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Anna S. Kim, Saniya M. Sagiden, Master's Degree
Students
In "Finance" major discipline
Academician E.A. Buketov Karaganda State University 28, Universitetskaya
St., Karaganda, Kazakhstan, 100028
SOME ASPECTS OF IMPLEMENTATION OF THE TAX POLICY FOR SMALL AND MEDIUM
BUSINESS
The Tax policy is a complex of legal actions performed by a government and official authorities
in order to define the targeted applications of the tax laws. This is also
legal provisions for implementation of tax technologies under the regulation,
planning and control of public revenues. Tax policy constitutes a part of the
financial policy. The content and objectives of the tax policy are conditioned
by a socio-economic system of a society and social groups who are in power.
Economically justified tax policy aims to optimize a centralization of funds
through a tax system [1].
The tax policy as a set of scientifically sound and
cost-effective tactical and strategic legal actions of government bodies is
able to provide needs of reproduction and growth of a social wealth. The
default setting for conducting a fiscal policy is not only ensuring a legal
order of tax payments’ collection, but also undertaking a comprehensive
assessment of economic relations formed under an influence of taxation.
Therefore, the tax policy is not automatic execution of tax laws orders, but
their improvement.
Tax policies designed to serve long - term prospects
called a tax strategy; when –a tax tactics serves short term needs. Both,
tactics and strategy, are essential if a government is striving to harmonize
public, corporate and personal economic interests. Often tactical steps, taken
by a leadership of a state for a taxation’s coordination, are not economically
justifiable. This doesn’t only prevent a realization of a tax strategy, but
also distorts an entire economic policy of a state.
An effective tax burden defines and illustrates who
has a burden of a defined tax and, accordingly, who benefits from changes or
reductions of such tax. There is a common well-known principal associated with
a shifting of taxes which states that with an increase of tax rates prices will
rise, and a reduction of those rates will cause in rising profits, i.e. we can
say that prices of goods correlated to raising taxes, but not to reduction of
such taxes.
Optimal taxation is usually evaluated in terms of a
total effect for welfare of the society and from a point of view of benefits to
a particular taxpayer. This effect is determined by the well-known principles
of fairness and certainty of taxation.
One of indicators for applicable optimal taxation
system is a difference between a total mass of private benefits, lost by
taxpayers in a result of an application of the taxation system, and an amount
of common (public) benefits acquired by a society as a whole. Part of this
difference can be evaluated as total expenditures of a state and taxpayers to
maintain a functioning tax system. Other effects, such as moral dissatisfaction
from tax payments, the dissatisfaction of citizens by tax money expenditure
collected from them, etc. can not be quantified and usually are studied as a qualitative
indicators.
In modern conditions, it is not very important, from
whom and in which way and how much taxes are taken, but rather for what
purposes they are spent. Considering the above, it is necessary to introduce a
definition of a net burden (for a society as a whole, for certain categories of
taxpayers and for each taxpayer, or household), which will not be calculated as
a sum of all taxes or as a result of dividing that sum of collected taxes by a
number of taxpayers, but as a difference between a paid taxes by all citizens
and received by citizens of the same state financial assets or other material
benefits.
An assessment of optimal taxation on the basis of
above concept is doubted by what seems to be an "unequivocal"
conclusion that a tax burden of a population is always higher in the state,
where taxation is higher. For example, if in Denmark a share of taxes in GDP
sometimes exceeds 50%, and in Indonesia is usually kept within a limits of 30%,
the conclusion is that the tax burden for all Danes are generally higher than
for Indonesians is mistakable. In fact,
in Denmark up to 2/3 of all collected tax revenue is returned to the population
(in a form of direct social benefits or in a form of provided social and
material benefits), while in Indonesia it is less than ¼ income spent
for the some purposes.
Thus, it is the nature and essence of a tax policy
implemented by a state and its determs whether a tax is a "burden",
an "evil", or as a way to (and to a greater or lesser extent) a
redistribution of wealth and vehicle for financing common needs of a society.
One of main tasks of a state tax policy at present
stage is an establishment of favorable conditions for active financial and
economic activities and a stimulation of an economic growth by achieving an
optimal mix of private and public interests, i.e. the optimal ratio between
funds remaining at a disposal of a taxpayer, and means, which are redistributed
through tax and budgetary mechanisms.
Conditionally there are three
possible types of the tax policy:
First type is a high level of
taxation, i.e. a policy, characterized by the maximum increase of a tax burden.
When choosing this path, there will be inevitably situations, when a rise in a
level of taxation is not accompanied by an increase of revenues in budgets of
various levels.
