Section 3 - Introduction and General

Chapter 1

Teaching Plan

1. Aims and objectives

The overall aim and objective of any Revenue Authority is to collect revenue.

Its principle objective should be to collect ‘right tax at right time’.

All parts of ITD should be contributing towards achieving this aim and objective
for the taxes for which ITD is responsible.

2. Compliance

No tax authority can achieve 100% taxpayer compliance to allow it to fully meet
this objective but it must aspire to satisfactory compliance levels consistent with
the efficient and cost effective use of its resources.

The IMF has previously stated that in its opinion tax compliance in Sierra Leone
was in ‘a parlous state’. It laid the blame firmly at the door of NRA’s failure to
effectively collect the tax due to it and particularly its lack of an enforcement
regime.

NRA’s past policy on tax collection has relied on education of the taxpayers about
their tax obligations linked to a programme of persuasion to try to get them to
discharge those obligations. Human nature and taxpayers being what they are the
latter element was singularly ineffective, hence the ‘parlous state’ pronouncement.

Experience worldwide indicates that to achieve an acceptable level of compliance

a tax authority must do two things.

Firstly it must have in place systems and processes that allow taxpayers to declare
their tax liability, usually by a return or declaration and to pay the tax due ‘at right
time’ i.e. at the due date as determined by Law and then to both penalise those
who do not comply and pay ‘right tax at right time’ and to assess and collect tax
from taxpayers who fail to declare their liability. .

Secondly they must have in place systems and procedures to actively recover
outstanding tax debts including penalties, interest and other sanctions when the
taxpayer fails to pay, for whatever reason.

As far as ‘right tax’ is concerned, in a regime where self-assessment is practiced

the tax authority will normally accept the taxpayer’s declaration / return of tax due
but with a verification / audit system in place that can subsequently ensure that the
taxpayer has declared the correct liability i.e. ‘right tax’, if that is considered
necessary.

Failure to make a declaration will entail the tax authority assessing the tax due to
safeguard the revenue and to create a liability that can be the subject of some form
of recovery action.

Only if the tax authority actively enforces its sanctions and recovers its tax debts
can it expect compliance. Otherwise taxpayers will regard sanctions as idle threats
and payment of tax as a purely optional exercise at their discretion. When that
happens the tax authority has effectively lost control of the tax system.

In a self assessment regime the purpose of the return system is for the taxpayer to
make a declaration of his liability, for the Tax Authority to consider that
declaration and, if necessary, subsequently verify that return / declaration by
whatever means it considers appropriate e.g. query, visit, audit etc

The Tax Authority must encourage compliance by issuing sufficiently large

assessments to those taxpayers who do not make returns to either force them to do
so or to safeguard the revenue that is likely to be lost by the taxpayer failing to
make a self assessed declaration of liability.

Similarly in terms of payment of the tax the Tax Authority must ensure that a
liability is established as quickly as possible and that where that liability is not
paid action is taken quickly to recover the tax debt outstanding.

Compliance is dependent on the taxpayer knowing that if he does not fulfil the
obligations and requirements imposed on him by the Law the Tax Authority will
take action against him. That action will either be to ensure he does fulfil those
obligations / requirements and will penalise him for not doing so and/or will be to
safeguard the revenue and ensure that he pays the tax it considers is due from him.
Compliance is encouraged by those actions being seen to be both speedy and
certain and being applied equally to all taxpayers. .

In Income Tax it is the job of the Assessing and Collection sections to facilitate
compliance by ensuring the taxpayer fulfils his obligations re returns, payments
and collection. Where the taxpayer fails to fulfil his obligations it is the job of
those sections to ensure a tax debt is established quickly whether from return,
assessment, penalties and interest or otherwise and to pass that debt to the debt
recovery process for enforcement.

3. Recovery process

Thereafter it is the purpose of the debt recovery process to ensure the taxpayer
pays the tax owing to the tax authority whether that tax debt is made up of an
actual or assessed debt and / or by penalties, interest or other sanctions.

In ITD the recovery of debt is the responsibility of the EDMU. In due course this
unit will extend its activities to include GST, Sierra Leone’s version of VAT,
when that is introduced and with an ultimate goal of becoming an NRA wide unit
responsible for the recovery of all NRA’s tax debts.

