OBJECTIVE OF VAT AND ITS IMPLEMENTATION AND FUTURE TRENDS One. Introduction Two. Ob ecti!

e "nd i#$%e#ent"tion o& VAT 2.1. Ob ecti!e "nd A''u#$tion o& introducin( VAT 2.2. Le("% &r"#ewor) o& VAT 2.3. Ad#ini'tr"tion o& VAT "nd Current 'itu"tion 2.3.1. Tax basis 2.3.2. Taxpayer 2.3.3. Rates 2.3.4. VAT revenue and refund 2.3.5. Revenue raising capacity of VAT in Mongolia 2.3. . !o""on offences occurring during i"ple"entation of VAT la# T*ree. Intern"tion"% trend o& VAT "nd di'tincti!e &e"ture' 3.1. Australia 3.2. $ndonesia 3.3. %a&a'(stan 3.4. !anada 3.5. Russian )ederation 3. . Republic of !(ina 3.*. !(ile 3.+. ,-A Four. Are"' &or &urt*er en*"nce#ent o& VAT '+'te# "nd reco##end"tion' 4.1. Modification of VAT legislation 4.1.1.Registration of VAT taxpayers 4.1.2. $"position and .xe"ption of VAT 1

4.1.3. !ollection of VAT/ 0verpay"ent and Refunds 4.2. Ad"inistrative and !ontrolling syste" of Tax ad"inistration Fi!e.A$$endice'

LIST OF ACRON,MS

..0 1 A23 1 43 1 526 1 4T0 1 VAT 1 $M) 1 0.!21 ,-A$2 1 7$!A 1 %0$!A 1

.cono"ic entity and organi&ation Asian 2evelop"ent 3an' 4orld 3an' 5ross 2o"estic 6roduct 4orld Trade 0rgani&ation Value Added Tax $nternational Monetary )und 0rgani&ation for .cono"ic !ooperation and 2evelop"ent ,nited -tates Agency for $nternational 2evelop"ent 7apan $nternational !ooperation Agency %orean $nternational !ooperation Agency

LIST OF TABLES

Table11 8u"ber of VAT taxpayers Table 12 !o"parative a"ount of !$T taxable sales and VAT taxable sales

Table 13 Table 14 Table 15 Table 1 Table 1*.

VAT revenue and nu"ber of VAT taxpayers VAT revenue/ refund and ot(er ratios -ub"ission rate of return and -(are of 9:; return -u""ary of VAT return for 2<<+12<1< Revenue raising capability of VAT/ co"parable figures

One. Introduction A"ong taxes introduced in Mongolia/ VAT is a 9uni=ue; tax assessed as 9being structured in line #it( international standards and #ell1ad"inistered #it( satisfactory level of co"pliance; by international organi&ations including $M)1/ 4orld 3an'/ A23/ %0$!A2of Republic of %orea/ ,-A$23 of t(e ,-A/ and 7$!A4of 7apan. T(e VAT1 perceived as t(e "ost reliable and stable source of budget revenue/ neutral #it( less distortions to econo"y/ broad based/ #it( lo#er collection cost/ bringing underground econo"y into tax net/ and co"patible #it( international trends1 (as been adopted in Mongolia for 13 years and already proved to be 9superior; stay generating govern"ent revenue. Along #it( nu"erous earlier revie#s/ studies and esti"ations on t(is tax contributing 2<135 percent of t(e budget revenue in Mongolia/ t(ere are a variety of reco""endations and initiatives to#ards assessing its negative and positive associations and en(ancing it in t(e furt(er. T(e principal goal of any tax lies in generating govern"ent revenue #it(out causing distortions to econo"y and serving as an instru"ent of t(e state to "anage fair "ar'et. 2espite VAT satisfactorily fulfils its suc( a principal goal/ t(ere are continued efforts and initiatives to#ards replacing VAT #it( alternative options of indirect taxes/ reducing refunds and annulling registration t(res(old. As adoption of a ne# tax/ its a"end"ent and revision i"plies (uge costs besides its direct negative i"pact to econo"y/ any proposals or initiatives associated t(ere#it( s(ould be disclosed for public foru" or debate only after careful studies are carried out at t(eoretical/ =uantitive analysis and researc( level fro" perspectives of its legal fra"e#or'/ i"ple"entation approac(/ econo"ical and socialconse=uences to citi&ens> liveli(ood. 4it(in t(e fra"e#or' of 9Mining sector institutional streng(tening tec(nical assistance pro?ect; funded by t(e 4orld 3an'/ t(e present reco""endation is prepared #it( an ai" to assessing t(e VAT syste" in Mongolia/ co"paring it #it( alternative for"s of indirect taxes/ identifying #ays of
1

7o(n 3rondolo/ Ron McMorran/ Robin Adair/ 1@@@/ MongoliaA $"proving t(e design and ad"inistration of t(e VAT $M)14orld 3an' 2 7in %#on Byun/ 2<<3/ Tax Audit in Mongolian Tax Ad"inistrationA -o"e Reco""endations #it( reference to %orean Tax Ad"inistration %orea $nstitute of 6ublic )inance -eoul/ -out( %orea 3 Rup(%(ad'a/ 2<<4/ $"pact of t(e Mongolian tax regi"eon t(e country>s co"petitiveness/ ,-A$2 4 Cos(inobu4atabe/ 2<<5/ .stablis("ent of tax education syste"/ 7$!A

a"eliorating t(e syste" in line #it( expansion of current econo"y and develop"ent of "ining sector and(ence providing furt(er proposals and reco""endations. T(e present reco""endation intends to ensure effective use of VAT in its classic designt(ereby bettering its i"ple"entation t(roug( appropriate a"end"ents to t(e VAT legislation currently in place/ raising budget revenue/ cutting collection costand in particular/drasticallyreducing offences and disputes rise a"ong tax aut(orities and taxpayers. Two. Ob ecti!e "nd i#$%e#ent"tion o& VAT -... Ob ecti!e "nd "''u#$tion o& introducin( VAT 6ro?ect on introducing VAT in Mongolia is an apparent evidence of continued assistance fro" international organi&ations and donor co""unities extended since a period #(en Mongolia e"bar'ed on transition to "ar'et1oriented econo"y. $M) and 4orld 3an' "ission and experts assigned to Mongolia since 1@@5 (ad repeatedly reco""ended to introduce VAT replacing 9sales tax; and (ig(lig(ted i"portance of t(is "easure on tig(tening budget deficit and streng(tening overall taxation syste". T(us t(e pro?ect on adoption of VAT co""enced in 1@@* #it( t(e 4orld 3an' funding #(ere t(e $M) experts for"ulated a draft la# and its i"ple"entation plan. Accordingly/ t(e VAT la# #as approved on 7anuary < / 1@@+ effective fro" t(e 1st of 7uly of t(at year. 4(en t(e VAT la# #as first developed on 8e#1Dealand "odel #it( registration t(res(old of 15 "illion tugrugs and rates of < and 1< percent/ it #as assu"ed to register +<<11<<< taxpayers for VAT and collect 5<1 < billion tugrugs annually to t(e state budget. )urt(er increase of t(is a"ount fro" year to year #as also pro?ected. 8o substantial price boost #as presu"ed because t(e VAT si"ply replaced sales tax.2ata of first fe# "ont(s of introduction indicated t(at price increase index re"ained at t(e sa"e level of t(e preceding "ont(s. 4it( effectiveness of t(e la# t(e price increase i"pact "ig(t (ave absorbed in earlier "ont(s. $t #as also e"p(asi&ed t(at adoption of VAT #ould bring taxation syste" of Mongolia closer to international standards t(ereby giving rise to a variety of positive i"plications to foreign investors/ export1oriented production and foreign trade. $t #as furt(er"ore anticipated t(att(e ta'e1up of an invoice1based VAT #ould facilitate ad"inistrative i"prove"ent in i"position and collection of inco"e taxes and create a ne# source of infor"ation to t(e t(ird party infor"ation syste".

Moreover t(ere #ere expectations to#ards en(ance"ent of t(e tax ad"inistration infor"ation syste" and infor"ation tec(nology level/ and develop"ent of ne# applications and ne# "odules of t(e integrated database. $t #as (ig(lig(ted t(at in case of indirect taxes/ delivering various training and a#areness progra"s to taxpayers and i"proving tax staff co"petencies #ould greatly contribute to reducing collection cost and restricting tax avoidance. -.-. Le("% &r"#ewor) o& VAT As for legal environ"ent t(e VAT is one of t(e "ost 9c(angeable; taxes in Mongolia. -ince its effectiveness t(e VAT (ave been sub?ect to a"end"ents for 31 ti"es in addition to separate 2 independant la#s approved #it( regard to exe"ption fro" VAT. T(e first a"end"ent to t(e VAT la# occurred on August 2+/ 1@@+ in its 5+ t( days of effectiveness #(ere t(e rate #as raised to 13 percent along #it( abolis("ent of nu"erious exe"ptions. T(ese c(anges #ere legali&ed to be effective in t(ree daysof t(eir approval. T(ereafter t(e rate #as raised again to 15 percent by t(e la# dated on 8ove"ber 1*/ 2<<< and t(en reduced to 1< percent by t(e revised la# of 7une 2@/ 2<< . T(e registration t(res(old #as decreased to 1< "illion by t(e la# of 7une 2@/ 2<<1. T(e "ost of t(e a"end"ents #ere associated to exe"ption. 2ue to abundant independant la#s adopted in isolation of t(e VAT la#/ t(e significant a"biguitiesarose because of t(eir inconsistencies #it( t(e VAT la#. T(ese separate la#s t(erefore #ere repealed in confor"ity #it( t(e revised VAT la# of 7une 2@/ 2<< / and currently t(ere still exists 1< separate la#s on 9exe"ption fro" VAT; valid (o#ever. As stipulated in t(e VAT la#/ t(e 96rocedure for offsetting excess credits/ paying refunds and recording in accounting records; approved by t(e resolution of t(e Minister of )inanceand t(e 96rocedure for registration and deregistration for VAT;approved by t(e resolution of t(e 2irector 5eneral of t(e 5eneral 2epart"ent of Taxation are t(e 'ey regulations currently effective registered ina list of publicly binding regulations. T(ere are 2 effective co""entaries of t(e -upre"e court on interpretation of so"e provisions of t(e VAT la#.)or VAT/ a nu"ber of basic for"s and record'eeping docu"ents are available including application for registration for VAT/ VAT return for"/ VAT invoice EVAT special invoice 5F/ -ales boo'/

