data matching with external sources.
- Outcome: a large majority of taxpayers file a nil return because information is already captured in the IT system (Source: CATA, 2003).

### Self-assessment — rationale and core features
- Premise: no tax administration can determine correct liability for every taxpayer; taxpayers are best placed to determine their liabilities with appropriate assistance.
- Features:
  - Taxpayers calculate and pay taxes; administration uses post-filing controls if taxpayers fail.
  - Returns generally accepted at face value at filing; simple checks for arithmetical accuracy may be performed.
  - Business taxpayers must keep records explaining transactions; records typically kept for around five years.
  - Role of tax administration: assist taxpayers, provide education, make compliance easy and low cost.
  - Verification shifts to post-filing risk-based audits, data matching, and targeted enforcement.

### International movement toward self-assessment and implementation patterns
- Historical adoption: Canada and the United States (1910s); Japan (1947); wider spread in last 30 years with country examples and years listed in source.
- OECD status (2013): around half (18) of revenue bodies in the OECD apply self-assessment for the PIT while 22 apply self-assessment for CIT.
- VAT growth: development of self-assessment closely linked to rise of VAT, which is only feasible as a self-assessed tax.

### Self-assessment implementation in selected SSA countries (summary)
- Country, years self-assessment/VAT implemented, coverage (as reported):
  - Botswana 2002/2002 Not clear Corporate income tax
  - Ghana 2001/1999 Not clear Large and selected medium taxpayers.
  - Kenya 1992/1991 Part of broader income tax reforms Universal
  - Lesotho 2004/2003 Part of broader income tax reforms Universal
  - Liberia 2000/No VAT Part of broader post conflict reforms Universal
  - Malawi 2010/2001 Part of broader income tax reforms Large taxpayers
  - Nigeria 1997/1994 Not clear Selected pilot offices
  - Rwanda 1998/2001 Post conflict reforms Universal
  - Tanzania 2004/1998 Part of broader income tax reforms Universal
  - Zambia 1992/1995 Part of broader income tax reforms Universal
- Notes:
  - VAT often implemented in advance of extending self-assessment to income taxes (exceptions: Liberia, Rwanda, Zambia).
  - Only half the countries are implementing universal self-assessment.

### Evidence on revenue performance after self-assessment implementation
- No evidence that revenue has suffered due to self-assessment implementation.
- Finding: in all countries (except Lesotho and Zambia), income tax revenue continued to grow after implementation; Lesotho and Zambia saw previous declines reversed within two years of implementation.
- Caution: revenue growth may be explained by other factors (tax policy changes, broader reform agendas); growth occurred even where PIT and CIT rates were declining or stable.
- Example estimate: United Kingdom — over the 10-year period to 2007-2008, self-assessment would result in administrative savings of £500 million (UK National Audit Office as cited in Loo et al., 2005).

### Conditions required for effective self-assessment (Box 2)
- Clear and simple tax laws:
  - Rewriting tax law to reduce information volume and use clear language; simplifying rules for small taxpayers; establishing a binding rulings regime recommended.
- Good service to taxpayers:
  - Service-oriented attitude, clear information, updates, access via enquiry centers, web sites, seminars, etc.
- Simple filing and payment procedures:
  - Simple tax forms, e-filing, drop-off boxes, e-payment (internet and mobile banking).
- Effective collection enforcement:
  - Prompt detection of non-filers/payers; cleansed taxpayer register; prompt escalation because older debt is harder to collect.
- Selective risk-based audit:
  - Reasonable risk of detection; strong audit program focused on higher-risk taxpayers; sufficient resources to audit a reasonable percentage each year.
- Fairly applied interest and penalties:
  - Interest compensates time value; penalties sanction violations; must be applied consistently and proportionally.
- Fair and timely dispute resolution:
  - Access to simple, neutral, transparent appeal processes including independent administrative appeals, a special tribunal, and judicial recourse.

---

### 26. Benchmarking conditions against Box 2 — A. Clear and Simple Tax Laws
- Implementation timing:
  - Liberia, Lesotho, and Tanzania implemented self-assessment with a new income tax law—advantageous for clarity and integration.
  - In most other countries self-assessment was introduced via minimal but critical legal changes (interest, penalties, assessments, payments).
- Risk of conflicting provisions: Example—Botswana introduced section 65(2) for self-assessment but retained section 65(1) for administrative assessment.
- Problematic countries: Botswana, Ghana, Nigeria, and Malawi (not implementing universal self-assessment) — tax officials revert to administrative assessment procedures even where law provides for self-assessment.
- Tax procedures code (TPC):
  - Enacted in Rwanda and Liberia.
  - Draft TPCs prepared in Botswana, Malawi, Ghana, Kenya, Tanzania, and Uganda; enactment delayed.
- Binding rulings:
  - Ghana and Tanzania have provisions for binding private rulings; no evidence of binding rulings issued recently.
- Overall assessment:
  - Only Liberia, Lesotho, Rwanda, and Tanzania have income tax laws relatively simple and clear.
  - In the majority, laws are complex, contain provisions inconsistent with self-assessment, lack binding rulings, and lack harmonized administrative procedures.

### 26. Benchmarking conditions — B. Service to Taxpayers
- Common TPS features:
  1. Annual taxpayer service implementation plans prepared by TPS HQ.
  2. Taxpayer education via clinics, seminars, media, brochures.
  3. Taxpayer service centers or call centers for walk- or call-in services.
  4. Websites used for dissemination.
- Country-level TPS observations (summary):
  - Botswana: Annual TPS plans; weak HQ; integrated Taxpayer Service Center in Gaborone; website not updated regularly; TPS stakeholder engagement ad hoc.
  - Ghana: TPS planning in development; PRO coordinates; website contains outdated information; TPS stakeholder engagement ad hoc.
  - Kenya: Annual TPS plans; fragmented TPS function; Call Center in Nairobi; website with wide functionalities; TPS stakeholder engagement ad hoc.
  - Lesotho: Annual TPS plans; small HQ function; limited printed material; website with basic information; TPS stakeholder engagement ad hoc.
  - Liberia: TPS plans exist; very weak HQ; Taxpayer Service Center in Monrovia; TPS stakeholder engagement ad hoc.
  - Malawi: Annual TPS plans; small HQ; TPS Center in Blantyre; website with basic information; TPS stakeholder engagement ad hoc.
  - Nigeria: TPS under development (HQ set up in 2011); website information outdated; TPS stakeholder engagement ad hoc.
  - Rwanda: Annual TPS plans; centralized HQ and delivery; TPS Centers in Kigali; website with range of information; TPS stakeholder engagement: Yes.
  - Tanzania: Annual TPS plans; centralized HQ and delivery; TPS Centers in Dar es Salaam; materials translated in Swahili; website with wide functionalities; TPS stakeholder engagement ad hoc.
  - Zambia: TPS plans; Tax Advice Centers in three cities and National Call Centre in Lusaka; website with wide information; TPS stakeholder engagement ad hoc.
- Strategic shortcomings and recommendation:
  - Multi-year taxpayer service strategy absent in many countries (except Nigeria and Liberia); HQ TPS function weak.
  - Recommendation: develop a TPS strategy that sets vision, guiding principles, high-level objectives, operational plans, accountability, and performance measures.
- Organizational placement:
  - Centralizing TPS at the RA corporate level often denies tax and customs departments control of a critical compliance tool.
  - Recommendation: distinguish corporate RA-level responsibilities (corporate imaging, media relations, strategic communications) from tax/customs administration-level responsibilities (policies, operational plans, monitoring, training).

---

### 36. TPS delivery methods, filing/payment, return processing, collections, and audit

TPS delivery methods — common observations
- Filing and payment:
  - Take up rate for e-filing and payment still very low.
  - Long queues at tax offices on due dates.
  - Little engagement with external agents (banks, tax agents).
  - Some e-filing provided but no e-payment.
- Information brochures:
  - Very few, sometimes dated, not available in field offices or on websites.
- Telephone enquiries:
  - Services not well publicized, not governed uniformly, no tabulation of enquiries, often staffed by inexperienced/non-technical staff.
- Website and email:
  - Not updated regularly; no online/email facility for procedural questions; crucial forms and circulars missing; websites sometimes unavailable for extended periods.
- Advance rulings:
  - Only non-binding rulings issued; process unclear and not well understood.