The purpose of a debt recovery unit is to use the powers contained in the relevant
law to recover those outstanding debts.

In many cases it is simply a situation where the taxpayer will not pay his tax
debts. In this situation the recovery action is aimed firmly at enforcement of the
debt recovery process.

In some cases it is a situation where the taxpayer is willing to pay his tax debt but
is unable to do so and in this situation debt management may be needed to assist
the taxpayer to meet his debts perhaps by agreeing to an instalment plan.

In Sierra Leone most cases are likely to be enforcement cases because taxpayers
have become accustomed to NRA’s unwillingness to use their powers to recover
outstanding tax debt and have therefore decided not to pay despite efforts to
persuade them to do otherwise.

4. EDMU

It is for that reason that the unit is called the Enforcement and Debt Management
Unit – EDMU.

5. Staff names

It is for the same reason that officers employed in the unit will refer to themselves
as Principal Enforcement Officer, Senior Enforcement Officer etc rather than by
their rank titles of Collector etc. This is to disassociate EDMU from the previous
persuasive approach of Collection and to convey the different approach and the
enforcement ‘message’ to everyone who deals with EDMU.

6. EDMU objectives

The EDMU system objectives should be –

• To manage ITD debt and reduce the overall arrears by undertaking prompt and
proper action to recover debt

• To identify irrecoverable debt, where appropriate, for ‘write off’ action.

EDMU control objectives should be –

To ensure that:

• Effective policies for debt management are in place, regularly reviewed and
promoted with clear objectives and targets

• All debts advised to EDMU are identified, recorded and allocated promptly
according to EDMU policy
• Appropriate action is taken to reduce the outstanding debt and minimise non-
compliance

• Recovery of outstanding debt is economic, lawful and complies with NRA

policy

• Information is complete, accurate and timely for effective management and

operation of the system

7. Service to taxpayers

Taxpayers are entitled to an efficient service from the NRA and so EDMU should:

• Avoid unnecessary cost or disruption to a taxpayer’s business

• Deal discreetly with confidential tax affairs

• Provide clear and helpful information

• Be considerate, polite and fair

• Deal promptly with communications from taxpayers

8. Standards from contractors

EDMU should also ensure that any contactors they engage [removal contractors,
auctioneers etc] maintain similar standards

9. The enforcement process

Enforcement is a process that is intended to bring increasing pressure to bear on

the taxpayer to force him to a situation where he must pay his tax debts or face
going out of business.

EDMU staff must always remember that their primary objective is to collect the
tax due by the use of their recovery powers.

It is not to put taxpayers out of business. If the taxpayer has to go out of business
he ceases to generate tax income for the economy.

Conversely however, NRA cannot allow the taxpayer to continue to trade if by so

doing he continues to increase the level of his tax debt. Sometimes it may be
necessary therefore to put the taxpayer out of business to protect the revenue.

10. The Law

Enforcement and debt management is a process conducted under the recovery
powers of the Income Tax Act 2000 [as amended etc].

As such it is a legal process but only in the same way as the whole of ITD’s
activities are legal processes of fulfilling the requirements of the ITA.

The legal process of the recovery powers only requires the services of a lawyer
however when it involves an application to, or appearance in, a Court of Law or
for legal advice where EDMU are uncertain on the interpretation of the provisions
of the law to a particular situation or to their actions.

EDMU staff must never forget that the Law cuts both ways –

• It will grant them considerable powers to enforce and recover outstanding tax
debts and it will protect them whilst doing so - provided they stay within the
limits of its powers

• It can deal with them and the NRA harshly if they abuse or go beyond the
limits of those powers.

11. EDMU systems and subsystems

The recovery process breaks down conveniently into a main system and numerous
sub systems. These together with a view of the preceding Assessing and
Collections systems are set out in the subsequent sections of this manual in a 3
chapter format where it is considered appropriate.

12. General points and issues

There are numerous topics, points and issues however that are relevant to
EDMU’s operations as a whole and are therefore covered in this Section

13. Legal entities

We must never forget that in any tax legislation we are dealing with legal entities
– a legal ‘person’.

