Revenue Statistics in Asian and Pacific Economies

Chapter 2. Special Feature: Managing taxpayers’ compliance

The level of tax revenues in an economy is influenced by many factors, including economic structure and conditions, tax policy and tax administration, as well as the level of taxpayers’ compliance and government enforcement, as outlined in Chapter 1. This chapter discusses a number of important issues in the management of taxpayers’ compliance: (i) compliance risk management, including the conduct of tax gap research; (ii) managing the compliance of large taxpayers; (iii) international tax avoidance and evasion; (iv) optimising the use of tax withholding at source and third party reporting requirements; and (v) the use of voluntary disclosure policies and programmes.

2.1. Compliance risk management

Effective compliance risk management processes are an integral part of a revenue body’s strategy for improving taxpayers’ compliance. While most revenue bodies report having a formal compliance risk management process, relatively few publicly report on how this critical area of tax administration is conducted.

A compliance risk management framework encompasses a series of steps that should be undertaken systematically and cyclically. It is a “top-down” process that focuses on the overall compliance environment rather than on individual taxpayers. In practice, many revenue bodies adopt a taxpayer segment-by-segment approach when applying the framework. By identifying and assessing the main compliance risks and their drivers, the compliance risk management process aims to assist revenue bodies to establish overall priorities for their compliance activities across all segments of taxpayers. Importantly, understanding the drivers of non-compliance is essential as treatment of the more complex compliance risks invariably requires a mix of treatments to achieve the desired outcomes.

Important steps in the compliance risk management process concern monitoring and evaluation activities. Monitoring is an ongoing process that should commence shortly after the introduction of compliance treatments and aims to ensure that implementation is proceeding as intended and that any specific objectives set are being met. Evaluation takes place further on in the process and is intended to assess if the treatment is having the desired overall outcomes and/or if further or new treatments are required.

In addition, revenue bodies should look at influencing compliance risk by creating an environment which supports compliant behaviour and reduces opportunities for non-compliant behaviour (OECD, 2012_[1]). This can be achieved through moving from reactive activities targeting symptoms to proactive approaches aimed at the causes of non-compliance (OECD, 2017_[2]) and by co-operating with providers of tax services (OECD, 2016_[3]).

The Field Guide to accompany the Tax Administration Diagnostic Tool (TADAT) of the International Monetary Fund (IMF) also contains guidance on good practice in compliance risk management.

Compliance risk management in Asia and the Pacific

In a survey1 conducted by the Asian Development Bank (ADB), revenue bodies in Asia and the Pacific were asked a number of questions concerning aspects of compliance risk management. The OECD report Tax Administration 2017, which is based on the ISORA survey, also contains information on revenue bodies in Asia and the Pacific. The following are the key findings and observations from the surveys (Table 2.1):

• Tax administrations were asked to identify the relative priority attached to a number of risk categories in their current compliance strategies. There was a high degree of commonality, with highest priority areas seen as: value added tax (VAT) fraud, aggressive tax avoidance schemes (including those leading to base erosion and profit shifting), the shadow economy and transactions involving zero or near zero tax jurisdictions. Many administrations also identified e-commerce, identity-fraud, and high net wealth individuals (HNWIs) as medium to high priorities.

• The high priority attached to VAT fraud reflects both its importance as a major source of revenue and the continued vulnerability of repayment mechanisms generally to organised fraud. VAT fraud and other refund-based fraud schemes are increasingly taking new and sophisticated forms involving the use of technologies and at times considerable resources on the part of the perpetrators (OECD, 2017_[2]).

Table 2.1. Risk categories and their relative priority for revenue administrations in Asia and the Pacific

Risk category	(number of revenue administrations ranking as a priority)
	High	Medium	Low
Base erosion and profit shifting	15	5	4
Aggressive domestic tax avoidance	17	5	1
VAT fraud (including VAT refund fraud)	17	2	4
Identity fraud	10	6	6
Shadow economy	14	5	4
Amortisation of goodwill	3	9	12
Preferential tax regimes	12	7	4
Transactions with tax havens	12	5	6
High net worth individuals	11	7	5
Research and development tax credits	8	6	9
E-commerce	9	12	2

Source: ADB survey responses and OECD (2017_[2]), Tax Administration 2017, Table A.138.