A special invoice issued for purpose of providing VAT exe"ption to pro?ects i"ple"ented #it(in funding of foreign aid and loan

6urc(ases boo'/ !usto"s declaration on i"ports and exports/ Act for" to validate VAT excess credit/ and VAT certificate. -./.Ad#ini'tr"tion o& VAT "nd Current 'itu"tion 2.3.1. Tax basis ,nder t(e general principle of VAT/ t(e tax is applied to "ost goods and services #it( exclusion of s"all variety of exe"pt goods and services to prevent fro" its negative i"pact to living standards and "ini"i&e regressive effect of taxes. All goods and services sub?ect to exe"ption under current VAT legislation of Mongolia and t(us resulting to narro# t(e tax basis in(erit reasonable ?ustifications based on afore1"entioned principle. )or instance/ Taxing s"all traders/ "anufacturers of agricultural products/ (erders or far"ers (as no considerable i"pact on boosting tax revenue/ rat(er it creates ad"inistrative co"plication or cost to t(e tax ad"inistration to (andle #it( t(e". T(e "ost countries set G turnover t(res(old to exe"pt t(ose #(o are belo# t(is t(res(old fro" VAT. .nlarge"ent of VAT taxpayers #ill give rise to gro#t( in VAT credit on inputs/ overpay"ent and refund rat(er t(an raising budget revenue. $M) "ission analy&ed i"ple"entation of VAT in Mongolia E1@@@F and considered it appropriate to set registration t(res(old at 15 "illion tugrugs and accordingly reco""ended to 'eep it indexing in line #it( furt(er capacity strengt(ening of tax ad"inistration/ econo"ic gro#t(/ and taxpayers> business activities. 8or"ally exe"ption is granted to public #elfare services including (ealt(/ educational/ public transportation/ religious/ govern"ent ad"inistrative services/ rent of acco""odation in residential building/ special purpose appliances for t(e (andicapped/ i"ported "ac(inery and e=uip"ent for s"all and "ediu" si&e enterprises/ and appliances for need of t(e defence etc/ since taxing t(e" #ill in turn exert pressure on budget. Hevying VAT on govern"ent services #ill not only contradict to social policy but also increase budget expenditure t(ereby creating excess tax burden. 2ue to ad"inistrative co"plexity of deter"ining value added taxable sales of financial services including ban'ing/ insurance and securities/ t(e exe"ptions are given for VAT purposes. 0ne reason certainly (inges on t(e c(aracteristics of t(e financial products/ #(ic( allo# t(e ob?ect of t(e transactions itself to undergo t(roug( "ulti1stage and condition reali&ed on long1ter" basis/ and liable for

7o(n 3rondolo/ Ron McMorran/ Robin Adair/ 1@@@/ MongoliaA $"proving t(e design and ad"inistration of t(e VAT$M)14orld 3an'

unfeasibility/ and t(us re=uire "ore variety of regulations t(an t(ose arranged for VAT i"position purposes !ivil aviation aircraft/ its spare parts/ services provided by tourist co"panies/ goods boug(t t(roug( grant and (u"anitarian aid are nor"ally exe"pt in accordance #it( $nternational treaties or conventions/ or co""only adopted practices. Dero rating is co""only applied to diplo"atic "issions and consular offices/ exports of goods and services/ and services rendered overseas etc. 2espite of t(ose exe"ptions in place/ VAT is considered as broad1based in ter"s of tax base. 0n t(e ot(er (and/ a person entitled to VAT exe"ption is considered as a final consu"er or end1 user. )or instance/ ban'ing services are VAT exe"pt #(ere t(e ban' does not c(arge VAT on its services #(ile it pays VAT Einput1taxed activityF on all inputs or purc(ases Eelectricity/ (eating/ teleco""unication/ internet/ office rent/ e=uip"ent/ soft#are etcF. T(us as final consu"ers/ individuals/ legal entities and s"all traders/ #(o are sub?ect to VAT exe"ption (ave no conse=uences of narro#ing VAT base/ but t(ey ulti"ately pay taxes as 9VAT taxpayer in a real sense;. 2.3.2.Taxpayer As of beginning of 2<<1 t(ere are totally 1435+ VAT taxpayers. $t #ort(s dee"ing t(at taxpayers registered for VAT are #it((olding agents obligated to c(arge VAT on consu"ers and subse=uently re"it to t(e budget. $n contrast/ all consu"ers/ individuals and legal entities i"porting goods and products bear incidence of t(is tax burden by being taxed on t(eir consu"ption. 0n t(at account/ #e (ave to understand t(e nu"ber of taxpayers not in a sense of t(ose actually paying taxes/ but in a sense of t(ose #it(olding agents i"posing and re"itting VAT under supervision of tax aut(orities/ issuing VAT invoice/ entitled to clai"ing for VAT on t(eir purc(ases and receiving refunds. T(e basic c(aracteristics of VAT is t(at VAT taxpayers registered #it( t(e tax aut(orities eli"inate incidence of VAT burden by re"itting to t(e budget only t(e net of VAT c(arged on t(eir sales and VAT paid on t(eir purc(ases and i"ports. T(erefore t(e nu"ber of VAT taxpayers s(ould be understood as nu"ber of #it(olding agents of t(e tax ad"inistration. As of 2<1< end t(ere are +334* legal entities and branc(es registered as taxpayers #it( t(e tax ad"inistration. $f exclude budgetary organi&ations/ religious organi&ations/ branc(es/ per"anent establis("ents/ and public or non1govern"ent organi&ations/ t(ere 2232 taxpayers "ig(t potentially register for VAT.

Table -1. Number of VAT taxpayers 8u"ber of registered legal entities/ branc(es and per"anent establis("ents 1 45@@1 52323 5+*@4 *245 *4 33 +334* !onsisting .cono"ic entity 2 3<4<1 345<< 4<@<@ 4+5@2 52+4 2232 8u"ber of !$T filers 3 2**4 3<5*@ 34+*5 42@43 4 3+1 55535 VAT taxpayers 4 55*3 13+ * 3 @*@3 11+2< 1435+ -(are in total nu"ber of econo"ic entity 5 1+.33 1*.*@ 1+. * 2<.15 22.3* 23.<*

)inancial year

-(are in total nu"ber of taxpayers filed !$T return

2<<5 2<< 2<<* 2<<+ 2<<@ 2<1<

2<.<@ 2<.<* 21.@< 22.+< 25.4+ 25.+5

Source: GDT statistical data, 2 11 A total nu"ber of 1435+ VAT taxpayers by end of 2<1< represents 23.<* percent of total econo"ic entities liable for registration/ and 25.@ percent of econo"ic entities filed !orporate inco"e tax E!$TF return. T(at is/ one out of every four entities declaring t(eir business operation to t(e tax ad"inistration is a VAT #it((olding agent. T(e re"aining entities (ave no business operation conducted/ or #it( annual sales belo# 1< "illion tugrugs/ or carry on VAT exe"pt activities. $n a real sense t(ey are t(e persons paying VAT to VAT agents. T(e total sales reflected in VAT return su""ary gre# fro" *5 percent of total sales in !$T return in 2<<5 to @4. percent in 2<<@. T(is indicates t(at @4. percent of total sales of t(ose entities registered #it( t(e tax ad"inistration are sub?ected to VAT t(roug( a fe#er nu"ber of VAT taxpayers. Bo#ever/ due to VAT exe"ption provided to "ining products Einter"ediateInot finalF on second (alf of 2<<@/ t(is figure declined by 11.*5 percent in 2<1< co"pared to t(e preceding year. Table -2 !omparati"e amou#t of !$T taxable sales a#d VAT taxable sales
Et(ousand tugrugsF

Cear

Total sales in !$T return

Total sales in VAT return / 3/1<+/5* /<<+.*< 4/3@5/4 +/2+ .+< / 45/<3 /131.<< @/3<1/<<4/1*4. < 1</11@/*34/22@.2< 13/32*/522/1+5.<< 3I2 *4.@< *@.2* +4.*3 +*.2* @4.3 +2. 1

6ercentage $ncrease 1 4.3* 5.4 2.55 *.<+ 111.*5

. 2<<5 4/15</35@/<22.< 5/545/1@+/551.< 2<< */+43/<51/252.< 2<<* 1</ 5*/3*1/*<5.< 2<<+ 2<<@ 1</*24/@3+/442.< 1 /133/24*/+<2.* 2<1< Source: GDT statistical data, 2 11

