FIN 48 is an interpretation that was meant to provide clarity around certain aspects of FAS109, specifically, the computation and disclosure of Uncertain Tax Positions ("UTPs"). As such, FIN 48 is an integral part of FAS 109 and needs to be considered within the tax provision work flow. Under FIN 48, UTPs formerly computed under FAS 5 must now be reviewed under new standards for identification, probability, computation, and disclosure. Once this has been done, the results need to be fully integrated with the rest of the tax provision.
The success of VAT in the EU showed that VAT worked. The consistent support and advocacy of this form of taxation by the IMF and others in a variety of countries, encouraged and facilitated the adoption of VAT by countries with much less developed economic and administrative structures than those in the original EU member states, like Albania. The VAT, it's invariably among the most important sources of government revenue. Not all is so good for VAT, however. Some of problems have always been inherent in the structure and operation of VATs but are exacerbated by the increased fiscal weight being placed under pressure for new fiscal revenues for example to offset revenue losses from tariff reductions needed to accord with WTO requirements. It is thus perhaps time for a new look at the role of VAT in Albania. I want to make some question that can be a referent point for this discussion. Can VATs be adapted to cope with the rising demands for more access to revenues by local and regional governments? Can tax administration deal with such new problems as those arising from changes in business practices with financial innovations and e- commerce? Does VAT provide a way to tap the informal sector or does it instead tend to expand that sector? The answers to such questions are not only critical to the fiscal stability of Albania, but also to her economic growth and development. Not only do we as yet have surprisingly little solid empirical knowledge of some critical factors but the relevant economic theory also remains rather sketchy and we know even less about the relevant political economy context.
Integration of UTPs with the current taxes payable account presents special challenges. Before FIN 48, tax reserves computed under FAS 5 were typically recorded in the current payable on the theory that the government could demand payment at any time. This meant that refunds and payments due with the filing of the return were co-mingled in the ending balances. Past FIN 48, these items are still included in the ending balances; however, the movement in the UTPs must be disclosed in a separate roll forward using the following prescribed categories: Beg Balance, PY Increase, PY Decrease, CY Increase, CY Decrease, Settlements Expiration.
In the past, companies often shifted reserves within the payable with little or no disclosure. The roll forward of UTPs now requires companies to clearly breakout increases and decreases due to changes in judgment and the expiration of statute of limitations, both of which are offset by charges to the current tax provision. In practice, this means that the current tax provision related to the tax return needs to be tracked separately from the current provision related to UTPs to allow for separate roll forwards. Likewise, payments and refunds related to the filing of the tax return will have to be separated from payments and refunds related to the settlement of UTPs in order to populate the Settlement column of the UTP roll forward. Where a UTP is relieved with an audit settlement, a "true up" may have to be recorded as a PY Increase or PY Decrease, offset by an adjustment to the current tax provision.
How far Albania still seems to be from being able to run their tax systems on this basis? While there are many different reasons for this conclusion in different countries, only two points will be mentioned here. First, the policy process appears, almost inevitably, always to leave some problems in VAT design, and such problems are more likely to be exacerbated over time in the circumstances of Albania than those of developed countries. Secondly, the right way to implement a VAT is through "self-assessment". Potential taxpayers have many ways to escape the fiscal system. They (or at least their tax base) may, for instance, flee abroad. They may remain but hide in the shadow economy. They may secure some form of favorable treatment by exerting influence in various ways to have changes made in the law or its interpretation. If somehow trapped within the taxation system, they may finally seek relief by forgiveness of arrears through partially amnesty laws. Indeed, in some cases they may combine all of these methods of avoiding taxation. In some routine work of our tax administration the record over the years suggests that such processes have been at work, given the discouraging picture of repeated erosion of the base of the VAT through concessions at many levels as well as general administrative weaknesses.
