Published On: Thu, May 18th, 2023

Tax office has no grip on ex officio assessments

PHILIPSBURG — If you have ever wondered why the tax administration continues to publish dozens upon dozens of tax warrants in the National Gazette, you can find the answer in the latest audit report of the General Audit Chamber. The report examines the process and effectiveness of ex officio tax assessments the tax administration sends to those who have failed to file a tax return.

The findings are rather shocking because the report states that the tax administration has no clue about the number and the value of the ex officio assessments and that it is therefore impossible to judge how effective this process is.

An ex officio assessment is calculated using a reasonable estimate of a person’s income, turnover and profit. These assessments must meet the condition of reasonableness. While in a regular process (when somebody files a timely tax return) the burden of proof is upon the tax administration, with ex officio assessment the reverse is true: the tax payer must prove (or disprove) its accuracy.

The General Audit Chamber found that there is insufficient internal control to determine the accuracy of ex officio documents. There is no information about the number and value of these documents the tax office issues and therefore it is also impossible to compile data that would enable the minister of finance to give account for the process to parliament.

“The tax administration acts based on unwritten guidelines that date back to the time of the Netherlands Antilles,” the report states. “Is equal treatment guaranteed? The answer to that question is no.”

The explanation for this mess is threefold: tax files are corrupted, there is a lack of personnel and the tax system cannot produce the relevant data. “We hope that implementing the country package will produce a tax administration that will sustainably achieve its mission and objectives,” the report states.

The Audit Chamber presents twelve recommendations to improve the current situation. Among them are the suggestion to investigate why tax payers repeatedly fail to file tax returns and the establishment of an interface with the receiver’s office.

A core value of the tax administration is the guarantee of equal treatment for all tax payers. This means that it can only apply rules that are mentioned in the tax ordinance. However, the tax administration has discretion in determining the reference amount (estimated income) in ex officio assessments, while the tax inspector has limited obligation to investigate these estimates.

Talking about tax inspectors: the report notes that the tax administration has four FTEs for this function, but at the time of the audit there were no fulltime inspectors on staff; auditors found just one acting inspector. Employees are authorized to do the work of tax inspectors.

The report furthermore notes that filing tax returns is required by law. Failing to do so potentially carries a jail sentence or a substantial fine. Ex officio assessments can be increased by 10 percent for individual tax payers and by 25 percent for businesses.

“An established written policy governing the ex officio process does not exist,” auditors found. “A draft document identifies the process but it has not been adopted.”

Another shortcoming is that ex officio assessments are not reviewed by a second employee at the tax administration. There is also no review of the surcharges.

Statistics to measure the effectiveness of surcharges are not available. To add insult to injury the tax administration uses regular mail to send ex officio assessments to tax payers and it has no way to control if these documents are actually received.

The ICT-systems at the tax office are heavily outdated. For business ex officio assessments it uses an automated tax system: SIAH. This system is more than twenty years old and it no longer receives updates. “The tax administration will continue to impose ex officio assessment if the tax payer does not file a return,” the report states, adding that this has resulted in “a towering pile of ever-aging ex officio documents.”

The Audit Chamber suggests using nudges instead of repressive measures like fines to increase tax compliance. A nudge is an incentive. As examples the report mentions simplifying the filing process, providing explanations for each question on the tax return and even contacting tax payers directly. The British (Making Tax Digital) and the Dutch tax inspectorates (Pay your taxes on time) have used nudges. At one time, the Dutch tax inspectorate explained itself with the slogan” “We cannot make it more fun than this.”

The Audit Chamber shared a memorandum of its findings with the secretary-general of the ministry of finance and with the head of the tax inspectorate, but they did not respond. On March 20, it presented the report to Finance Minister Ardwell Irion for review and comment, but he did not react either.


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