ITD Africa Conference On Taxing Micro And Small Businesses

1. ITD Africa Conference On Taxing Micro And Small Businesses

2. Designing Effective Service and Education Programs for Micro and Small Businesses Parallel Session B Nthako Sekome Lesotho Revenue Authority (LRA)

3. Presentation • Design of taxpayer education programs – Lesson Learnt • Effective ways of reaching small businesses with services & education • Cooperation with private sector institutions and tax consultants • How education programs are extended to reach small businesses; role of local tax offices in delivering services • Measuring effectiveness and SME satisfaction with services and education program provided • Challenges ahead

4. Introduction • Most tax authorities operate the self assessment system which is based on the premises of voluntary tax compliance. This has shifted the burden on the taxpayer • BUT: we know that the level of understanding of complexity of the requirements of tax laws and the level of financial literacy differ significantly between large and small businesses. Need to build bridge to connect tax authorities with taxpayers • The latter being less financially literate and lacking resources for bringing in necessary expertise • This therefore calls for more support from tax administration authorities to dedicate and pay more attention to education to small businesses to bring about improved compliance.

5. Introduction • The Lesotho income tax law is founded on the premise of voluntary compliance and self-assessment for all. • Lesotho does not have special tax regime for SMEs. The country starting to explore options & feasibility to have one. • But practice and treatment take cognizance of existence of SMEs. • Lesotho introduced Self-assessment legislation in 1993 • But implementation only in 2004 after the establishment of the Lesotho Revenue Authority

6. Introduction….. • Implementation done after soliciting views from stakeholders and taxpayers and assessing their readiness • As program rollover, Initial focus was on “widening tax net” and bringing as much as possible taxpayers outside net • Now focus is changing; more efforts and attention on enhancing voluntary compliance (through education) and creation of fair and effective revenue environment” - LRA corporate objectives.

7. Lessons About Design of Taxpayer Education • Simplified laws important but should not be taken as substitutes for meeting small taxpayers’ education needs. Lesotho – introducing practice notes • Education programs to be based on direct and indirect inputs from SMEs: eg queries raised, T/P forums, customer satisfaction surveys, media, etc. • SMEs through their structures want to be partners in the education process and not merely recipients. • Education programs should not be subsumed by general functions like audit and debt management. Taxpayer education should be a prerequisite to these traditional functions. • Educate/support should be priority ---- the rest follow

8. Lessons About Design of Taxpayer Education • Need to have single view of T/P: LRA changed from tax type to functional structure. Taxpayers education were initially subsumed in other functions –audit, Debt. Educations programs haphazard and not coordinated • A wholesale approach (VS phased approach) brought more problems. • Small and Large businesses have different level of understanding – the former least compliant resulting very low rate return filing– more default assessments.

9. Experiences Cooperation with Private Sector • Local associations and clubs are more effective for organising and reaching local SMEs. Lesotho problem dealing many chambers of commerce (4):- but cooperation very good. • In Lesotho tax clinics have been well attended where associations and private sector are stronger. • The LRA is teaming up with banks, chambers of commerce, accounting and auditing bodies and educational institutions. • This has been more successful than the “doing-it-alone” approach.

10. Is There a Role for Private Tax Consultants? • Private sector consultants have a major role to play. • Role should not be any form of “damage limitation” - • Tax consultants must seek to graduate SMEs from ignorant tax evaders to more knowledgeable and empowered persons. • There is a fallacy/myth that empowering SMEs ultimately leads to lost business by tax consultancy. • Consultants are to be more active and accessible so that they undertake advisory service.

11. Is There a Role for Private Tax Consultants? • Lesotho tax consultancy has not seen significant growth and this causes increase requests for extension of time to tax lodge returns including corporates/large businesses. • There is need for tax consultants who will meet the needs of the SMEs such that they are not forced to seek big accounting firms services that charge exorbitant fees thereby turning SMEs away. • In Lesotho there is cooperation with the accounting body to ensure that strategies are in place to assist SMEs while at the same time minimizing the associated costs – signed MOU with LIA and established structures to implements MOU

12. Role of Local Tax Offices in Delivering Services • Lesotho established regional offices- providing all service except audit, collection and investigations {centralized}, efforts mobile tax education to support regional centres • Local tax offices are to learn the specific circumstances of local business and provide feedback to education programs designers, tax administration and policy reformers. • Decentralised tax offices should help in reducing compliance costs, streamlining of business processes and improving filing rate.

13. Role of Local Tax Offices in Delivering Services • Local offices should represent the interests of local business. • They should also be seen to have the requisite mandate and decision making power from headquarters to be effective. Lesotho: upgraded position of head of regional centre to Manager level

14. Ensuring That Education Program Reaches Small Business in the Informal Economy • Small businesses in the informal economy are also intermediaries . • There is therefore, need to target their formal business contacts and transaction partners to enlist their (small business) support. • Taxi operators, for example, can be targeted through filling stations operators and more formally established authorities. • Target various informal associations: In Lesotho strategy to target more common ones - stockvels, Theko Mmoho; • Partnering with Ministries of Trade, Local Government, City Council

15. Effective Ways to Reach Small Taxpayers with Service • Tax administration to be more visible and easily accessible • Public relations initiatives and drives need to be enhanced. • SMEs are more approachable if they know what is taking place within the tax administration. • Lately in Lesotho there is positive change in pubic perception of the revenue authority due to increased PR. • Taxpayer education should be integrated with other needs, eg, need for banking services, licensing requirements. • Forge links with other service providers..

16. Measuring the Effectiveness of Service • Customer satisfaction surveys (CSS) that are professionally and independently conducted are important • In the design of a CSS feedback should be guaranteed in advance. • LRA carries CSSs every three years and feedback of each provided to all internal (staff) and external stakeholders (stakeholders and taxpayers). • Increased interactions with taxpayers and representatives. Lesotho signs MOUs with different sectors. • Monitoring of local media for reduced talk about the tax administration is important.

17. Challenges Ahead • Forging links with relevant stakeholders: {defining clear areas of cooperation without compromising statutory mandate of the tax administration} • Outsourcing education training services: {which functions/areas, can you outsource education? Tax audits? Collection? Investigations?} • Regulating requirements for tax agents/consultants: {should we amend and include provisions to regulate tax agents, what do we stand to gain or loose?}

18. The End Thank You