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DIRECCION GENERAL DE IMPUESTOS INTERNOS El Salvador – Success factors in the recent reforms, including coordinated external support
DIRECCION GENERAL DE IMPUESTOS INTERNOS
El Salvador – Success factors in the
recent reforms, including coordinated
external support
They were expanded requirements to taxpayers, resulting in greater
compliance with tax obligations, but requiring more human resources
and equipment in DGII. Some of obligations were:
• Have a solvency for more paperwork such as bank loans and property
registration
• Submit monthly withholding, percept and / or advance payment of VAT
• Authorization to print sales documents VAT
• Submit address updated once a year.
• Advance payment on account of income tax to individuals holding
commercial companies
• New penalties for noncompliance
2004 TAX REFORMS
MEASURES APPLIED FOR REFORMS OF 2004
REFORMS COMPONENTS
MEASURES APPLIED FOR REFORMS OF 2009 (1/4)
Fiscal correction designed to close gaps in combating tax avoidance and tax evasion and smuggling, by broadening the concepts of income, deductions dimension of costs and expenses, restrictions on the deduction of tax credits, rules to control under-capitalization , Among others.
Internationalization of the tax system, adapting the legal framework to the context of the practices of the global economy beyond the scope of the national tax system that is used to avoid paying taxes. As an example creating the transfer pricing rules.
Expanding the tax base through the expansion and creation of new activities subject to different tax structures and upgrade creation of new special consumption tax of some assets, among others. creating the rules applicable to specific taxes and concepts such as differential pricing on alcoholic beverages.
Strengthening the capacities of the Tax and Customs Administration, in order to provide the most effective management tools for monitoring compliance with tax obligations, improve controls and tax procedures, creation of new burdens, expanding powers of control , Improvements in the administrative collection process, etc.
2009 TAX REFORMS Purpose of reforms 2009
Reduce tax evasion and avoidance in order to increase revenues without increasing tax rates on income or sales
The implementation of new reforms increased the amount of work in DGII, due to new formal obligations generated to have a greater control, and requiring therefore more capacity to use technology and information.
The number of new and modified forms result of the reforms 2004 and 2009 is shown in the box below:
MEASURES APPLIED FOR REFORMS OF 2009 (2/4)
FORMS PER YEAR QUANTITY
CREATED IN 2004 16
CREATED IN 2009 17
MODIFIED EN 2009 10
EXISTING BEFORE REFORM 10
TOTAL 53
2009 TAX REFORMS Some forms created in 2009 are:
Notaries and judges report
Report of subject and related companies
Hospital Report
Report new car dealers
Mayors Report
More requirements for issuing credit
For new reforms requirements, DGII demanded :
- Trained human resources
- Computing resource
-Capacity computer systems to receive and capture data in the new forms and tax declarations to deal with the reforms implemented
-Technological capacity to process information and make crossings to the number of declarations and reports receipt by the new formal obligations.
MEASURES APPLIED FOR REFORMS OF 2009 (3/4)
The major contribution to the implementation of tax reforms of 2004 and 2009, went into the DGII with human resources and technology available, from proposal through execution. However, it also has received support from international agencies for the implementation of tax reforms approved. For the reforms in 2004, the TPAR support its implementation, and included part of which were approved in 2009. The contribution shown is:
MEASURES APPLIED FOR REFORMS OF 2009 (4/4)
INTERNATIONAL COOPERATION (1/7)
TPAR PROJECT
From August 2005 to September 2010
Objective: Design and implement a program to modernize and improve tax policy and administration of El Salvador.
According to the final report of the project, TPAR supported at the time to implement the tax reforms of 2004 and 2009 providing training, equipment, support in information technology and technical recommendations.
Project Amount: $ 5.2 million
Project goals: Maximize revenue and minimize tax evasion without increasing tax rates
INTERNATIONAL COOPERATION (2/7)
The cooperation and assistance of TPAR was aimed at four key areas:
•Re-structuring and release of new offices
•Deployment and implementation of a new Information Technology
•Training and capacity building of staff techniques DGII
•The implementation of the Selection and Case Management (CSMS)
TPAR PROJECT
INTERNATIONAL COOPERATION (3/7)
The office re-structured or created with the support of TPAR were:
Transfer Pricing Unit Call Center to Taxpayers Taxpayer Advocacy Unit Criminal Tax Investigation Unit Anti-Corruption Unit and Internal Affairs Case Selection Unit Tax Research Unit Strategic Planning Unit Monitoring and Control Unit Call Center to noncompliant taxpayers Portfolio Management Division
TPAR PROJECT
INTERNATIONAL COOPERATION (4/7)
This support is focused on:
• Technical Assistance
•Training for members of these units
•Included for some equipment for computer equipment, office, electrical and computer application development.
TPAR PROJECT
INTERNATIONAL COOPERATION (5/7)
The project was proposed and developed the new technology system DGII information, improve its complete system, from Informix to Oracle 11g as database environment, as shown in the figure below:
Advantages: • Complete and standardized software • The application can be used through internet. • Fully integrated system • Technology used is cutting edge • Interconnected system with new sources such as registration of customs and central government • Data integrity protected
TPAR PROJECT
It was proposed and developed a system of Selection and Case Management (CSMS), which performs a selection of cases in a more effective and transparent, and managing audits more productive.
