STRATEGIC PLAN Voluntary Compliance TAX ADMINISTRATION OF KOSOVO TAK ATK PRISTINA Professional, Transparent and Effective Services

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1 REPUBLIKA E KOSOVËS - REPUBLIKA KOSOVA - REPUBLIC OF KOSOVO QEVERIA E KOSOVËS - VLADA KOSOVA - GOVERNMENT OF KOSOVO MINISTRIA E EKONOMISË DHE FINANCAVE - MINISTARSTVO ZA PRIVREDU I FINANSIJE - MINISTRY OF ECONOMY AND FINANCE ADMINISTRATA TATIMORE E KOSOVËS - PORESKA ADMINISTRACIJA KOSOVA - TAX ADMINISTRATION OF KOSOVO Voluntary Compliance Professional, Transparent and Effective Services Equal and Uniform Implementation of Tax Laws 4% 4% 0% PA K % 16 TV % % 10 SH 10 AT K % TA P 8% TAK 16 STRATEGIC PLAN TA K 0% AT K TAX ADMINISTRATION OF KOSOVO ATK PRISTINA

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3 TAX ADMINISTRATION OF KOSOVO Strategic Plan

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5 CONTENTS Page 1 Executive Summary Director's foreward Summary Authorization and Approval Approval Organizational description Our Responsibilities Our History Our Vision Our Values Our Mission Senior Management Team TAK Structure Appendices A Goals, Actions and Priorities B Compliance Model C Revenue Projections by Tax Type D Budget Data E Operational Plan F Description of Strategic Planning Process Used G Monitoring Process H Performance Measurement Indicators STRATEGIC PLAN

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7 1.0 EXECUTIVE SUMMARY 1.1 DIRECTOR'S FOREWORD The Year marks the 10th Anniversary of the founding of the Tax Administration of Kosovo. In the ten years of TAK existence, significant steps have been taken to improve our capacity and service to the public. Over the years, the international community, particularly the EU and USAID, have provided advisory support and training support which have led to our current state of development. The past 10 years have been challenging, but greater challenges lie ahead. We have a system of tax laws that meet international standards and embody EU principles. We have a basic core of regular taxpayers who are paying most of the taxes collected. Our challenge is to reach the remaining businesses and individuals who should be paying taxes, but are not currently doing so. Our tax system will be most effective when everyone is part of it and contributing their fair share. Our efforts over the period of this Strategic Plan will be primarily directed at broadening our tax base and collecting the proper amount of tax from all taxpayers. We will do this through increasing our technical capacity and increasing the amount of information available to TAK for ensuring that everyone is reporting and paying their fair share. In addition, we will strive to do our job with integrity in a manner that is transparent, leaving no doubts about why we treated one taxpayer in one manner and another in a different way. Through our efforts and actions, we will demonstrate to the public that we are a public organization that is deserving of their trust and respect. That is a critical factor in our effort to become a tax administration serving all the people of Kosovo with integrity, efficiency, and fairness. Behxhet Haliti Director General Tax Administration of Kosovo STRATEGIC PLAN

