What should entrepreneurs know about tax inspections?

Tax Committee under the Government of the Republic of Tajikistan

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ʺThis brochure is designed to familiarize entrepreneurs with the procedure of tax inspection. Knowledge of the tax legislation requirements by entrepreneurs and abiding by them will facilitate success in their activities.ʺ

Hakim Soliev,Chairman of the Tax Committee

within the Government of the Republic of Tajikistan

ʺThe handbook on the procedure of inspection by tax authorities is published with the purpose of supporting small and medium businesses. Most entrepreneurs are unaware of the tax legislation requirements, particularly on the procedure and rules of conducting tax inspections. This handbook will help to familiarize entrepreneurs with their rights and obligations in the process of tax inspections.ʺ

Anna Schwarz Economic Programme Coordinator of the

Swiss Agency for Cooperation (SECO), Tajikistan

ʺThe IFC Business Enabling Environment Project in Tajikistan focuses its activities at supporting and informing small and medium entrepreneurs nationwide. This brochure is one of several joint initiatives of IFC and the Tax Committee within the Government of the Republic of Tajikistan. We are convinced that it will contribute to the promotion of entrepreneurship and support for this sector.ʺ

Wendy Werner,Manager of BEE Project in Tajikistan, IFC

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Tax inspections shall be conducted with the purpose of state control over the proper imple-mentation of tax paying commitments by entrepreneurs.

This handbook’s objective: familiarizing entrepreneurs with basic rules and procedures of tax inspection, rights and obligations of the entrepreneur and the inspector in the course of an inspection.

PurPose and tyPes of tax insPection.

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There are several types of tax inspection. The most traditional types of tax inspection are:

1. documentary inspection;2. operational (spot) inspection.

This handbook will primarily focus on the rules and procedures of documentary tax in-spection.

Depending on the institutional and legal form of entrepreneurial activity, the taxation proce-dures exist as follow:

For individual entrepreneurs –• patent and certificate based procedure, including with conditions of tax paid in accordance with the simplified procedure (when the an-nual turnover of goods, implementation of works or service delivery varies between 200 and 600 thousand Somoni) Forlegalentities–simplifiedandgeneral•(standard) proceduresFordehkanfarms(DF)–simplifiedproce-•dure (payment of a single tax for agricul-tural producers).

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Ifyouoperateonthebasisofacertificateoras a legal entity paying tax in accordance with thesimplifiedprocedure(thatis,yourgeneralincome during 12 previous months has not exceeded 600 thousand Somonis), thefirstdocumentary inspection (except for counter-inspection) should be conducted only after 30 calendar months from the moment of estab-lishment.

Following that timeframe the documentary inspection should be held not more than once in 2 years (if the annual turnover of goods, implementation of works or service delivery constitutes varies between 600 thousand and 15 million Somonis or if the number of work-ers does not exceed 100, or for agricultural sector – 200 workers).

The operational (spot) tax inspection can be carried out by the decision of head of the local tax authority not more than once a year.

The spot inspection can be conducted more than once a year only with the decision of the Chairman of the Tax Committee within the government of the Republic of Tajikistan.

How long and How frequently can tax insPections be Held?

REMEMBER!

During the period free of tax inspection entrepreneurs shall be obliged (in line with the Tax Code of RT) to pay the established taxes and submit tax reports in a timely manner!

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The tax inspection shall be held only during working hours and working days.

The length of the documentary tax inspection:up to 5 working days – for individual entrepre-neurs who do not pay value added tax (vAT), or heads of dehkan farms; up to 10 working days – for legal entities who paytaxesinlinewiththesimplifiedprocedure,and individual entrepreneurs whose annual value of goods, performance of work of ser-vice delivery is between 200 and 600 thousand Somonis;up to 30 working days – for legal entities whose annual value of goods, performance of work of service delivery is between 600 and 15 million Somonis;up to 60 working days – for legal entities, whose annual value of goods, performance of work of service delivery exceeds 15 million Somonis.

The length of the spot tax inspection should not exceed 4 working hours for every taxpayer.

REMEMBER!

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The documentary tax inspection (except for counter-inspection) shall begin with issuance of Order by the tax inspector in accordance with the plan.