External stakeholder engagement
- Observations:
  - Engagement narrowly focused and ineffective in many countries; private sector feedback poor (except Rwanda).
  - Meetings ad hoc, sometimes without agenda and little follow-up.
- Recommendations:
  - Institutionalize external stakeholder engagement with planned agendas, technical teams, follow-up actions, and reporting.

Filing and payment procedures — current design and issues
- Common features:
  - Income tax paid in quarterly instalments with an annual reconciliation via tax return.
  - Tax payment through banks in all countries (electronically in four countries).
  - Tax returns e-filed in Kenya and Rwanda.
  - Drop-off boxes used at banks in Lesotho.
- Country-specific figures:
  - Lesotho: less than 15 percent of taxpayers use drop-off boxes.
  - Kenya and Rwanda: e-filing developed; Kenya not widely used; Rwanda widely used especially by large taxpayers and taxpayers within the Kigali area.
  - Nigeria: e-payments system allows payments at accredited financial institutions with receipt.
  - Rwanda, Kenya, Zambia, Tanzania, Nigeria: tax widely paid through banks (including e-payment) in some cases.
- Predominant practice: manual filing and payment with paper return and proof of payment leading to long queues and cashiering functions.

Return processing and self-assessment
- Problems:
  - Botswana, Ghana and Nigeria subject all returns to some form of desk audit or review.
  - Retaining substantive pre-filing scrutiny risks reverting to administrative assessment.
  - Manual checks are costly and undermine benefits of self-assessment.
- Redesign proposals:
  - Limit RPP checks in manual environments to processing-critical errors.
  - Use dedicated data entry operators or e-filing.
  - Focus RPP on error resolution.
  - With automation, eliminate substantive pre-filing scrutiny to free resources.

Improvements to reduce cost of compliance (operational measures)
- Use drop-off boxes in tax administration or banks.
- Encourage secure mailing services.
- Make electronic filing compulsory for all large taxpayers once automated.

Effective collections enforcement — observations and gaps
- General:
  - Most countries have prescribed legal steps for collection enforcement.
  - Many have a national collection enforcement strategy and action plan; a few have write-off provisions.
- Selected Table 7 items (summarized):
  - Botswana: national collection strategy and annual plan; partly adequate powers; legal write-off framework.
  - Ghana: national plan; weak HQ; write-off not available but tax waiver provisions exist.
  - Kenya: national plan; audit HQ fragmented; uses agency notices to banks widely; has write-off provision.
  - Lesotho: national plan; weak HQ; uses third party agents; no write-off provision.
  - Liberia: national plan; weak HQ; has write-off provision.
  - Malawi: national plan; weak HQ; legal recovery actions rarely used; no write-off but can waive tax.
  - Nigeria: national plan; poor HQ-field linkages; sale of immovable property subject to Court Order; no write-off but President can waive tax.
  - Rwanda: national plan; fragmented HQ; actively utilized; no write-off provision.
  - Tanzania: national plan; no HQ function; Commissioner powers to waive penalty and interest; no write-off; Minister of Finance can waive tax.
  - Zambia: national plan; Commissioner powers to waive penalty and interest; no write-off; Minister of Finance can waive tax.
- Shortcomings:
  - Weak HQ collections functions; manuals/plans not reviewed or implemented.
  - Full range of enforcement actions underutilized; preference for reminder letters and calls.
  - Recommendation: implement structured escalation and use aggressive tools where appropriate (e.g., seizing bank assets).

Write-off of irrecoverable tax arrears (Box 6)
- Typical limitations:
  - Small uneconomical amounts; taxpayers with no funds/assets; arrears not legally recoverable.
- Common features:
  - Legal authority to write-off in financial management/accountability laws or revenue legislation.
  - Write-off approvals documented and sometimes reviewed by committee; audited by auditor-general; value published annually.
  - Debtor not absolved except where irrecoverable in law; arrears may be re-established if financial position improves.

Risk-based audit: status and features
- General:
  - Most countries have national audit strategies/plans and use risk analysis to varying degrees.
  - A few use a wide range of audit techniques.
- Selected Table 8 summary:
  - Botswana: national audit strategy and plan; uses risk analysis but manual and rudimentary; no wide access to third party data; audit limited to desk review and examinations; auditors carry out comprehensive audits only.
  - Ghana: national strategy; weak HQ; no use of risk analysis; no access to third party data; focus on reviewing all returns.
  - Kenya: national strategy but HQ fragmented; uses an excel-based matrix in the LTO; manual elsewhere; uses a wide range of audit types; no access to a wide range of third party data.
  - Lesotho: national audit strategy; no risk analysis (case selection random); audits dominated by limited scope and low-value verification; no access to third party data.
  - Liberia: national strategy but weak HQ; manual selection by senior officials; audits dominated by comprehensive audits; no access to third party data.
  - Malawi: national strategy but weak HQ; uses risk analysis but manual; wide range of audit types; no access to third party data.
  - Nigeria: national strategy but poor HQ-field link; pilot risk-based audit selection developed but not deployed; no access to third party data; focus on reviewing all returns.
  - Rwanda: national strategy but weak HQ; uses manual system; desk, issue and comprehensive audits carried out; most issue audits escalate to comprehensive audits; access to third party data on ad hoc basis.
  - Tanzania: national strategy but no HQ audit function; uses manual risk analysis; wide range of audit types; no access to third party data.
  - Zambia: national strategy; manual system; wide range of audit types; access to third party data on ad hoc basis.

---

### 48. Audit function status, selection, third-party data, penalties, and disputes

Audit function status
- All countries except Tanzania have established a HQ audit function.
- In most countries the HQ audit function is very weak due to:
  - limited resources,
  - low staff capacity,
  - lack of proper planning.
- Considerable effort needed to strengthen audit function for effective self-assessment.

Audit selection and risk analysis
- Examination of all returns still dominant; risk analysis is often manual and rudimentary.
- Audit selection is often non-existent or rudimentary (based on senior officials' judgment).
- Recommendation: audits should be driven by objective determination of non-compliance risk.

Range of audit products
- Manuals recognize need for a range of audit types, but practice relies predominantly on comprehensive audits.
- Issue-oriented audits often escalate into comprehensive audits without justification.
- Recommendation: utilize a broader mix of audit products tailored to risk.

Audit performance measurement and evaluation
- Audit effort not effectively evaluated; performance indicators limited to number of audits and additional assessments.
- Need for indicators including:
  - Number of audits completed by type and taxpayer segment.
  - Additional tax assessed by audit and tax type.
  - Number and value of audits completed per person year.
  - Percentage of audits where taxpayer accepted assessment.
  - Percentage of audits completed within prescribed time limits.
  - Number of cases referred to investigations.
  - Win/loss percentage in appeals and courts.

Access to third-party information
- Access constrained in many countries.
- Useful third-party sources: industry/professional associations; licensing/regulatory bodies; land/property registries; government procurement agencies; police and law enforcement; banks and financial institutions.
- Where linkages exist, data used on an ad hoc basis.
- Suggested steps to improve access:
  1. identify useful third party data sources;
  2. agree how data will be used;
  3. develop IT solutions for receipt, storage, analysis, and matching;
  4. establish legal ability to obtain data;
  5. develop Memoranda of Understanding with providers.

Effective interest and penalty regimes
- Majority appear to have good interest and penalty regimes in law.
- Table 9 summarized observations:
  - Botswana: Yes, being reviewed in draft TPC. Enforcement information not available.
  - Ghana: No; new draft laws address shortcomings. Anecdotal enforcement weak: in 2011, out of 610 LTO audits only 18 cases were penalized (effective penalty rate 1 percent).
  - Kenya: Yes, being reviewed in draft TPC; penalties subject to waiver requests.
  - Lesotho: Yes; penalties for late filing not applied consistently.
  - Liberia: Yes; enforcement information unavailable.
  - Malawi: Yes, being reviewed in draft TPC; penalty application inconsistent.
  - Nigeria: No, being reviewed; additional tax penalties for late lodgment & late payment routinely imposed; other penalties not routinely imposed.
  - Rwanda: Yes, detailed in TPC; Yes enforced.
  - Tanzania: Yes, being reviewed in draft TPC; Yes enforced.
  - Zambia: Yes; Yes enforced.
- Observed issues:
  - Limited information on amounts remitted.
  - Anecdotal evidence suggests provisions not strictly enforced.
  - Manual systems and many inactive taxpayers make application cumbersome.
  - Large number of “best-of-judgment” assessments are raised and are difficult to enforce.
- Recommendation: apply interest and penalty provisions effectively and consistently with administrative rules for proportional application.