The system has three modules:
1. Selection of cases: using algorithms selected taxpayers to be investigated
2. Case assignment: automatically assigns the case to the auditor responsible for investigation
3. Case Management: Investigating and controls the case using process with electronic tool
TPAR PROJECT
INTERNATIONAL COOPERATION (6/7)
INTERNATIONAL COOPERATION (7/7)
Other support provided were:
1. Recommendations for effective implementation of reforms 2004 and 2009
2. Tax reform proposals, of which some were considered for inclusion in the new regulation.
The implementation of tax reforms and the support provided by the project increased tax revenues, a result of this can be seen in the following statistics:
TPAR PROJECT
STATISTICS (1/4)
565
700
819
968
1,053 1,004
1,051
0
200
400
600
800
1,000
1,200
2004 2005 2006 2007 2008 2009 2010
ANNUAL COLLECTION ON INCOME TAX IN U.S. $
MILLION
ANNUAL COLLECTION ON INCOME TAX
446 511 564 600 617 656 675
580
659
798 906
998 768
891
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2004 2005 2006 2007 2008 2009 2010
ANNUAL COLLECTION INTERNAL AND IMPORTATION
VAT IN U.S. $ MILLION
INTERNAL VAT IMPORTATION VAT
1,026.18
1,506.45 1,615.21
1,423.19
1,566.35
1,169.91
1,362.48
STATISTICS (2/4)
1,954
2,229
2,574
2,877
3,089
2,836 3,072
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2004 2005 2006 2007 2008 2009 2010
TOTAL ANNUAL TAX COLLECTION IN U.S . $ MILLION
TOTAL ANNUAL TAX COLLECTION
STATISTICS (3/4)
15,798
17,214
18,749
20,377
22,107 21,100 21,707
0
5,000
10,000
15,000
20,000
25,000
2004 2005 2006 2007 2008 2009 2010
GROSS DOMESTIC PRODUCT In U.S. $ million
GROSS DOMESTIC PRODUCT
STATISTICS (4/4)
YEARS TAX BURDEN
2004 12.4%
2005 12.9%
2006 13.7%
2007 14.1%
2008 14.0%
2009 13.4%
2010 14.2%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
2004 2005 2006 2007 2008 2009 2010
TAX BURDEN
TAX BURDEN
PROJECT TPAR SECOND PHASE Actions to be financed:
Assisting the private sector to better understand and comply with tax reforms approved
Update, reconcile and debug the taxpayer's current account
Support the reform of fiscal policy and its effective management
Debugging support for taxpayer registration
Promoting transparent public expenditure
Strengthening public expenditure
Project Amount : $4,000,000.00
To date, the project is in the process of evaluating bids for hiring the firm to develop actions to achieve the objectives.
MORE INTERNACIONAL COOPERATION (1/3)
PROJECT MANAGEMENT SUPPORT TAX- IDB
March 2010 to March 2012 Objective: Supporting Tax Administration in order to reduce evasion and avoidance, providing it with resources. • Project Components Procurement of consulting services, training and procurement of goods • Project Amount: $ 200,000.00, of which $ 120.000 corresponds to DGII and the rest to the Department of Economic and Fiscal Policy
MORE INTERNACIONAL COOPERATION (2/3)
MORE INTERNACIONAL COOPERATION (3/3)
To date we have developed the Terms of Reference for the hiring of consultants and has acquired property for use by the DGII, investing $ 60,131.16 for the purchase of furniture and computer equipment, as follows:
Additionally, the IDB has approved $36.868 used the amount for training staff DGII
PROJECT MANAGEMENT SUPPORT TAX- IDB
ASSETS
ACQUIREDUPS
WAITING
CHAIRS
ROTATING
CHAIRSDESKS
FILING
CABINETSCOMPUTERS PROJECTOR
MATRIX
PRINTER
LASER
PRINTER
QUANTITY 17 30 350 40 55 17 3 2 4
SHORT AND MEDIUM TERM CHALLENGES (1/2)
•Induce more taxpayers to submit tax declarations and reports online
•Debug taxpayer registration and tax declarations and reports
•Expanding the capacity of the Tax Administration to impose sanctions for noncompliance with tax laws
•That the tax authorities a timely and efficient use of information obtained from the new tax reporting
•Renewing and expand computer technology capacity to deal with the new demands and achieve generation capacity of crosses of information with data received from the tax reform.
•Train and upgrade the human resource in the new information technologies, new techniques and audit requirements, as well as attention and service to the taxpayer.
•Debugging and digitize the records of taxpayers
CHALLENGES IN THE SHORT AND MEDIUM TERM (2/2)
CONCLUSION
1. The tax reforms of 2004 and 2009 have been focused mainly at strengthening the capabilities of the DGII to combat tax evasion and avoidance nevertheless yet to take additional measures aimed at improving the use of information flows of the new controls
2. Cooperation provided by agencies such as USAID, IDB and others has helped to implement such reforms.
3. These two factors have reduced the impact of the international economic crisis in the finances of the Salvadoran government, collecting statistics show a tendency to recover pre-crisis levels of 2008
4. The Salvadoran government aims to achieve a tax burden of 17% for 2014, which will require new reform measures and strengthening the administrative capacity of the DGII
5. The cooperation will continue to provide the AID through TPAR project and other international agencies, will have a major role to achieve the goal established