The Ordershallbedraftedonanofficialformand shall include:1. name of the tax authority;2. First and last name of an individual entrepre-neur or title of a legal entity;3. Inspection date and timeframe;4. names of inspectors who will carry out the inspection.

The Order shall be signed by the head (or depu-ty head) of a tax entity and bear a seal with the state emblem and a registration number.

How sHall tHe documentary tax insPection Proceed?

STEP 1:

One order shall authorize only one tax inspection.

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On the basis of the Order the inspector shall draft a writtenNotification, which shall be submitted to the entrepreneur not later than 3 working days before starting the inspection.(Theentrepreneurshallbenotifiedinwritingabout the documentary counterinspection not later than 24 hours before starting inspection).

The entrepreneur shall be obliged to keep the originalcopyofthenotificationwithhimandto send its copy with his signature back to the inspector.

Uponreceiptofnotificationtheentrepreneurshall be obliged to provide the start of inspec-tion and prepare all necessary documents.

Should the entrepreneur fail to ensure the start of inspection in the appointed day and hour forvalidreasons(sickness,officialtravel),heshall be obliged to notify the tax authority of that in writing, and appoint another day by mutual agreement, but not later than 5 days after the initial starting date of inspection in accordancewiththenotificationofaninspect-ing tax authority.

STEP 2:

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In the established day of inspection the inspec-tor shall be obliged to:

Showhisservicecertificatetotheentrepre-•neur;Submit the Order on inspection;•Write an entry in the Inspections Registra-•tion Book.

The moment of submission of the Order on the conduction of tax inspection shall be consid-ered the start of inspection.

The lack of a permanent address of the entre-preneur(office,aroom,placeofactivity)shallbeconfirmedinwriting.Ifthisisthecase,thetax inspection shall be held in the premises of the tax authority which has appointed the inspection.

Tax inspections cannot be conducted in a dwelling house, or in the place of the entrepre-neur’s permanent residence.

STEP 3:

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The tax inspector shall be obliged to write an entry in the Inspections Registration Book.

If the entrepreneur is lacking this Book, the inspector shall be obliged to take note of that intheStatementoninspectionfindings.

The entrepreneur shall produce an Inspections Registration Book himself or take it from the local tax authority. This Book shall be distributed by the tax authority among entrepreneurs free of charge.

STEP 4:

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Before starting each type of inspection, includ-ing tax inspection, the inspector shall note in this Book as follows:

Inthefirstcolumn – serial number of the in-spection record (1,2.....);In the second column–firstandlastnameoftheinspector,numberofthecertificate,titleofthecertificateissuingauthorityanditsvalid-ityterm.Alltheseshallbeconfirmedbytheinspector’s signature;In the third column –if the inspector is accom-panied by a specialist and an auditor invited totheinspection-theirnames,identificationcard numbers, license numbers, the titles of the authority they have been issued by, and their validitytermsshallbereflected;In the fourth column–justificationfortheinspection (number of the inspecting entity decision) and the start day of inspection;Inthefifthcolumn – type and objective of the inspection (“regular”, “counter-inspection”...).

How sHould tHe insPections registration book be filled out?

ATTEnTIOn! The 6th through the 8th column of the Book shall be completed by the entrepreneur himself or herself! (page 19)

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The tax inspection can be started only upon completion of the aforementioned steps.

А.Ifyouractivityoperatesonapatent:

The tax inspector shall have the right to scruti-nize the issues below:

Patent availability and its payment bills; •Patent validity term; •Adequacyoftheregionalcoefficientuse;•Correspondence of the name and activities •of the entrepreneur with those indicated in the patent;Availability of an operation place and em-•ployees (the patent bearers are prohibited to hire employees);Availability of property, a vehicle being •used for income generation;Availability of cash register for sale of •excised products;Running a foreign economic activity (pat-•ent bearers are prohibited from running such an activity);Correspondence of the entrepreneur’s •operation address with that of the place of residence.

STEP 5:

REMEMBER!

In the event of irrelevance of the issue un-

der inspection to the form of your activity, you have the

right to prohibit the conduction of inspection.

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B. If the entrepreneur’s activity is based on a certificate, the tax inspector has the right to check the issues below:

Availabilityofacertificate;•Payment of the income tax and its collec-•tion from the employee’s income;number of employees;•Accounting income and expenditures;•Payment of the value added tax;•Payment of the social tax and its collection •from employees;Payment of the retail sale tax if the activity •is connected with the retail sale;Availability of cash register (including •while selling excised products);Availability of property, a vehicle being •used by the entrepreneur for income gen-eration.