Fair and transparent dispute resolution processes
- All ten countries have administrative dispute procedures; all except Ghana have external tribunals.
- Table 10 observations (selected case counts and features):
  - Botswana: external Appeals Adjudication Board existed; seven cases in 2010/11 of which 2 were resolved.
  - Ghana: no objective administrative procedure; no external tribunal.
  - Kenya: objective administrative procedure; external tribunals — five regional Local Committees handled 130 cases in FY 2012/13.
  - Lesotho: no objective administrative procedure; external tribunal — 3 cases in 2009/10 (1 resolved).
  - Liberia: objective administrative procedure assigned one staff; external tribunal handled 2 cases in 2011.
  - Malawi: no objective administrative procedure; external tribunal handled 5 cases in 2009/10 (3 resolved).
  - Nigeria: no objective administrative procedure in practice; external tribunal handled 129 cases in 2010/11 of which only 23 were finalized.
  - Rwanda: objective administrative procedure (two-step appeals); No external tribunal; internally handles over 150 cases a year.
  - Tanzania: objective administrative procedure; external Tax Appeals Tribunal; administrative teams handled 988 cases in 2010/11; Tribunal handled 37 cases in FY2011.
  - Zambia: no objective administrative procedure; external tribunal exists.
- Issues:
  - Internal procedures lack transparency and independent objection structures in many countries (exceptions: Kenya, Liberia, Rwanda, Tanzania).
  - Very few countries maintain or track objection case data.
  - Independent tribunals often underutilized and slow; few cases finalized even with low workloads.

Lessons and concluding remarks
- Five countries (Kenya, Lesotho, Rwanda, Tanzania, and Zambia) have many rudiments of income tax self-assessment.
- None of the 10 countries have deployed the complete suite of conditions necessary for effective self-assessment.
- Key lessons:
  - Self-assessment requires a service-oriented administration, taxpayer support, and strong post-filing controls (risk-based audits, collection enforcement, prosecution).
  - Implementation requires a considerable mindset shift for staff and taxpayers; the system, scope, and benefits must be clearly articulated.
  - Legislative framework should protect voluntary compliant taxpayers and revenue; this is ongoing work.
  - A strong HQ function must lead TPS program development with a comprehensive multi-year TPS strategy.
  - Filing and payment procedures must be streamlined using innovation and modern technology.
  - All available collection powers should be fully and effectively utilized (court proceedings, seizure and sale of assets, appointing third parties, liens on immovable property).
  - Audit programs must be comprehensive, risk-based, and use a range of audit products.
  - Interest and penalties must be applied consistently and proportionally under administrative guidance.
  - Dispute resolution must be fair and expeditious with internal objections committees and independent, resourced Tax Appeal Tribunals.

*Source: _wp1441 (IMF working paper content unit).*

### Foreword ................................................................

### Foreword

### Voluntary compliance and self-assessment: overview
- Modern tax administrations seek to optimize tax collections while minimizing administration costs and taxpayer compliance costs.
- Voluntary compliance is achieved when the tax administration:
  - adopts a service-oriented attitude toward taxpayers, and educates and assists them in meeting their obligations;
  - creates strong deterrents to non-compliance through effective audit programs and consistent use of penalties;
  - is transparent and seen by the public to be honest, fair, and even-handed in its administration of the tax laws.
- Experience shows that voluntary compliance is best achieved through a system of self-assessment.

### Review scope and main findings
- The paper reviews key issues in income tax compliance and taxpayer self-assessment in 10 SSA countries: Botswana, Ghana, Kenya, Lesotho, Liberia, Malawi, Nigeria, Rwanda, Tanzania, and Zambia.
- Objective: identify common implementation gaps and challenges, and draw broad lessons for tax administrations implementing or strengthening income tax self-assessment.
- Key findings:
  - All countries have introduced self-assessment principles in the income tax law but the legal authority is not being consistently applied.
  - Many countries continue to rely heavily on “desk” auditing all or a majority of income tax returns.
  - Risk management practices remain largely underdeveloped and/or underutilized.
  - Opportunities exist to enhance the design and delivery of client-focused taxpayer service (TPS) programs, change the attitude of tax officials, enhance trust in taxpayers, and engage with the private sector and other stakeholders.
  - Much work is still needed to strengthen and implement selective risk-based ex-post controls.

### Economic and fiscal context (key observations)
- The majority of the countries under review face serious fiscal challenges; central government revenue currently falls short of expenditures by unsustainable margins in most countries (except Botswana, Nigeria, and Zambia).
- Some countries (Liberia, Malawi, Rwanda, and Tanzania) continue to rely very heavily on donor financing, which is volatile.
- Policy implication: fast-growing economies will be required to rebuild fiscal and external buffers without unduly affecting key social and capital spending.
- Tax revenue performance:
  - In 9 of the countries (Lesotho excluded), total central government tax revenue averaged about 16.9 percent of GDP during the period 2008 to 2010.
  - Comparator: OECD (32-member) average was 25.4 percent during the same period; these countries also collect, on average, an additional 10 percentage points of GDP in social contributions, bringing their tax-to-GDP ratio to about 35 percent.
  - Income tax currently accounts for over 7 percent of GDP in seven countries in the review.
- Income tax revenue has been on a growth trajectory in recent years in many of the countries under review.

### Revenue productivity and international comparisons
- Revenue productivity for income taxes is low by international standards, especially for corporate income tax (CIT).
- Productivity indicators (2011/12) for CIT and PIT (as reported):
  - Botswana (low-middle-income): CIT productivity 0.32; PIT productivity 0.43
  - Ghana (low-middle-income): CIT productivity 0.09; PIT productivity 0.10
  - Kenya: CIT productivity 0.13; PIT productivity 0.16
  - Lesotho (low-middle-income): CIT productivity 0.51; PIT productivity 0.35
  - Liberia: CIT productivity 0.09; PIT productivity 0.29
  - Malawi: CIT productivity 0.10; PIT productivity 0.41
  - Nigeria: CIT productivity 0.03; PIT productivity N/A
  - Rwanda: CIT productivity 0.08; PIT productivity 0.18
  - Tanzania: CIT productivity 0.06; PIT productivity 0.16
  - Zambia: CIT productivity 0.08; PIT productivity 0.17
  - SSA average: CIT productivity 0.10; PIT productivity 0.13
  - Low-income Economies Group: CIT productivity 0.09; PIT productivity 0.14
  - High-income Economies Group: CIT productivity 0.17; PIT productivity 0.21
- PIT productivity tends to be higher than CIT productivity in these countries, reflecting the dominance and ease of collecting payroll tax (pay-as-you-earn).

### Paying taxes and administrative burden
- World Bank Doing Business Paying Taxes Index performance varies:
  - Botswana, Liberia, Rwanda and Zambia are ranked favorably.
  - Kenya and Nigeria rank poorly.
- Implication: scope exists to reduce the administrative burden of paying taxes through tax administration reforms (tax policy also plays a role but is not the focus here).