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9 1.2 SUMMARY Our Government requires revenue in order to meet its responsibilities to the citizens and residents of Kosovo roads, security, education, hospitals, social welfare programs, etc. all require funding. The Tax Administration's mission is to collect the revenue that provides that funding in a fair and transparent manner. It depends on taxpayers to voluntarily determine their correct tax liability and make timely payment of that liability. In developing our Strategic Plan, we also developed a compliance strategy which will guide our compliance efforts throughout the course of this strategic plan. As a result, our strategic plan differs from previous plans, which have focused on four main areas - Customers, Organization, Systems, and Staff. This strategic plan will focus on 12 major components which will help TAK achieve its compliance and revenue goals, while at the same time ensuring that our systems are up-to-date, staff is well-trained, laws are effectively applied, and the staff performs its work with integrity and fairness. Our Compliance Strategy is based on the principle that there are four categories of taxpayers those who are willing to do the right thing by timely submitting their declarations and paying their correct tax liability; those who try to do the right thing, but don't always succeed; those who don't want to comply; and those who have decided not to comply. We will focus our compliance efforts on the strategies that are necessary to address each of these four types of taxpayers. Those will range from taxpayer education to prosecution. During the course of this strategic plan, we will make it easier to comply by implementing electronic filing for all taxpayers. We will also establish a call center where taxpayers can call without charge to obtain the information they need regarding their declaration submission and payment obligations. In order to ensure that taxpayers know how to comply, information pamphlets will be prepared on a variety of topics and media campaigns will be developed to help the public become aware of, and understand, their tax obligations. The Assembly of Kosovo has recently approved new laws on Personal Income Tax, Corporate Income Tax and VAT. Those laws will all require taxpayer educational material, new administrative instructions and new internal instructions. They will also require significant communication with taxpayers and tax advisors. Using a combination of seminars and publicity campaigns, we will strive to educate all taxpayers in their rights and obligations. At the same time, we will increase our capacity for enforcing the tax law with respect to those who do not report their transactions accurately through increasing the amount of information available to the tax administration from Governmental sources as well as from other sources. Our inspectors will be trained in the new laws and in good audit procedures. STRATEGIC PLAN

10 Our cases selected for audit will be done through a risk-based audit selection system that will ensure fairness and objectivity in the process. This will also allow us to focus our resources on those taxpayers who have the greatest probability of improperly reporting their tax liability. A tax investigation unit will be established which will be responsible for investigating tax fraud and working with prosecutors in bringing tax fraud cases to trial. The Law on Tax Administration and Procedures, as amended, provides additional authorities for our enforced collection staff. Implementing regulations have been issued with respect to those new authorities. During the term of this strategic plan, we will train staff and prepare internal instructions and forms so that full advantage can be taken of those new authorities. Our tax administration data processing system, SIGTAS, will be upgraded in the early part of this Strategic Plan. That will allow improvements in processing capability and management of audit and collection work. Our taxpayer database has not allowed us to adequately monitor taxpayer compliance. With the implementation of fiscal numbers, we have an opportunity to establish a reliable database, which will be a focus in the early years of our strategic plan. As we improve the validity of our taxpayer database, we will be able to also improve the reliability of information in our system regarding unpaid taxes and declarations which have not been submitted. A reliable database is important to our efforts to reduce the number of non-filers and stop filers that adversely impact our revenue and our voluntary compliance system. As this strategic plan is being developed, we are making changes in the organizational structure of the tax administration. Those changes will continue until we have established a structure that will improve our managerial effectiveness and oversight capability. They will also ensure that our anti-corruption capacity is strengthened. As noted in our vision, our aim is to become the premier revenue collector for the Government. We must collect the revenues in a way that does not hinder economic growth, while ensuring that all taxpayers share the burden of paying taxes in accordance with the provisions of the law. We believe that this strategic plan will lead us toward achieving our mission and our vision. We look forward to the progress that the next five years will bring. 10 STRATEGIC PLAN -2015

11 2.0 AUTHORIZATION CONTRIBUTORS: Behxhet Haliti, Director General of TAK Bashkim Shala, Deputy to the Director General (Operations) Sakip Imeri, Deputy to the Director General Hamit Mulaj, Acting Deputy to the Director General (Corporate Services) Rifat Hyseni, Deputy to the Director General (Information Technology) Nahit Sharku, Director for Modernization and Strategic Planning Ekrem Hysenaj, Director for Legal Office and Appeals Regional Managers: Ilir Murtezaj, LTU Nikson Mirdita, Prishtina 1 Isen Lipovica, Prishtina 2 Besim Ahmetaj, Peje Ramadan Kryeziu, Prizren Ukshin Rrecaj, Mitrovice Fikret Ibrahimi, Ferizaj Valdet Bektashi, Gjilan Lazër Ramaja, Gjakove HQ Managers: Tefik Ujkani, Planning and Analysis Ilir Islami, Personnel Shyhrete Gllogu, Legal Office Melihate Godanci, Acting, Internal Audit Arsim Syla, Professional Standards Teuta Morina, Appeals STRATEGIC PLAN

