Page 7 - Working Paper (The Myths and Realities of Tax Performance Under Semi-Autonomous Revenue Authorities)
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DDTC Working Paper 0213

                   lower contribution of income taxes (see Table 1).   and pay taxes, where the taxpayer in the country
                   Moreover,  this  condition  can  be  interpreted  as   adopting the model of SARA apparently spent more
                   limited institutional  capacity  in collecting  taxes.   time (367.5 hours) than in countries that adopt a
                   Tax  agencies tend to focus on type  of tax  that  is   model of non-SARA (289.2 hours). Both indicators
                   easier  to  apply  (i.e.  sales  tax  and  international   show that the SARA model is not always associated
                   trade).                                          with effectiveness and efficiency of the tax system.
                                                                    The  high  intensity  of  meetings  with  tax  officials
                     Table 1 - Tax Revenue Structure in SARA and Non-  as well as the amount of time spent on tax affairs
                       SARA Countries (Yearly Average 2000-2011)    clearly can  also  increase the cost of compliance.

                                                                    However, this can be understood as the stronger
                    Contribution (% to              Number of
                      Tax Revenue)  SARA  Non-SARA  Observation     institutional  capacity  under  SARA  models  that
                                                                    require meetings and more detailed tax payments.
                    Tax on goods and   30.47  31.03       521
                                                                       On the other hand, the existence of tax bribery
                    Tax on income,   31.15   23.91        529       is more  apparent  in  the countries that  adopted
                    profit, and capital
                    gains                                           the  model  of  a  non-SARA.  The  evidence  shown
                                                                    by percentage of the company that is expected to
                    Tax on international   5.07  5.80     428
                    trades                                          provide ‘gifts’ when meeting with tax officials. In
                                                                    countries that adopt the model of non-SARA, the
                    Ratio of direct to   0.88  0.65       428
                    indirect taxes                                  number reached 28.1%, much larger compared to
                                                                    what happens in countries that adopted the SARA
                   Source: Author’s  estimation using  data  from  Government Finance
                   Statistics (IMF), various years.                 model of which only 19.7%. This may imply that
                                                                    the tax administration system under SARA models
                      Table 2 - Tax Condition in SARA and non-SARA
                                   (2000-2011)                      are much more transparent. The prevalency of the
                                                                    SARA model can also be seen from indications of
                                                                    simplification and ease of paying taxes .
                              Indicator         SARA  Non-SARA
                                                                       Further,  when  we  move  to  tax  compliance
                    Yearly average number of company   2,7  1,7     issue,  apparently, tax  compliance is at  the same
                    meet with tax agent a
                                                                    level  for both  models. Based on percentage  of
                    Percentage of company that is   19,7  28,1      companies that do not report all sales or income
                    expected to provide gifts to tax
                    officials b                                     for tax purposes data, there is very little difference
                                                                    between the two groups (43.8 % and 44 %). It can
                    Percentage of company that is not   43,8  44,0
                    reported whole of its sales/income in           be concluded that, institutional difference will not
                    the context of tax b                            affect tax compliance mindset.
                    Number of tax payments a     18,4     29,7
                    Number of time needed to prepare   367,5  289,2  5. SARA and Tax Revenue
                    and pay tax c
                   Notes:  ) numbers;  ) % of enterprises;  ) in hours.  In order to identify the effect of the performance
                   Source: Author’s  estimation using  data  from  World Bank,  Enterprise   of SARA to tax system, the question often comes
                   Survey, various years.
                                                                    down  to the tax  revenue collection.  As have
                                                                    been mentioned above, we utilize three panel
                      In addition, it is also important  to review   econometric approaches (pooled OLS , fixed effect
                   tax  situation  between  these  two  groups.    Data   and random effect).
                   from the survey done by the World  Bank  on the
                                                                       In addition, we examine the determinants of
                   business climate in various countries, identified 5
                                                                    tax  revenue involving two models  which  have
                   indicators  associated  with  the  tax  situation  (see
                                                                    different independent  variables. The  dependent
                   Table 2). First, meeting intensity between taxpayer
                                                                    variable in these models is the tax ratio. Further,
                   with tax officials, which is taken from the average
                                                                    the independent variables in model 1 are: a dummy
                   number of the company meet tax officers annually.
                                                                    variable  of  institutional  tax  authorities  (SARA=1
                   Surprisingly,  countries  that  adopt  SARA  actually
                                                                    and non-SARA=0), the level of consumption (% of
                   has higher intensity of meetings with tax officials
                                                                    GDP),  the  value-added  of  industrial  sector  (%  of
                   than that of non-SARA countries. According to the
                                                                    GDP), economic openness (% of total exports and
                   World Bank, frequency to meet tax official will open
                                                                    imports  to  GDP),  and  the  ratio  of  the  number  of
                   possibility to do tax bribery. However, we thought
                                                                    non-productive age population to total population
                   that in SARA countries, the power to detection or
                                                                    of  productive  age  (scale  0  to  1).  In  model  2,
                   tax  audit  are  more,  therefore  firms  will  have  to
                                                                    independent variables tested are: binary variable
                   spent  more  times  with  meeting  with  tax  official.
                                                                    of institutional tax authorities (SARA=1 and non-
                   This also shown by the time required to prepare
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