### Social and development implications
- Mobilizing and utilizing additional domestic resources efficiently has major social implications.
- Selected MDG indicators (as reported) show many countries lag behind the MDG targets for SSA in areas such as:
  - % of population living below $1.25 (PPP) a day: examples include values such as 28.6 (Ghana), 43.4 (Kenya), 83.8 (Liberia), 73.9 (Malawi), 63.2 (Nigeria), 67.9 (Rwanda), 68.5 (Tanzania), 47.5 (Zambia).
  - Net enrolment ratio in primary education: examples include 87.3 (Botswana), 84.2 (Ghana), 84 (Kenya), 73.7 (Lesotho), 97.5 (Malawi), 57.6 (Nigeria), 98.7 (Rwanda), 92.7 (Zambia).
  - Under-5 mortality rate (deaths per 1000 births): examples include 25.9 (Botswana), 77.6 (Ghana), 72.8 (Kenya), 86 (Lesotho), 78.3 (Liberia), 82.6 (Malawi), 124.1 (Nigeria), 54.1 (Rwanda), 67.6 (Tanzania), 82.9 (Zambia).
  - Maternal mortality rate (deaths per 100,000 live births): examples include 160 (Botswana), 350 (Ghana), 360 (Kenya), 620 (Lesotho), 770 (Liberia), 460 (Malawi), 630 (Nigeria), 340 (Rwanda), 460 (Tanzania), 440 (Zambia).
  - % of population using an improved water source: examples include 96 (Botswana), 86 (Ghana), 59 (Kenya), 78 (Lesotho), 73 (Liberia), 83 (Malawi), 58 (Nigeria), 65 (Rwanda), 53 (Tanzania), 61 (Zambia).
- Improved domestic revenue mobilization is critical to address these development gaps.

### Tax administration reform components and role of self-assessment
- Reforms implemented over the last two decades typically entail:
  - integrating domestic tax administration by shifting from tax-type to function-based organizational structures;
  - establishing a strong headquarters (HQ) function to develop operational policies and oversee field operations;
  - segmenting taxpayers to better understand characteristics and develop appropriate compliance strategies;
  - modernizing tax legislation, including harmonizing tax administration procedures;
  - implementing systems and procedures based on the principle of self-assessment and ex-post risk-based controls;
  - automating tax procedures to support integrated administration of all domestic taxes.
- Implementing all six components is crucial as none is sufficient on its own.
- This paper focuses on the fifth component: income tax self-assessment.

### Approaches to Income Tax Assessment: administrative assessment system
- Under an administrative assessment system:
  - The onus is on the tax administration to (ex-ante) examine tax returns and financial statements, calculate the tax payable, and notify taxpayers of the tax liability.
- Box 1 — Key features of the administrative assessment system:
  - Taxpayers report on their activities on an annual basis.
  - Reporting consists of completion of a tax return and filing financial statements, and other supporting information to the tax administration.
  - Tax returns and the supporting financial statements are reviewed and verified by tax officials.
  - The tax administration makes the decision on the tax liability and informs the taxpayer of what to pay, typically through a notice of assessment.
  - Taxpayers pay the tax due or object to the assessment.
  - The tax administration reconciles assessment notices and payments.

_Italic line: Source: _wp1441 - Foreword (IMF PDF content unit provided)._

### 9.      Administrative assessment systems are resource-intensive and tend to be

### _wp1441 - 9.      Administrative assessment systems are resource-intensive and tend to be

### Administrative assessment systems — challenges and observations
- Administrative assessment systems are resource-intensive and tend to be ineffective.
- Draft Technical Note on Voluntary Compliance and Self-assessment identifies the following challenges of an administrative assessment system:
  - Costly to administer because of the high level of intervention of tax officials.
  - Resource limitations mean that checks by the tax administration are often ineffective in detecting unreported income.
  - Taxpayer education and assistance programs are often not well developed.
  - Penalties tend to be lower, and are often inconsistently applied or are open to negotiation.
  - Less tax is collected overall because of insufficient focus on the highest revenue risks.
  - High level of disputes, often with each step in the dispute resolution process presenting an opportunity for taxpayers and tax officials to negotiate the tax liability.
- Administrative assessment systems are still common in many countries, including advanced countries such as Austria, Belgium, Denmark, France (for PIT only), Germany, Greece, Netherlands, Norway, Portugal, etc., and in many countries in the Middle East and some countries in South East Asia.
- Some advanced countries have largely automated return processing operations and risk assessment procedures so that only a small proportion of tax returns are identified for technical scrutiny before a formal notice of assessment is sent to the taxpayer (OECD, 2013).
- Example evidence/review:
  - A review of the administrative assessment system in Australia found that: (1) it cost the tax administration more to assess business and most company returns than was gained in revenue; (2) the process for assessing business and company taxpayers was perceived to have little effect in deterring non-compliance; (3) challenging claims for excessive and more questionable deductions usually resulted in costly disputes that clogged up objection and appeals processes; and (4) there was little (if any) job satisfaction for assessing staff (D'Ascenzo, 1993).
  - Tax administrations operating administrative assessment systems “tend to report substantially and proportionately larger volumes of disputes cases, for example Austria – 145,440 (cases in 2011); Denmark – 93,448; Germany – 4,149,543; Netherlands – 439,033; Norway – 82,270; Portugal – 49,756; compared to the following countries operating a self-assessment system: Australia – 24,513; Japan – 8,463; and Korea – 5,905. (OECD, 2013).

### Singapore as an exceptional administrative (official) assessment system
- Singapore operates an administrative assessment system it calls official assessment system (OAS) for income tax administration.
- The OAS is primarily founded upon technological capacity to capture data required for tax assessment from the source instead of the taxpayer, and electronic data matching with data from external sources.
- A large majority of taxpayers file a nil return because they do not have information not already captured in the IT system to report (Source: CATA, 2003).

### Self-assessment — rationale and core features
- Self-assessment accepts that no tax administration has, or ever will have, sufficient resources to determine the correct liability of every taxpayer.
- Taxpayers—with appropriate assistance from the tax department—are in the best position to determine their tax liabilities, given first-hand knowledge of business affairs and financial transactions.
- Self-assessment is based on voluntary compliance: taxpayers calculate and pay their own taxes without intervention of a tax official; if not done appropriately and within prescribed timeframes, the tax administration detects this failure and takes enforcement action, including applying penalties provided for in the law.
- Tax administrations generally accept tax returns at face value at the time of filing; some simple checks may be performed with focus on arithmetical accuracy and correct completion of return items.
- Self-assessment systems require far less information and supporting documents at filing, but business taxpayers must keep records explaining all transactions relevant for tax purposes (sales and expense invoices and receipts, wages records, cash register tapes, bank account statements, and details of debtors, creditors, trading stock and depreciable assets).
- It is generally permissible to issue and store records in paper or electronic form; law typically provides penalties for not maintaining required records and for not keeping them for the required period, generally around five years for business taxpayers.
- Role of the tax administration under self-assessment:
  - Assist taxpayers to understand their rights and obligations under the law.
  - Provide taxpayer education and assistance; adopt a service-oriented attitude.
  - Make it easy and as least costly as possible for taxpayers to meet obligations.
- Verification shifts from pre- to post-filing basis:
  - Reliance on post-filing controls such as risk-based audits, collection enforcement measures, and prosecution of tax evaders.
  - Targeted verification approaches: information sharing, data matching, and risk-based desk and field audits.
  - Limited administration resources are directed toward most significant threats to the tax system, leaving compliant taxpayers less subject to intervention.

### International movement toward self-assessment and implementation patterns
- Historical adoption:
  - Canada and the United States first implemented self-assessment in the 1910s; Japan in 1947.
  - Spread in last 30 years: Sri Lanka (1972), Pakistan (1979), Bangladesh (1981), Indonesia (1984), Australia (1986-87), Ireland (1988), New Zealand (1988), United Kingdom (UK) in 1996-97 (Noor et al., 2013).
- OECD status: around half (18) of revenue bodies in the OECD apply self-assessment principles for the PIT while 22 apply self-assessment for CIT (OECD, 2013).
- In many countries, development of self-assessment is closely linked to the rise of the VAT, which is only feasible as a self-assessed tax.
- Self-assessment implementation was commonly part of broader tax reform agendas (income tax policy and administrative aspects).