Second type of the tax policy is a low tax burden,
when a state takes into account not only their own fiscal interests, but
interests of a taxpayer. This policy contributes to a rapid development of an
economy, especially its real sector, as it provides the most favorable tax and
investment climate (a level of taxation is lower than in other countries, is a
wide inflow of foreign investments, including export-oriented ones, and
accordingly increases a level of competitiveness of a national economy). A tax
burden on businesses significantly mitigated, but state social programs
significantly reduced, as budget revenues are declining.
Third type is the tax policy with a significant enough
level of taxation both for corporations and for individuals, which are
compensated for country's citizens by a high level of social protection, an
existence of many of state social guarantees and programs.
For a tax policy of countries, which
have a long-term vision of building the national economy, following
characteristics will apply:
- Clear definition of problems which
are present for a country's economy;
- prioritisation of goals according
to their degree of importance and amount
of efforts in order to achieve
the most important of them;
- conducting an analytical research
and a study on foreign experience of tax reforms, a clear understanding of
economic results, benefits and losses in an implementation of each reform ;
- Assessment of effectiveness of
implementation of such reforms in the past;
- Analysis of available instruments;
- Adjustment policies, taking into
account national specifics and specific moment of time.
Economic reforms carried in our country were
influenced by establishment and development of an entrepreneurship. The
entrepreneurship plays a large role in any economy. Its development impacts on
an economic growth, a saturation of the market by goods of the required
quality, a creation of new additional jobs, which solves many of current
economic and social problems.
In all economically developed countries, a state
provides substantial support for small business. Any entrepreneurial activity
is an independent, proactive and risky activities eligible citizens, aimed at a
systematic receipt of profit (income) legally. These properties make a
development of entrepreneurship to be a significant factor, and an integral
part of economical reforms of Kazakhstan, as well as an essential factor in
reducing the unemployment [1].
A rapid development of small and medium-sized enterprises
in our economy is connected with a fact, that they are not only able to
flexibly adapt to the market, but also actively build a market environment, and
still have certain economic benefits. They can quicker update a production, to
respond to changing market conditions; contribute to an expansion of
employment.
The Message of the President of Kazakhstan to people
of Kazakhstan «Strategy “Kazakhstan-2030” is on the New stage of Kazakhstan's
development» defines 30 major directions of our domestic and foreign policy
with the main priorities of a new stage for comprehensive modernization of
Kazakhstan.
One of the directions is to ensure consistent actions
on supporting small and medium business in the Republic of Kazakhstan. In this
regard the President stressed a necessity of tax legislation’s improvements in
order to enable full stimulation of business a development and facilitation
exiting of business “from a shadow”.
For the period of economic transformation and carrying
out market reforms in Kazakhstan certain experiences were accumulated on use of
market-based instruments in a course of a state regulation. Among many economic
instruments, with the help of which the state influences the market economy, an
important place is occupied by the taxes. Taxes, as well as the whole tax
system, are a powerful tool of economy management in market conditions. On a
correctly build taxation system of depends an effective functioning of the
whole national economy.
Maneuvering tax rates, benefits and penalties,
changing terms of taxations by introducing one and rejecting the other taxes,
the state creates conditions for an accelerated development of certain
manufactures and industries (e.g., agriculture), it also contributes to a
solution of solving social problems. One of such problems at the present stage
is the development of small business. The state should contribute to its
development and support. Forms of such support diverse such as: a creation of
special funds for financing of small enterprises, a simplified and preferential
taxation, an exemption from taxation of profit allocated for construction, a
reconstruction and a renovation of basic production assets, a development of new technologies. In other
cases, the state creates a preferential taxation mode which depends on a kind
of economic activity.
In a regulatory function of the taxes it should be
emphasised, first of all, stimulating a sub-function which is implemented through
a system of exemptions, exceptions, preferences. It shown itself in a change of
taxation, reduction of a tax base, reduction of a tax rate, an exemption from
taxes. Examples of preferences can serve a tax credit and targeted benefits for
financing of investment and innovative costs [3].
In conditions of high tax rates an incorrect or
insufficient consideration of tax factor can lead to very negative
consequences, or even cause a bankruptcy of an enterprise. On the other hand a
proper use of stipulated by the tax legislation benefits and discounts can provide not only safety of financial
savings, but possibilities of financing an expansion of activities, new investments through tax savings or even
due to a return of tax payments from the treasury.
