Risk Based Audit (RBA) is a modern system of automated selection of taxpayers for tax auditing, based on objective risk parameters rather than discretionary selection by individual tax officials. The system has the benefits of reducing corruption, lowering the audit burden on most small and medium enterprises, which carry lower risk profiles, and improves audit efficiency for government revenue agencies. The International Finance Corporation (IFC) has been involved in starting RBA from scratch in Central Asia, and has recently finished the pilot implementation of RBA in Tajikistan. This article outlines the results of this initial pilot.
RBA computer software
The Tajik Tax Committee (TTC), in cooperation with IFC, has developed new computer software for the selection of taxpayers for audit – known as the RBA module.
The TTC studied international practice and selected 18 risk parameters applicable to the business environment in Tajikistan. Fifteen risk parameters, such as the results of previous tax audits and a comparison of the taxpayer’s tax burden against the industry average have been introduced in the RBA module. Another three parameters will be programmed into the software as soon as sufficient tax data for these particular parameters is accumulated in the TTC’s database.
The RBA module identifies tax payers whose information falls outside of the “low risk zone” defined for each indicator and generates a list of potential “high-risk taxpayers” in each taxation period and region. These high-risk businesses are then the focus of audit activity.
Launch of RBA pilot and results
In mid-2013 the Tax Committee launched an RBA pilot project in the city of Dushanbe for a two month period. Forty potentially “high-risk” taxpayers were automatically selected for audit by the RBA software, and thereafter these taxpayers were audited. An analysis of the audit results showed that all risks identified by the RBA software were discovered during the actual audit process, demonstrating a promising analytical basis for expanding the model outside of Dushanbe.
Furthermore, over 12.5 million Tajik somoni (US$ 2.6 million) were assessed as a result of the tax audits selected by the RBA system. These are revenues for the Tajik government that would not otherwise have been collected, and came from genuine non-compliant tax payers. Six of the 40 companies identified by the computer were flagged as potentially fictitious firms (paper-based companies), this was confirmed during audit.
Nationwide risk based audits: thanks to the successful completion of the RBA pilot project, from 2014 the RBA will be implemented on a nationwide basis. In the first two quarters of 2014 50% of taxpayers audited will have been selected by RBA software. This figure will rise to 80% in the latter half of 2014.
Trainings: all tax auditors will be trained by the Tajik Tax Committee on RBA functionality and risk based audit techniques.
Outreach to private sector: information leaflets for taxpayers will explain the RBA principle of impartiality: that impartial software analysis of taxpayer data ensures that high-risk taxpayers cannot use personal connections or other illegal methods to avoid their tax commitments.
A.Soliev, First Deputy Chairman of Tajik Tax Committee, said:
Considering that the resources of the Tajik Tax Committee are very limited, the implementation of the RBA will increase our efficiency in using those resources and will reduce the administrative burden on compliant taxpayers.