### Self-assessment implementation in selected SSA countries (Table 3 summary)
- Countries and year self-assessment/VAT implemented; justification; coverage:
  - Botswana 2002/2002 Not clear Corporate income tax
  - Ghana 2001/1999 Not clear Large and selected medium taxpayers.
  - Kenya 1992/1991 Part of broader income tax reforms Universal
  - Lesotho 2004/2003 Part of broader income tax reforms Universal
  - Liberia 2000/No VAT Part of broader post conflict reforms Universal
  - Malawi 2010/2001 Part of broader income tax reforms Large taxpayers
  - Nigeria 1997/1994 Not clear Selected pilot offices
  - Rwanda 1998/2001 Post conflict reforms Universal
  - Tanzania 2004/1998 Part of broader income tax reforms Universal
  - Zambia 1992/1995 Part of broader income tax reforms Universal
- Notes:
  - VAT often implemented in advance of extending self-assessment to income taxes (exceptions: Liberia, Rwanda, Zambia).
  - Only half the countries are implementing universal self-assessment (across all taxes and taxpayers).

### Evidence on revenue performance after self-assessment implementation
- No evidence to show that revenue has suffered adversely because of self-assessment implementation.
- Review of income tax revenue data across select SSA countries that implemented universal income tax self-assessment (and four other countries for international comparison) shows that in all countries (except Lesotho and Zambia), income tax revenue continued to grow in the period following implementation of self-assessment.
  - In Lesotho and Zambia, income tax revenue performance was already declining or volatile before self-assessment; this trend was reversed within two years of implementing self-assessment.
  - The four international comparator countries also show good or stable revenue growth post self-assessment implementation.
- Cautions:
  - Income tax revenue growth could be explained by other factors such as changes in tax policy impacting tax rates and tax base.
  - Self-assessment was often implemented as part of a broader income tax reform agenda in many countries.
  - Noteworthy that growth in income tax revenue occurred when PIT and CIT rates were either declining or remained stable in many countries.
- Example estimate:
  - United Kingdom: over the 10-year period to 2007-2008, self-assessment would result in administrative savings of £500 million (UK National Audit Office as cited in Loo et al., 2005).

### Conditions required for effective self-assessment (Box 2)
- Clear and simple tax laws:
  - Taxpayers must understand the tax law and how it applies to their situation; simple laws and regulations minimize taxpayer effort and compliance costs.
  - Rewriting tax law to reduce information volume and use clear language, simplifying rules (including record keeping) for small taxpayers, and establishing a binding rulings regime are recommended.
- Good service to taxpayers:
  - Tax administrations must adopt a service-oriented attitude, providing clear information, updates on law changes, and access to information and tax forms through enquiry centers, web sites, public seminars, etc.
- Simple filing and payment procedures:
  - Tax forms must be simple with clear instructions; filing and payment should be convenient through e-filing, drop-off boxes, e-payment (internet and mobile banking), and other modern innovations.
- Effective collection enforcement:
  - Prompt detection of taxpayers failing to file or pay is critical; begins with a cleansed and updated taxpayer register.
  - Collection enforcement must be prompt and expeditious because older debt is harder to collect.
- Selective risk-based audit:
  - Taxpayers must face a reasonable risk of detection; strong audit program focused on higher-risk taxpayers is required.
  - Tax office must have sufficient resources to audit a reasonable percentage of taxpayers each year using various audit techniques.
- Fairly applied interest and penalties:
  - Interest and penalties remind taxpayers to take reasonable care; must be neither too lenient nor unrealistically harsh and applied consistently.
  - Distinction: penalties as sanctions for violations; interest to compensate for time value of money used by the taxpayer.
- Fair and timely dispute resolution:
  - Taxpayers must have access to simple, neutral, transparent appeal processes, typically including: (1) independent administrative appeals within the tax administration; (2) a special tribunal with qualified professionals; and (3) a judicial process for matters of law and procedural fairness.

*Source: _wp1441 - 9. Administrative assessment systems are resource-intensive and tend to be (IMF PDF content provided).*

### 26.      This section benchmarks conditions prevailing in the ten countries against those

### 26.      This section benchmarks conditions prevailing in the ten countries against those discussed in Box 2 to make an assessment as to how far (or near) they are to implementing effective taxpayer self-assessment practices.

### A. Clear and Simple Tax Laws

- Three countries implemented self-assessment when they introduced a new income tax law: Liberia, Lesotho, and Tanzania.
  - Advantage: opportunity to comprehensively review income tax legislation to ensure it is easily understandable, well organized, effective, and integrated into the respective country’s legal system—supportive of a self-assessment system.
- In most other countries self-assessment was initially introduced by making only minimal but critical changes to the income tax legislation.
  - Typical minimal changes relate to interest, penalties, tax assessments, and payments.
  - Example: Botswana introduced a new section 65(2) and others that provide for self-assessment, but maintained section 65(1) that provides for administrative assessment.
  - Risk: leaving conflicting legal and administrative provisions in place can confuse the public and administrators and may require a comprehensive overhaul of tax legislation.
  - Particular problem in countries not implementing universal self-assessment: Botswana, Ghana, Nigeria, and Malawi.
    - General tendency in such countries: tax officials revert to administrative assessment procedures even for taxpayers subject to self-assessment provisions under the law.
- International experience demonstrates the importance of deliberately and consistently reviewing the self-assessment system the administration has put in place.
  - Objective: assess whether the self-assessment system is operating as intended and realizing its full potential.
  - Observation: no evidence that any of the countries reviewed have undertaken such reviews as a basis for improving the income tax law.
- Illustrative example — Australia (Box 3: Modernizing taxation laws to support full income tax self-assessment):
  - Australia has operated self-assessment of income tax since 1987.
  - From 1990, returns of companies and superannuation funds became subject to a system of full self-assessment.
  - By the early 1990s, problems were identified (penalties and interest, taxpayer certainty, balance between taxpayer rights and revenue protection).
  - Notable legislative and administrative changes:
    - The Taxation Laws Amendment (Self Assessment) Act 1992 introduced: (1) a new system of binding public rulings; (2) a new system of binding private rulings; (3) an extension (to four years) of the period within which a taxpayer could object against an assessment; (4) a new system of penalties for understatements of income tax liability, based on the requirement that taxpayers exercise reasonable care; (5) a new interest system for underpayments or late payments of income tax, based on commercial principles and market interest rates.
    - The Tax System (Tax Administration) Act 1999 shortened the period of review for taxpayers with straightforward tax affairs, and introduced binding oral advice.
    - Schedule 4 of the Taxation Laws Amendment Act (No.3) 2001 reduced the rate of interest on shortfalls and late payments.
    - The 2004 Report on Aspects of Income Tax Self-Assessment was implemented from July 2005 to: (1) improve certainty through providing for a better framework for the provision of Tax Office advice and introducing ways to make that advice more accessible and timely, and binding in a wider range of cases; (2) improve certainty by reducing the periods allowed for the Tax Office to increase a taxpayer’s liability in a wide range of situations; (3) mitigate the interest and penalty consequences of taxpayer errors arising from uncertainties in the self-assessment system; and (4) provide for future improvements through better policy processes, law design and administrative approaches. The report contained 54 recommendations, 30 of which were legislative while the others were administrative.
- Two countries have enacted a tax procedures code (TPC): Rwanda and Liberia.
  - A TPC brings together harmonized rules for administration of all taxes and generally provides for greater clarity in the law and reduces compliance and administration costs.
  - Draft TPCs prepared in other countries: Botswana, Malawi, Ghana, Kenya, Tanzania, and Uganda; enactment delayed for various reasons.
- Two countries (Ghana and Tanzania) have provisions for a rulings regime (private) that is binding.
  - Note: there is no evidence that binding rulings have been issued in recent years in these two countries.
  - Providing clarity via rulings is critical to support taxpayer self-assessment; many countries lack such legal support and rulings remain largely non-binding.
- Overall assessment:
  - Only Liberia, Lesotho, Rwanda, and Tanzania have income tax laws that can be considered to be relatively simple and clear—these countries implemented self-assessment as part of an overhaul and introduction of new income tax laws.
  - In the majority of the countries, income tax laws are complex, not understood by taxpayers and tax administrators, contain provisions inconsistent with self-assessment principles, do not provide for a binding rulings regime, and lack simplified and harmonized common administrative procedures.