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Tax gap research

The tax gap is an estimate of the difference between the amount of revenue actually collected for a tax in respect of fiscal year and the amount that would have been collected with perfect compliance. It is typically measured on a “tax-by-tax” basis, exclusive of penalties and interest, and the results across all taxes are sometimes aggregated to give a “total tax gap” amount for a tax system. By its nature, tax gap estimation is an imprecise science and the various models and methodologies used in practice by revenue bodies and others for gap estimation purposes are subject to numerous qualifications and assumptions.

Drawing on international experience, tax gap estimation research has a number of potential uses, although its value at the individual tax level depends on the methodology used, the reliability of the information gathered, and the timeliness of research findings. While relatively few national revenue bodies undertake comprehensive programmes of tax gap research, interest in tax gap estimation, particularly in respect of VAT, has grown considerably in recent years as governments, tax administrators and others have sought to quantify the extent of revenue leakage from their tax systems and/or to better understand the overall impacts of revenue bodies’ compliance improvement activities. Australia, Canada and Finland are examples of economies where comprehensive research efforts have been launched in recent years, while countries such as Denmark, Sweden, United Kingdom and the United States have many years of experience. The European Commission arranges regular VAT gap estimation research for all of its 28 member countries and publishes the findings (CASE, 2017_[4]).

Only a few larger countries have conducted tax gap research across the Asia–Pacific region, although independent research institutes have looked into industry-specific cases of tax evasion (e.g. a report by the Oakland Institute on large scale tax evasion in the forestry sector in Papua New Guinea (Mousseau and Lau, 2016_[5])). Interest for tax gap research appears to have grown over the last five years or so and a number of revenue bodies have explored its use, have ongoing research programmes, or have had some exposure to such research:

• The Australian Taxation Office (ATO) has a comprehensive approach, with a programme of research introduced gradually over the last four years that, in 2018, includes all of the taxes under its responsibility. A programme of random inquiries is a core element of its approach to estimating the tax gap for income taxes. The findings of its research are released progressively, and are published on its website and in its annual performance report (ATO, 2018_[6]). At the time of finalising this report, tax gap estimates had been released for a range of taxes, including the goods and services tax (GST),2 corporate income tax (large taxpayers), the pay-as-you-go withholding regime for the personal income tax and some excises (ATO, 2018_[6]). Summary findings include:

  • GST gap – the net GST gap estimate for 2015-16 has trended slightly upwards from previous years to AUD 4.5 billion (7.3%). It is the highest gap among the taxes analysed to date, but compliance levels are quite stable. Australia ranks relatively well among similar nations that have estimated GST/VAT gaps.

  • Large corporate income tax gap – in 2014-15, the net large corporate income tax gap is estimated to be AUD 2.5 billion (5.8%). This figure has been steady for a number of years, and the gap primarily reflects differences in the interpretation of complex areas of tax law.

  • Tobacco tax gap – for the 2015-16 year, the net tobacco tax gap is estimated to be AUD 594 million (5.6%). ATO analysis indicates that sea and air cargo is the most significant source of detected illicit tobacco entering Australia.

• China’s State Administration of Taxation (SAT) has a comprehensive programme. SAT’s representative noted that the knowledge gained from its tax gap research efforts (i) assists in the development of uniform tax payment arrangements, (ii) improves the efficiency of tax collection, (iii) improves targeting of revenue management, and (iv) supports tax reform. SAT employs both the “top down” methodology to estimate the tax gap for indirect taxes and the “bottom up” methodology for direct taxes. Concerning the VAT, findings from 2001 to 2009 had revealed progressively improving tax compliance, with the estimated VAT tax gap declining from around 40% to 25% across China over the period studied (Zhong, 2016_[7]).

