February, 2014 - One of the keys to improving a country's business environment is easing red tape and reducing regulatory hurdles. In Tajikistan, where tax administration is one of the most challenging regulatory areas for entrepreneurs, the government has taken a big step forward with a new IFC-backed approach to tax auditing.
The Tajik Tax Committee recently launched a nationwide roll-out of risk-based audits (RBA), replacing manual selection of audit planning with computer-driven selection based on taxpayer data. The new system will reduce corruption and the audit burden on SMEs and increase efficiency for the tax committee.
“Considering that the resources of the Tajik Tax Committee are very limited, the implementation of this risk-based auditing system will increase efficiency substantially, and reduce the administrative burden on compliant taxpayers,” said Ayobjon Soliev, First Deputy Chairman of Tajik Tax Committee.
IFC provided comprehensive support throughout the process from the design of the methodology, to software development and capacity building. A pilot of the RBA system, which is the tax committee’s first integrated IT tool, was launched in Dushanbe, the Tajik capital, in late 2013, and provided persuasive evidence for expanding the model further.
“Risk-based audits are a key element of tax administration reform and will have a strong impact on reducing tax compliance costs for SMEs while increasing tax collections to the state budget,” said Christopher Miller, IFC Country Officer in Tajikistan. “Freed from the uncertainty of abusive audits, SMEs will be better prepared to invest, grow, and create jobs.”
Over $2.6 million in fines have been assessed as a result of the audits selected by the RBA system during the pilot period. These are revenues the Tajik government would not have otherwise collected, and come from genuine non-compliant tax payers.
The IFC Central Asia Tax Project, part of a regional Investment Climate Program funded by the , was the first to introduce this tax audit approach in Central Asia and has been involved in developing the risk-based system since the beginning. In the Kyrgyz Republic, IFC rolled out risk-based audits throughout the country; RBA is now used nationwide by the Kyrgyz State Tax Service.
The next step in Tajikistan is to ensure that the RBA reform is implemented properly by continuing to support the tax committee in training officials, raising awareness in the private sector, and handing over the RBA software and user’s guide to the committee.
The IFC Investment Climate Program was made possible with financial support from the government of Switzerland and the United Kingdom’s Department for International Development (DFID).