In the interpretation Section of the ITA - Section 2 - a "person” is defined as

including a partnership, a company, a government, a political subdivision of a
government and a public international organisation [See Annex A]

Although not specifically defined in Section 2 it should also be considered as

including associations, clubs, charities and similar bodies and, of course, a natural
person.

In terms of recovery this means that we can only take recovery action against the
appropriate legal entity and against the assets and other property of that legal
entity unless the law specifically states otherwise.
In some situations partners are considered to be ‘jointly and severally’ liable for
partnership debts but the directors of a company cannot be considered liable for
the debts of the company, any more than the committee members can be
considered individually liable for the debts of a club or association. A natural
person can only be liable for his business debts.

In the last case therefore we cannot take recovery action against assets, goods or
chattels held by a natural person in a private capacity. This can sometimes lead to
difficulties in recovery action against sole proprietor taxpayers.

Similarly we must take care not to take action against individual directors in
respect of the debts of their company.

14. Staff conduct

Enforcement is perhaps the most high profile function of a tax authority.

As such it is always likely to attract the attention of the media.

Also, because by its very nature it is confrontational and stressful for both staff
and taxpayers, it is likely to see some taxpayers trying to advantage their situation
by producing accusations of staff misconduct in the application of the
enforcement processes.

For EDMU staff in particular therefore there must be no question of them being
involved in any way with a business enterprise operated by themselves or by a
member of their family.

If a debt case involves a relative of a staff member of EDMU the case papers must
be highlighted as to this fact and the staff member must not attempt to gain access
to those case papers.

Similarly any member of EDMU involved in such a case must not disclose or
discuss anything relating to the case with the member of staff whose relative is
involved.

It is for the management of EDMU to ensure the unit’s integrity is safeguarded by

making sure this segregation takes place.

As far as other staff in the NRA are concerned they should ensure they distance
themselves from relatives’ tax activities and in particular do not become involved
in any way where debt recovery action is being pursued by EDMU.

If it does not already have one in place, NRA should consider introducing a
system for staff to declare relative’s tax interests to the authority so that the
relationship with that member of staff can be noted in the relevant taxpayer’s files
for the information of operational staff and their managers.

15. Staff attitude and approach

In many of the staff of NRA there is a perceived deferential attitude towards
taxpayers and the larger and more influential the taxpayer the greater the
deference appears.

Whilst EDMU staff must take care not to be overconfident, arrogant or officious
they must not be deferential.

Their primary task is not to ask taxpayers to pay the tax they owe and to try to
persuade them to do so. Their task is to demand the tax debt that is outstanding to
the NRA and to carry out the recovery functions of the ITA by exercising the
powers delegated to them by the CG.

This requires self confidence and a pro active approach to the task of enforcement.

When EDMU staff are dealing with taxpayers, at that point in time, they ARE the
NRA and taxpayers will judge NRA’s attitude and approach to debt recovery by
their attitude and approach.

A difficult situation will not be helped by the fact that NRA has not previously
undertaken enforcement activities.

A self confident and assertive approach is required from EDMU staff, created by
knowledge of the Law and procedures as they affect enforcement and a positive
mental attitude not adversely affected by a dismissive, bullying or intimidating
attitude from the taxpayer.

Managers must be prepared for the reaction of taxpayers to actions by EDMU

staff and to back up those actions provided the staff have not put themselves in an
untenable position by going beyond the powers of the Law and of their
instructions.

16. Security

Security is not a matter that appears to feature large in the minds of NRA staff and
managers except perhaps in dealing with the cashiers.

In the operation of EDMU however security is something we must consider

carefully if we are not to compromise its effectiveness.

Taxpayers and members of the ‘public’ should not be allowed into the offices of
EDMU except into a public interview room or interview area.

EDMU case papers or taxpayer’s files should not be left unattended in the
presence of a taxpayer so that the taxpayer can examine the case papers or file.

Meetings between taxpayers and members of EDMU should not be held on a one
to one basis as the EDMU staff member should be able to have corroboration from
a colleague for what was said at the meeting and thereby be able to refute any
allegation of corruption or impropriety.
There should be a brief note made of meetings with a taxpayer countersigned by
the second officer at the meeting and the note should be included in the case
papers.

Computer equipment should not be left unattended whilst switched on and

security procedures should be in place to ensure the security of both the hardware
and the data.