T(ere is al"ost no #ay to re"ain unregistered for VAT as t(e tax ad"inistration conducts/ on =uarterly basis/ a survey on taxpayers #it( sales of "ore t(an 1< "illion tugrugs on t(eir !$T return. $n particular/ t(ose #(o (ave accurately declared t(eir sales and type of operation #ill obviously beco"e liable to register for VAT. Voluntary registration for VAT is an open option. $f loo' at t(ose registered on voluntary basis t(ere are fe# legal entities #it( foreign invest"ent invested t#o "illion ,-2 or over. T(ere are occurences #(ere a person registered for VAT for one1ti"e sale of fixed assets and goods/ or reali&ation of turnover "ore t(an 1< "illion tugrugs fro" consultancy operation. $n addition/ t(ere are a fe# nu"ber of entities #it( large purc(ases or i"ports despite of (aving no sales. T(ose taxpayers nor"ally file VAT return #it( excess credit results and t(us are entitled to clai"ing for refunds or offsetting overpay"ent against ot(er tax liabilities. A"ong t(e" t(ere are persons engaged in "ineral exploration. 0ption for group registration is available under VAT la#/ (o#ever t(ere is currently only one taxpayer registered on a group basis. T(ere are around 5< individuals registered for VAT/ but t(is nu"ber re"ains not increased over t(e years. T(is nu"ber is too s"all co"pared to 2+<<< individuals currently run t(eir business as sole1 proprietors(ips. Table -% VAT re"e#ue a#d #umber of VAT taxpayers

Source: Statistical data of t&e 'iscal policy departme#t, ()', 2 11

10

2.3.3. Rates $nitially Mongolia introduced VAT at 1< percent #(ic( gradually increased to 13 and 15 percent/ and t(en reduced to 1< percent starting fro" 7anuary 1/ 2<<*. 1< percent is si"ple to esti"ate and si"ilar if co"pared #it( VAT rates of regional countries. )or indirect tax it is t(e "ost opti"al rate. -candinavian countries i"pose VAT at 25 percent #(ile .uropean ot(er countries i"pose at 1*12< percent/ 1< percent on an average in Asia/ and 1511+ percent in Hatin A"erican countries. VAT rate only in -ingapore E* percentF and 7apan E5 percentF is lo#er t(an t(at in our country/ but t(ey (ave gradually been raising t(is rate. A"ong all countries adopted VAT t(e single rate syste" do"inates. Hi'e#ise/ Mongolia is considered as (aving a single rate of 1< percent. Dero1rate for exports is not for"ally included in a rate sc(edule. 2.3.4.VAT revenue and refunds -tatistical data of t(e last decadede"onstrates t(at VAT accounts for 1*133 percent of total tax revenue/ #(ic( is about 14122 percent of t(e total budget revenue. T(is level is relatively (ig( co"pared to level of countries #it( si"ilar rate of VAT. 4(ereas royalty fro" "ineral resources and corporate inco"e taxes are directly dependant on #orld "ar'et price of 'ey export products of Mongolia and econo"ic do#nfall/ t(e VAT e"ployes relatively incessantand regular c(aracteristics. 2ata in above table13 points up increasing trend of VAT revenue fro" year to years #(ile 2<<* and 2<<@ #itnessed decline due to reduction of VAT rate fro" 15 to 1< percent and due to VAT exe"ption of "ining products and econo"ic do#nturn experienced in 2<<@.

Table-* VAT re"e#ue, refu#d a#d ot&er ratios VAT revenue E2o"esti cK$"port sF
5
* 21+. 1<41@3.+ 11+ ++.2 121+*<. 1 3<+<.3 1+1 34.1 32<<.< 5+<<.< @*<<.< 11@<< 312 <.5 4*11<.2 25. 2@.4 2+.@ 2+.+ 3<.5 3<.5

+millio# tu,ru,sRatios VAT refund s Tax revenueI 526

5I1

Cear

5ross 2o"estic 6roductJ

2
1/<1+/++5.* 1/115/ 41.4 1/24</*+ .+ 1/4 1/1 @.2 1/@1</++<.@ 2/2 /5<5.5

3udget revenue

Tax revenue

VATI 526
5I2
*.4+ @.34 @.5* +.34 +.53 +.<1

VATI Tax revenu e

5I4
2@.24 31.*5 33.<4 2+.@5 2*.@* 2 .24

VAT refundsI VAT revenue

I5
4.2< 5.5* +.1* @.* 1@.1* 25.@4

1
2<<< 2<<1 2<<2 2<<3 2<<4 2<<5

3
34 /2<5.2 42@/@51.4 4 @/*4+. 545/22*.1 *< /2@2.+ +32/5+4.*

4
2 </ 4<.+ 32+/2<3.2 35@/1*@.2 42</@ @.2 5+3/11@.< @2/2< .5

11

2<< 2<<* 2<<+ 2<<@ 2<1<

3/*15/<<<.< 5/4 4/3<<.< /13</3<<.< /*<1/@<<.< */1*1/4<<.<

1/354/<@+.< 1/+55/@ 3. 2/151/<4@.+ 2/<3</2+ . 2/* */5<+.<

1/12+/14<. 1/5<2/3<@. 1/+@</+@ . 1/ @*/*35.4 2/41*/14+.<

2412+2. 2 5<51.2 3 +<4@.4 325@5 .4 5*@122.

4 1 *.5 41+4*.+ 5@*+<.+ *@25*.@ 514<*

3<.4 2*.5 3<.+ 25.3 33.*

.4@ 4.+5 .<< 4.+ +.<+

21.3@ 1*. 4 1@.4 1@.2< 23.@

1@.13 15.*@ 1 .24 24.32 +.++

Source: ....iltod.,o".m#, 'iscal /olicy Departme#t, ()', 2 11 0GD/ at curre#t prices

Ratio of 526 at current prices to total tax revenue and VAT revenue is relatively (ig( co"pared to ot(er countries. Tax burden is co"puted by relation of total tax revenue to t(e 526 at current prices. 4it( exclusive of -ocial insurance pre"iu"/ t(e result of t(is co"putation is "oderately (ig(/ i.e. 25133 percent for Mongolia/ #(ic( is considered as (ig( at t(e level of .uropean countries suc( as $reland/ Huxe"bourg/ 5reece and -#it&erland. 2espite t(e tax revenue is a real data (ere/ suc( a (ig( ratio "ig(t (ave been resulted fro" inco"plete esti"ation of t(e 526 because t(e type of taxes and tax rates of Mongolia are substantially lo#er t(an t(ose in above countries. !ollection of taxes e=ual to 4.+1@.5 percent of t(e 52T at t(e VAT rate of 1<115 percent indicates (ig( co"pliance of t(is tax in ter"s of its i"position and collection. 4(ereas t(ere is a co""on tendency in an international practice t(at considered it efficient if eac( unit of t(e VAT rate collects t(e revenue no less t(an <.4 percent of t(e 526/but t(is figure is <.4+1<.+ percent in Mongolia. T(e VAT refund accounted for 4124 percent of t(e total VAT revenue in periods fro" 2<<< to 2<1<. According to t(e $M) assu"ption t(e refund s(ould not exceed 3< percent of t(e total VAT revenue. 5enerally t(e refund syste" is considered as a 'ey essence of t(e VAT i"ple"entation. 2uring first fe# years of i"ple"entation of t(e VAT in Mongolia/ t(ere #as do"inant trend to carry for#ard t(e excess to offset VAT liability in t(e succeeding "ont(s or credit against ot(er taxes #it(out paying refund at all due to budget constraint. To avoid large refund clai"s t(e large exporters including .rdenet factory and Mongolrostsvet"ent 7V #ere denied to register as VAT taxpayers. Bo#ever/ since 2<<4 refund (as been fully paid to eligible clai"ants including above1"entioned entities as reco""ended or assigned by biggest donors suc( as $M). 4it( substantial gro#t( in nu"ber of investors to "ining industry t(ereby increasing i"ports and do"estic consu"ption/ t(e pay"ent of input credit/ overpay"ent and refund (as been increasing year to year. 2ue to econo"ic do#nturn in 2<<@ t(e nu"ber of refund clai" (ad drastically been increased #(ere taxpayers/ particularly construction and "ining industries t(at are in an excess credit position clai"ed for VAT resulting to furt(er decline in cases of crediting t(e excess against next VAT pay"ents t(at are due on t(e follo#ing "ont(s. T(is eventually gave rise to increase of t(e refund #(ereas it 12

declined in 7uly of 2<<@ due to granting VAT exe"ption to "ining products except for t(e final ones. $t t(erefore #ort(s noting t(at t(is "easure "ig(t (ave negatively i"pacted to t(e VAT "ec(anis" t(ereby reducing t(e VAT revenue. -ub"ission rate of t(e VAT return points up a (ig( rate/ (o#ever/ (ig( s(are of 9:; return or 98o activity conducted; return dra#s "y attention. T(is figure (as to be drastically reduced. 2espite t(e introduction of e1filing syste" plays considerable significance in bot( taxpayers and tax aut(orities activities/ it #ort(s noting t(at t(ere is an increasing tendency of t(e nu"ber of 9:; return. Table-1 Submissio# rate of retur# a#d S&are of 234 retur# VAT return -ub"itted return 54 2 5@@5 *22< @44 113 @ 135<4 11 0f #(ic( 8u"ber of 9:; -(are of 9:; return return +<1 @+* 1<5< 1 @< 2445 2@5* 14. 1 .4 14.54 1*.+@ 21.51 21.@<

2ate

2ue return

6ercentage @+.<1 @*. * @4.55 @ .4 @ .1+ @4.<5

2<<5 55*3 2<< 13+ 2<<* * 3 2<<+ @*@3 2<<@ 11+2< 2<1< 1435+ Source: GDT statistical data, 2

As a result of "easures underta'en #it(in fra"e#or' of Tax a"nesty la# and Ha# on i"ple"entation of so"e tax1related la#s and social insurance la# i"ple"ented in 2<<*12<<+/ t(e "a?or portion of VAT accu"ulated arrears payable to t(e budget #ere included in t(e a"nesty. T(us t(e additional revenue to be assesed by t(e VAT audit and t(e a"ount of refund to be dropped resulting fro" t(e audit (ad re"ained unc(anged.