• The Philippines’ Bureau of Internal Revenue (BIR) also has experience with tax gap research. As part of a technical assistance agreement between the governments of the United States and the Philippines, the BIR participated with the IMF from 2011 to 2015 to produce a series of gap estimates for the VAT making use of the IMF’s Revenue Administration Gap Analysis Program (RA-GAP) assistance. In a presentation made in December 2017, the BIR’s representative reported that its findings from 2008 to 2015 reveal a marginally declining trend in the gap which is estimated at 38% for the 2015 fiscal year (ADB, 2018_[8]).

• Indonesia’s Directorate General of Tax (DGT) at the Ministry of Finance regularly conducts assessments of the income tax coverage ratio. Since 2005, the agency has given sectoral estimates for the potential tax revenues, to detect weaknesses in its compliance system. The publication of these results is irregular, and the latest official figures date back to 2011 when the tax gap was 29.20% (APBN, 2014_[9]).

• Nepal’s Inland Revenue Department (IRD) has collected statistics on tax compliance for VAT in 2015 with the support of the Fiscal Affairs Department of the IMF (IMF, 2017_[10]). The IRD has also systematised its income tax gap measurement to a yearly basis (IRD, 2016_[11]).

2.2. Managing the compliance of large taxpayers

There has been a trend in the Asia-Pacific region to organise revenue bodies’ compliance programmes around “taxpayer segments”, in particular, for large corporate taxpayers. Almost all tax administrations in Asia and the Pacific report having in place an organisational division or unit that manages the tax affairs of designated large taxpayers. This reflects the importance of large business in terms of its contribution to the tax base and also the complexity of large business tax affairs. One country that has implemented a separate organisational division for larger taxpayers is Myanmar, where the revenue body introduced a large taxpayer unit (LTU) in 2015. Exceptions to this practice include revenue bodies in Brunei Darussalam; Hong Kong, China; Korea; and Papua New Guinea. Officials from Papua New Guinea recently reported that their new medium term development strategy for 2018-22 includes provision for commencement of work in 2018 to establish an LTU (IRC, 2017_[12]).

In contrast to the practice in many advanced economies where the functions of LTUs tend to be limited to service and verification, many LTUs in the region perform a broader range of functions, for many including returns processing, service, audit, debt collection, and disputes processing. Most LTUs administer all of the major taxes for which large taxpayers are responsible.

The criteria used to identify taxpayers for the LTU vary to a fair degree in Asian and Pacific economies and include, singularly or in combination, turnover level, tax paid, assets, number of employees, capital invested, and specific economic sectors. For ease of identification, many revenue bodies use a single criterion, generally turnover level, to identify taxpayers for the LTU’s supervision. Furthermore, being classified as a large taxpayer can lead to more stringent reporting standards, as is the case in the Philippines and Myanmar.

As mentioned above, most Asia-Pacific region tax organisations have LTUs. Examples include:

• The Inland Revenue Board of Malaysia (IRBM) created in 2015 a Large Taxpayer Branch (LTB) that will handle large and high profile taxpayers based on the following criteria: i) corporate taxpayers with turnover exceeding MYR 30 million, ii) non-corporate taxpayers with aggregate income greater or equal to MYR 1 million (IRBM, 2015_[13]). It will also manage the income tax files of taxpayers within the special sectors of construction, real property, finance and insurance.

• The BIR of the Philippines has a criterion based on size for each type of tax it collects, being above the indicated threshold implies being serviced by the LTU. For instance, having a yearly income greater than or equal to 1 million PHP or a net VAT payable of 100 000 PHP per quarter implies being classified as a large taxpayer (Udaundo, 2016_[14]). The LTU of the Philippines was staffed by 564 agents in 2017, and covered 2 320 large taxpayers. The current administration has the ambition to expand the size and scope of the unit to service all taxpayers that should fall under its jurisdiction (DOF, 2017_[15]). The main contributors to the LTU of the BIR are banks, tobacco, wholesale and retail trade.

• The Fiji Revenue and Customs Service (FRCS) has a High Wealth Individual (HWI) database. This allows FRCS to place more emphasis on understanding the complexity of high net worth individuals’ tax affairs, the amounts of tax revenue potentially at stack through aggressive tax planning and the effect of the compliance behaviour on the overall integrity of the tax system (FRCS, 2017_[16]).