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В.Iftheentrepreneurisaheadofdehkan farm:

During the documentary tax inspection the tax inspector shall be obliged to check the accu-racy of accounting of the items below:

Single tax from agricultural producers (to •requestlandtenurecertificatecontaininginformation on the land plot size);number of peasant farmers and wage earn-•ers;Calculation and deduction of income tax •and social tax from the head of the dehkan farm, farmers and wage earners;Accounting and taxation of operations •relatedtoagriculturalproductsrefining;Submission of the declaration (report and •payments).

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use of cash registers shall not be requested from the following entrepreneurs:

Patent bearers (except for persons engaged •in the sale of excised products);Individual entrepreneurs (except for per-•sons engaged in the sale of excised prod-ucts), unless 6 months have expired from the moment of their state registration;Entrepreneurs, whose service delivery •should be supported by receipts, tickets, coupons,postofficebillsorotherobligato-ry reporting documents equated to checks;lawyers, physicians or other free profes-•sionspecialistsdefinedbytheGovernmentof the Republic of Tajikistan;natural persons selling their agricultural •output produced in their homestead lands without its industrial processing in the markets and other places specialized for tradeoutsidefixedplaces.

REMEMBER!

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After completing inspection the inspector shall draft not less than 2 copies of the Tax Inspec-tion Statement and within 5 days following the end of inspection shall provide the entrepre-neur with a copy. The Tax Inspection Statement shall consist of 3 Sections:

Section 1. “Information about taxpayer”Section2.“Theinspectionfindings”Section 3. “Conclusions”

The Statement can be supplemented by copies ofconfiscateddocuments,accountingcon-ducted by the inspector and other materials produced during the inspection.

The entrepreneur shall read the Statement and sign it. However, signing the Statement does not imply that the entrepreneur has agreed with the tax inspector’s conclusions. The entrepre-neur has the right to challenge the Statement conclusions and lodge a complaint against it.

tHe date of submission of tHe tax insPection statement to tHe entrePreneur sHall be consid-

ered tHe final day of tHe insPection.

STEP 6:

In the event of findingadmin-

istrative irregu-larities during the

inspection, the inspector shall be

obliged to draft a Protocol on the

commission of the administrative infringement and to attach it to the

Tax Inspection Statement.

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comPlaining against tHe tax insPection statement

During 30 calendar days following the receipt of the Statement copy the entrepreneur has the right to lodge a complaint, in writing, against the Statement:ontaxinspectionfindings,calculationofthetotalamountofthetax,fines,percents(defaultinterests),aswellasotherdecisionsofthe tax authority to one or several of the bodies below:

the tax authority having taken this decision;•a higher instance tax authority;•a competent state body (Tax Committee within the Government of •the Republic of Tajikistan);the Court.•

Should an additional tax inspection be required, the tax authority with whichtheentrepreneur’sappealhasbeenfiledshallproposeawrittenjustificationtotheentrepreneur.

During 10 days following the receipt of a written decision on the Tax In-spectionStatementtheentrepreneurshallbeobligedtoconfirminwrit-ing his consent or objection regarding the conduct of an additional tax inspection. In the event of objection, consideration of the appeal shall be withdrawn and an additional tax inspection shall not be conducted. In this case the Statement and other decisions taken shall remain valid.

In the course of additional inspections, which will be conducted only on the basis of a written appeal and complaint of the entrepreneur, only those issues shall be scrutinized, the decision on which he has appealed against.

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The inspector shall submit the Inspection Statement and documents annexed to it to the tax authority, which has designated him to the inspection.

On the basis of the Statement the tax entity shall produce a decision(Notification)onfindingsofthedocumentarytaxinspection and shall be obliged to provide it to the en-trepreneur during 10 working days following the completion of the inspection, whether any irregularities were revealed or not.

REMEMBER! Such a decision shall not be tak-en on the results of the spot tax inspection.

STEP 7:

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After the receipt of Decision on tax inspection findingstheentrepreneurshallbeobligedtofillcolumns 6-8 of the Inspections Registration Book.

