Director of Tax Authority Dr. Ahmed Ghalib:”We must enforce book-keeping to enhance transparency” [Archives:2007/1073/Business & Economy]
Interviewed by: Raidan Al-Saqqaf
Dr. Ahmed Ghalib is one of the few reformers playing an important role within the Yemeni government, during his term serving within the ministry of finance, he has initiated a number of reforms to enhance transparency and accountability. Currently serving as the Director of the taxation authority, Dr. Ghalib promises not only to enhance transparency and accountability, but also to reduce taxes to promote investments.
A number of businessmen and investors complain that the Yemeni taxation policy keep on changing, how do you comment on this?
The Yemeni taxation policy is relatively stable considering that the legislative framework and the rules and regulations that regulate taxation are in place and enforced, considering that the underlying concepts, objectives and taxation strategies do not change, but what might change are the technicalities within the taxation mechanism or the percentage of tax stipulated by law. Such changes might occur towards more simplification of the taxation procedures or as a result of a change in the economic and financial circumstances. It is evident that the government's adoption of the General Tax System for sales, which is considered one of the latest taxation systems in the world, that there is a direction towards simplicity and transparency.
The World Bank advices the government to increase taxes on some commodities and luxury items in order to increase the government's income. Are there any measures towards such an action?
The objectives of the Yemeni taxation policy are inline with the government's agenda towards stabilizing the standard of living and inline with the financial and economic policies. To answer your question, so far there is no such proposal towards increasing taxes regardless of what advice the World Bank gives, the government is not obliged to follow all the recommendations, opinions, or proposals especially those which do not serve the interest of the people of Yemen. Having said that, the amount of taxes collected is increasing annually but this increase is the result of a better and more efficient implementation of the current relevant legislation in accordance to the taxation mechanisms in place, which has become direct, flexible and more transparent.
The voluntary mechanism to pay taxes through direct deposits to the banks was prepared to facilitate the implementation of the Sales Tax Law, did the targeted tax payers follow this mechanism?
There is a new mechanism that allows the direct payment of due taxes directly through the central bank and other assigned banks whether it was income tax or sale tax. We consider this mechanism to be one of the prime pillars of the taxation reforms strategy as it is a clear, direct and hustle-free procedure. Additionally, this process decreases the amount of direct communication between the tax payer and the employees affiliated to the tax authority. However, despite the positive advantages to this system, many tax payers did not commit to it yet, but the authority is hoping for the system to prosper and become more popular because of its many advantages.
There is information indicating that there are accumulated taxes from previous years for some enterprises, what is the current mechanism to trail tax evaders?
The issue of accumulated taxes is a complex one for all parties involved. The complexity is primarily attributed to the lack of taxation awareness and the narrow minds of some taxpayers about the state's tax obligations. The Authority has been working hard to simplify its procedures, be more flexible with tax evaders, and not imposing tax penalties in order to receive more cooperation from such enterprises and eradicate this phenomenon.
Our reports indicate that most of these accumulations are on real state returns, non-trade and non-industrial occupations, or new taxpayers who do not have any previous accounts with the Tax administration; however, these cases have been recently confined. Additionally, accumulations were found for those who transfer ownership of the enterprise between more than one owner without informing the Tax Administration, as such, the new owners also buy the enterprise with all its overdue taxes. The Authority hence introduced new simplified mechanisms to clarify the process and spread awareness in order to eliminate those accumulations, sometimes through negotiations or through forming joint field committees with the chamber of commerce and local councils to clean slate those accumulated files and start a new page. These Committees will continue their work on such files until the end of this year 2007, by then we will have a clearer and more realistic picture.
Many Yemeni business men have a problem with the monitoring mechanism and book-keeping, what are the procedures that the Authority is enforcing to obligate the private sector to maintain regular book-keeping?
To be honest, this constitutes a hot issue and is a huge argument between us and the business community. Due to the lack of book-keeping, Tax Administrators base their work on arbitrary estimates to collect taxes. Hence, serious conflicts arise with the private sector and unfortunately, the current tax law does not enforce any kind of penalty on those taxpayers who do not practice sound book-keeping. However, the Authority is now working on a proposal to amend the income tax law in order to create a clear article within the law that obligates taxpayers to practice sound book-keeping and encourage them to submit their declarations according to the voluntary Self-Link System and deposit taxes directly to the authority's bank accounts. Additionally, the amendment should also reward taxpayers who pay directly to the banks, provided that they keep regular accounts and maintain books that are transparent in accordance to approved accounting standards that are recognized and in line with the tax laws.
There are a number of complaints from small trade and service shops that tax collectors blackmail them. Is there any kind of a monitoring mechanism on tax collectors and administrators?
The Authority has established a general department for taxpayers' services especially for this reason. This department is under my direct supervision and monitoring and its main objective is to receive complaints through phones, faxes, or the internet and to respond to each of these complaints with great attention and quickly, and, in some events, connect myself with the complainers to ensure any mishaps are rectified and any violations of the code of conduct is taken seriously.
However, due to the business nature of these small taxpayers, we have adopted what may be called “the Tax-Cutting System” which sets a standard and fixed amount of annual tax for each of these businesses, and also facilitated the direct bank payment system which is similar to the Self-Link System but is focused on the smaller tax payers; in order to simplify the procedures and for the interest of all taxpayers.
As for these blackmailing and unethical practices from some of our employees, we initiate an investigation immediately in such an event and if the employee was found guilty, we undertake legal procedures to prosecute them. Additionally, there is an already in-place monitoring mechanism on tax collectors; however, we need the cooperation of taxpayers to inform us of any unethical, corrupt or unprofessional practices to enable us to rectify the situation and eradicate corruption.
Does the tax system, more particularly the income tax, in our country encourage investment?
The government is currently administering a set of reforms in the financial and tax laws, as well as in the fiscal policies as an objective to improve the investment environment and finding new investment opportunities. One of these reforms is the proposal to lower the income tax from 35% to 20% and initiate deep rooted amendments on the income tax such as adapting the Self-Link System.
However, we are certain that the pro-investment measures in the current form are not economically feasible. For example, exemptions are given to small scale projects such as packing and packaging projects instead of being given to current strategic projects that are more economically feasible to the country, this would give such projects more liquidity and allow them to expand in turn growing the economy, providing more jobs, and increasing potential taxes in the future. Furthermore, the current income tax law, which will hopefully be amended, does not form any contradiction with the investment law and regulations, because the enforced law approves tax exemptions that are specified in the investment law, and we abide by these exemptions.
Yemen suffers from corruption in all its sectors. What is your strategy to eliminate corruption in the taxation field?
Corruption is a phenomenon that exists in every developing society and organizations in the past and also in our modern times. However, in the field of taxation there are a series of reforms that the Authority is following. For example we are undertaking legislative reforms, new tax directives to enhance transparency and accountability, and restructuring the hierarchy of the Tax Administration to suit the modern and developed role of a modern, responsive and transparent tax authority. Our reforms so far have achieved tangible success which is felt and appreciated by many financial and other institutions locally and internationally, and we are working towards implementing more reforms.
Dr. Ghalib, thank you for your time, are there any other comments which you would like to add?
I would like to thank the Yemen Times for their interest in the authority and to spreading tax awareness in the business community, and I also applaud your active participation towards promoting transparency and good governance in our society.