2.3. International tax avoidance and evasion

Over the last nine years, the OECD, along with many advanced and developing economies and regional tax bodies, has been working to develop new rules and processes to strengthen the international tax system. These efforts have been strongly supported by G20 leaders.3 These developments were set out in some detail in an ADB governance brief issued in early 2017 and the key points made are summarised below, along with details of some further developments over the last year (ADB, 2017_[17]).

Global developments to reform the international tax system

International efforts to address weaknesses in the international tax system rely on two building blocks: (i) promoting transparency and exchange of information among jurisdictions for tax purposes and (ii) tackling tax avoidance with the OECD/G20’s Base Erosion and Profit Shifting (BEPS) project. With considerable progress made over recent years to develop comprehensive proposals for reform in both areas, the focus of these international efforts has shifted to their global implementation.

Promoting transparency and exchange of information for tax purposes

The work of tax transparency has been at the heart of the OECD’s role in the international tax area. With its peer reviews of the standard for exchange of information on request (EOIR) and its monitoring of the implementation of the standard for automatic exchange of financial account information (AEOI), the Global Forum on Transparency and Exchange of Information for Tax Purposes has played a crucial role in establishing and maintaining a level playing field and in ensuring that the voices of all relevant jurisdictions are heard (OECD, 2018_[18]).

Exchange of information on request

The impetus for major changes to address the tax compliance problems presented by the practices of some jurisdictions came in 2009 when G20 leaders declared that bank secrecy would no longer be tolerated and committed to take action against non-cooperative jurisdictions, including tax havens. In line with this commitment, many countries agreed to fight cross-border tax evasion together by committing to the international standard for exchange of tax information on request (EOIR) developed by the OECD, and by joining a restructured Global Forum on Transparency and Exchange of Information for Tax Purposes.

Automatic exchange of information

Further steps to strengthen tax transparency were taken in 2013 when G20 leaders committed to the OECD proposal for Automatic Exchange of Information (AEOI) to be the new international standard, and fully supported further work by member countries of the OECD and G20 to present a single global standard in 2014. This work culminated in the development of the Common Reporting Standard (CRS) for automatic exchange of tax information. The CRS, which deals with the automatic exchange of financial account information, is designed to meet the requirements of multiple jurisdictions and minimise the compliance burden on financial institutions that must report to multiple jurisdictions.

Implications of implementing automatic exchange of information for developing economies

Implementing the CRS for automatic exchanges requires considerable effort and costs on the part of individual participating jurisdictions. However, these more immediate imposts need to be assessed against the potential ongoing benefits from CRS adoption and implementation, in particular: (i) the detection of tax evasion and concealed offshore assets, (ii) the deterrence of future non-compliance, (iii) supporting domestic synergies, and (iv) enhancing an economy’s reputation.

In addition to translating the CRS into domestic law, a key element of its successful implementation is putting in place an international framework that allows the automatic exchange of CRS information between jurisdictions. International bodies, the Global Forum on Transparency and Exchange of Information for Tax Purposes, regional tax bodies, and advanced economies are providing considerable support to assist developing economies. The establishment of a Common Transmission System to be used globally for the automatic exchange of bulk taxpayer information is expected to significantly simplify exchanges for participating jurisdictions and minimise their operational costs.

AEOI Reform in Asia and the Pacific

Good progress has been made by many economies, including by a number of jurisdictions that operate as major financial centres in the region (i.e., Hong Kong, China; and Singapore) (Table 2.2). However, considerably more work is required by a number of economies within the region to take advantage of the new AEOI reforms. While many participating revenue bodies have taken steps to make provision for AEOI reforms in their strategic plans, further work appears necessary in quite a few economies, including: (i) the establishment of a dedicated organisational unit to manage AEOI matters, (ii) developing working arrangements for AEOI with treaty partners, (iii) the initiation of actions to have the CRS fully implemented by financial bodies, (iv) determining policies and practices for effective use of AEOI received from partners, and (v) devising strategies to promote awareness among citizens, and (vi) measuring the effectiveness of AEOI.