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13 FINAL APPROVAL: Approval: Date: Behxhet Haliti, Director General of TAK Approval: Date: Bashkim Shala, Deputy to the Director General (Operations) Approval: Date: Sakip Imeri, Deputy to the Director General Approval: Date: Hamit Mulaj, Acting Deputy to the Director General (Corporate Services) Approval: Date: Rifat Hyseni, Deputy to the Director General (Information Technology) Approval: Date: Nahit Sharku, Director for Modernization and Strategic Planning Approval: Date: Ekrem Hysenaj, Director for Legal Office and Appeals STRATEGIC PLAN

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15 3.0 ORGANIZATIONAL DESCRIPTION 3.1 OUR RESPONSIBILITIES We are responsible for collecting and administering central government taxes which include VAT on domestic supply, Corporate Income Taxes, Personal Income Taxes, Employment Taxes, other withholding taxes, and Pension Contributions. We are also responsible for issuing gaming licenses, monitoring compliance of the gaming industry, and enforcement of the Law on gambling. 3.2 OUR HISTORY TAK was organized on January 17, 2000 under the guidance and administration of UNMIK. The first TAK director was an international expert employed by a USAID contractor. From October 2001 until February 2003, there were co-directors with USAID and a Kosovar (Mustafë Hasani) sharing the role of Director. On February 18, 2003, authority for tax administration was transferred from UNMIK to the Ministry of Economy and Finance, and Mustafë Hasani assumed the duties of Director TAK. Since that time, TAK has been an autonomous organization, managed entirely by Kosovo residents with advice and assistance from international donor organizations, primarily USAID, EU and IMF. During its brief history, TAK has developed a functional organizational structure, which is largely in line with best international practices. It has a centralized document processing center through which all returns are processed, although VAT processing is being decentralized to facilitate earlier compliance intervention. A large taxpayer unit has been established to deal with the largest taxpayers in Kosovo, which is an international best practice. Kosovo tax legislation has been recognized by both the IMF and the European Commission as being transparent and of good international standard. With all its development and assistance, TAK is becoming recognized as a modern and efficient tax administration and a leading governmental organization in Kosovo, although there is still much to do to reach our desired state of operating efficiency. STRATEGIC PLAN

16 3.2 OUR VISION Our Vision is that the Tax Administration will: - establish and maintain a positive image for the benefit of Kosovo, - be respected by our clients and recognized by international organizations and institutions, - be composed of a professional and energetic staff that will guarantee a high degree of transparency and modernization of our services in relation with our clients, through which we will become the main source of revenue for Kosovo. 3.4 OUR VALUES Our success depends on us all sharing the same values. The Tax Administration will be driven by these values in all our dealings: - Integrity and honesty will be foundation stones of our institution, which ensures that we provide equal treatment for taxpayers and fair application of laws, - Professionalism will be the key of success in achieving our mission, aiming continuous improvement towards the highest standards of success, - Transparency will be a key element to create sound relations with taxpayers and trust in the tax administration, - Respect to taxpayers is demonstrated through our contacts in which we will recognize their rights and our obligations, - Flexibility will be a base for new developments in our organization 3.5 OUR MISSION Our Mission is to: - maximize voluntary compliance, giving full regard to tax legislation and regulations; - provide professional, transparent and effective service to the taxpayer community in order for them to understand their tax paying obligations; and - ensure fair and uniform application and enforcement of tax laws in order to collect revenues for the government budget in an efficient and cost-effective manner. 16 STRATEGIC PLAN -2015

17 3.6 TAK SENIOR MANAGEMENT TEAM Behxhet Haliti, Director General of TAK Bashkim Shala, Deputy to the Director General (Operations) Sakip Imeri, Deputy to the Director General Hamit Mulaj, Acting Deputy to the Director General (Corporate Services) Rifat Hyseni, Deputy to the Director General (Information Technology) Nahit Sharku, Director for Modernization and Strategic Planning Ekrem Hysenaj, Director for Legal Office and Appeals STRATEGIC PLAN