In the sixth column – the day of the inspection completion (the date of producing the Inspec-tion Statement);In the seventh column – actions taken by in-specting authority towards the entrepreneur;In the eighth column – a comment from the entrepreneur in the form of “I agree”, “I do not agree”, “I agree with the comments and rec-ommendations” shall be indicated.

STEP 8:

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In case of disagreement the entrepreneur has the right to appeal against the inspection re-sults.

In case of entrepreneur’s agreement in the eventofrecognizingtheinspectionfindingsbrought in the decision, the inspector shall be obliged to implement the decision of the inspecting authority in the established time-frame.

STEP 9:

APPEAl AGAInST OR IMPlEMEnTATIOn OF THE DECISIOnS TAkEn

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SPOT TAX InSPECTIOn:

unlike documentary inspections, issues of spot inspection are common for most entrepreneurs.

One of the tasks of tax authorities is detection of persons running entrepreneurial activity without state registration.

This goal can be achieved by the conduction of spot inspections. In the course of spot inspec-tions the inspector has the right to check:

whetherapatentoracertificateisavailable•whether rules of bottling (packing), label-•ing, storage and sale of excised goods are being respectedwhether cash registers are being properly •used.

Protocols shall be drafted regarding unregis-tered entrepreneurs, further on they shall be obliged to be registered in accordance with the established procedure.

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The law prohibits repeated tax inspections by vari-ous authorities and conduction of two consecutive inspections by one tax inspector. Repeated tax in-spection can be conducted only after an established timeframe.

It shall be conducted on the basis of:written application of the entrepreneur himself;•request of the law enforcement agency and only •on the basis of written clearance of instituting le-gal proceedings against the entrepreneur regard-ing taxation related crimes;decision of the Chairman (or an authorized •deputy) of the Tax Committee taken in accor-dance with written order of head of the local tax authority;decision of the Chairman (or an authorized •deputy) of the Tax Committee with the purpose of surveillance over the activity of the regional tax authority, which has conducted the tax in-spection.

AnnEX 1.

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Tax inspector does not have the right:To request information from the entrepreneur •irrelevant to the subject of the tax inspection, un-less otherwise it has been provided for in regula-tory and legal acts;To suspend the activity of the entrepreneur for •the period of inspection. (exception: individual entrepreneur, who does not use employees);To conduct inspection in overtime hours and in •days off;To conduct inspection of the entrepreneurial •activity (except for counter-inspection) of a sea-sonal nature in the periods as follow:

a) entrepreneurs producing agricultural output - dur-ing sowing campaign from March 20 to May 20;b) entrepreneurs producing agricultural output - during harvesting campaign from july 20 through november 20;c) entrepreneurs engaged in the processing of agri-cultural products - from june 20 through October 20.

AnnEX 2.

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Rights of inspector during tax inspectionTaking documents related to commission of tax •infringements by drawing up a withdrawal State-ment;Invitingtheentrepreneurbyawrittennotification•tothetaxinspectionofficefortaxinspection;Definingthesumthatthetaxentrepreneurisdue•to pay to a respective budget;Checkingallfinancialdocuments,accounting•books, reports, estimates, funds available, securi-ties and other valuables on hand belonging to the entrepreneur, as well as accounts, declarations and other documents related to accounting and payment of taxes;Inventory of the entrepreneur’s property (except •for his dwelling apartment);Taking verbal and written explanations from the •entrepreneur and his employees regarding ques-tions having arisen in the course of the inspec-tion;Examining all production buildings, warehouses, •commercial facilities and other premises of the entrepreneur being used for income genera-tion and analysing by a timekeeping or another method;Setting restrictions towards the entrepreneur and •collectingfinesprovidedforbythelegislation;In the course of tax inspections of banks only on •the basis of a court decision checking the move-ment of funds on bank clients current accounts;Receiving the information from banks or other •financialandloaninstitutionsasfollows:

Regarding availability of the entrepreneur’s �accounts and their numbers;

AnnEX 3.

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Regarding the balance and movement of �funds on the entrepreneur’s bank accounts.

Attracting specialists, experts and translators to •the inspection;Inviting persons having information on the •circumstances important for the conduction of the tax inspection to take their explanations and comments;In the event of violation of the tax legislation, •requesting the entrepreneur’s license to suspend or revoke it.