Taxes can stimulate or, on the contrary, limit
business activities, and, consequently, a development of those or other areas
of business activity. They can create preconditions for reducing costs of
production and circulation of private enterprises. With their help it is
possible to raise a competitiveness of enterprises on the world market, pursue
protectionist policies.
Accordingly, in the conditions of a market economy,
the tax policy should encourage effective forms of management, and to stimulate
an inflow of investments and credit resources, create conditions to increase a
level of production and its profitability. At the same time, as it was noted in
previous paragraph, a special problem, is not constructive Kazakhstan's tax
system which limits a qualitative development of small business and its
evolution in the medium-sized business.
At the present time, realization of measures to reduce
a size of the shadow economy is one of the most topical. The major factors that
fuel a viability of shadow business, is overly complicated norms of the Tax
code, and especially those operating taxation regimes. The amendments to the
Tax code have had a positive impact on the business, however, negative
tendencies that are present in small and medium business, compel businessmen
once again raise questions of further liberalization of the tax regime.
Generalized view of the business environment includes the following proposals:
- reduction and simplification of a tax reporting for
more than 50%;
- establishment of two types of the tax regime: a
patent for small businesses, the General regime for medium and large
enterprises;
- reduction of the corporate income tax for
enterprises with normal mode up to 10 % except for companies working with natural resources and in the financial
sector.
This liberalization of the tax legislation will lead
to a significant reduction of the shadow economy, a legalization of small and
medium-sized businesses due to decrease
of costs for tax reporting; simplification of tax administration; diminishing
of corruption pressure; closure of a loophole for using benefits of small
business by medium and large enterprises as its happening today in practice. We believe that such decisions shall
be taken on a basis of deep analysis of a real extent of the shadow economy,
potentials of small and medium-sized businesses, a ratio of possible losses and
received benefits.
One of the important directions in the area of
improving the tax administration is reforming construction principles of tax
control’s system. In particular, Kazakhstan has introduced a risk management
system, an aim of which is to concentrate an attention of the tax authorities
on high-risk areas and to minimize an administrative pressure on bona fide
taxpayers.
Worldwide experts separate a system of tax control
into two types: first is characterized by total tax control, second type is
based on a risk management system.
Almost all developed countries have adopted second
type of the tax control. Reasons are simple and straightforward: a total control,
when fiscal authorities are trying to cover by supervisory activities all
taxpayers, without exception, is the most costly for a state, restricting the
freedom of business, creating a ground for an abuses by supervising bodies.
The risk management system is an effective tool for
implementing a tax control, including
a selection of taxpayers for tax audits. This system is actively used in all
countries of the European Union and other developed countries. Unfortunately,
the current type of the tax control in Kazakhstan has distinct features of a
total tax control system. Due to a lack of appropriate criteria and
methodologies for selection of objects
for tax reviews, this procedure is subject to the influence of the human factor
in decision-making process.
The current tax legislation does not regulate enough a
frequency of and a procedure for conducting tax audits. These circumstances
lead to an inefficient use of resources, both from a side of tax authorities
and taxpayers. In this regard, taking into account the best world practice, the
draft Tax code proposes an introduction of a risk management system. Objectives
for the risk management system’s introduction are to focus the tax authorities
on high-risk areas and ensuring a more effective use of available
resources. Results of using the risk
management system will be a basis for differentiated application of various
forms of tax control to taxpayers. Thus, there will be a legal basis to conduct
tax inspections based on analysis and evaluation of a probability of default
and (or) incomplete fulfillment of tax obligations of a taxpayer.
It is necessary to have in mind, that the sphere of
small business is one of the spheres of business activity, which the least
amenable to tax control. If the financial flows of an organization, which is a
major taxpayer, are always under a scrutiny of tax authorities, and current tax
payments are subject to constant monitoring, in respect of the small enterprise
the tax control may not be such a global and comprehensive nature [4].
The structure of tax revenues in the state budget is
characterized by a fact that the largest part accounts for relatively small
number of organizations that are large taxpayers. At the same time, this
provision does not diminish an importance of a problem of the tax control in
respect of small enterprises: first, small enterprises, accounting for a vast
majority of taxpayers-organizations, play a crucial role in a formation of the
overall level of tax discipline in the country. Secondly, this sphere of
business activity concentrates within itself a huge tax potential, which is, in
a large part, not used at the present time.