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19 Director General Executive office Deputy to Director General Deputy to Director General (Operations) Deputy to Director General Taxpayer Advocate LTU Administrators Audit Prishtina 1 Programmers Collection Prishtina 2 Operations and support Education Peja System Analysts Special Audit Unit Mitrovica Procesimi Ferizaj Pension Prizreni Gjakova Gjilani Gambling Collection, Audit Analyst 3.7 ORGANIZATIONAL STRUCTURE OF TAK Director For Internal Audit and Professional Standards Deputy to Director General (Corporate Services) Internal Audit staff Professional Standards Budget Procurement Director For Modernization and Strategic Planning Training Coordination Manager Strategic Planning Fiscal Cash Register Unit Tax Investigation Unit Director For Legal Office and Appeals Manager Legal Office Appeals Manager Human Resources STRATEGIC PLAN

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21 Appendix A COMPONENTS AND ACTIONS 1. LIVE UP TO OUR OBLIGATIONS DEFINED THROUGH THE TAXPAYER CHARTER OBJECTIVE ACTION RESPONSIBLE BEGIN END The people of Kosovo deserve a tax administration that will enforce the tax laws in a fair and reasonable manner that fulfills our obligations under our taxpayer charter. We will conduct our day-to-day activities in such a way that the public recognizes our professionalism and develops trust in our institution, as provided in our Code of Professional Conduct. A respected tax administration will create a certain level of voluntary compliance simply by the public's recognition that it is meeting its obligations in a professional and fair way. Through our strategy, we will: - broaden the tax base by gaining the public's trust in us as a key institution of the government; 1.1 On an annual basis, present Code of Conduct Training for all TAK employees 1.2 Investigate all allegations of misconduct by TAK employees, ensuring that all conflict of interest is abolished 1.3 Ensure transparency of the tax administration by publication of all public rulings and administrative instructions so that the public is aware of all documents issued that impact on their ability to comply with the tax laws Office of Professional Standards Office of Professional Standards Taxpayer Education - enforce the TAK Code of Conduct with respect to our employees, just as we enforce out tax laws against those not in compliance with the tax laws; - re-organize our tax administration in order to improve our capacity for administering the system fairly and objectively; - establish a tax advocate staff to hear complaints of taxpayers who believe that TAK has not respected the rights of the taxpayer, made an error in it s processes, inappropriately treated a taxpayer, or to receive responses to Customer Satisfaction Surveys related to audit and enforced collection. 1.4 Establish a taxpayer advocate staff to consider complaints of taxpayers and develop procedures to be followed in receiving and processing complaints. 1.5 Educate the public on the availability and responsibility of the taxpayer advocate and how to submit complaints. 1.6 Ensure transparency of tax administration activity by providing an annual accounting to the public of business results, including disciplinary actions taken Taxpayer Advocate Taxpayer Advocate Director General Sept Sept January of each year beginning with a report in January June June 1.7 Review current organizational structure and revise as necessary Director General December STRATEGIC PLAN

22 2. ENSURE THE INTEGRITY OF OUR TAXPAYER DATA BASE OBJECTIVE ACTION RESPONSIBLE BEGIN END A reliable taxpayer data base is a core requirement of any tax administration. In 2009, TAK implemented a requirement that each taxpayer obtain a fiscal number from the tax administration before any business begins economic activity. Penalties are provided for those businesses that do not obtain fiscal numbers as required. We will use a variety of resources to develop and protect our taxpayer data base. 2.1 Continuing publicity campaign to ensure that all new businesses are aware of the requirement to obtain a fiscal number from TAK prior to engaging in economic activity 2.2 Conduct seminars in coordination with SCAAK for accounting and other tax practitioner groups to ensure they are aware of the requirements for fiscal numbers 2.3 Taxpayer education inspector visits to all new businesses to educate taxpayers on filing and paying obligations and to confirm the existence of the business Taxpayer Education Taxpayer Education Regional Managers Oct, and quarterly thereafter June 2.4 Match information from Business Registration Agency with taxpayers registered in TAK registry visit all businesses that do not match to confirm if they are active or passive; request de - registration of all passive businesses Taxpayer Education; Regional Managers 2.5 Publicize the names of all passive businesses so that businesses are aware of businesses that are not active and the consequences of doing business with those businesses Taxpayer Education On-going from Publicity campaign to inform all businesses of access to TAK information to determine if a taxpayer is active, or not, so that the public is informed of how to determine if a business is active or not Taxpayer Education June June 2.7 Regional office contact with all businesses without a fiscal number in SIGTAS database not previously transferred to passive status to confirm whether active or passive and take appropriate action to secure un -submitted declarations, collect unpaid taxes, or transfer to passive status. Regional Managers October 22 STRATEGIC PLAN -2015

