CONTEMPORARY ISSUES IN INTERNATIONAL TAXATION (BKAT5023 ) SELF-ASSESSMENT SYSTEM OF TAXATION (SAS)

Prepared for:

NATRAH SAAD, PH.D

Prepared by: MUSA SULAIMAN UMAR (809990)

INTRODUCTION

As a result of the growing concern of tax administrations all over the world on how to simplify the tax assessment system and encourage voluntary compliance many countries have adopted the self-assessment system as a solution. Thus the recent trend in developing countries sees a shift from the official assessment system to a SAS.

What is SAS ?

System of taxation taxpayer is required to assess his tax liability using a tax return . in which he declares his gross income, allowable deduction and apply the tax rate to arrive at the tax himself This tax return must then be filed with the tax authority together with payment for the tax liability computed in that return.

CRITICAL FACTORS FOR EFFECTIVE SAS IMPLEMENTATION:

Which tax returns should be audited is crucial,

non-compliance should be dealt with justly and swiftly to encourage the majority of taxpayers to comply and; the education level of taxpayers is crucial in determining whether the SAS will work effectively. Comprehensive laws and competent staff of tax authority.

FEATURES OF SAS

The taxpayer, rather than the tax authority that, is responsible for the assessment of tax liability. SAS eliminates the administrative nature of assessment work, SAS encourages an early and timely collection of taxes, and, SAS reduces corruption by reducing contacts with taxpayer.

SAS AND CATEGORIES OF TAXPAYERS

Large taxpayers who use sophisticated means to minimize their tax burden and interact with the tax authorities both as tax collecting agents of the government and as taxable clients. Small and medium enterprises in the formal sector that maintain weak accounting documentation of their business activities and ultimately negotiate their assessments in an environment that is vulnerability to bribery. Informal sector businesses that may not pay direct taxes but pay indirect taxes through their purchases of goods that attracted custom duties and domestic VAT payments. SAS is applicable to all the three categories above.

Tax authorities face fewer problems with the first categories. However, they use forms of avoidance that are difficult to detect, such as abusive transfer pricing and thin capitalization strategies.

The two other categories in most of the developing countries, evade tax by reducing the tax liability or non filing of return at all. This has to do with their improper way of record keeping and the system in most of these countries does not have adequate provision to have them into the tax net.

Tax Compliance and SAS

It is widely accepted that the goal of an efficient tax administration is to foster voluntary tax compliance using all possible methods including penalties. To enhance tax compliance, a tax administration should provide its taxpayers with various services such as: guidance, education, consultations, etc.

The tax return forms should also be sent free of cost during the filing time, and the taxpayers details pre-printed on the forms in order to encourage timely and accurate filing. Public relation activities should be carried out using the media, and tax education is also provided to school children. Taxpayers should be able to obtain consultation services via the telephone, and other necessary means easily.

Communication

Communication is a key element to ensuring compliance strategy.

Therefore, a great deal of emphasis should always be put on the maintenance of excellent communication and partnership mechanisms. This mechanism provides a number of benefits for both the tax authority and taxpayers. It permits the tax authority to distribute information about tax law and facilitates administration of the law to the people who are affected by it. On the other, the taxpayers are allowed to talk about problems in tax administration, and to make suggestions for improvement.

ADOPTION OF SAS-DEVELOPING COUNTRIES

Many developing countries switched to SAS during the 1990s, although South Asia and much of Africa and East Asia are still in the process of implementing such a change. The larger countries of Latin America, notably Chile and Argentina, implemented functional organization reforms in the 1960 and 1970s with advice and technical support from the USAs Internal Revenue Service. Many developing countries have inadequate internal capacity to implement such multi-dimensional administrative change. Comprehensive tax administration reforms (e.g.: Tanzania, Kenya, and

CONCLUSION

Finally, SAS is new system of assessment that emerged as a way of simplifying tax assessment and to encourage voluntary tax compliance. For proper implementation and effective SAS in developing countries, the tax laws have to be amended to ensure appropriate filing and to strengthen the penalty provisions.

Communication is an important tool in ensuring adequate administration and improvement of SAS. Also, Public Relations; Tax Education; Tax

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Choong, K. F. & Lai, K. T, Hawkers and the Self-Assessment Tax System: Survey Evidence from Malaysia. Fall 2009, 8(1)
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William, M. (2004). Focusing on the Few: The Role of Large Taxpayer Units in the Revenue Strategies of Developing Countries, South Asia Region. World Bank. Retrieved from http://aysps.gsu/ips/files 22/02/2012