### B. Service to Taxpayers

- Common features of taxpayer services (TPS) programs across the majority of countries:
  1. Annual taxpayer service implementation plans prepared by the TPS HQ department/staff (function).
  2. Taxpayer education delivered through tax clinics, seminars and workshops, print and electronic media, and information brochures and pamphlets.
  3. Taxpayer service centers or call centers set up to provide walk- or call-in services.
  4. Websites used as an avenue for disseminating information.
- Country-level observations (summary of Table 4):
  - Botswana: Prepares annual TPS plans but has a weak HQ function. Yes; including an integrated Taxpayer Service Center in Gaborone. Has a website but it is not updated regularly. TPS stakeholder engagement: Ad hoc in nature.
  - Ghana: TPS planning in development. TPS activities coordinated by the Public Relations Office. General awareness and public relations programs delivered. Basic services delivered by front office staff. Has a website but it contains outdated information. TPS stakeholder engagement: Ad hoc in nature.
  - Kenya: Prepares annual TPS plans. TPS function fragmented at corporate and departmental levels. Yes, including a Call Center in Nairobi. Basic services delivered by front office staff. Has a website with a wide range of information and functionalities. TPS stakeholder engagement: Ad hoc in nature.
  - Lesotho: Prepares annual TPS plans. Has a small HQ function headed by a Commissioner. Partly (limited printed material available). Basic services delivered by front office staff. Has a website with basic information and functionalities. TPS stakeholder engagement: Ad hoc in nature.
  - Liberia: Yes, but has a very weak HQ function. Yes, including a Taxpayer Service Center in Monrovia. Basic services delivered by front office staff. TPS stakeholder engagement: Ad hoc in nature.
  - Malawi: Prepares annual TPS plans. Has a small HQ function. Yes, including a TPS Center in Blantyre that answers queries, distributes information material, etc. Basic services delivered by front office staff. Has a website with basic information and functionalities. TPS stakeholder engagement: Ad hoc in nature.
  - Nigeria: Yes, but the HQ function is still under development (set up in 2011). General awareness and public relations programs delivered. Basic services delivered by front office staff. Has a website, however, much information is unavailable or outdated. Overall, the TPS function is still under development within the tax administration. TPS stakeholder engagement: Ad hoc in nature.
  - Rwanda: Prepares annual TPS plans. Both HQ and delivery functions centralized at the RA-level. Yes, including TPS Centers in Kigali to serve small taxpayers. Basic services delivered by front office staff. Has a website with a range of information. TPS stakeholder engagement: Yes.
  - Tanzania: Prepares annual TPS plans. Both HQ and delivery functions centralized at the RA-level. Yes, including TPS Centers in Dar es Salaam to serve small taxpayers. Has developed a wide range of information material that has been translated in the local language (Swahili). Basic services delivered by front office staff. Has a website with a wide range of information and functionalities. TPS stakeholder engagement: Ad hoc in nature.
  - Zambia: Yes. Yes, including Tax Advice Centers in three cities and a National Call Centre in Lusaka. Basic services delivered by front office staff. Has a website with a wide range of information and functionalities. TPS stakeholder engagement: Ad hoc in nature.
- Strategic shortcomings and recommendations:
  - An overall multi-year taxpayer service strategy has not been developed in many countries (except Nigeria and Liberia), attributable in part to a weak HQ TPS function.
  - Result: solid TPS strategies absent despite delivery of a number of TPS programs based on annual plans.
  - Concerns:
    - Unclear whether credible systems exist to systematically identify, assess, and prioritize critical risks.
    - Unclear whether adequate thought has been given to TPS strategies centered on mitigating compliance risks.
  - Recommendation: Develop a TPS with robust internal processes for managing it. A TPS strategy should:
    - Set out the tax administration’s vision, guiding principles, and high level objectives for taxpayer service.
    - Describe operational delivery plans and how performance will be measured and success judged.
    - Be prepared with close collaboration between internal stakeholders and engagement with external stakeholders.
  - Box 4 (Elements of a taxpayer service strategy) outlines key components:
    - A clear statement of the tax administration’s high-level vision regarding taxpayer service.
    - The guiding principles for taxpayer service delivery.
    - A short description of sociological and environmental issues influencing delivery and drivers for change.
    - A summary of the current position on taxpayer service delivery and progress in future iterations.
    - An overview of key areas of focus and related operational plans.
    - The persons or units accountable for delivering the plans.
    - The measures by which the tax administration will assess its performance and judge success.
- Organizational placement of TPS within revenue authority (RA) models:
  - In some countries the TPS function has been centralized for both tax and customs, denying respective departments effective control of a critical compliance tool (common in RA governance model countries: Kenya, Rwanda, Tanzania, and Zambia).
  - In practice, centralization often leaves tax and customs departments with little flexibility to influence resource targeting or messaging; clients and business processes differ between tax and customs.
  - Recommendation: Distinguish services delivered at the corporate RA level from those at the tax and customs departmental levels.
    - Corporate RA-level responsibilities: corporate imaging, media relations, external communications; strategic communications and management advice; corporate brand identity; internal communications; concepts and campaigns; promotion of awareness, accessibility, assistance and services; provision of multi-media and event management services; crisis support to senior management.
    - Tax and customs administration-level responsibilities: policies and procedures for taxpayer services and education; taxpayer services and education objectives, targets and annual plans; operational and statistical reports for program evaluation; monitoring uniform application of policies, procedures and legislation; training requirements and course material; advice and guidance to operating units; surveys of other jurisdictions; participation in design and development of forms, guides, public information circulars and brochures.

* _wp1441 - 26.      This section benchmarks conditions prevailing in the ten countries against those_

### 36.      There are opportunities to enhance TPS delivery methods and operational

### _wp1441 - 36.      There are opportunities to enhance TPS delivery methods and operational

### TPS delivery methods: common observations
- Streamlined filing and payment processes
  - Take up rate for e-filing and payment still very low.
  - Long queue at the tax offices on the due dates for filing and payment.
  - Little engagement with agents of the tax administration, e.g., banks, tax agents, etc.
  - Provision of e-filing but no provision for e-payment.
- Information brochures
  - Very few and sometimes dated.
  - Do not effectively address topical issues or focus on key taxpayer segments.
  - Not available in field offices.
  - Not available on the website.
- Telephone enquiries
  - Available services are not well publicized nor are they governed by a uniform approach.
  - No tabulation of phone enquiries to be used for planning.
  - Assigned inexperienced and/or non-technical staff.
- Website and email
  - Not updated regularly.
  - No online or email facility for raising questions regarding tax procedure or compliance.
  - Crucial forms, circulars, and information not available on the website.
  - Website unavailable for extended periods.
- Advance Rulings
  - Only non-binding rulings are issued.
  - Process unclear.
  - The availability of such guidance as a vehicle for taxpayer assistance and the process of seeking it are not well understood in the tax administration and thus not well known by taxpayers.

### External stakeholder engagement
- Observations
  - External stakeholder engagement is narrowly focused in many countries and ineffective.
  - Based on feedback from private sector representatives during discussions with visiting FAD TA missions, all countries (other than Rwanda) score poorly in this area.
  - Many indicate that they hold regular meetings with stakeholders; however, the effectiveness of these meetings is questionable as reflected in the generally negative views from the private sector.
  - Meetings are currently ad hoc in nature, sometimes without an agenda and with little follow up.
- Recommendations for effective engagement
  - Institutionalize external stakeholder engagement as an avenue for genuinely and routinely seeking private sector input to new initiatives and enhancements.
  - Target and plan engagements in advance with a substantive agenda.
  - Support meetings with a technical team comprising both parties responsible for identifying issues, preparing the agenda, following up action, and reporting on progress.
  - Ensure activities are seen by the private sector as a genuine effort to address compliance challenges.