23 2.8 Enforced Collection contact with a sampling of businesses in old SIGTAS TAK data base to confirm whether active or passive and take appropriate action to secure un-submitted declarations, collect unpaid taxes, or transfer to passive status Regional Managers January 2.9 Conduct compliance campaigns, including door - to-door canvassing, to identify un-registered taxpayers 2.10 Match information from other governmental organizations (cadastre, vehicle registration, etc) to identify individuals and businesses that have not registered with the tax administration, but should have done so January At least annually, and as need identified 2.11 Identify additional sources of matching information for registration purposes 2.12 Match information from municipalities to ensure that all businesses licensed by the municipality are registered with the tax administration; establish automatic matching process so that miss-matches are automatically notified to the applicable regional office If a project is determined necessary for design and implementation, responsibility will be transferred to Director, Modernization June STRATEGIC PLAN

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25 3.10 Identify common errors on declarations and provide information on how to avoid them 3.11 Identify the most common causes of penalties and tax adjustments and provide information on how to report correctly so that penalties and adjustments can be avoided - Include in Director General's annual report to the public 3.12 Publish all tax laws, administrative instructions, public rulings, tax forms and educational materials on the tax administration web site Audit Taxpayer Education February Annually October October February Annually Annually November November Annually Taxpayer Education 3.13 Revise format of web - site to improve public access and ease of use Taxpayer Education February May 3.14 Conduct public seminars for all new tax laws and related procedures in coordination with various business organizations, SCAAK, etc. November 3.15 Provide awareness roundtables and seminars in regional offices on a quarterly basis for all interested businesses - targeted to specific segments of taxpayers if appropriate Regional Managers October Quarterly up to Consult with SCAAK and business organizations to determine the different needs of various types of businesses and develop targeted information seminars and written information February June STRATEGIC PLAN

26 4. IMPROVEMENT OF TECHNICAL CAPACITY OF OUR TAXPAYER EDUCATION STAFF AND USE NEW METHODS OF PROVIDING INFORMATION TO THE PUBLIC OBJECTIVE ACTION RESPONSIBLE BEGIN END As our tax system develops and the number of taxpayers increases, the demands on the tax administration staff will increase. In increasing numbers, taxpayers will need to receive accurate information and personal assistance from tax administration staff. In order to meet those demands, we will provide additional training to our taxpayer education staff to ensure that they have the knowledge to be able to respond to the public s inquiries. We will also increase the means by which taxpayers can contact the tax administration for assistance. 4.1 Train all taxpayer education staff in existing laws and procedures 4.2 Establish program of Continuing Education to ensure that Taxpayer Education staff remains current in procedures and laws. 4.3 Conduct Continuing Professional training for taxpayer education staff 4.4 Increase the use of regional taxpayer education personnel in conducting outreach seminars and taxpayer workshops (Operations) Training Regional Managers January April October November March At least Annually 4.5 Establish a taxpayer access portal which will allow taxpayer read-only access to their accounts, and other data that will assist them in complying with the tax laws. Director Modernization February 4.6 Establish a call center with modern call distribution and automated answering capabilities for taxpayer contacts through which taxpayers can receive telephone assistance via a toll-free telephone line Director Modernization June February Equip the call center with modern capabilities of access to taxpayer information, frequently asked questions, electronic research materials, etc. Director Modernization June February STRATEGIC PLAN -2015