There should be a regime in place to back up the computer data daily and, as the
work increases, perhaps more frequently than daily if the risk is considered
sufficient.

Only authorised staff should be allowed to operate the computer terminal[s] to

safeguard the integrity of the data in the systems.

17. Communication equipment

EDMU must be able to communicate effectively with its taxpayers and with its
staff. Telephone[s] and a fax machine should be kept in an operationally ready
state.

Operational staff working away from the office need to be able to communicate
with the office and with contractors if necessary and arrangements need to be
made for the provision of cell phones or other means of immediate
communication to keep staff in touch from a health and safety as well as an
operational viewpoint.

18. Transport

If the visit teams are to operate effectively ‘in the field’ transport needs to be
immediately available for their use.

Provision of the support mechanisms needed for staff to operate effectively is a

prime responsibility of EDMU managers and the Head of EDMU in particular and
should be an indicator of a manager’s effectiveness in their own job.

19. Computer equipment

A policy decision has been taken that EDMU records are to be maintained on
computer.

To do so requires not only the capital equipment of the computer but peripheral
equipment such as printers, UPS[s] to counter the risks from electricity cuts and
back up facilities [to guard against data loss].

The software applications for the various databases should be overseen by NRA’s
IT department who should also advise on the IT operations of EDMU.

20. Forms and other stationery

The number of specialist forms and other stationery required for EDMU’s
operation is likely to be considerable [see Chapter 3 of the various sub systems].

One of the reasons given for past failures in Assessing and Collections has been
the lack of return and other forms so that some taxpayers were unable to comply
even had they wanted to and the relevant Sections were unable to try to make
them comply because there were insufficient forms, returns etc to meet demand.

The number of cases that EDMU is able to handle should be capable of estimation
at an early stage and the numbers of the various forms and form letters required to
service those cases should similarly be capable of estimation.

Consequently there should be no reason for shortfalls in stationery supplies and

inadequacy in this respect should not be a factor in mitigation of poor
performance.

21. Contractors

This topic is covered at length in Section 8 – Distress as that is the sub system that
is most likely to involve contractors.

The use of contractors is usually more cost effective than using NRA staff as the
costs can often be recovered from the taxpayer, as is the position with distress.

Contractors are a risk however in that they are not under the direct control of
EDMU in the same way as EDMU staff. They are however still the responsibility
of NRA and their activities will be perhaps more closely scrutinised by taxpayers
and the media. For those reasons the activities of contractors need to be closely
controlled, monitored and managed by EDMU.

Similarly the processes used to appoint them must be highly transparent and the
criteria set for their approval as contractors rigorous. They must maintain their
own tax affairs in order and be compliant re rendering and paying returns etc.
They should not have any close connections with NRA staff to avoid accusations
of favouritism or corruption in their appointment.

Drawing up tender documents and terms of contracts is a skilled process and one
where EDMU may have to seek the advice and support of other sections or units
within and perhaps even outside NRA.

22. Legal services

As has been said earlier in this Section enforcement needs the services of a lawyer
for advice on legal matters on an ongoing basis but also specifically to present
NRA’s case to a Court or to a Judge ‘in chambers’ when the power being
exercised requires an order or a decision of the Court.

It appears that in the initial stages of its operation at least EDMU will make use of
the ‘in house’ legal services to be supplied by the NRA’s own BSLA department.
EDMU should develop an ongoing liaison with the legal staff of BSLA. In the
longer term it may be more cost effective or beneficial to consider ‘farming out’
actual court or Judges Chambers appearances to independent firms of lawyers
who would be appointed in the same way as other contractors to NRA and
EDMU.

23. Staff selection and retention

Unlike many tax authorities it is unlikely that NRA will seek volunteers for the
posts in EDMU.

EDMU is likely therefore to have some staff who have been directed to fill posts
for which they are unsuited.

All enforcement work can be confrontational and stressful but in particular those
staff on visiting duties can find it very difficult to cope with particularly if they are
temperamentally unsuited to the task.

Staff selected for enforcement visiting need to be self motivating, self confident
and when necessary assertive though not officious or aggressive. Experience has
shown that staff who have had previous experience in the Police or armed forces
often perform well in enforcement visiting as their previously acquired skills and
qualities suit them well for this type of work.