Table 2.2. Engagement and participation of ADB members in international tax reform efforts

Region/member	Commitments to International Tax Reform Efforts
	Tax evasion: transparency and exchange of information			Tax avoidance: member of BEPS Inclusive Framework3
	Member of Global Forum on Transparency and EOI1	Signatory to Multilateral Convention on Mutual Assistance2	Signatory to Introduction of New AEOI Standard (year)
Central and West Asia
Afghanistan	✗	✗	✗	✗
Kazakhstan	✓	✓	✗	✓
Kyrgyzstan	✗	✗	✗	✗
Tajikistan	✗	✗	✗	✗
East Asia
China, People’s Republic	✓	✓	✓ (2018)	✓
Hong Kong, China	✓	✗	✓ (2018)	✓
Japan	✓	✓	✓ (2018)	✓
Korea	✓	✓	✓ (2017)	✓
Mongolia	✓	✗	✗	✓
Pacific
Australia	✓	✓	✓ (2018)	✓
Cook Islands	✓	✓	✓ (2018)	✗
Fiji	✗	✗		✗
Kiribati	✗	✗		✗
Marshall Islands	✓	✓	✓ (2018)	✗
Nauru	✓	✓	✓ (2018)	✗
New Zealand	✓	✓	✓ (2018)	✓
Papua New Guinea	✓	✓		✓
Samoa	✓	✓	✓ (2018)	✗
Timor-Leste	✗	✗		✗
Tonga	✗	✗		✗
Tuvalu	✗	✗		✗
Vanuatu	✓	✓	✓ (2018)	✗
South Asia
Bangladesh	✗	✗	✗	✗
Bhutan	✗	✗	✗	✗
India	✓	✓	✓ (2017)	✓
Maldives	✓	✗		✓
Nepal	✗	✗	✗	✗
Southeast Asia
Brunei Darussalam	✓	✓	✓ (2018)	✓
Cambodia	✓	✗		✗
Indonesia	✓	✓	✓ (2018)	✓
Lao PDR	✗	✗	✗	✗
Malaysia	✓	✓	✓ (2018)	✓
Myanmar	✗	✗	✗	✗
Philippines	✓	✓		✗
Singapore	✓	✓		✓
Thailand	✓	✗	✗	✓
Viet Nam	✗	✗	✗	✓

Note: ✓ = relevant, ✗ = not relevant, AEOI = automatic exchange of information, BEPS = base erosion and profit shifting, EOI = exchange of information, Lao PDR = Lao People’s Democratic Republic.

1. Global Forum on Transparency and Exchange of Information for Tax Purposes (154 members as of October 2018).

2. Multilateral Convention on Mutual Administrative Assistance in Tax Matters (September 2018).

3. Inclusive Framework on Base Erosion and Profit Shifting (119 members as of October 2018).

Source: OECD (2018_[20]), “Members of the inclusive framework on BEPS”, http://www.oecd.org/tax/beps/inclusive-framework-on-beps-composition.pdf; OECD (2018_[21]), “Status of convention”, http://www.oecd.org/tax/exchange-of-tax-information/Status_of_convention.pdf; OECD (2018_[22]), “Global Forum members & observers”, http://www.oecd.org/tax/transparency/about-the-global-forum/members/ (all accessed 17 October 2018).

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The OECD’s base erosion and profit shifting project

The past two to three decades have seen dramatic changes in many economies as a result of globalisation. Technological advancements, increased mobility of capital and labour, the shift in manufacturing bases from high to low cost jurisdictions, and the gradual lifting of trade barriers, are some of the many developments that have boosted foreign direct investment in many economies. However, there have been a number of downsides, including in the area of taxation, where it is widely agreed that international tax rules have not kept up with the pace of change. A major consequence of this deficiency has been revenue leakage; from research conducted in 2013, global revenue losses from BEPS were conservatively estimated at USD 100 billion to 240 billion annually, which is equivalent to between 4% and 10% of global revenues from corporate income tax. Developing countries’ higher reliance on corporate income tax means they suffer from BEPS disproportionately (OECD, 2015_[19]). More broadly, BEPS weakens tax system integrity and undermine citizens’ trust in government.