27 5. ESTABLISHMENT OF PROCESSES THAT FACILITATE THE TIMELY SUBMISSION AND PROCESSING OF DECLARATIONS AND PAYMENTS OBJECTIVE ACTION RESPONSIBLE BEGIN END The tax administration will make every effort to facilitate submission of declarations and payment of taxes. Late processing of declarations adversely impacts the accuracy of our data base and results in incorrect decisions, in addition to increasing the burden on taxpayers when they attempt to obtain certifications for tenders, etc. Late application of payments causes unnecessary notices to be sent to the taxpayer and inaccurate revenue reporting. 5.1 Conduct a complete review of declaration processing to identify issues and roadblocks to timely processing of declarations 5.2 Implement recommendations for improvement 5.3 Identify most common errors and determine appropriate means of eliminating those errors in the future (Operations) October June April We understand that making it easier for all taxpayers to submit their declarations and pay their taxes will improve the rate of voluntary compliance. We will provide additional options to taxpayers for submission of declarations. We will increase the availability of forms which can be downloaded from our system with pre -printed name, address, and other identifying information. We will introduce electronic filing for a limited number of forms initially and then expand that to include all declarations submitted to the tax administration. We will improve payment processing so that payments will post directly to taxpayer accounts and increase the accuracy of data in the tax administration, so that both taxpayers and tax officials can rely on the accuracy of the information provided by the TAK IT system. 5.4 Expand the use of pre - printed declarations downloaded from the TAK web-site 5.5 Implement electronic filing for all tax types and many third-party reports - initial pilot followed by phased -in implementation 5.6 Implement revised payment process in coordination with Central Bank 5.7 Conduct study to determine feasibility of de-centralized processing of certain tax declarations and submit recommendation to Director General 5.8 Explore other methods of receipt of payments Taxpayer Education Director, Modernization Manager, Taxpayer Education March 2012 November August November 2012 STRATEGIC PLAN

28 6. PREVENTION AND EARLY INTERVATION OBJECTIVE ACTION RESPONSIBLE BEGIN END As reflected in the Compliance Model, the costs of tax administration are greatest when it is necessary to use one -on-one contacts to deal with non -compliant taxpayers. We will establish a Risk Management Unit to conduct research and analysis using existing and methods yet to be developed to establish programs for prevention of delinquency. These programs will also allow for early intervention when potential compliance risks are identified. In addition, we will improve our methods of addressing taxpayers who have not timely submitted tax declarations. As noted in Strategy Five, our improved processing of declarations will allow earlier identification of taxpayers who have not submitted declarations. Establishing a good data base as described in Strategy Two will help us more effectively identify those taxpayers who have registered but not submitted any declarations. 6.1 Identify VAT non -filers within 20 days after VAT declarations are due to be submitted and assign for field contact to determine why declaration not submitted and establish timeframe within which any delinquent declarations are to be submitted 6.2 Identify new businesses that have not submitted declarations within two months after registering and schedule a taxpayer education visit to determine reasons for non - submission of declarations and to assist in preparation of any declarations that are due. 6.3 Establish process for tax administration to secure delinquent declarations when making contact with delinquent taxpayers to ensure that delinquent declarations are submitted as requested (Complianc e) (Operations) Regional Managers (Complianc e) (Operations) November October We will also work with educational institutions to provide training materials for presentation in high schools and universities. We will seek a partnership with public institutions through which qualified TAK employees will serve as guest lecturers (particularly in the Economic Faculty) to present lectures on tax laws, tax regulations, and tax compliance. We believe that knowledge learned at this stage of an individual s education will help prevent subsequent delinquencies when students enter the business world. In all contacts with taxpayers, whether compliant or not compliant, we will take the time necessary to ensure that they know how to comply and understand the consequences of not complying with the submission and payment requirements. In the case of non - compliant taxpayers (either non - compliant for timely payment or non-compliant for under -stating their tax amount) we will identify the cause of the non -compliance and educate the taxpayer in how to become, and remain, compliant 6.4 Establish procedures and requirements that contacts with delinquent taxpayers must include a determination of the cause of the delinquency, actions taken to resolve the delinquency, and advice to the taxpayer on how to avoid the delinquency in the future. 6.5 Establish a Risk Management Unit to develop research capability to conduct environmental scans designed to identify future compliance risks (political situation, pending laws that will impact tax administration, emerging industries, new technologies, taxpayer representative and advisor tax planning programs, etc.) so that early action can be taken to prevent delinquencies 6.6 Establish relationship with public educational institutions and arrange for qualified TAK employees to serve as guest lecturers instructing students in tax law, tax regulations, and requirements to remain in compliance with the tax laws. (Complianc e) (Complianc e) Training (Complianc e) Director Modernization Planning and Analysis March November November 2012 October STRATEGIC PLAN -2015

