Customs and tax departments integrate to ‘improve transparency’

Trans. by B.DULGUUN

Deputy Minister of Finance S.Purev has been working as acting head of the recently integrated General Customs and Taxation Office. He gave an interview explaining why the two organizations had to integrate and how it will impact Mongolia. 

Some people criticized that merging the General Customs Office with the General Department of Taxation is a “policy mistake”. Why were these two organizations integrated?

These two organizations have been operating separately for many years. There are various reasons for the integration of the General Customs Office and General Department of Taxation.
Mongolia has been carrying out large economic reforms and changes lately. The first step to recover the Mongolian economy and ensure transparency is to maintain a consistent registration control system. The state renewed the Value-added Tax Law to register and control all sales of products in Mongolia.
We’ve been running with one hell of a cycle, in which tax departments chased after businesses that continuously concealed their documents. Authorities realized that the system was defective and decided it was best to study international standards and have the public participate in operations. The law was amended to improve registration and accounting together with the public.
The public pays two different types of taxes. First is the 10 percent income tax and the other is the 10 percent sales tax that people pay when purchasing goods. The public pays 10 percent of tax in the form of VAT. VAT is a more developed and refined form of a sales tax. Over 120 countries charge sales taxes through VAT. Each organization used to deduct taxes and control tax payments before, but now, individuals can register their receipts online and notify that they paid sales taxes. The new system is a way to prevent fraud. Using the new system is the same as saying that you want the tax you paid to be used better, such as for improving kindergartens and schools. In this sense, I hope that everyone cooperates and registers their receipts from procurement and services. We will not ignore peoples’ efforts. In a way, we’re having people work and monitor the taxation system. This means that Mongolia’s three million people have become tax inspectors. We used to have 1,800 tax inspectors, but now, they’ve increased to three million tax inspectors. It’s only right to reward and provide salary to our three million inspectors. The state will refund two percent of the original 10 percent tax they paid.  I’m only speaking about the basics. Cooperating like this is mutually beneficial to the state and public.
First of all, individuals will fulfill their role to register their bills. Secondly, this will help families account their household income and expenses. Your purchases are categorized on the website ebarim.mn, so it will be easy to analyze how much you spend on utility, food and other expenses. The website is very useful for entities as well. Accountants and even directors have a hard time if a company keeps concealing things. This situation has been ongoing for years and years. Assets worth 9.1 trillion MNT was revealed through the Transparency Law.

Lawmakers initially planned to make seven to eight trillion MNT transparent, right?

That’s exactly what we’re trying to do – make assets transparent. It’s wrong to keep things hidden. We’re living in the 21st century. The nation should develop. Whether the state is able of collecting taxes or not is an important indicator of state’s capacity and competence. The Mongolian government ranks quite low if we look at it from this side. The underground economy makes up 40 percent of the entire economy. Around 60 percent of the 9.1 trillion MNT that has become transparent is VAT. In other words, taxes paid by the public weren’t deposited to the state budget. We have to work together with the public. It would’ve been impossible to make this much money transparent even if we had doubled the number of national tax inspectors.
The underlying outcome of joining hands with the public is extremely significant for creating a healthy society. It was necessary to improve the structure to implement the new systematic change. Accounting and database are gradually becoming one. Every operation, starting from the first customs tax payment until the final sale, has been put under an integrated control so an integrated organization must register and account everything. Therefore, the General Customs and Taxation Office was established for this reason.

Does that mean receipts will contribute greatly on the control mechanism of tax payments?

Let me tell you an example. A fellow imported 100 car wheels, but sold 200 wheels. This happened because the number was misreported at the customs. The fellow imported 200 wheels but negotiated with a customs officer and had only half of his goods registered. This isn’t a secret. However, the public will reveal that the fellow had actually sold 200 wheels by registering their receipts.
Customs is a large organization that contributes greatly to the state budget revenue. Most people believe that the Customs Office is solely related to money. This isn’t true. In fact, it plays a major role in maintaining national security. Customs are responsible of not letting goods of national value out of the country and not letting bad things into the country. Customs officers can now concentrate on doing their real job since the Tax Office will take care of issues related to revenue.

Did the General Customs Office and the General Department of Taxation have separate databases?

They didn’t have an integrated database and used to make decisions separately. They will operate as a single organization and make decisions together based on an integrated database from now on. Most recently, Portugal integrated its customs and taxation offices. So did Poland and Slovakia. This has become a global trend.

What kind of structure will the General Customs and Taxation Office have? Will the structural change apply only at administrative level?

Yes, the change will apply to the administrative level only. Once an integrated database is made, decisions will be issued and all operations will be regulated accordingly. All border points are working normally and so are tax departments. As the two organizations are being united, we will decrease the number of employees to some extent.

Is it true that around 120 people will be laid off?

Around 120 people will be laid off from customs and taxation departments. This will pertain to those who are on leave due to poor health and those retiring. Around a hundred people will be laid off from each level if we consider all the posts that will overlap as the two departments join together.

How many civil servants work at customs and taxation departments?

In total, approximately 3,200 people are working at customs and taxation departments. Mongolian businesses and organizations have to report their revenue according to the law. Yet, they have to be inspected every two years, meaning that the two sides don’t trust one another. The General Department of Taxation has to inspect because there isn’t an integrated database. Lack of information is causing mistrust. There will be no need for an additional inspection every two years if the database is developed and improved. We could prolong the regular inspection by five to 10 years if submitted reports and information are always truthful.

Are residents outside of the capital registering their receipts? Have special receipts with QR codes been distributed to soums and smaller administrative units?

Radios and televisions are promoting and reminding people to take their receipts. Every tax department is taking various measures to promote, raise awareness, and help the public understand the new Law on VAT. The law became effective on January 1, 2016. Some entities failed to make necessary preparations. This is understandable. The law specified that businesses must have a printing machine or a similar equipment, and are obliged to give out receipts to customers. Every customer has the right to demand a receipt for their purchase or service. Increasing awareness and regulation of the law’s enforcement have become the main focuses of tax departments.
Provincial tax departments are organizing trainings and workshops in their local areas. Things should stabilize soon. We’re taking many technical measures so shops and stores just need to get a printing machine. It doesn’t have to be a cash machine. The software has been distributed for free. Any organization can visit ebarimt.mn and download the software. They have to connect their printing machine with our system through the internet and send their information within three days.
I’ve signed an agreement with G-Mobile Company, enabling G-Mobile users to send their QR codes via mobile for free. Other cellular network companies have also proposed to cooperate in this manner. Businesses and customers are all very interested in this and are participating actively.

Some observers say that issues related to cash machines should have been regulated before the law became effective. Others are uncertain if it is necessary to demand a receipt for purchasing a loaf of bread. Can you comment on this?

In the past, customers used to get a receipt for purchasing a loaf of bread. We’re not making up new things. All we did was include tax details to the things we used to do before. It’s wrong to cause damage or loss to the public. Receipts must be handed to every customer no matter where or what they purchase. People shouldn’t criticize because this is what’s written in the law. Even if there isn’t VAT or a lottery, customers’ rights should be protected and receipts should be given to them. Now that receipts have become relevant to taxes, people are starting to say all sorts of things. The General Customs and Taxation Office will put strict requirements to enforce the law.

Source: Daily Newspaper

Short URL: http://ubpost.mongolnews.mn/?p=18089

Posted by on Jan 27 2016. Filed under Prime Interview. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

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