### Filing and payment procedures: current design and issues
- Common features across the 10 countries
  - Income tax is paid in quarterly instalments and an annual reconciliation of tax liability is done through a tax return after the end of the accounting year.
  - Tax payment can be made through the bank in all countries (electronically in four countries).
  - Tax payment can be made at any customs office in Zambia.
  - Tax returns can be filed electronically (e-filing) in Kenya and Rwanda.
  - Tax returns can be deposited in drop-off boxes at a bank in Lesotho.
- Country-specific key aspects (selected exact figures)
  - Lesotho: only a small proportion of taxpayers (less than 15 percent) use drop-off boxes.
  - Kenya and Rwanda: e-filing systems have been developed; in Kenya not widely used, in Rwanda widely used especially by large taxpayers and taxpayers within the Kigali area.
  - Nigeria: The e-payments system allows taxpayers to pay tax at accredited financial institutions and receive a receipt of payment.
  - Rwanda, Kenya, Zambia, Tanzania, Nigeria: tax is widely paid through the banks (including e-payment) in some cases.
- Predominant practices and consequences
  - Manual filing and payment processes continue to dominate: submission of a paper return accompanied by proof of payment is the predominant process in the majority of the countries.
  - Typical steps: tax computation at taxpayer’s premises, payment at a bank, physical submission at tax office where TPS official reviews and acknowledges the filing.
  - Result: long queues at banks and tax offices during peak periods; cashiering function remains predominant even where banking sector is well-developed.

### Return processing and self-assessment
- Problems with reviewing all tax returns
  - In three countries (Botswana, Ghana and Nigeria) all tax returns are subject to some form of desk audit or review.
  - All countries have retained a return and payment processing (RPP) function and do check returns in varying degrees.
  - Retaining substantive pre-filing scrutiny risks reverting to the previous administrative assessment approach.
  - Manual checks are considerably more costly and undermine key benefits of a self-assessment system.
- Redesign and automation proposals
  - RPP checks in a manual environment should be confined to errors that prevent correct processing (completeness, penalties).
  - Data entry should be performed by dedicated data entry operators or via e-filing.
  - Error resolution should be the key focus of RPP activity.
  - With greater automation, substantive pre-filing scrutiny can be eliminated, freeing resources for taxpayer services and audit.

### Improvements to reduce cost of compliance
- Operational measures
  - Use drop-off boxes (in the tax administration or banks) to allow taxpayers to deposit tax returns and proof of payment without face-to-face contact.
  - Encourage use of secure mailing services.
  - Make electronic filing of tax returns compulsory for all large taxpayers (once tax procedures are automated).
  - Objective: encourage taxpayers or their agents to use the most convenient means and discourage physical visits to tax offices for filing or payment.

### Effective collections enforcement: observations and gaps
- General findings
  - Most countries have prescribed steps in law to guide collection enforcement activity.
  - A large number of countries have developed a national collection enforcement strategy and action plan and a few countries have write-off provisions for irrecoverable debt.
- Table 7 summary (selected exact items)
  - Botswana: Has a national collection enforcement strategy and annual plan. Partly adequate powers; VAT Act has more diverse collection enforcement powers. Has a legal framework for write-off of irrecoverable debt.
  - Ghana: Yes; new initiative/staff being trained. Weak HQ. Yes, but not fully utilized. No write-off, but has provisions to waive tax.
  - Kenya: Yes, but the audit HQ function is fragmented. Yes. Uses agency notices to banks and other third parties more widely. Yes write-off provision.
  - Lesotho: Yes, but has a weak HQ. Yes. Mainly uses powers to collect taxes by appointing third party agents, including banks. No write-off provision.
  - Liberia: Yes, but has a weak HQ. Yes. Information on use unavailable. Yes write-off provision.
  - Malawi: Yes, but has a weak HQ. Yes. Legal recovery actions rarely used. No write-off, but has provisions to waive tax.
  - Nigeria: Yes, but poor linkages between HQ and field offices. Yes. Sale of immovable property is subject to a Court Order. No write-off, but tax can be waived by the President.
  - Rwanda: Yes, but has a fragmented HQ function. Yes and actively utilized. No write-off provision.
  - Tanzania: Yes. No HQ function. Yes. No write-off; Minister of Finance can waive tax while Commissioner General can waive penalty and interest.
  - Zambia: Yes. Yes. No write-off; Minister of Finance can waive tax while Commissioner General can waive penalty and interest.
- Shortcomings in collections functions
  - Headquarters collections function is generally weak in many countries; manuals and plans often not reviewed or effectively implemented.
  - Full range of enforcement actions is not being utilized; officials prefer less aggressive actions such as reminder letters and telephone calls.
  - More aggressive actions based on a structured escalation process are necessary; example international tool: seizing bank assets/deposits.

### Write-off of irrecoverable tax arrears (Box 6)
- Situations where write-off actions are generally limited to:
  - The tax arrears are not economical to pursue; typically, cases involving small amounts or situations where the taxpayer cannot be located.
  - The taxpayer has no funds or other assets (e.g., where a company has ceased operations and there are no assets or where a debtor has died and left no assets).
  - The arrears are not legally recoverable (e.g., where the amount represents the balance outstanding after a final dividend has been paid under bankruptcy or liquidation proceedings).
- Common features of write-off systems
  - Legal authority to write-off tax arrears is provided under financial management and accountability laws in some countries, while in others included in revenue legislation; write-off powers are given to a limited number of senior tax officials.
  - Write-off approvals (and supporting reasons) are fully documented and reviewed—sometimes by a committee for large arrears; subject to audit by the auditor-general; total value of arrears written-off is published annually.
  - Except where irrecoverable in law, the debtor is not absolved from paying the liability; arrears may be re-established if debtor’s financial position improves.
  - Tax arrears considered for write-off on a case-by-case basis.
  - Uncollectible arrears are written-off without the knowledge or involvement of the debtors (internal accounting function).

### Risk-based audit: status and features
- General status
  - Most countries have developed national audit strategies and plans and use risk analysis techniques in varying degrees.
  - A few countries use a wide range of audit techniques.
- Table 8 summary (selected exact items)
  - Botswana: Yes national audit strategy and plan. Uses risk analysis but manual and rudimentary. No access to a wide range of third party data. Audit limited: desk review and examination by assessors; auditors carry out comprehensive audits only.
  - Ghana: Yes; new initiative/staff being trained. Has a weak HQ function. No use of risk analysis. No access to third party data. Focus overwhelmingly on reviewing all returns; audit function decentralized in 2012 but underdeveloped.
  - Kenya: Yes, but audit HQ function is fragmented. Yes, uses an excel-based matrix in the LTO. Manual processes elsewhere. Yes uses a wide range of audit types. No access to a wide range of third party data.
  - Lesotho: Yes national audit strategy. No use of risk analysis; case selection done randomly by audit managers. Audit dominated by limited scope audits and low-value document verification. No access to third party data.
  - Liberia: Yes, but weak audit HQ. Approach to selecting audit cases is manual and generally done by senior tax officials. Audit dominated by comprehensive audits. No access to third party data.
  - Malawi: Yes but weak HQ. Yes uses risk analysis but relies on manual procedures. Yes uses a wide range of audit types but could be better realigned to increase coverage. No access to third party data.
  - Nigeria: Yes but HQ audit function has no direct link to field offices. In progress—a pilot risk-based audit selection system has been developed but not deployed. No access to third party data. Focus overwhelmingly on reviewing all returns.
  - Rwanda: Yes, but has a weak HQ function. Yes, but a manual system. Desk audits, issue audits and comprehensive audits are carried out. Most issue audits tend to be escalated to a comprehensive audit. Yes access to third party data, but on ad hoc basis.
  - Tanzania: Yes, but has no HQ audit function. Yes, but manual. Yes uses a wide range of audit types. No access to third party data.
  - Zambia: Yes. Yes, but relies on a manual system. Yes uses a wide range of audit types. Yes access to third party data, but on an ad hoc basis.

*Source: _wp1441 - 36.      There are opportunities to enhance TPS delivery methods and operational processes.*

### 48.      All countries, with the exception of Tanzania, have established a HQ audit

### _wp1441 - 48.      All countries, with the exception of Tanzania, have established a HQ audit

### Audit function status
- All countries, with the exception of Tanzania, have established a HQ audit function.
- In most countries the HQ audit function is considered very weak due to:
  - limited resources allocated to the function,
  - low capacity of staff,
  - lack of proper planning.
- Considerable effort is needed in most of the 10 countries to strengthen the audit function for an effective and sustainable self-assessment system.
- Diagnostic missions and technical assistance experts have repeatedly highlighted the weakness of the audit function.