29 6.7 Arrange for regular (quarterly) new business roundtables/seminars to inform new and prospective businesses of the registration, record -keeping, declaration submission, and payment requirements of businesses Regional Managers January February and with each taxpayer 6.8 Develop video presentations (DVD/CD) that can be provided to businesses at trade fairs and other venues describing the features of the Kosovo tax system (Complianc e) February 2013 June 2013 STRATEGIC PLAN

30 7. ENHANCEMENT OF EFFECTIVNESS OF AUDIT PROGRAMS AND RISK ANALYSIS AND INDENTIFICATION OBJECTIVE ACTION RESPONSIBLE BEGIN END The tax administration has developed an audit model that identifies those taxpayers that are most likely to have under -stated their taxable income or under -paid their tax obligations. The audit model also identifies the issues that should be examined in the course of an audit. Using the audit model, the Headquarters Audit Department will select at least 90% of all cases to be audited in the regional offices. This will allow us to more effectively use our resources in auditing more productive cases. It will also make case selection an objective process free of personal biases. Audits will be more focused, reducing the need for full audits of taxpayer books and records. 7.1 Ensure that all regional managers, audit team leaders, and audit inspectors receive training in use of the audit model, new laws, and annual continuing professional education 7.2 Establish implementation plan for fiscal cash registers and implement in a structured manner to allow for timely testing and registering of equipment and ensuring that required data is being transmitted to TAK; ensure that data transmitted is integrated into audit risk model and used for research and compliance purposes. CPE (Complianc e) (Operations) Training (Complianc e) Director, Modernization November CPE Annually November 2014 While we expect to provide some audit coverage across a wide spectrum of business taxpayers, our greater emphasis will be on those taxpayers with gross turnover of more than 500,000. To facilitate this emphasis, we will segment our taxpayer population into broad industry groups and then identify the riskiest taxpayers in each industry segment. Through the audits, we will seek to identify common features that are unique to each industry which can be used in subsequent publicity and compliance campaigns. The audit model has demonstrated that a large number of taxpayers are reporting purchases greater than their sales on their VAT declarations. This pattern continues over an extended period of time and has contributed to a large number of taxpayers carrying excess VAT credits and not paying any VAT. It is not reasonable that a taxpayer would be able to survive long in business when his purchases and imports are continually greater than his sales. We will target those companies that have been in credit status for an extended period of time with purchases and imports exceeding sales for audit. 7.3 Establish a risk analysis capability in the HQ Audit Department to update the Audit Model, identify additional third-party information that would be useful, identify those taxpayers with the greatest risk, and determine the scope and depth of the audit 7.4 Centralize selection of audit cases in headquarters, based on analysis of audit risk factors, providing some coverage across the spectrum of businesses, with the greatest emphasis on businesses with turnover of 500,000 or more - identify risks and issues to be audited before the case is transmitted to the field; taxpayers in continual VAT credit status with purchases and imports greater than sales will also be targeted for audit. 7.5 Prepare a VAT refund guide and ensure that managers, team leaders and audit inspectors are trained in VAT refund procedures and the use of the audit model in identifying potential fictitious invoices or entities. (Complianc e) Audit (Complianc e) Audit Audit January March (100% centralized) November 30 STRATEGIC PLAN -2015