As practice shows,
small business’s enterprise are the most vulnerable to tax offences,
including not registering with tax authorities, evading tax reportings,
falsification of accounting data or its complete absence. Straitening of the
tax control in this area will contribute to an additional inflow of tax
revenues to the budget, including inflow from largest taxpayers. Some of larges
taxpayers use complex schemes for tax evasions through a creation of dummy
firms – a small enterprise, through which many billions of tenge taxable profit
are withdrawn by a mechanism of price
manipulation and other schemes.,
Ensuring the rational selection of taxpayers for field
tax audits is a major problem, without solving that problem there is no quality
control in the sphere of small business.
Only an application of the highly efficient system of
selection will allow to ensure a maximum efforts’ concentration of the tax
authorities to audit those categories of taxpayers where a probability of
detecting tax violations seems to be the most real. Considering above, it is
necessary to work on a further improvement of procedures for the selection and
a development of unified software. Its implementation will allow to automate
the process of selection of taxpayers with the most typical deviations levels,
dynamics, and correlations of different reporting indicators from a permissible
for this kind of enterprises limits, to assess a real size of a tax liability
of a particular taxpayer.
Summing up, we should note that the changes introduced
to the Tax code have had a positive impact on the business, however, the
negative tendencies that are present in small and medium business, compel the
businessmen once again raise the questions of a further liberalization of the
tax regime. Generalized view of the business environment includes following
proposals: a reduction and simplification of the tax reporting for more than
50%; an establishment of two types of the tax regime: a patent is for a small
business; the General mode - to medium-sized and large enterprises; a reduction
of a corporate income tax for enterprises up to 10% except companies from the natural
resources and the financial sectors. This liberalization of tax legislation
will lead to a significant reduction of the shadow economy, the legalization of
small and medium-sized businesses, as will decrease a costs of drawing up of
the tax reporting, will simplify a tax administration, will diminish a
corruption pressure.
In addition, one of the most important directions in
the area of improving the tax administration is reforming the construction’s
principles of the tax control system of. In particular, it is necessary to
implement and to have effective functioning system of the risk management in
the area of the tax control in respect of entrepreneurial structures, the aim
of which is to concentrate attention of the tax authorities on high-risk areas
and to minimize an administrative pressure on bona fide taxpayers.
In the forthcoming mid-term period the tax regulation
should be carried out simultaneously in three directions, including measures to
overcome consequences of the global economic and financial crisis, improvement
and enhancement of the state management and planning system to ensure a quick
recovery and further growth of the economy [5].
In order to create a competitive tax system, which
will allow a strengthening the country’s competitiveness, modernization and
diversification of the economy to ensure a sustainable economic growth,
stimulate a competitiveness of business, business revival from the «shadow» and
a further improvement of the tax administration, the main directions of the tax
regulation shall be:
- creation of a competitive tax
system, which will allow to strengthen the country’s competitiveness;
- adjustment of the tax system with tasks of a new stage in development of
Kazakhstan, which should contribute to a modernization and a diversification of
the economy;
- optimization of benefits and,
accordingly, reduction of a tax load on non-primary sector of the economy,
adjusting the taxation of legal entities in accordance with international
standards;
- simplification of administration’s
procedures, improvement of a quality of tax services and a transparency of tax
procedures, reducing an amount of tax reporting, an improved regulation of tax
audits.
The solution of the above-mentioned tasks on tax
regulation’s improvement should
contribute to ensuring a sustainability and a balance of the state budget, a
diversification of the economy, and its rapid industrialization and growth of
processing industries with a high added value; a growth of investments and give
full scope stimulation of business
activity of market subjects.
Thus, the above measures on the tax regulation’s
improvement of entrepreneurial activity allowed building the transparent system
of taxation and tax administration, contributing to the sustainable and
balanced development of the business sector and increase revenues to the
country budget. In addition, tax instruments which influence business
activities should be used in a combination with other instruments of the state
regulation. Only in this case it is possible to obtain a significant multiplier
effect in respect of the development of the entrepreneurial sector and the
economy as a whole.
References:
1. The message of the President
Nursultan Nazarbayev to the people of Kazakhstan «New decade - new economic
growth - new opportunities of Kazakhstan » as of 29.01.2010
2. The message of the President
Nursultan Nazarbayev to the people of Kazakhstan «Let’s build the future
together!» as of 28.01.2011
3. The message of the President
Nursultan Nazarbayev to the people of Kazakhstan «The Socio-economic
modernization - the main vector in a development of Kazakhstan» as of
27.01.2012
4. The Tax Code of the Republic of
Kazakhstan «On taxes and other obligatory payments to the budget». - 2011
5. http: // nalogikz.kz/
6. Atigaeva « the Sheet of appeals by results of
tax checks» // the Bulletin of the bookkeeper 2010