The goal of the BEPS project is to realign the international tax rules with developments in the world economy, to restore trust and ensure profits are taxed where economic activities are carried out and value is created, while maintaining the ability to eliminate double taxation. In September 2013, G20 leaders endorsed a comprehensive action plan developed by the OECD to address BEPS. This action plan on BEPS identified a series of domestic and international actions to address the problem and set timelines for their further development. After considerable consultation over the ensuing two years, the BEPS project delivered outputs for all elements of the action plan to G20 Finance Ministers in October 2015. In November 2015, G20 leaders endorsed the measures and expressly called for an implementation framework that would be open to all interested countries and jurisdictions, including developing economies. The BEPS measures aim to close gaps in international tax rules that allow multinational enterprises to legally, but artificially, shift profits to low or no-tax jurisdictions. The measures seek to achieve this by improving the coherence of tax rules across borders, tightening substance requirements, and ensuring increased transparency and certainty.

Implementing the BEPS measures – The Inclusive Framework

The member countries of the OECD and G20 have developed an inclusive framework that enables interested countries and jurisdictions to work with them on an equal footing in developing standards on BEPS-related issues, and to review and monitor the implementation of the BEPS package across jurisdictions. The Inclusive Framework on BEPS currently brings together 118 jurisdictions, including many developing countries, to collaborate on the implementation of the OECD-G20 BEPS Package.

Many economies in the Asian and Pacific region are members of the Inclusive Framework (Table 2.2). Also, tax administrations in a number of non-participating economies have highlighted BEPS and domestic tax avoidance schemes as high risk areas for tax compliance, while at the same time having weaknesses in their corporate tax regimes that limit their ability to properly deal with such risks.

2.4. Optimising the use of withholding at source and third-party reporting

Withholding at source arrangements are generally regarded as the cornerstone of an effective personal income tax system. Imposing the obligation on intermediaries such as employers and financial institutions to withhold tax from payments of income generally ensures that the vast bulk of tax due on such income is paid to government in a timely manner, and that taxpayers generally meet their tax obligations in respect of such income. The benefits of withholding mechanisms are particularly important to developing and emerging economies where the level of tax morale and understanding may be low, and most taxpayers are not required to file annual tax returns.

In practice, withholding regimes vary considerably in their design to take account of a variety of tax policy choices (e.g., the tax rate structure in place, final or creditable withholdings, residency, and annual assessment requirements). These factors, coupled with the fact that some intermediaries will be tempted to avoid their tax withholding obligations, mean that revenue bodies must be prepared to provide adequate education and support services, as well as be vigilant to non-compliance behaviour that requires an administrative response.

Withholding regimes are also often accompanied by systems of third party reporting to the revenue body. This is particularly important where the tax withheld at source is creditable (i.e., not final) and is intended to be applied in a tax assessment process. Third party reporting regimes are also often used in the absence of withholding, in particular for categories of self-employment and professional income that are paid by contracting parties. Such reporting generally provides the revenue body with relevant payee identity and income information that can be used to detect non-compliance (e.g., non-filers deriving income and filers who omit income from their tax returns).

Some key points of information reported by revenue bodies on the nature and use of withholding and reporting regimes in place in Asia and the Pacific are set out below.

Employment income

Cumulative withholding regimes are widely used in developing economies, limiting the numbers of employees who are required to file annual tax returns or undergo some other form of reconciliation (e.g., Japan). In Viet Nam for instance, employers must withhold the income taxes of their employees and deposit them with the State Treasury before the 20th of the following month, employers also fill in the personal income tax declarations on behalf of their employees if they are their sole source of revenues and submit them before the end of the year (KPMG, 2018_[23]). Similar systems exist in smaller economies such as Nauru where tax payments by the employer need to be made 15 days after the end of the month of withholding. In a few economies [i.e., Hong Kong, China; and Singapore], tax withholding at source is not applied and employees must make their own advance payments and file returns.