13

$t is possible to "a'e an esti"ation of so"e factors to assess t(e VAT syste" of Mongolia based on certain ite"s in t(e su""ary of VAT return. Table -1 Summary of VAT retur# for 2 Su##"ri0ed ite#' o& VAT return 1 2 3 4 5 5ross sales 5ross sales of goods/ #or' and services sub?ect to VAT 0f #(ic(A Total sales fro" exportation of goods Tot"% VAT c*"r(ed Total purc(ases of goods/ #or's and services #it( VAT paid 0f #(ic(A 6urc(ases of i"ported goods + @ 1< Tot"% credit"b%e VAT T0TAH VAT 6ACA3H. T0TAH VAT 0V.R6A$2 . +/*3@/*4 /*< *.+ 2/2*+/*< /43 2.1 4-3512-563./ /<55/4+2/+4 1.5 2/ 3 /+35/22 4.< 4185/435/8 1.4 222/424/+ .1 1*</ < /+ 1.5 -112 @/3<1/<<4/1*4 2 @/5<+/235/<3<. * 2/3+</112/41 . * 4365.6/5237. 8 / 3@/<* /<45. * 3/32</15</3 1. 2 46657-.583-. 6 21@/< +/**+. 2 1 @/4**/255. 2 * 8 313/2@1/2+<.4 3<4/+3 /*42. 2 3/-5/7358/2. 2 3/ 34/+@5/5**. / 1</<<5/*35/251. 4 36152.65-18. < 2/*42/+*3/4 <. 5-2 1 -113 1</11@/*34/22@. < 12/4@2/3<*/@3*. -1.1 13/32*/522/1+5.

4(ereas t(e export sales accounts for 2<124 percent of t(e gross sales in t(e VAT return/ t(e exe"pt sales accounts for 51 percentt(ereof. T(is de"onstrates t(at t(e registered VAT payers run bot( taxable and exe"pt operations sub?ect to t(e VAT. T(e study esti"ations illustrate+51@< percent of VAT on i"ports paid to t(e !usto"s aut(ority declared on t(e VAT return as creditable inputup to 2<<@. T(is ratio (o#ever started dropping since 7uly 2<<@ #(en an exe"ption #as provided to "ining products except for final ones. T(is is directly associated to non1refunding to t(e largest i"porters including .rdenet factory/ also "ining industries and investors to "ining sector in relation to t(eir VAT paid on i"ports. 8on1creditable portions on t(e VAT return apply to t(ose running exe"pt operations as #ell as t(e VAT on i"ports paid at t(e !usto"s by individuals #(o are not registered for VAT. Around 3 15< percent of t(e creditable VAT on t(e VAT return is for VAT on i"ports #(ile re"aining is for VAT on do"estic purc(ases. 1<t(ro# in Table15 s(o#s t(e total VAT overpaid in years concerned. T(is is slig(tly lo#er t(an t(e total VAT payable due in relevant years/ (o#ever it is not t(e a"ount to be fully refunded but rat(er 14

is an accu"ulative su" of "ont(ly overpay"ents. T(is figure is sub?ect to eit(er offsetting against pay"ents due on subse=uent "ont(s or so"e portions to refunds or furt(er additions. T(e total a"ount payable in t(e @t( ro# is t(e a"ount exceeding t(e su" of VAT overpaid/ VAT paid on i"ports and do"estic purc(ases/ i.e. a net ulti"ately payable by t(e taxpayers to t(e budget. -ince t(e refund started getting paid fro" t(e budget its a"ount (as been increasing year to year ETable14F/ for i#sta#ce/ t(e refund for 2<< 12<<@ reac(ed to 2<124 percent of t(e total VAT revenue #(ilst it dropped to + percent in 2<1<. 2espite 2<125 percent is an international average for t(e syste" #it( standard structure/ Mongolia (as "ade various efforts to bring it do#n to +.+ percent. Bo#ever it #ould be a"biguous or distorted to "a'e an conclusion based solely on t(e a"ount of refund paid out of budget #it(out exa"ining t(e VAT offset against next VAT or ot(er tax liabilities due. $n order #ords/ #(ereas t(e refund (as reduced/ t(e overpaid a"ount credited against ot(er liabilities "ay (ave been increased. As previously indicated t(e "easures underta'en to#ards decreasing t(e a"ount of overpay"ent and refund (ave dual effects to reduce inco"e taxes. 2espite =uantitative data illustrated above points out (ig( perfor"ance ofi"position and collection of VAT in Mongolia/ it also s(o#s t(ere are essentialneeds for furt(er i"prove"ent in so"e provisions of t(e la# and "onitoring fro" side of t(e tax aut(ority. $n addition t(ere are still potential roo"s to yield additional tax revenue/ reduce tax burden and recover tax revenue loss expected due to "easures ai"ed to reducing tax burden t(roug( en(ance"ent of auditing and services provided by t(e tax aut(ority. 2.3.5. Revenue raising capacity of VAT in Mongolia T(e structure of VAT la# and i"ple"entation level is "easured t(roug( t#o "ain para"etersA revenue raising capacity of VAT and Taxing consu"ption capacity. T(ose are standard "easure"ents #idely adopted globally. -(are of VAT revenue to 526 1. Re!enue r"i'in( c"$"bi%it+ERR!F L MMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMM 3asic rate of VAT x 1<<

-(are of VAT revenue to consu"ption 2. T"9in( con'u#$tion c"$"cit+ET!!F L MMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMM x 1<< 3asic rate of VAT 15

T(e table illustrates t(ese para"aters in countries #it( VAT co"pared by t(eir regionsA Table -6 7e"e#ue raisi#, capability of VAT, comparable fi,ures !entral and .astern .urope/ Asia !o""on#ealt( 6acific of $ndependent countries states 3 2 35 5+

-ub -a(aran Africa

A"erica

.uropean union

Mongolia 2<<@ 4+/ +/1 2<1< +</ 1<</+

Revenue raising 2* 3* 3+ capability Taxing consu"ption 3+ 5* 4 capability Source: !o#sulta#t8s o.# estimatio#, i#ter#et 2 11,

4(ereas t(ose para"eters in 8e# Dealand are 5 and 1<3 * percent "a'ing t(e country #it( t(e best VAT structure/ t(e result in 2<1< for Mongolia is rat(er (ig( according to esti"ation based on statistical data fro" 8ational -tatistical 0ffice of Mongolia. 2.3. . !o""on offences arising during i"ple"entation of VAT la# 4(ile exa"ining decisions fro" t(e "eeting of 2ispute resolution co""ittee at t(e 5eneral 2epart"ent of Taxation disclosed on###.iltod.gov."n/a #ebpage of t(e )iscal depart"ent of t(e M0) as #ell as court decisions available at a ###.ad"incourt.gov."n/ a #ebsite of t(e !apital city Ad"inistrative courtand at ###.supre"ecourt."n/ a #ebsite of t(e -upre"e court/ it is obvious t(at t(e VAT related disputes arise to so"e extent and t(us can be studied by categori&ing t(e". T(ey are as follo#sA 1. 'ailure to re,ister for VAT .it&i# due date specified i# t&e la.. T(is is t(e "ost co""on offence t(at leads taxpayers to bear significant a"ount of interest and penalties. 0ffence includes bot( intentional and unintentional actions #(ic( raise furt(er essential needs to a"end t(e la# so t(at it is applied on unifor" basis #it(out any a"biguities. )or instance/ t(ere is an arrange"ent #(ere non1govern"ent organi&ations are never re=uired to register for tax due to absence of responsibilities i"posed t(ereon to sub"it t(e corporate inco"e tax return. Article 4.1.1< of t(e la# specifies a re=uire"ent for registration for VAT provided t(at it is proved to (aving t(e sales exceeding 1< "illion tugrugs in t(e inco"e tax return.

T(is result "ay be (ig(er t(an 1<< percent if tax is i"posed on so"e purc(ases including invest"ent in addition to all final consu"ption.

