Compliance Improvement Strategy (CIS)

2016

CIS References • International Monetary Fund(IMF)-recommendations/advice -experiences in other tax jurisdictions. -successful implementation & results. • Risk Assessment & Profiling Team(RAPT)- continuous involvement with

IMF and auditors and providing progressive updates.

• Organization For Economic Co-operation And Development (OECD) documents - Strengthening Tax Audit Capabilities: General Principles and Approaches

• Chief Auditors and Team Leaders – discussions and workshops • FRCA Data analysis – on case loads, time allocations, Taxpayer

classifications and policy(budget) framework, monetary target.

Headings

• Foreword • Introduction • Understanding Compliance • Our Approach To Improving Compliance • Understanding Our Compliance Strategy • Introducing Our Risk Differentiation Framework • Our Compliance Strategy for 2016 • Working With You to Build a ‘Healthy’ Community

Foreword

• FRCA/CEO commitment to service • Create Visibility - accountable - support from community - ensure fair administration • Fairness is important • Good Professional Relationship

Objective

• Cost-effectively maximize voluntary compliance • Encourage customers to comply with their basic tax

obligations: – Registration – Filing – Payment – Reporting

• To help strengthen relationships with stakeholders, provide transparency , and accountability

• To fully understand and manage compliance in Fiji

Our Approach to Improving Compliance

• Incorporates three (3) themes:- (1) Internal, Administrative Improvements

(a) Establishment of new section -Risk Assessment & Profiling Team – risk assessment & development of future annual strategies - Objection Review Team

(b) Established FRCA Compliance Council/Independent Review Committee -Comprised of executive and senior management, who are tasked with oversight of various strategies to be implemented this year

Our Approach to Improving Compliance

• Incorporates three (3) themes:- (2) Strengthening partnerships with the community

(a) Taxpayers/stakeholders are important (b) Engage with associations – communicate & listen to views on a wide range of topics. (c) Focus on specific issues compliance strategies/risks- Visit

industry/sector associations.

Our Approach to Improving Compliance

• Incorporates three (3) themes:- (3) Dramatically scaling-up compliance activities

(a) To work with our partner agencies - promoting changes in policy, to clarify legislation, close loopholes and simplify procedures.

(b) To shift away from a narrow reliance on enforcement to a broader, more proactive mandate.

(c) No softening - referrals for criminal prosecution.

Understanding Our Compliance Strategies

• CIS is an umbrella document. • For 2016, we have identified one administrative area and six

segments of the economy. • Each strategy follows the same template and is comprised of

seven panels of information: (1) Strategy Overview (2) Segment Profile (3)Key Compliance Risks(4) Risk Treatment ( 6)Compliance Indicators(6) Work Flows (7) Capacity Development

Risk Differentiation Framework (RDF)

• All taxpayers will be understood and managed within a “Risk

Differentiation Framework” (RDF).

• This approach is simple to understand and implement.

• For transparency and to enlist the support of tax agents and customs brokers, we will present this approach now.

Risk Differentiation Framework (RDF)

(a) Compiling compliance profiles of our customers and

assigning them to RDF models based on 1) consequence of noncompliance;2) likelihood of noncompliance

(b) By adopting this approach, we better able to understand groups of customers and their behaviour

Risk Differentiation Framework (RDF)

A RDF Model for a Segment of FRCA Customers

Risk Differentiation Framework (RDF)

• The Graph illustrates the simple result & is easy to understand.

• From our perspective, the results of this work provide new insights into noncompliant trends and behaviour

• For 2016 will provide more detailed information and open a dialogue on these new methods with interested stakeholders – tax agents and brokers in particulars.

Compliance Strategy: Taxpayer Services

Compliance Strategy: Large & International Taxpayers

1. Strategy Overview:

The key compliance risk in the large taxpayer segment is underreporting. Taxpayers in this segment are utilizing the services of professiona consultants to implement aggressive tax planning and evasion schemes. The strategy to improve compliance proposes legislative changes, relies on external coordination and emphasizes improving enforcement activities in complex sectors. Key elements of the strategy also call for acquisition and better use of third-party data and, during the year, one successful referral for criminal prosecution.

2. Segment Profile 3. Key Compliance Risks 4. Risk Treatments 2.0 Criteria for inclusion: Taxpayers with annual sales greater than $15 million FJD. 2.1 Amount/type of tax revenue:

Tax Type Revenue Total Rev. Income Tax

$271.2m $584m

VAT $289.5m $633.7m STT $24.2m $64.9m CGT $3m $23m TL $1m $1.2m CCL $4m $4m SRT $4.5m $7.8m FBT $7.7m $19.8m Third Party $306k $1.9m Stamp Duty $14m $71.7m

Total Tax Collection Represents: IT – 46% VAT – 46% 2.2 Number/type of taxpayers: 195 Sole Trader – 1 Partnership – 2 Companies – 187 Statutory – 5

3.1 Registration risk: Low The probability of a registration risk is low 3.2 Filing risk: Low Large taxpayers generally file their returns on-time IT (5%) – 6 Taxpayers with missing IT returns VAT (79%) – 97 Taxpayers with missing VAT returns 3.3 Payment risk: Low IT (4%) – 5 Taxpayers with IT owing, $530,716 total arrears VAT (2%) – 2 Taxpayers with VAT owing, $35,472 total arrears 3.4 Underreporting risk: High Aggressive tax planning is encouraged by preparers and accountants Inaccurate reporting between tax and customs, relating to values Nonresident withholding taxes on services provided in Fiji Abuse of income tax and duty concessions Non-taxation (and declaration) of fringe benefits No thin capitalization rules in Fiji (intercompany exploitation) Insufficient reference data for transfer pricing and normal audits

4.1 Measures for facilitating compliance (service) Coordinate with Gold Card taxpayers to understand noncompliance Distribute targeted education material for foreign workers employed by large taxpayers and operating independently:

• Investment Fiji • Department of Immigration

4.2 Measures for dealing with non-compliance (enforcement) Target one successful referral for criminal prosecution Propose legislation introducing thin capitalization rules Develop audit training and manuals for high risk industries Cross-reference customs data with statistics and tax declarations Develop capability to benchmark high risk industries Acquire a transfer pricing index database Acquire and exploit new third-party data:

• Fiji Electricity Authority – registration, consumption • Department of Immigration – work permits • National Switch – electronic transactions

Propose mandatory electronic submission of key declarations

5. Compliance Indicators 6. Workflows % increase in collections % increase in withholding tax collection % increase in fringe benefits tax % increase in CG

Type/Number of Actions

Taxpayer Risk category High Risk

Medium Risk

Key Client

Lower Risk

Registration Checks Advisory Visits 15 10 5 5 Limited Scope Audits 5 20 9 6 Comprehensive Audits 20 3 4 6 Debt collection Actions

7. Capacity Development

Information Systems, Data Management & Analytics Develop capability to exploit bulk, 3rd party data Administrative Tools Obtain MOUs with external stakeholders to acquire key, bulk data

Organization & Management Create a new public rulings unit Staff Development Acquire training and assistance on managing complex industries

Compliance Strategy: Medium Taxpayers

Compliance Strategy: Small Taxpayers

Compliance Strategy: Industry – Construction

Compliance Strategy: Industry – Real Estate

Compliance Strategy: Industry – Supermarkets

Working with You to Build a ‘Healthy’ Community

• The Approach in this Compliance Improvement Strategy is a challenge.

• We expect to be successful, but fully anticipate bumps

along the way.

• We need to work together to build an organization that provides world-class service.

Questions? Thank You