### Audit selection and risk analysis
- Examination of all tax returns is still dominant; use of risk analysis is manual and rudimentary.
- In some countries the audit program focuses on checking taxpayers that voluntarily self-assess before they file, which is described as a waste of resources.
- Audit selection:
  - often non-existent (audit selection based on judgment of senior officials),
  - or very rudimentary (manual and complex to apply).
- Recommendation: Audits need to be driven by an objective determination of the risk of non-compliance.

### Range of audit products
- Audit manuals recognize the need for a range of audit types, but in practice most countries rely predominantly on comprehensive audits.
- Issue-oriented audits in some cases escalate into comprehensive audits without justification.
- Recommendation: Utilize a broader mix of audit products according to nature of risk to:
  - better address tax risks,
  - expand audit coverage,
  - broaden public perception of the risks of non-compliance.

### Audit performance measurement and evaluation
- Audit effort is not effectively evaluated in most countries.
- Most countries do not maintain or track performance indicators outside of the number of audits carried out and the additional assessments raised.
- Focus in many countries is solely on the amount of additional assessments raised.
- Need: Strengthened evaluation practices focusing on quantity and quality of audits, voluntary collections, filing of amended returns after audits, etc.
- Examples of indicators typically used by many tax administrations:
  - Number of audits completed by type of audit, and by taxpayer segment, and time spent on these audits.
  - Additional tax assessed by audit, by tax type.
  - Number and value of audits completed per person year.
  - Percentage of audits where taxpayer accepted assessment.
  - Percentage of audits completed within prescribed time limits, by type of audit.
  - Number of cases referred to the investigations department.
  - Percentage of wins or losses by the tax administration in appeal tribunal and tax courts.

### Access to third-party information
- Access to third party information is constrained in many countries.
- Typical useful third party sources include:
  - industry or professional associations;
  - licensing and regulatory bodies;
  - land and property registries;
  - government procurement agencies;
  - government departments;
  - police and other law enforcement agencies;
  - banks and other financial institutions.
- Only a few countries have necessary linkages; where linkages exist data are used on an ad hoc basis.
- Steps suggested to improve access and use:
  1. identifying useful third party data sources;
  2. reaching agreement on how the data will be used;
  3. developing IT solutions for how the data will be received, stored, perfected, analyzed, and matched to in-house information;
  4. establishing the legal ability to obtain the data;
  5. developing Memoranda of Understanding with providers.

### Effective interest and penalty regimes
- The majority of the countries under review appear to have good interest and penalty regimes as stated in law.
- Table 9 (summarized observations):
  - Botswana: Yes, but being reviewed in the draft TPC. Information not available on strict enforcement.
  - Ghana: No. However, the new draft laws have addressed the shortcomings. Anecdotal evidence suggests no enforcement; in 2011, out of 610 audits conducted by the LTO, only 18 cases were penalized. Effective penalty rate works out to one percent.
  - Kenya: Yes, but being reviewed in the draft TPC. Yes, but subject to request for waiver.
  - Lesotho: Yes. No. Penalties for failing to file returns on time are not applied consistently, and to the fullest extent.
  - Liberia: Yes. Information not available on enforcement.
  - Malawi: Yes, but being reviewed in the draft TPC. No. Not all penalties are applied, and penalty application is inconsistent.
  - Nigeria: No, being reviewed. Additional tax penalties for late lodgment & late payment are routinely imposed. Other penalties for understatement and record keeping are not routinely imposed.
  - Rwanda: Yes, detailed in the tax procedures code. Yes.
  - Tanzania: Yes, but being reviewed in the draft TPC. Yes.
  - Zambia: Yes. Yes.
- Ongoing application of interest and penalty regimes is limited:
  - Information on amounts of tax, interest and penalties remitted is generally limited.
  - Anecdotal evidence suggests provisions are not strictly enforced.
  - Heavy reliance on manual systems and many inactive taxpayers make application cumbersome.
  - Large number of “best-of-judgment” assessments are raised, which are arbitrary, difficult to enforce, and often understate true tax liabilities.
- Recommendation: Apply interest and penalty provisions effectively and consistently; develop administrative rules guiding proportional application.

### Fair and transparent dispute resolution processes
- All ten countries have administrative procedures for handling disputes; all except Ghana have external tribunals.
- Table 10 (summarized observations about administrative and external procedures):
  - Botswana: No objective administrative procedure implemented; external Appeals Adjudication Board exists but very few cases referred (seven cases in 2010/11 of which 2 were resolved).
  - Ghana: No objective administrative procedure; no external tribunal.
  - Kenya: Yes objective administrative procedure; Yes external tribunals (five regional Local Committees handled 130 cases in FY 2012/13).
  - Lesotho: No objective administrative procedure; Yes external tribunal but few cases pursued—3 cases in 2009/10 (1 was resolved).
  - Liberia: Yes objective administrative procedure but assigned one staff; Yes external tribunal handles very few cases, 2 in 2011.
  - Malawi: No objective administrative procedure; Yes external tribunal handles very few cases, 5 in 2009/10 (of which only 3 were resolved).
  - Nigeria: No objective administrative procedure in practice; Yes external tribunal handled 129 cases in 2010/11 of which only 23 were finalized.
  - Rwanda: Yes objective administrative procedure (two-step appeals process); No external tribunal; handles over 150 cases a year internally.
  - Tanzania: Yes objective administrative procedure; Yes external Tax Appeals Tribunal; administrative teams handled 988 cases in 2010/11; Tribunal handled 37 cases in FY2011.
  - Zambia: No objective administrative procedure; Yes external tribunal.
- Internal administrative procedures lack transparency in many countries:
  - No independent internal structures for handling objections in many countries (exceptions: Kenya, Liberia, Rwanda, Tanzania).
  - Very few countries maintain or track data on objection cases.
  - Opaqueness can enable negotiation and corrupt practices and prevents feedback loops to TPS and audit.
- Independent appeals tribunals are not functioning as intended:
  - Except for Kenya and Tanzania, very few cases are referred to Tribunals.
  - Very few cases are finalized even with low workloads, causing delays and higher administrative and compliance costs.
  - Note: The appeals process in Tanzania has been criticized for long delays and questionable interpretations; appeals remain dominated by large taxpayers (no non-large taxpayer appeals during the last three years).

### Lessons and concluding remarks
- Only half of the countries under review—Kenya, Lesotho, Rwanda, Tanzania, and Zambia—can be categorized as having many rudiments of an income tax self-assessment system.
- In all 10 countries the complete suite of conditions necessary for an effective income tax self-assessment system have not been put in place.
- Key lessons and observations:
  - A self-assessment system is more than accepting returns and auditing; it requires a service-oriented attitude, taxpayer information and support, and strong post-filing controls (risk-based audits, collection enforcement, prosecution of evasion).
  - Implementation requires a considerable shift in mindset for tax administration staff and taxpayers; clear articulation of the system, its importance, scope of changes, and benefits is needed.
  - The legislative framework should fully support self-assessment, enhancing certainty and protecting voluntary compliant taxpayers while protecting revenue; this is an ongoing endeavor.
  - A strong tax administration headquarters function must lead TPS (taxpayer services) program development, preparing a comprehensive multi-year TPS strategy with vision, guiding principles, high-level objectives, and operational delivery plans.
  - Filing and payment procedures must be streamlined using innovation and modern technology to reduce taxpayer cost of compliance.
  - All available collection powers should be fully and effectively utilized (court proceedings, seizure and sale of assets, appoint third parties to collect and remit taxes, place liens on immovable property).
  - The audit program must be comprehensive, risk-based, and use a range of audit products to maximize resource use and increase coverage and impact.
  - Interest and penalty must be applied consistently and administratively guided to be proportional to taxpayer neglect.
  - The dispute resolution process must be fair and expeditious, with internal objections committees operating under set rules and independent Tax Appeal Tribunals staffed and resourced to operate effectively.

*Source: IMF working paper content unit _wp1441 - pages 30–36.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2014/_wp1441.pdf_