Staff who are clearly unsuitable for the task to which they have been selected
should be counselled by their line managers as to their shortfalls and as to how
they can improve their performance. However if in the end it becomes obvious
that the member of staff is totally unsuited to the work and unlikely to ever reach a
satisfactory standard of performance they should be removed from EDMU visiting
and placed in the indoor teams.

If their performance there is still unsatisfactory a decision must be taken as to the

reasons why but whatever that may be they should be removed to another unit or
section quickly as their efforts, or lack thereof, is likely to adversely affect the
efficiency of EDMU.

24. Interviews with taxpayers

Where an EDMU officer has an interview with the taxpayer he should complete a
brief ‘Contact Note’ of the interview unless the circumstances of the interview /
meeting require a more formal report e.g. pre distress and distress visits.

He should include in the note any significant facts from the meeting that could
have an influence on the case. Hindsight and experience are likely to be a strong
influence on the officer’s appreciation of what should be considered ‘significant’.

A suggestion of the minimum that should appear in a ‘Contact Note’ is at Chapter

3 Appendix A.

25. Telephone calls

Telephone calls are meetings or interviews conducted on the telephone rather than
face to face. As such they should also be the subject of a contact note, if
appropriate.

They are a form of interview and as such are also capable of improvement as an
interview skill by members of staff.

An aide memoire for EDMU staff in conducting telephone calls is at Chapter 3

Appendix B.

26. Payment at taxpayer’s premises

In order to protect the revenue it may be necessary to accept payment at

taxpayer’s premises.

Under no circumstances must an officer of NRA accept a cash payment from the
taxpayer.

If the taxpayer wishes to pay by cash and the amount concerned is sufficient to
justify it, the EDMU officer may consider it worthwhile, to protect the revenue, to
offer to take the taxpayer, by official transport, to the nearest NRA office with
cashier facilities for him to pay in there.

Alternatively he may wish to accompany the taxpayer in the taxpayer’s vehicle to

the nearest NRA office to effect the pay in.

What he must not do, is accept the taxpayer’s assurance that he will pay the
outstanding debt by cash at an NRA office ‘later’ as a reason for failing to
continue with whatever enforcement action is being undertaken.

If the taxpayer offers to pay by bankers draft the EDMU officer should offer to go
to the Bank with him immediately or if he considers it justified give the taxpayer a
brief period of time to go to the Bank himself. The former is preferable but if the
latter is justified then the period of time allowed should be kept to the minimum
required by the circumstances – return journey time to the Bank plus time to
obtain a bankers draft.

However the payment is made, this should be treated as being made as a result of
action by EDMU and shown in the performance statistics as a recovery of an
outstanding debt by the actions of EDMU.

27. Credibility of EDMU

In the past ITD has lacked credibility as a tax gathering body and as a tax
authority for the simple reason that it did not conduct itself with ‘authority’ in the
eyes of its taxpayers.

To a large extent the taxpayers ignored it, and the assessing and collection systems
it failed to operate in line with the requirements of the law, so that payment of the
taxes it administered became optional as far as most, and particularly smaller,
taxpayers were concerned. As a result compliance levels were extremely low and
in the opinion of the IMF – ‘in a parlous state’.

Some, but not all, of this lack of compliance can be laid firmly at the door of its
failure to operate a credible, or indeed any, enforcement regime.

The opportunity now exists with the introduction of an enforcement regime and
the creation of an EDMU to right the previous wrongs and to improve levels of
compliance and reduce outstanding debt.

ITD has the opportunity to regain credibility in the eyes of the taxpayers and
EDMU must do its part in assisting that process. Assessing and Collections must
also do their part.

EDMU must be seen by taxpayers to have credibility. It must be seen to do what it

says it will do. For example - if staff say they will return to levy distress on a
particular day then they must do precisely that.

Do not tell a taxpayer you will do something unless you know you can, and will,
do it. If it is not in your power as an officer to make it happen, do not promise it
will happen – tell the taxpayer you will do your best to make it happen.

Only promise what you personally can ‘deliver’.

Do not ‘threaten’ anything unless you know you personally can carry it out.

In other words - there must be -

• No idle threats

• No false promises

If EDMU follow this creed they will gain from taxpayers the credibility and
respect they deserve