16

2. 'ailure to pay declared taxes o# time . Hi'e#ise/ t(e taxpayers beco"e sub?ect to substantial a"ount of penalties and interests due to t(is offence. Rat(er t(an legal ter"inology/ t(is is "ore a "atter of for"ulation of t(e la# based on overstrict principles in ter"s of general structure. T(is is incidental to general arrange"ents #it( regard to recogni&ation of credititable inputs on cas( basis/ sub"ission of returns on "ont(ly basis/ and t(e sa"e date for filing and pay"ent etc/ despite sales are recogni&ed on acrual basis of accounting. 3. 'ailure to c&ar,e VAT o# sales by postpo#i#, its timi#, . T(e VAT la# provides an arrange"ent to ad(ere to acrual based accounting principle in i"position of tax/ #(ic( causes taxpayers particularly/ s"all taxpayers to fail to levy tax on ti"e. 3esides/ t(ere #ould occur offences including intentional conceal"ent of sales/ re?ection to issue VAT invoice/ deferral of inco"e and t(e li'e. 4. )"er-estimatio# of VAT credits. 2ue to legal re=uire"ent to deter"ine t(e VAT input credits on cas( basis of accounting/ taxpayers fall under tax burden t(ereby failing to pay tax on ti"e. Bence t(e offences (ave been occurring in relation to crediting inputs in line #it( revenue and utili&ing fraudulent VAT invoice. 5. !redit for i#put VAT associated to exempt sales . 2ue to absence of "ec(anis" of apportioning creditable inputs/ t(e taxpayers engaged in bot( taxable and exe"pt sales sub?ect to VAT tend to reduce tax liabilities due. . !laim for fictitious o"erpayme#t a#d refu#d . T(ere area =uite large nu"ber of deliberate actions #(ere taxpayers apply for registration even no conditions are "et to register for VAT or by perfor"ing fraudulent or fictitious transactions/ declare regular overstate"ent and clai" for refund or transfer of overpay"ent into ot(er tax liabilities in relation to t(eir VAT on inputs #it(out (aving any sales etc. *. No clear bou#dary bet.ee# taxable a#d exempt sales for VAT purposes gives rise to furt(er "isunderstanding or a"biguity a"ong t(e tax aut(ority and taxpayers. T(e industrial classification of all econo"ic activities/ approved by t(e ?oint resolution of t(e Minister of )inance and t(e !(air"an of t(e 8-0/ (as not been appliedto proper extent. +. 9#certai#ty of imposi#, VAT a#d crediti#, i#puts for ser"ices pro"ided by #o#-reside#ts i# (o#,olia a#d importatio# of ser"ices. 2espite a reverse c(arge rule is provided to be regulated t(roug( provisions *.3.5/ *.4.@/ 1 .1.2 of t(e VAT la#/ t(is arrange"ent fails to function properly and t(us creates regular contradiction. $n particular/ it is co"plicated to define services as rendered in t(e territory of Mongolia. @. T&ere are a #umber of pro"isio#s of t&e la. a#d la. o# exemptio# from VAT t&at are co#tradictoryto t&e ,e#eral pri#ciple of VAT . $nstead of ac(ieving t(eir ob?ectives t(ey cause uncertainties resulting in 17

furt(er disputes and a"biguities. )or instance/ to i"pose VAT on final sales upon co"pletion of building and construction #or'/ provide exe"ption to tour operators of touris" services etc. $n addition to t(is la#/ t(ere are several la#s specifically on exe"ption fro" VAT are still in effect and causes disputes. According to t(e consultant it is (ig(ly possible to explore t(e #ays to rectify t(e proble"s by carrying out researc(es on t(ese offences and contradictions fro" t(eoretical and legal point of vie# and "a'ing a"end"ents to t(e la#. T(ese are explained in follo#ing sections. T*ree. Intern"tion"% trend "nd di'tincti!e &e"ture' o& VAT As stated in 9VAT reader N4(at )ederal !onsu"ption Tax 4ould Mean for A"erica; + publis(ed by t(e Tax analysts/ a publis(er of leading tax ?ournals suc( as OTax 8otes/O OTax 8otes Today/O -tate Tax 8otes/O OTax 8otes $nternationalO/ t(e VAT (as been adopted by "ore t(an 14< countries and accounts for approxi"ately 2< percent of #orld#ide tax revenues of 2<1<. T(is proves t(at t(e VAT (as been globally accepted as a vital part of fiscal policy. 4it( so"e exceptions of distinctive c(aracteristics fe#er countries/ t(e VAT e"ployes standard structure and if explore t(e legislation of neig(bouring countries or countries #it( si"ilar econo"ic structure/(ence #e can see "any interesting experiences t(at are suitable to our country and are directed to increasing budget revenue and reducing incidence of tax burden falling on taxpayers. To identify so"e experiences suitable to current circu"stances of our country/ t(e experiences of so"e countries #(ere "ining sector plays 'ey role in econo"y are collected as reference. !areful and indept( investigation of t(ese experiences "ig(t give furt(er potentials of capturing ne# ideas/ learn experiences and i"ple"ent t(e" in Mongolia. /... Au'tr"%i" Australia1 one of t(e leading countries in t(e field of public ad"inistration and financing1 yields substantial a"ount of govern"ent revenue fro" "ining sectorli'e Mongolia/. Taxation syste" of t(is country is al#ays in center of global attention and fro" its experiences #e can see ne# initiatives to "odify t(e VAT syste" of Mongolia. T(is country #it( (ig( develop"ent of "ining industry and #ell1endo#ed #it( "ineral resources introduced t(e VAT as 5oods and -ervice tax ta'ing effect fro" 7uly 1 2<<< #it( a co""on assu"ption t(at t(is tax #ould be one of t(e four "ain sources @ of gover"ent revenue in t(e future. As a country t(at (as introduced t(e VAT =uite late/ its structure and arrange"ents are relatively sop(isticated and "odern co"pared to one in ot(er developed countries. Tax rate is 1< percent and Dero rate applies to exports/
8 9

%atr(ryn 7a"es/ 2<11/ .xploring t(e origin and global rise of VAT/ 15/ Vat Reader/ Tax analysts/ 2r %en Benry report 2<<@/ Australia>s future tax syste"

18

international transportation. Bealt(care/ education/ donations/ (u"anitarian activities/ transactions related to land and so"e groceries are tax exe"pt. 3usinesses are obliged to register for VAT if t(eir turnover reac(es *5<<< australian dollar #(ereas non1profit organi&ations s(ould register once reac(ed turnover exceeding 15<<<< australian dollar. ,nder t(e VAT in Australia t(ere are several note#ort(y options for taxpayers to register for VAT/ i#ter alia/ it is possible to opt eit(er accrual basis or cas( basis of accounting in deter"ining principles for i"posing VAT. T(ose (aving sales belo# 2 "illion australian dollar c(oose cas(1basis of accounting. T(isarrange"ent is of essential i"portance in ter"s of reducing tax pressure on businesses as #ell as deficiency of cas( flo#. $n addition t(e taxpayer "ay opt filing fre=uency #(et(er to file on "ont(ly/ =uarterly or annual basis/ #(ereas t(ose #it( sales "ore t(an 2< "illion file "ont(ly return. ,nder t(e VAT syste" t(ere is no specific arrange"ent necessarily available for "ining industries and t(us t(ey are treated in sa"e "anner as ot(er taxpayers. /.-. Indone'i" $ndonesia is one of t(e resource ric( countries #it( "ineral/ oil and naturals gas abundance t(at generates si&eable portion of t(e 526 fro" its "ining sector. T(is reco""endation includes $ndonesian case as an exa"ple as $ndonesia is one of t(e developing countries in Asia. -tarting fro" April <1 1@+5 $ndonesia adopted VAT replacing for"er sales tax. A person (aving turnover a"ounting 1+<13 < "illion $ndonesian rupia( Ee=ual to 2 152 "illion tugrugsF depending on type of operation is =ualified to register for VAT. Ali'e Mongolia/ tax rate is 1< percent and tax return is sub"itted on "ont(ly basis. Bealt(care/ education/ ban'ing/ financial/ insurance/ postal delivery and public transportation services are sub?ect to VAT exe"ption. 2istinguis(ing feature is t(at t(ere are so"e 'inds of goods excluded as taxable goods including public "ass "edia/ foods served in (otels and restaurants/ products of "ining and drilling directly ta'en fro" t(e source. )urt(er"ore/ t(e refund is paid once a year. /./. :"0")*'t"n $n ter"s of geograp(ical location and econo"ic structure %a&a'(stan is si"ilar to Mongolia and over#(el"ingly ric( in oil and t(us is included in t(e reco""endation as a reference. -ince 7anuary 1 2<<@ %a&a'(stan (as been i"ple"enting t(e revised VAT code under #(ic( several i"portant c(anges pertinent to taxable ite"s/ exe"ption and refund #ere "ade. T(e VAT rate applicable to turnovers is set at 12 percent. T(e tax return is sub"itted on =uarterly basis and pay"ent is due #it(in 1< #or'ing days of sub"itting t(e return. Registration t(res(old is 42 3@< <<< tenge E2+ 5<< ,-2 or 3 < "illion 19

Mongolian tugrugsF. -o"e "edica"ents and "edical products/ "aterials/ e=uip"ent and spare parts are sub?ect to i"port exe"pt fro" VAT. 6ecularity is precious "etals taxed at &ero rate in case of sale to t(e !entral 3an'. T(e refund is "ade #it(in < days to taxpayers exported no less t(an < percent of o#n "anufactured products and #it(in1+< days to ot(er taxpayers. /.6. C"n"d" 7ustified on t(e basis t(at in our country t(ere are a nu"ber of co"panies #it( !anadian invest"ent trading s(ares in Toronto stoc' exc(ange/ t(e !anadian case of VAT is ta'en an exa"ple in t(is reco""endation. 4it( a great efforts of 3rian Mulroney/ #(o #as t(e 6ri"e Minister at t(at ti"e/ t(e uni=ue tax co"bining federal or provincial sales taxes #as introduced on t(e 1st of 7anuary 1@@1. T(e ne# tax replaced t(e "anufacturers> sales tax and teleco""uncation tax. T(e rate of t(e VAT 'no#n as federal 5oods and -ervices tax is 5 percent. 3usiness entities #it( turnover exceeding 3<<<< !anadian dollars and non1profit organi&ations #it( turnover "ore t(an 5<<<< !anadian dollars are eligible for registration for VAT. T(e "ain feature of !anada is t(at provinces (ave t(eir o#n sales tax along #it( t(e VAT/ (ence 2 types of indirect taxes are c(arged si"ultaneously. Recently t(e provinces (ave started "erging t(ese 2 taxes. !urrently Alberta/ Cu'on/ 8unavut and 8ort(#est territoriesad"inister 5 percent federal VAT #(ereas t(e (ar"oni&ed sales tax is c(arged in provinces li'e 3ritis( !olu"bia at 12 percent/ Manitoba at 12 percent/ 8e# 3runs#ic' at 13 percent/ Habrador 13 percent/ 8ova -cotia at 15 percent and 0ntario at 13 percent respectively. T(e rate for t(e (ar"oni&ed sales tax varies depending on fact t(at se=uencing of i"posing t(ese taxes is different in eac( province. T(e exceptional feature is t(at t(ere are certain &ero rated ite"s including basic groceries/ prescription drugs/ in#ard and outbound public transportation/ and "edical devices. T(e exe"pt services include (ealt(care/ education/ ban'ing and financial/ and legal advisory services. /.7. Ru''i"n Feder"tion $n capacity of our neig(bour country and t(e biggest partner in trade and econo"y/ t(e VAT syste" of Russia #as ta'en as an exa"ple. T(e VAT introduced on t(e1 st of 7anuary 2<<1 is t(e largest source of revenue contributing 3<135 percent of t(e budget revenue. -ince 2<< t(e standard rate (as been 1+ percent #(ile 1< percent is c(arged for certain foodstuff/ "edicine/ c(ildren>s clot(ing/ boo's/ ne#spapers and "aga&ines. T(e registration t(res(old is 2 "illion ruble #(ic( is approxi"ately @< "illion tugrugs. VAT declarations s(ould be sub"itted on =uarterly basis before 2< t( of t(e "ont( follo#ing t(e reporting =uarter. 20