Other categories of income

Some revenue bodies report that withholding provisions apply to prescribed categories of interest and dividend incomes, for both resident and non-resident taxpayers. Revenue bodies in Bangladesh, China, Indonesia, Kazakhstan, Mongolia, the Philippines, and Thailand report extensive use of withholding across the main categories of incomes surveyed – i.e. employment income (wage and salary), dividends, interest, rents, specified business income, royalties and patents, share sales and purchases, real estates sales and purchases, and other income – for both resident and non-resident taxpayers. In the Philippines, revenues are withheld from passive incomes such as interest and dividends at levels of 20 and 10% respectively (BIR, 2018_[24]). Lao PDR has a similar system but at a flat rate of 10% (Lao PDR Government, 2018_[25]). Revenue bodies in Australia, Hong Kong, China, Malaysia, Maldives, New Zealand and Singapore report they make relatively limited use of tax withholding across the main categories of personal income, although relaying on reporting regimes to gather data on taxpayers’ incomes. Countries also target very specific forms of income using withholding taxes, for example the Solomon Islands which target goods such as marine products or cocoa.

Computer processing of third party income reports

There are many benefits of using third party data in enhancing tax compliance and service delivery. These data include wage and salary information from employers as well as data from financial institutions, property sales, other government agencies, and information exchanged with other jurisdictions.

Many revenue bodies (e.g., Australia, Korea, Malaysia, New Zealand, Singapore, and Thailand) reported having computerised processes for the bulk capture and processing of large volumes of taxpayer income data reported by third parties. Papua New Guinea has indicated that as part of its reform plan for its taxation authority it wishes to make much greater use of third party information sources; as such, it intends to use data from the national Investment Promotion Authority (IPA) to cross check businesses’ compliance (TRC, 2015_[26]). Similarly, the tax authorities of the Solomon Islands, Samoa and Fiji indicate that they use many information streams to detect misconducts. For instance, the Samoa tax authorities use data from different ministries, the Samoa National Provident Fund (SNPF), the central bank and commercial banks (MFRS, 2017_[27]).

2.5. The use of voluntary disclosure policies and programmes

Voluntary disclosure mechanisms can be an important part of compliance programmes when used as part of a broad approach to facilitating compliance outcomes. Such programmes offer non-compliant taxpayers the opportunity and incentive to proactively put their tax affairs in order. As well as being less resource-intensive than investigations, they can also potentially generate significant insights into the reasons for evasion (including accidental) and the structures used to facilitate deliberate evasion (OECD, 2017_[2]).

The international tax environment has changed dramatically towards greater transparency and exchange of information for tax purposes. All financial centres have now committed to the OECD standard on transparency and exchange of information. This will provide greater insight into the undisclosed income and assets of high net worth individuals (HNWIs) and other taxpayers. The time required for exchange of information agreements or other mechanisms to come into force offers a unique opportunity for these taxpayers to voluntarily disclose their income and assets. Tax administrations may also seize this opportunity to facilitate such voluntary disclosures (OECD, 2009_[28]).

At the same time, a number of countries have implemented initiatives to encourage taxpayers to disclose past non-compliance, including administrative measures such as the recent voluntary compliance initiatives in Ireland and the United Kingdom. Canada has had a voluntary disclosure programme for many years. In economies where these policies are regularly applied, the tax laws typically contain provisions that give some discretion to revenue bodies to frame the terms of their voluntary disclosure policy. While the terms offered under such programmes vary from economy to economy they generally include incentives in the form of: (i) reduced penalties, (ii) no audit providing a full disclosure is made, (iii) a commitment to no prosecution, and (iv) a commitment to no publicity where it is normal practice to publish details of detected tax evaders, (e.g., Cook Islands).

For instance in Singapore, where the Inland Revenue Authority of Singapore (IRAS) has a permanent programme for voluntary disclosures, in lieu of possible legal charges and a 400% fine on unpaid taxes in case of willful tax evasion, the sanctions are reduced to a 200% fine for those that voluntarily report to the authorities (IRAS, 2018_[29]).