Recent studies clearly indicate that a reverse relationship exists between the growth of the economy and the extent of public spending. Moreover, decades of progressive taxation did not reverse the trend of a growing gap between the rich and the poor. Income distribution has remained inequitable (ever more so all the time) - despite gigantic unilateral transfers of money from the state to the poorer socio - economic strata of society.
The success of VAT in the EU showed that VAT worked. The consistent support and advocacy of this form of taxation by the IMF and others in a variety of countries, encouraged and facilitated the adoption of VAT by countries with much less developed economic and administrative structures than those in the original EU member states, like Albania. The VAT, it's invariably among the most important sources of government revenue. Not all is so good for VAT, however. Some of problems have always been inherent in the structure and operation of VATs but are exacerbated by the increased fiscal weight being placed under pressure for new fiscal revenues for example to offset revenue losses from tariff reductions needed to accord with WTO requirements. It is thus perhaps time for a new look at the role of VAT in Albania. I want to make some question that can be a referent point for this discussion. Can VATs be adapted to cope with the rising demands for more access to revenues by local and regional governments? Can tax administration deal with such new problems as those arising from changes in business practices with financial innovations and e- commerce? Does VAT provide a way to tap the informal sector or does it instead tend to expand that sector? The answers to such questions are not only critical to the fiscal stability of Albania, but also to her economic growth and development. Not only do we as yet have surprisingly little solid empirical knowledge of some critical factors but the relevant economic theory also remains rather sketchy and we know even less about the relevant political economy context.
Integration of UTPs with the current taxes payable account presents special challenges. Before FIN 48, tax reserves computed under FAS 5 were typically recorded in the current payable on the theory that the government could demand payment at any time. This meant that refunds and payments due with the filing of the return were co-mingled in the ending balances. Past FIN 48, these items are still included in the ending balances; however, the movement in the UTPs must be disclosed in a separate roll forward using the following prescribed categories: Beg Balance, PY Increase, PY Decrease, CY Increase, CY Decrease, Settlements Expiration.
In the past, companies often shifted reserves within the payable with little or no disclosure. The roll forward of UTPs now requires companies to clearly breakout increases and decreases due to changes in judgment and the expiration of statute of limitations, both of which are offset by charges to the current tax provision. In practice, this means that the current tax provision related to the tax return needs to be tracked separately from the current provision related to UTPs to allow for separate roll forwards. Likewise, payments and refunds related to the filing of the tax return will have to be separated from payments and refunds related to the settlement of UTPs in order to populate the Settlement column of the UTP roll forward. Where a UTP is relieved with an audit settlement, a "true up" may have to be recorded as a PY Increase or PY Decrease, offset by an adjustment to the current tax provision.
How far Albania still seems to be from being able to run their tax systems on this basis? While there are many different reasons for this conclusion in different countries, only two points will be mentioned here. First, the policy process appears, almost inevitably, always to leave some problems in VAT design, and such problems are more likely to be exacerbated over time in the circumstances of Albania than those of developed countries. Secondly, the right way to implement a VAT is through "self-assessment". Potential taxpayers have many ways to escape the fiscal system. They (or at least their tax base) may, for instance, flee abroad. They may remain but hide in the shadow economy. They may secure some form of favorable treatment by exerting influence in various ways to have changes made in the law or its interpretation. If somehow trapped within the taxation system, they may finally seek relief by forgiveness of arrears through partially amnesty laws. Indeed, in some cases they may combine all of these methods of avoiding taxation. In some routine work of our tax administration the record over the years suggests that such processes have been at work, given the discouraging picture of repeated erosion of the base of the VAT through concessions at many levels as well as general administrative weaknesses.
Recent studies clearly indicate that a reverse relationship exists between the growth of the economy and the extent of public spending. Moreover, decades of progressive taxation did not reverse the trend of a growing gap between the rich and the poor. Income distribution has remained inequitable (ever more so all the time) - despite gigantic unilateral transfers of money from the state to the poorer socio - economic strata of society.
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