Hegal ter"inologies of t(e VAT in Russian are "uc( precisely and co"pre(ensively specified. )or instance/ t(ere are clear1cut specification for providing exe"ption to (ealt(care services to include "edical e=uip"ent and devices/ prost(eses its spare parts/ #(eelc(airs for (andicapped/ optical glasses/ lenses Eexcept sunglassesF/ "edical treat"ent and diagnostic services/ except for cos"etic surgery/ in private or state clinics/ (ealt( insurance service/ blood acceptance and blood transfusion service/ "edical e"ergency/ autopsy/ prenatal care for "ot(ers and infant care/ narcological treat"ent/ services by care facilities for t(e aged and disabled etc. VAT refund is one of t(e "ost i"portant and "ost troubleso"e aspects of t(e Russian tax syste". T(e process of obtaining a refund of VAT in Russia is slo# and re=uires substantial effort and docu"ents fro" t(e taxpayer. )or exa"ple/ in order to verify and pay refund of VAT for exported goods/ t(e proceeds fro" exports s(ould be transferred into ban' accounts in Russia #it(in "ont(s of exporting goods outside t(e boundaries of Russia. $n case of agree"ent to sell goods t(roug( barter exc(ange t(e goods s(ould be proved by t(e custo"s as entered into t(e territory of t(e Russian )ederation. !as( receipt is re=uired to get verified by ban' references as transferred into accounts (eld at co""ercial ban's of Russia. $n addition t(e exporter is re=uired to sub"it a full set of docu"ents including custo"s declaration on exports/ transportation docu"ent #it( notes certifying t(e co""odities left custo"s territory/ references fro" co""ercial ban's confir"ing t(e export proceeds #ere transferred to ban' account/ notes of records in financial state"ent/ taxpayer>s #ritten re=uest/ a copy of export contract and t(e li'e. Any violation identified during verification audit of refund beco"es t(e basis for re?ection for refund. 2ia"ond/ precious "etals sold to t(e !entral ban' and Treasury fund/ ore and concentrates #it( precious "etal content sold for furt(er re1sale/ sale of precious "etals and dia"onds by t(e !entral ban' and Treasury fund are t(e VAT1exe"pt sales. /.4. C*in" T(e VAT syste" of !(ina #as referred (ere as !(ina is a 'ey trade and econo"ic partner/ t(e largest investor and neig(bour to our country. !(ina started to i"ple"ent VAT on 1 st of 7anuary 1@+4 on on 24 specified ite"s and t(e current la# #as put into effect in 1@@4. VAT syste" in !(ina isconsidered as t(e "ost co"plicated and "ost po#erful 9revenue generator; yielding 4<14* percent of t(e total budget revenue. -tructurally/ design is not standard/ but co"pliance level (as been intensifying year to year as noted by observers.

21

)or VAT t(e taxpayers are classified into t#o categories #(ere "anufacturers #it( annual turnover belo# 5<<<<< yuan and traders or service providers #it( turnover belo# +<<<<< yuan are considered as s"all taxpayers. 4(ereas nor"al taxpayers co"pute VAT liabilities on t(e basis of invoice "et(od t(at used in Mongolia/ i.e. by t(e difference bet#een t(e output VAT and input VAT/ t(e s"all taxpayers are taxed at 3 percent on t(eir total revenue fro" sales. .xportation of goods is &ero rated #(ereasdaily vegetables and grain/ agriculture/ forestry/ products of ani"al (usbandry/ a=uatic products/ boo's/ ne#spapers and "agi&ines/ #ater supply/ (eating/ gas/ li=uefied fuel/ coal products for (ouse(old use/ selected "etal and non1"etal "ineral products/ coal/ feeds/ agricultural c(e"icals/ agricultural "ac(inery are taxed at 13 percent/ and 1* percent for ot(er taxable goods and services.

T(e "a?or VAT exe"ptions are provided to instru"ents and e=uip"ent i"ported for education/ science and researc( purposesP self1produced pri"ary agricultural products sold by agricultural producing individuals/ cooperatives and partners(ipsP grant aidsP articles i"ported for t(e disabled and services provided by individual disabled persons. 3esides/ no VAT is levied on construction/ public transportation/ ban's/ finance and insurance/ touris"/ post and teleco""unications/ cultural activities and sports/ entertain"ent businesses and services/ but a special 3usiness tax is c(arged. Anot(er feature is t(at no VAT credit is allo#ed to input tax of fixed assets suc( as (ouses/ construction and e=uip"ent. 2espite non1crediting ensures not to increase a"ount of overpay"ent and refund/ on t(e ot(er (and it results in increasing invest"ent and depreciation costs t(ereby reducing inco"e tax revenue. 6osition of t(e !(ina>s tax ad"inistration to#ards paying refund is extre"ely strict under #(ic( tax is rebated as specified in t(e list of differentiated refund rates depending on type of operation and classisfication of export products. .ven t(oug( 1* percent is c(arged for VAT on sales/ t(e refund rate is 511* percent. $t #ort(s noting a list of products eligible for VAT refund (as been getting narro#er over t(e years. )or instance/ 'inds of products previously #ere eligible for refund at rate of 51@ percent (ave beco"e no longer refundable no# since 7uly 15 2<1<. T(ese includeA steel and non1ferrous "etal products/ silver concentrate/ alc(o(olic beverages/ c(e"ical products including fertili&ers/ pesticides and "edicine/ and plastic/ rubber and glass products.

22

2ue to co"plexities in controlling utili&ation of VAT invoice/ t(ere are cases #(ere so"e provinces ruled to issue VAT invoice by tax aut(orities on be(alf of taxpayers based on relevant docu"entations. )or i"ported services t(e reverse c(arge rule is applied for VAT and 3usiness taxes. /.8. C*i%e $n (is presentation1< on Marc( 23 2<11 on 0fficial Accounts Address t(e !o""issioner of t(e !(ilean Tax -ervice E-$$F noted t(at t(e total tax revenue of !(ile/ a leading country of copper and "olybdenu" production/ accounted to 1*.* trillion pesos in 2<1< a"ong #(ic( t(e VAT s(are is approxi"ately 4*.* percent/ #(ic( addes up to +.3 trillion pesos. $n addition t(e !o""issioner e"p(asi&ed t(at t(e "ain ob?ective of t(e Tax -ervice for 2<11 isto 9i"pove t(e VAT auditing capability; since t(e VAT #ii be t(e "ain device to generate bugdet revenue despite t(e favorably (ig(er copper price at #orld "ar'et induces pleasant condition to t(e country>s econo"y. Bence it is seen t(at !(ile places priority e"p(asis on role and significance of VAT on furt(er govern"ent revenue. T(e VAT in !(ile is based on invoice "et(od and it is levied at a rate of 1@Q on t(e sales of goods and services. 2eclaration is "ont(ly. .xcess VAT is carried over to t(e follo#ing "ont( and only exporters are entitled to VAT refund. /.2. USA Researc(ers al#ay 'eep a #atc(ful eye on reason #(y t(e ,-A/ a leader of develop"ent and econo"y in t(e #orld/ (as not still adopted VAT on federal level. Bence arises furt(er essential needs to explore reasons and co"e to conclusion #(y opponents of VAT debate t(eir argu"ent specifically referring to t(is country. T(erefore let "e clarify ?ustifications for resistance to introducing t(e VAT up to no# based on revie# of ot(er acade"ia and researc(ers. 45 states out of 5< in t(e ,-A use any of t(e indirect tax 'inds for t(eir revenue purposes a"ong #(ic( t(e retail sales tax plays do"inant role. T(e first initiative proposed to introduce VAT at federal level appeared in 1+ 2 during t(e !ivil #ar follo#ed by a strong proposal in 1@42 during t(e 4orld 4ar $$. -oon after t(e ad"inistration of t(e 6resident R.8ixon in 1@ @/ t(e 6resident )ord in in early 1@**/ 6resident 7.%arter/ t(e 6resident R.Reagan in 1@+4/ t(e 6resident in 2<<5 7.3us( proposed to adopt VAT #(ile reducing (eavy reliance on inco"e taxes #it(in t(e fra"e#or' of refor"ing tax syste". Bo#ever neit(er of t(e proposals did obtain unani"ous support. As explained by Alan -c(en' 11/ a professor of la# at 4ayne -tate ,niversity Ha#
10

T(e -$$ !o""issioner 7ulio 6ereira/2<11/ 2<1< 0fficial Accounts address/ -antiago Alan -c(en'/ 2<11/ 6rior ,- flirtations #it( VAT/ VAT reader/ Tax analysts/

