Addressing Corruption in Tax Payments

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On  May 13, 2017, the National Advocacy Committee for Public Policy (NAC-PP), released findings of a study on corruption in tax assessment, payment, and collection processes. Carried out by Afghanistan Public Policy Research Organization (APPRO), the research focuses on the interactions between taxpayers (NGOs and private sector) and tax collectors to provide an evidence base for multi-stakeholder dialogue on anti-corruption in Afghanistan.

The research finds that willingness to pay bribes by taxpayers is comparable in terms of being instituted to the predictable demand by corrupt officials for bribes to speed through a tax file or to reduce the amount of tax, or penalties, payable. Drivers of corruption in taxation include inefficient bureaucracy, general and legal illiteracy, irresponsible or opportunistic behavior of taxpayers, institutionalized bribe seeking, impunity of corrupt officials, institutional deficiency, aggressiveness and unprofessionalism of service provision, intentional bureaucratic confusion and arbitrariness, and lack of oversight.

The typical price to secure the “assistance” of a corrupt tax official is 50 percent of the taxes payable and penalties owed. Of this 50 percent, half is paid to the government while the other half is taken as the fee to fix the problem. Many of the corrupt tax officials offer their services as “consultants” to the hapless tax paying clients. It is a general belief among taxpayers that “If you don’t pay [bribes], your taxes will not get processed.”

Corruption cannot and must not be viewed as merely a technical problem that can be fixed by capacity building, equipment support, or legislation. Fighting corruption has to be a multi-prong, multi-actor intervention, adequately resourced, and long term oriented. As such, fighting corruption necessitates a sea change, driven by technical intervention, ongoing dialogue, re-education aimed at cultural change, civil society push and participation, committed and responsive state authorities and, in the case of Afghanistan, committed international donors in action as well as words.

The following recommendations emerged from discussions on findings held within the Anti-Corruption Sub-Committee of NAC-PP:

  • Simplify and Standardize Tax Forms: There little or no need for a 15-page document to be filled out by the taxpayer. There is also no justification for penalties for incorrectly completed forms by taxpayers. The form should be shortened, the penalty removed, and assistance provided freely and willingly by tax collection personnel at the Ministry of Finance.
  • Provide Full Access to Tax Law and Amendments: All requests for information and documentation by tax officials must be tied to the legal provisions within the Tax Law and its various amendments. In cases of disagreement the onus must be on the tax official to provide legal support for the requests for documents and information.
  • Increase Tax Law Literacy: Consideration needs to be given to Ministry of Finance-supported initiatives on Tax Law literacy with a focus on the legal requirements and the rights and obligations of the taxpayers. Such initiatives would work best if carried out in close collaboration with taxpayers’ groups and business associations.
  • Address Small Businesses’ Needs: Particular attention should be paid to micro and small businesses which typically lack records of their transactions, have little or no literacy or business management systems, and thus are at the mercy of predating tax officials who could request arbitrary amounts as taxes payable. Small and micro businesses falling into this category include shopkeepers, mechanics, and small restaurants.
  • Make Efficient and Effective Use of Digitization: There is no reason for not allowing taxpayers to complete their tax forms online and receive confirmation as to its state of completion. Removing the human factor in this process is likely to reduce opportunities for meddling by corrupt tax officials.
  • Establish a Class of Professional, Independent Tax Consultants: Since taxpayers have little time to go through the complicated process of completing forms, even in digitized form, and preparing support documentation, there is solid demand for the services of professional tax consultants who could complete forms on behalf of taxpayer for a small, competitive fee. Efforts should be made by the government and donors to create opportunities for the emergence of qualified, independent, and licensed tax consultants. This would be particularly effective if coupled with digitalized tax forms to be completed online by the taxpayers and the elimination of self appointed fixers.
  • Monitor and Act on Taxpayer-Tax Collector Interactions: As a deterrent to bribery initiated by both the taxpayers and corrupt tax officials, consider installing cameras that record all interactions in STO, MTO, and LTO and keep the records for at least one month.

About NAC-PP

The National Advocacy Committee for Public Policy (NAC-PP) was established in March 2015 to serve as a policy advocacy and information-sharing platform for good governance. NAC-PP works closely with Provincial Advocacy Committees (PACs) and District Advocacy Committees (DACs) to coordinate advocacy and information sharing from district to national levels.

For more information on NAC-PP, please contact the NAC-PP Secretariat through Mr. Atiq Rahimi at atiq.rahimi@appro.org.af.

 

 

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