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Obligations of the inspector during tax inspectionAbiding by the Constitution and the legislation in •effect;Respecting rights and interests of the entrepreneur;•Conducting inspection in line with the Tax Code, •tax inspection methodology and other regulatory and legal acts;Assisting entrepreneur in the enforcement of the tax •legislation;Providingtheentrepreneurwithofficialforms•on tax reporting and explaining the order of their completion, balance the accounts and payment of taxes;Proposing the entrepreneur with the copy of the Tax •Inspection Statement and the tax authority decision on the inspection outcome;Ensuringthetaxpayersdataconfidentiality;•upon detection of signs of a crime, sending the in-•spection materials to the Agency for State Financial Control during 10 days following the approval of the Tax Inspection Statement;Before tax inspection explaining the entrepreneur’s •rights and obligations related to the inspection and its results;Making a record in the Inspections Registration •Book;Carrying out other tasks prescribed in the tax legis-•lation.

AnnEX 4.

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Rights of entrepreneur during the tax inspectionThe entrepreneur has the right to prohibit conduction of the tax inspection by the inspector, if:

The Order on the conduction of tax inspection is not •available or has not been submitted in line with the established procedure;ThetimeofinspectionspecifiedintheOrderhasnot•come yet or has already expired;Thetitle,thefirstandlastnameofthepersonto•conduct the inspection are different from those indi-cated in the Order;Thetaxinspectorhasnotshownhisservicecertifi-•cate to the entrepreneur;The frequency or the length of tax inspections have •not been respected;The requested documents are not relevant for the •period under examination;The inspector has refused to make a record in the •Inspections Registration Book;A special permit envisaged in the law is lacking;•Thetaxauthorityhasnotnotifiedtheentrepreneur•about the tax inspection within 3 working days before starting it (except for a spot inspection);One of the tax inspection procedures envisaged in •the Tax Code RT or tax inspection methodologies has not been enforced.

AnnEX 5.

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Obligations of entrepreneur during the tax inspection are:

Toacquireapatentoracertificatenecessaryto•legalize his activity in a timely manner;To implement tax obligations fully;•To implement legitimate requests regarding the •removal of revealed irregularities and not to hamper the inspector’s legitimate activity while discharginghisofficialduties;To give the inspector permission to conduct the •tax inspection on the basis of the Order;To submit declarations, tax reports and docu-•ments to the tax authorities;Tousecashregisterswithfiscalmemorywhile•performing cash payments and issue checks to consumers.To submit to the tax authorities written informa-•tionregardingthechangeoftheofficeaddressorthe place of residence not less than 10 calendar days before such a change;To put a record in the Inspections Registration •Book.

AnnEX 6.

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The Tax Committee under the Government of the Republic of Tajikistan guarantees state control of timely and absolute tax payment and tax legislation performance. The Committee participates in the preparation of laws and other normative legal acts, clarifies taxpayer’srights and obligations, and introduces changes and amendments of tax legislation.

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The State Secretariat for Economic Affairs (SECO) is the Swiss Confederation’s compe-tence center for all the core issues related to the economic policy. SECO’s aim is to create the basicregulatoryandeconomicpolicyconditionstoenablebusinesstoflourishforthebenefitof all. SECO represents Switzerland in the large multilateral trade organizations as well as in international negotiations. SECO is also involved in efforts to reduce poverty and help developing countries with transition economies build sustainable democratic society and vi-able market economy. Each year Switzerland spends approximately 1.9 bln. Swiss francs on development cooperation and transition assistance to countries.

Tax Committee under the Government of the Republic of Tajikistan

n. karabaev str. 42/2Dushanbe, Tajikistan 734018Tel.: (992 37) 233 06 94Fax: (992 37) 233 06 94E-mail: info@andoz.tjwww.andoz.tj

Tajikistan Business Enabling Environment Projest

Abdullo komandir str. 7 Dushanbe, Tajikistan 734 001Tel.: (992 48) 701 14 40Fax: (992 48) 701 14 48

www.ifc.org/tajikistan/sme

The opinions expressed in this report do not necessarily reflectthoseoftheInternationalFinanceCorporation(IFC),the Swiss State Secretariat for Economic Affairs (SECO), Department for International Development (DFID), or the World Bank Group (WBG).