11

23

-c(ool/ current ad"inistration of t(e 6resident 3.0ba"a exa"ines #ays ofexploring sources to close federal deficit and finance (ealt(care planand t(e VAT #ill be a single #ay to resolve bot( issues at once. 2espite t(e ta'e up of VAT brings nu"erous positive results to country>s econo"y/ it beco"es al"ost a 9suicide; fro" political point of vie#. )or instance/ soon after 7apan introduced t(e VAT in 1@+ and !anada in 1@@1 t(e 6ri"e Ministers Ca.8a'asone and 3.Malruni lost t(e election respectively. ,pon introducing VAT in Australia 7.Bo#ard>s party also lost a lot of seats in t(e 6arlia"ent. -lig(tly lo#er t(an (alf or 4514+ percent of inco"e tax revenue sub"itted to $nternal Revenue -ervice in t(e ,-A are t(e returns according to #(ic( t(e individuals are not liable to tax or entitled to credit and exe"ption/ and so t(ere is perception t(at t(e introduction of VAT #ill lead to fairer syste" #(ere everyone pays tax. $n contrast/ t(ere still do"inates a conception t(at collecting a substantial a"ount of budget revenue t(roug( too easy #ay #ill expose to enlarge"ent of civil service and govern"ent t(ereby negatively i"pacting econo"ic structure. According to researc(ers12 t(e "ain reasons for/ except for t(ose political ones/ opposing VAT can be classified as follo#sA 1. Adoption of VAT opposes to general principles of fiscal policy to cut federal spending. $nstituting a VAT #ould reduce deficits/ but li'ely to increase federal spending #(ic( "ig(t t(en te"pt regularly to raise t(e VAT rate. $ndeed/ t(e ,nited %ingdo">s recent "ove to raise its VAT by 2 percentage points suggests be(avior of t(is type. 2. $t is unpredictable (o# t(e structure/ design/ in particular rates and scope of exe"tion #ill be c(anged during (earing of VAT la#. 3. As "ost of t(e states rely on indirect taxes for raising t(eir budget revenue/ it is uni"aginable/ not only fro" political perspective but also fro" i"ple"entation perspective/(o# to (ar"oni&e t(e" #it( federal taxes or c(ange t(e". 4. -ince lo# inco"e group spends t(e "ost of t(eir inco"e on consu"ption/ t(e VAT i"poses (ig(er burden on t(e". T(is also applies to "iddle inco"e group and so is inco"patible #it( inco"e distribution principle. 5. T(ere exists assu"ption t(at underta'ing tax refor"/ specially at t(is ti"e experiencing (ig( budget deficit and econo"y is at ?ust a level of recovery fro" crisis/ #ould expose ris's of re1 causing do#nturn to econo"y.

12

2ouglas Bolt&1.a'in/ 2<11. T(e case against VAT/ VAT reader/ Tax analysts

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$n addition to t(e ,nited -tates t(ere are 1* countries or autono"ous states #it( currently no VAT including 3a(a"a $slands/ 3a(rain/ 3ritis( Virgin $slands/ 3er"uda/ 3runei/ Bong %ong/ Macau/ !ay"an $slands/ 5ibraltar/ 5uernsey/ $ra=/ %u#ait/ Hibya/ Maldives/ 0"an/ Ratar/ -an Marino/ -audi Arabia and Arab ."irates. A"ong t(e" Arabic countries initiated discussing on adoption of VAT. )urt(er"ore t(e 2e"ocratic 6eople>s Republic of %orea E8ort( %oreaF i"poses VAT at 15 percent #(ereas it is 2<2< percent in !uba. Four. Are"' &or &urt*er i#$ro!e#ent o& VAT "nd reco##end"tion' )ro" t(e infor"ation described in previous sections it follo#s t(at t(is is "ost li'ely to bring "ore efficiency to t(e taxation syste" of Mongolia t(roug( sustained observance of t(e la# upon en(ance"ent of VAT syste" by "a'ing necessary a"end"ents t(ereto/ because t(e significance of VAT tends to gro#ing year to year. To t(is end/ t(e c(anges could be "ade into follo#ing t#o 'ey areasA 1. )or VAT legislationA 1VAT payer and taxpayer>s registration 1Registration t(res(old for VAT 1 VAT i"position and exe"ption 1 !ollection/ overpay"ent and refund of VAT 2.)or VAT ad"inistrationA 1.n(ance"ent auditingIcontrolling syste" of tax ad"inistration 1-i"plification of taxation and pay"ent operations

6... Modi&ic"tion o& VAT %e(i'%"tion

T(is ob?ective #ill be ac(ieved t(roug( "a'ing a"end"ents and revisions to t(e VAT la#. )ro" it follo#s to c(ange relevant regulation/ instruction and return for"s in relation to a"end"ents.

6..... VAT $"+er "nd t"9$"+er re(i'tr"tion 25

Registration for VAT concerns deter"ining tax1exe"pt goods and services/ t(res(old to register for VAT/ conditions for voluntary registration and due dates for registration. T(e current la# provides t(at t(e registration for VAT is due #it(in 1 st day of t(e subse=uent "ont( of reac(ing sales of 1<.< "illion tugrugs or "ore as reported in corporate inco"e tax return in case of legal entities and as reported in individual inco"e tax return in case of individuals. Bence it is obvious t(at t(ere are still roo"s for furt(er i"prove"ent in areas currently causing a"biguities. T(ey includeA 1Hegal entities and non1govern"ent organi&ations t(at are not re=uired to file corporate inco"e tax return (ave beenprevented fro" obligation to register for VAT 16rovided t(at an individual (as reac(ed taxable sales of 1<.< "illion tugrugs or "ore/ (eIs(e is re=uired to register for VAT starting fro" Marc( 1 of t(e follo#ing year. $f t(e individual proves t(at t(e taxable sales cannot reac( 1<.< "illion in t(e follo#ing year/ (eIs(e beco"es possible to run business #it(out c(arging VAT for a #(ole year concerned. Reco""endation:Ame#d t&e la. so t&at re,istratio# for VAT is re:uired for le,al e#tities if taxable sale &as reac&ed 1 . millio# tu,ru,s as reported i# :uarterly a#d a##ual fi#a#cial stateme#ts;for i#di"iduals ear#i#, busi#ess a#d property i#come stipulated i# Article 12, 1%.1.1, 1%.1.2, 1%.1.<of t&e $#di"idual i#come tax la. a#d i#di"iduals carryi#, out .or= a#d ser"ices stipulated i# Article <.% of t&e la. o# $#di"iduals .&ose i#come is &ard to determi#e if t&eir i#come &as reac&ed 1 . millio# tu,ru,s as reported i# :uarterly a#d a##ual i#di"idual i#come tax retur#s a#d presumpti"e i#come tax retur#s. 1)or setting clear distinction bet#een taxable and exe"pt sales for VAT purposes/ t(e la# provides a re=uire"ent to ad(er to industrial classification of all econo"ic activities. Bo#ever ter"s described in t(e VAT la# are not #ell co"patible #it( definition of #or' and services specified in t(e industrial classification as #ell as ot(er sectoral la#s concerned. Reco""endation: 7e"isio# to t&e i#dustrial classificatio# of all eco#omic acti"ities s&ould reflect defi#itio#s to e#sure co#siste#cies .it& la.s of (o#,olia, a#d t&e defi#itio#s i# t&e la.s of (o#,olia s&ould be made i# li#e .it& t&is classificatio# if t&e classificatio# follo.s i#ter#atio#al sta#dards 1$t appears t(at one ti"e disposal of fixed assets by VAT1exe"pt taxpayers "a'es t(e" obligated to register for VAT because of t(e sales. T(is creates co"plication to t(e taxpayers. 26

Reco""endation: Ame#d t&e la. so t&at proceeds from sale of fixed assets &eld for o.# possessio# for less t&a# a year s&ould be excluded from t&e sales :ualified for re,istratio# for VAT. 1T(ere are t(ree conditions for registering on voluntary basis. )irst/ sales fro" pri"ary production/ #or' and services s(ould reac( + "illion tugrugsP second/ invested ,-2 2.< "illion or "ore in MongoliaP t(ird/ t(e applicant s(ould (ave proper boo''eeping practice in accordance #it( t(e international accounting standards. T(ose re=uire"ents (o#ever (ave beco"e unable to "et due to so"e factors including absence of definition delineating "ain production/ #or' and servicesP inability to confir" invest"ent due to unavailability of proper fields to enter invest"ent data in t(e tax for"s t(at #ere c(anged resulting fro" la# c(anges despite t(e la# re=uires invest"ent be proved by corporate and individual inco"e tax returnsP and absence of clear provision on defining conditions to =ualify if proper boo''eeping is 'ept. Reco""endation: $#corporate some additio#al terms to t&e la., or ,et comme#taries from t&e Supreme court 15roup registration is an open option under t(e la#. Bo#ever =ualifying persons as a group is still re"ains vague due to absence of clear definition of group of persons. Reco""endation: Group re,istratio# s&ould #ot be #ecessarily i#cluded i# t&e la.. )t&er.ise, it could be easier to abolis& suc& pro"isio#s. 1$t is unsatisfactory to regulate VAT deregistration of a taxpayer t(roug( only one provision in t(e la#. T(ere is no conditions defined to confir" t(at t(e sales are expected to fall belo# 1< "illion tugrugs for t(e subse=uent years. T(is leads tax aut(ority and tax inspectors to decide on t(eir private discretion. ;Reco""endation: Add a pro"isio# disallo.i#, dere,istratio# for 2 years of bei#, re,istered for VAT a#d defi#e co#ditio#s t&at sales are expected #ot to reac& 1 millio# tu,ru,s, for i#sta#ce, amou#t of ,oods, materials a#d fixed assets &eld i# taxpayer8s possessio# &a"e become belo. 1 millio# tu,ru,s etc. 6...-. VAT i#$o'ition "nd e9e#$tion VAT i"position pertains to definition of sales sub?ect to VAT/ credit of VAT and tax i"position procedures.

