Enforcing new tax laws

The new tax laws, to be enforced next month, amend the 1993 tax legislation and have been greatly welcomed by analysts. They believe the laws will stimulate business development while increasing government tax receipts.

Business analysts and development economists attending a one- day seminar on the new tax laws on Thursday applauded the broadening of income tax brackets from three to four. They were also happy that income tax rates in the 15 to 35 percent range had been lowered to 10 to 30 percent.

The four tax brackets are seen as a more adequate reflection of the earnings of low and middle-income people. The lower rates will increase both the disposable income of the public and the business sector. This will increase private consumption and investment and will consequently raise tax revenues.

Since the new laws broaden the income and value added tax categories as well as increase the range of luxury sales tax from 10-35 to 10-50 percent, government tax receipts are expected to increase greatly. That, obviously, is quite predictable. After all, the government wouldn't amend the present tax laws, enacted in 1984 in the country's first overhaul of its taxation system, if the net result cut its tax receipts. Even the present tax legislation succeeded in increasing tax receipts by an annual average of 24 percent over the last decade. Moreover, the government would not risk decreasing its tax receipts which now account for more than 60 percent of its total internal revenue.

But fiscal objectives and the promotion of equitable distribution of income are of course not the only reasons a government would amend its tax laws. Ten years after their enactment, the present laws obviously require amendment to improve rulings and to accommodate the latest developments and trends in the economic sector and, particularly, the business world.

We note that the new laws include provisions for incentives to preserve the environment and to develop human resources. They also stipulate more clear-cut definitions of tax objects, business transaction rulings not covered by present legislation and improved procedures for the enforcement and protection of taxpayers' rights.

However, all the benefits described above are based on the assumption that the legislation will be properly enforced. This is our greatest concern. Less than two weeks before their enforcement, the implementation rulings on the new laws had yet to be issued. We understand that issuing rulings on law enforcement is difficult, especially since they usually come in a comprehensive package consisting of government regulations signed by the President and decrees from the finance minister and the tax director general. But, because the tax bills were expected to be passed by the House of Representatives without any significant changes, all the technical rulings should have been prepared a few months ago, in time for the President to ratify them early last month.

The remaining task is challenging because the broader tax brackets will result in many taxpayers who have never filled out a tax return. It will take time to make individuals and corporate taxpayers and tax consultants fully understand the technical details. In fact, past experience has shown that most tax officials, notably those in the provinces, require training in order to comprehend, understanding and interpret the rulings.

Hopefully, the ministry of finance, notably the tax directorate general, is fully aware of the urgency of implementing the rulings on the new tax laws.