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Trade facilitation and tax management systems: Learning from the best


9 September 2015 06:30 pm - 0     - {{hitsCtrl.values.hits}}


It is vital for the policymakers in a country to evaluate and compare best economic solutions in the world so that those models can be implemented with the view of improving their own economy. As a practice, the annual Doing Business Index (DBI) reports discuss many exceptional or rather best cases in the world, so that those systems can be studied and adopted by other upcoming economies.

The DBI, published annually by the World Bank, evaluates 189 economies in the world as of now. The index pays attention to the following 10 criteria: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency.

In addition to the above, the index further considers the distance to frontiers as well where the index captures the gap between an economy’s performance and measures the distance to the best-performing economy in each of the above mentioned aspects. Further, it is noteworthy that the aspects such as security, the prevalence of bribery and corruption, market size, macro-economic stability and the level of training and skills of the labour force are not deeply taken into consideration.

Tax management system in Malaysia
As evaluated in the DBI reports, taxation is very important for balanced economic development and tax management is a significant function of a booming state. On the other hand, taxation also helps to make a government accountable to its public. When governments spend taxpayers’ money, they are more accountable to make budget decisions transparent to the maximum level. 

In 2004, the Inland Revenue Board (IRB) of Malaysia took an initiative to implement a system for filing and paying taxes that would promote electronic, paperless transactions. The IRB’s objective was to become a leader in tax administration and be an example to the world. Tax systems in economies face new challenges and new possibilities as a result of the technological change taking place in the world. Malaysia provides a very good example to the world of its electronic tax filing and payment system showing where and what conditions of technology can bring the advantages to both tax authorities and taxpayers.

Creating public awareness
The IRB faced many issues during the development of the system where the public’s lack of readiness to use it, as a result of the taxpayers using the e-filing system, remained far below expectations. The uncertainty of the security and privacy of the information transmitted online was one of the key reasons for the low usage of e-filing. So, the IRB went to the extent promoting it among the public with the slogan “As Easy as 1, 2, 3” and incentivized the tax payers heavily in using the system. The authorities recognized the importance of the involvement of the private sector and requested the tax preparers and accountants to share ideas on how to enhance the online system.

A system with more accuracy 
As discussed in the DBI 2014 report, the e-filing systems increase the quality and quantity of transactions, faster and more accurately and have much lower error rates compared with paper-based manual systems. With this system, the need to impose penalties also has gone down to a considerable level. The tax officers also found it easier to issue assessments and refunds much faster. Further, e-filing and e-payment allow better management of risks and audits. It is noteworthy mentioning that the said system has the capability of reducing corruption to a greater extent where the system is avoiding face-to-face interactions between the tax payers and tax officers.  

Other countries with better tax administration systems
Singapore is also known as a country which adopted an integrated, computerized tax administration system for its Inland Revenue Authority. It moved from the paper-based hard copy system to paperless imaging system as the first step in 1992. Chile is also considered of having an online tax collection system to date and reached nearly 100 percent usage. Just like in other countries, Chile has faced many obstacles such as, the system not being user friendly at the beginning and IT infrastructure issues, i.e., bandwidth and connectivity. Over the period, Chile has overcome the practical problems faced by them and reached a well implemented and managed tax administration system.

It is quite challenging for a country to implement, electronic-based tax filing and paying system and convince most of the tax payers to use the same effectively. Malaysia shows the rest of the world how the technology works and how the sheer commitment of the implementers can bring in the real benefits to the country on this aspect.

Single-window systems
The competitiveness of an economy is measured on many factors including having speedy, dependable and cost-effective ways and means for trading goods. But in many economies in the world, international traders have to spend a considerably longer time in submitting information for authorities such as the Customs and ports. As per the World Bank DBI reports, 73 economies have single-window systems with different complexities but very few extend the expected benefits to the traders at large.

The DBI 2014 report talks much about a single-window system that can improve information flows by sharing needed information with all parties involved in trade such as private participants, i.e., banks, insurance companies and public agencies like the Customs, immigration and vehicle registration authorities and agri authorities, etc.

Singapore’s single-window system 
It is named ‘Tradnet’ and started operations in 1989 as an Electronic Data Interchange (EDI) system. The Singapore government extensively backed this concept by appointing a steering committee and three subcommittees focusing proper control on sea shipping, air freight and government agencies with the view of improving the process of imports and exports in the country.  

The concept of the single-window system in Singapore evolves through enabling traders to submit standardized information and documents through a single gateway and eliminate redundant processes by traders and government agencies and improve co-ordination and co-operation between authorities. Reducing manifold data submissions to different agencies in the country helps minimize data entry errors as well. Singapore’s single-window system is more than 20 years old by now and still in the process of improving. As per the DBI reports there are many non-performing single windows around the world.

It is important to note that the government authorities such as the Customs and port-related services, health department, agriculture authorities, tax authorities and banks, etc., are connected,  sharing information on a single network enabling traders  to be connected through one single gateway. This efficient information flow and the simplified procedures can significantly increase the speed of clearance and release, reduce costs, improve business efficiency and enhance overall economic performance of the country. As indicated in the DBI reports, the input and the involvement of the private sector business community are extremely important in implementing a single-window system and they must be involved from the design stage itself and an opportunity to provide feedback is also vital. The dangerous situation of the single-window system is that, failure of one point may wreck the entire system.

Experience of Colombia 
Colombia is also considered to have a proven single-window system which has been evolving since 2006. Its single window is connecting 21 government authorities involved in foreign trade, mostly ministries and health and safety intuitions and three private companies that provide e security information on registered traders. As per the DBI 2014 report, the Colombian single window links these public agencies with importers, exporters, customs agents and brokers through an online platform that provides users to collect  procedures, approvals, authorizations and other certifications needed to import and export of goods. Further, tax identification and business registration records are also available to the agencies connected to the system.

Just like in Singapore, the single-window system in Colombia implemented the system through different stages. In 2006 initiating it with import module, taking care of import registration requests and import licences for certain products. Subsequently in the same year the government commenced the export module which took care of export authorizations. Just like in the other places, the existing laws and regulations were amended to create the legal basis for using electronic signatures and payments. The system has provided benefits to entities engaged in trade, increasing efficiency and cutting times and costs and reduced 135 procedures and 35 forms on importing into one step for trading organisations. 

What UN says on singl e-window systems
The United Nations (UN) in many of its studies have  recognized  most significant  factors for successful implementation of single windows, namely: *Political will *Strong lead agency *Partnership between government and trade community *Establishment of clear project boundaries and objectives *User friendliness and accessibility *Enabling legal environment *International standards and recommendations *Identification of possible obstacles *Appropriate financial model for the system *Communications, promotion and marketing.

DBI 2014 discusses the single-window system implemented by Azerbaijan as well but different from the systems implemented in Singapore and Colombia, which shows the fact that an economy could have a system of its own, which suits the practical situation of that economy. (Direct reference: Doing Business Index 2015 and 2014)

(Bandula Dissanayake is the Secretary General/CEO of the National Chamber of Commerce of Sri Lanka)

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