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T(e VAT la# of Mongolia provides "uc( precise definition of taxable ite"s or sales. VAT applies to all/ except for t(ose sub?ect to exe"ption/ goods sold/ #or's perfor"ed and services rendered in t(e territory of Mongolia/ and i"portation and exportation t(ereof. Bo#ever/ 1$n case of i"portation of services/ it faces proble"s in deter"ining #(et(er t(e services are provided in t(e territory of Mongolia. )or instance/ it needs clarifying circu"stances suc( as/ #(et(er a co"pany of -ingapore #ill be dee"ed as provided service in t(e territory of Mongolia if a Mongolian taxpayer rents internet c(annels via satellite t(roug( -ingaporeP #(et(er t(e VAT #ill be c(arged on pay"ent paid to foreign countries for analy&ing sa"ples of "ining fieldP #(et(er t(e VAT #ill be c(arged on pay"ent paid to foreign countries for dra#ing road trass "ap in co"puter grap(ic #ay based on data sent fro" Mongolia etc. Reco""endation: Add defi#itio# for ser"ices re#dered i# t&e territory of (o#,olia, or c&a#,e t&e la. so t&at #o VAT .ill be c&ar,ed o# importatio# of ser"ices 1 ,nder VAT/ t(e taxpayer involved in bot( taxable and exe"pt activities or &ero rated activities is re=uired to deter"ine VAT based on a revenue based allocation for"ula. T(e taxpayers (o#ever do not use t(is "et(od =uite regularly and on t(e ot(er side/ ad"inistratively it is co"plicated for t(e tax ad"instration to verify. Reco""endation:!o#duct broad ad"ertisi#, campai,# to i#crease a.are#ess of t&is allocatio# rule a#d calculatio# practice amo#, all taxpayers 1 T(e la# provides t(e ti"e of recogni&ing taxable sales for VAT under #(ic( t(e ti"e of i"position of VAT s(all be t(e earliest of Esi"ilar to accrual basis of accountingFA t(e day #(en t(e invoice is issued for goods and services sold/ t(e day #(en t(e pay"ent is received/ and t(e day #(en t(e goods/ #or' and services are delivered. 0n t(e ot(er (and/ crediting input VAT is only allo#ed at t(e ti"e #(en VAT is actually paid Esi"ilar cas( basis of accountingF. T(is provision "ig(t be too severe causing regular accu"ulation of tax arrears and tension to taxpayers #it( paying interest and penalties. Reco""endation: Ame#d t&e la. so t&at taxpayers, ot&er t&a# t&ose deali#, .it& t&e State >ud,et 7e"e#ue a#d !o#trol Di"isio# a#d !apital city tax office, are allo.ed to reco,#i?e bot& sales a#d purc&ases o# cas& based accou#ti#, pri#ciple for purposes of imposi#, VAT a#d crediti#, i#put VAT. 1 T(ere is a provision re=uired to i"pose VAT on its final sale in case of construction and asse"bly #or'. T(is provision contradicts general principle of accounting and VAT/ and so is unnecessarily creating uncertain areas . Reco""endation: Abolis& t&is pro"sio# 28

1Radical increase in 'inds of VAT exe"pt ite"s over t(e recent years poses negative i"pact on tax basis and tax i"position. )or instance/ t(ere are four groups of exe"ption #ere added in 2<11in relation to grains and crops/ vegetables/ fruits cultivated do"estically by agricultural far"ers/ (o"e produced flour/ carcass "eat and "eat re"oved fro" bone and sorted in a "anufacturing #ay in t(e territory of Mongolia/ unprocessed ani"al internal organs/ byproducts/ "il' and "il' products produced using do"estic ra# "aterials in "anufacturing #ay and sold in t(e territory of Mongolia/ e=uip"ent and spare parts for s"all and "ediu" si&e industries "anufactured and sold in t(e territory of Mongolia. T(ese exe"ptions are li'ely to be practiced at "anufacturing stage/ but are co"plicated at subse=uent stages of trade. Bence t(e exe"ptions s(ould be avoided to a possible extent. Reco""endation: Abolis& t&ese exemptio#s based o# careful re"ie. a#d study o# eac& exempt item t&at is of u#si,#ifica#ce. 1 4(en it co"es to providing VAT exe"ption/ it #ort( considering to explore t(e #ays to rei"burse taxes paid since suc( as syste" #ill create no distortions to overall syste" and is of "ore i"plication to controlling sc(e"e. 6.../. Co%%ection5 o!er$"+#ent "nd re&und o& VAT T(is section concerns due dates for VAT filing and pay"ent/ offset of overpay"ent and refund. 1 )iling on "ont(ly basis is effective for revenue purposes/ but exerts pressure on s"all taxpayers. 3ecause of t(is provision/ 9:; return sub"itted in eac( "ont( accounts for larger portion of total VAT return. T(erefore a =uarterly return could be allo#ed to s"all taxpayers satisfying certain conditions. Reco""endation:Ame#d t&e la. so t&at taxpayers, ot&er t&a# t&ose deali#, .it& t&e State >ud,et 7e"e#ue a#d !o#trol Di"isio# a#d !apital city tax office, are allo.ed to file VAT retur# a#d pay o# :uarterly basis similar to !$T 1 A provision under t(e 5eneral Ha# of Taxation stating 9filing and pay"ent date #ill be t(e sa"e; creates a condition to suffer a serious cas( deficiency particularly for s"all taxpayers #(o are re=uired to pay taxes eac( "ont(. As previously described previously/ VAT (as negative i"pact on cas( flo#and t(us causes accu"ulation of tax delin=uencies. Around 51*< percent of taxes assessed by t(e return are nor"ally paid on ti"e #(ile t(e re"aining are prone to interest and penalties. Bence t(e filing and pay"ent date could be set differently. Reco""endation: Ame#d t&e la. so t&at assessed taxes are paid .it&i# a mo#t& for .&ic& fili#, is due u#der t&e la.. 29

1$t is natural t(at VAT (as overpay"ent results and t(erefore any "easures to decrease t(e excess credit s(ould be ter"inated. T(ese "easures #ill not bring any possitive effects to overall taxation syste". !urrent structure of verifying excess credit/ offsetting/ and refund "ec(anis" e"ployes relatively standard structure and design and so s(ould be co"plied on long1standing basis. 7ecomme#datio#: !urtail #umber of exemptio#s pro"ided u#der t&e VAT la., termi#ate adopti#, separate la.s, decrease measures restricti#, refu#ds a#d liberali?e it i.e. reduce exemptio#s .&ile relaxi#, refu#d procedures.

6.-. Ad#ini'tr"ti!e "nd Contro%%in( '+'te# o& T"9 "d#ini'tr"tion As previously "entionedt(e tax is for generating govern"ent revenue and serving as an instru"ent of t(e state to "anage fair "ar'et. To t(is end t(e tax ad"inistration plays crucial role in ob?ectively i"ple"enting principal roles of VAT #(ile ensuring its e=uity/ fairness and avoiding any negative i"pacts and disputes. 7ecomme#datio#: $#crease professio#al compete#cies of tax i#spectors t&rou,& ad"a#ced le"el of trai#i#,. $t i#cludes: 1. !arryi#, out re,ular researc&es o# complia#ce of VAT a#d e#suri#, utili?atio# t&ereof 30

a. $de#tifyi#, reaso#s of disputes arisi#, i# relatio# to tax audit assessme#t report a#d eradicati#, t&eir causes b. /erformi#, associated estimatio#s a#d attac&i#, t&em to comme#ts o# draft la.s 2. $#creasi#, ser"ices to taxpayers a. /ublis&i#, a list of VAT payers o# re,ular basis b. $#creasi#, accessibility a#d effecti"e#ess of pamp&lets, ma#uals a#d di,ital #e.spapers desi,#ed for use of taxpayers c. Strictly ad&eri#, to due dates for re,istratio# for VAT, dere,istratio#, refu#d etc d. /repari#, proposals to.ards reduci#, complia#ce burde# a#d costs falli#, o# taxpayers as obli,ated by la. a#d submitti#, t&em to la. i#itiators %. 'acilitati#, procedures to admi#ister VAT la. .it&i# t&e scope of curre#tly effecti"e la.s. $t i#cludes: - )btai#i#, comme#taries from t&e Supreme court o# some termi#olo,ies #ecessary to impleme#t t&e la. +mai# busi#ess, i#"estme#t etc-7emo"i#, t&e re:uireme#t to accompa#y t&e electro#ically submitted tax retur# .it& paper bac=-upt&at is to be submitted .it&i# specified period, or c&a#,e t&e re:uireme#t -@#teri#, t&e u#i:ue #umber of VAT i#"oice issued to VAT payers i#to t&e database for crossc&ec=i#, purposes -!larifyi#, .&ic& of t&e t.o la.s eit&er VAT la. or Ge#eral la. of Taxatio# .ill apply to imposi#, respo#sibilities o# offe#ces ide#tified by tax audit -Gi"i#, t&e same treatme#t to payme#t slips of public ser"ices i#cludi#, &eati#,, electicity, .ater supply, telecommu#catio# a#d i#ter#et as to VAT i#"oice for purposes of reduci#, taxpayer8s complia#ce cost.

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