Implementation of Compliance Risk Management in Macedonia
Being a regional knowledge hub part of the CEF’s work relates also to SHOWCASING THE REFORM EFFORTS OF OUR MEMBER COUNTRIES. Ms. Aneta Chupeska and Ms. Ivana Doseva from Macedonian Public Revenue Office shared how compliance risk management is being implemented in their country.
CEF workshops on compliance risk management are delieverd under the Supporting Capacity Development of Tax Administrations in South East Europe (SEE) project.
The Macedonian Public Revenue Office (PRO) represents a model of professional organization in the public sector of the Republic of Macedonia, valued in accordance with the best practices and established standards in the European Union. In order to achieve its objectives – collecting the correct amount of taxes at the right time (“not more, nor less”) and maximizing the number of taxpayers who choose to voluntarily comply with the tax laws – and to improve the fight against tax evasion and the gray economy, the Public Revenue Office is continuously working on improving compliance risk management.
The compliance risk management process is based on five consecutive steps. These steps form the compliance risk management cycle.
The first two steps relate to risk identification, analysis of risks and the behavior of taxpayers that cause the risks. In this area, the PRO has identified four types of risks related to:
- Filling tax returns on time, filling correct tax returns
- Declaration, correct calculation of tax in tax returns
- Payment risk, not paying the tax due on time and not paying at all
The next two relate to treatment planning, i.e. making choices about (groups of) taxpayers, risks and options for treatment and the implementation of the treatment. In this area, the PRO uses certain risk indicators: VAT risk criteria; risk criteria for newly registered taxpayers; CIT risk criteria; and PIT criteria. For the purpose of the process of analysis, the PRO uses several tools:
- Risk criteria implemented in the Tax Information System of the PRO;
- Comparative analysis for a particular taxpayer between the records (balance sheets, tax balances and tax returns) of the taxpayer and the records of other taxpayers within the business activity/industry;
- Financial indicators (comparative analysis for a period of three years).
The final step relates to measurement, evaluation and learning. All steps revolve around the goals implied by the strategy of the tax administration: higher compliance that is leading to lower tax gap and higher taxpayer satisfaction.
The Public Revenue Office is working to improve compliance risk management and take it to a higher level, and to create and draft campaigns for improved compliance regarding rental income, income from agriculture, construction industry, etc. Different taxpayers require specific treatment according to their willingness to comply and according to the performance measurement system. The PRO is focused on the high-risk categories of taxpayers.
So far, the Public Revenue Office has achieved the outlined goals:
- Increased number of voluntarily submitted tax returns for PIT (publication of brochures, informative letters, timely information on the webpage www.ujp.gov.mk for the amendments of the tax laws and procedures, establishing a Call Centre line 198 within the Contact Centre, available 24/7, continuously providing advice and advisory meetings;
- Continuously providing services and advice to taxpayers to reduce the gray economy, including activities to detect unpaid tax obligations and unregistered taxpayers (analyses of the financial cards, insights in the tax evidence of the taxpayer, list of reported irregularities on the info line 198, information from other taxpayers);
- Implementing different software and modules, such as software module for taxpayers’ characteristics (register of risk features); and software module “Audit bag tools” which enables three year comparative data analysis on annual financial statements (income statement, balance sheet, special data), tax returns (VAT, BS and MBS); and analysis of the financial indicators for effectiveness, liquidity, profitability, efficiency, solvency and profitability.
- Electronic data exchange with other institutions;
- Establishing an E-tax system (online system for submitting all tax returns; taxpayers need to be registered).
In order to improve compliance risk management, the Public Revenue Office continues cooperation with the IMF on the implementation of the project "Risk Management": risk identification, analysis, priority, treatment and evaluation. To this end, the Council for Compliance of the Public Revenue Office was formed in November 2014. The council is managed by the Director of the Public Revenue Office and council members include Heads of Sectors in the General Directorate of the PRO.
In November 2014, the PRO adopted an annual plan for compliance risk management for 2015, which includes the selected risky activity (agriculture), conditions in the activity, priorities that should be implemented, a plan for implementation, monitoring and measuring of the results. Furthermore, a team of eight employees for risk management was established in 2015, and an IMF adviser worked with the team with the focus on presenting a model for estimating the rate of non-compliance and its adaptation to the needs and performance of the Public Revenue Office. Both the council and the working group are organizing meetings to discuss different issues related to risk and compliance management, the performance of the annual plan, etc. In 2015, some members of the working group attended workshops in Ljubljana and Budapest, where they had the opportunity of learning more about the good practices and approaches that the other countries, members of IOTA, are using in CRM. Upon their return, a short presentation was held to the council as well as the other members of the group.
Next steps in pursuing the CRM strategy:
- Continuing the education of the staff;
- Focusing on the model for calculating the compliance gap in Macedonia;
- Trying to export the necessary data and to adjust the reports of the PRO with the requirements of the compliance management project;
- Considering the possibility of implementing the new OECD approach of compliance risk management by design (it assembles the different elements of technology on which modern commerce relies into a system that delivers a seamless and secure flow of accurate tax information and tax payments. The study discusses two basic approaches to achieving tax compliance by design – the “secured chain approach” and the “centralized data approach”).
- This approach focuses on the small and medium enterprises, taking into consideration that the process of voluntary compliance is more challenging for them compared to the large taxpayers. In that direction, the PRO took an initiative in supporting small and medium companies, implementing the following steps: New Strategic Plan of the Public Revenue Office; New internal Organization and systematization; (Complete decentralization of the taxpayer service; Centralization and digitalization of the main functions); Action plan with anti-crises measures; Special program for small and medium companies: (Institutional changes in the current legislation; Assistance to taxpayers for complying obligations; Monitoring and analysis if the functioning of the tax system and suggestions for its improvement; Industrial partnerships; International legal assistance in tax matters).