Voluntary disclosure policies and programmes are fairly limited across economies in the region (Table 2.3). These policies and programmes have been known to deliver benefits in economies such as Australia and New Zealand.

Table 2.3. The use of voluntary disclosure policies and programmes

Feature	Economies reporting this feature for 2015
Revenue bodies empowered to offer reduced penalties for voluntary disclosures	Australia; Bhutan; Hong Kong, China; Indonesia; Japan; Korea; Malaysia; New Zealand; Singapore; Thailand
Revenue bodies empowered to offer reduced interest for voluntary disclosures	Australia; Bhutan; Hong Kong, China; Indonesia; New Zealand; Thailand
Revenue bodies reporting the use of voluntary disclosure programme in 2015	Afghanistan; Australia; Bhutan; Hong Kong, China; Indonesia; Japan; Korea; Malaysia; New Zealand; Singapore; Thailand

Source: ADB survey responses and OECD (2017_[2]), Tax Administration 2017, Table A.136.

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Voluntary disclosure programmes can be distinguished from what are sometimes referred to as tax amnesty programmes, although the terms are often used interchangeably. Unlike a voluntary disclosure, a tax amnesty typically includes an incentive in the form of a reduction or waiver in a taxpayer’s primary tax liability, along with other conditions and concessions. Tax amnesties have already been implemented in some countries in the region (Box 2.1).

Box 2.1. Tax amnesty programmes

Some countries in the region have been implementing tax amnesty programme as part of their efforts to increase tax revenues. The results of such programmes have, however, been mixed.

• Indonesia’s amnesty programme, launched in 2016, was running until end of March 2017. It has brought in IDR 4 882.2 trillion worth of assets and involved more than 745 000 participants (MOF, 2017_[30]). The country imposed a redemption levy on the declared assets, ranging from 2 to 10% depending on the localisation of the assets and in which phase of the scheme the disclosure was made.

• Fiji implemented in the end of 2017 two tax amnesty programmes, one for the regularisation of undeclared foreign assets, the other offering a waiver of penalties related to overdue tax returns and payments (FRCS, 2017_[31]; 2017_[32]).

• Papua New Guinea’s Inland Revenue Commission (IRC) offered an amnesty programme in late 2017, whereby penalties related to late payments or non-filing of returns for a broad array of taxes would be lifted. Taxes covered include: income tax, interest withholding tax and business income payment tax (IRC, 2017_[33]).

• India’s Income Declaration Scheme was launched in June 2016 and lasted for four months. It attracted 64 275 non-compliant taxpayers for a total of INR 652.5 billion of regularised assets (CBDT, 2016_[34]). The scheme’s participating taxpayers faced a charge of 45% on the declared assets, which may have contributed to the lower uptake compared to similar initiatives in the region.

References

ADB (2018), Comparative Analysis of Tax Administration in Asia and the Pacific 2018 Edition, Asian Development Bank, Manila, http://dx.doi.org/10.22617/TCS189264. [8]

ADB (2017), Adopting the new international tax rules and standards, Asian Development Bank, Manila, https://www.adb.org/sites/default/files/publication/225216/governance-brief-29.pdf. [17]

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Notes

← 1. In 2016, the OECD, the Inter-American Center of Tax Administration (CIAT), the Intra-European Organisation of Tax Administrations (IOTA), and the International Monetary Fund (IMF) agreed to collect revenue administration data through a joint web-based survey, the International Survey on Revenue Administration (ISORA). The survey that was conducted by the ADB was a shortened paper-version of ISORA.

← 2. The Goods and Services Tax (GST) in Australia is a value-added tax under the OECD classification of taxes set out in the Interpretative Guide.

← 3. The G20 (or G-20 or Group of Twenty) is an international forum for the governments and central bank governors from 20 major economies. It was founded in 1999 with the aim of studying, reviewing, and promoting high-level discussion of policy issues pertaining to the promotion of international financial stability.