31 This situation impacts heavily on VAT, but also results in large companies not paying an appropriate amount of income tax. Results of the audit quality program will identify training needs, as well as identifying potential areas in which process improvements are needed. We will ensure that all audit inspectors are trained in application of the law and audit techniques. We will also design annual training programs for continuing professional education. We will provide the automated tools needed by audit inspectors, including laptop computers, to facilitate their audit process and reduce the time needed to complete an audit. Any good audit risk selection system is only as effective as the information that is input to it. As noted in Strategy Five, case decisions are often wrongly influenced by missing data or declarations. We will strive to ensure that our risk assessments are made on good data and are reflective of the actual situation. 7.6 Publicize new VAT refund requirements so that taxpayers know what documents are required for a successful claim 7.7 Track audit quality measurement results by region to identify training needs of each regional staff 7.8 Using the most current technology available, automate audit processes to extent possible to provide case tracking; time reporting; eliminating manual preparation of documents, providing pro forma templates for most documents including audit reports; and ensuring that audit results are tracked for use in further refining the audit model and to determine the percentage of audit assessments actually collected 7.9 Analyze audit results to ensure that expected results are being realized and to determine if there is a need to make adjustments in the audit model Audit Taxpayer Education Audit Director Modernization (Operations) Audit Audit October November November To improve the risk assessment process, we will continually review and update our system with new capabilities. Information from completed audits will be captured and included in data analyzed in the risk assessment process. Analysts in the audit department will conduct research to identify potential areas of non - compliance and develop strategies for addressing new and existing compliance risks. We will also expand the external data that is available to supplement our audit model so that its formulas are more accurate and provide an increasingly complete picture of the taxpayer being analyzed Update and increase the formulas in the audit model to increase its effectiveness in identifying risky taxpayers 7.11 Identify those industries with the largest number of risky taxpayers and schedule audits of selected taxpayers from those industries and schedule meetings/seminars/ compliance campaigns with other members of those industry groups to attempt to bring them in line with minimal audits or other action Audit (Operations) Audit Regional Managers Risk Management Unit January March We will begin to implement fiscal cash registers in early, with the expectation that fiscal cash registers or approved fiscal devices will be installed in all businesses required to have fiscal devices by the end of Ensure that any third - party information is integrated into the audit model and becomes a factor in risk assessment (Complianc e) STRATEGIC PLAN

32 Fiscal devices will transmit data to the tax administration reflecting total monthly transactions and VAT applicable to those transactions. Information received will become part of the audit risk assessment process, further improving the effectiveness of our audit programs Provide laptop computers to all audit inspectors for their increased effectiveness and to provide access to research databases (Corporate Services) (Operations) June 2013 May 2015 VAT refund processes will be revised by the VAT Law pending before the Assembly. The administrative instruction related to the Law on Tax Administration and Procedures included requirements to be met before a VAT refund would be considered by the tax administration. Proper treatment of VAT refund claims is a critical factor in effective administration of the VAT system. The Law on Tax Administration and Procedures requires that refunds be processed within 60 days after receipt by the tax administration. Many VAT refund claims are delayed because they involve fictitious invoices or transactions between related parties that are not properly documented. We will make every effort to ensure that valid VAT refund claims are processed within the 60 -day timeframe provided in the law. However, we will not be pressured by time constraints in approving a refund claim that we do not believe is correct. 32 STRATEGIC PLAN -2015

33 8. REDUCTION OF OPPORTUNITIES FOR EVASION AND AVOIDANCE OBJECTIVE ACTION RESPONSIBLE BEGIN END Reducing the tax gap will require that TAK reduce the opportunities for businesses and individuals to evade and avoid their tax obligations. Beginning in, we will start to develop a tax investigation unit that will have authority to investigate tax crimes. In conjunction with this tax investigation unit, we will strive to obtain the services of a prosecutor dedicated to the tax administration to ensure that cases that are investigated will be prosecuted. Kosovo is very dependent on imports, which are susceptible to smuggling and abuses of customs arrangements. We will continue to work with the Kosovo Customs Service to exchange information and identify companies that are under-declaring/over -stating all the goods they import. Our Audit Model indicates that many businesses are not accurately reflecting their correct import information on their VAT declarations. We will ensure that we receive all applicable information from Customs and that the date we receive is accurate. Cases with mis - matched Customs data will be a high audit priority, even if the audit is a simple check to determine the reason for the discrepancy. Customs information will also be used to identify those businesses with imports of greater value than the VAT threshold, but are not registered for VAT. We will use the full authority provided in the Law on Tax Administration and Procedures to deal with the goods that we discover that do not reflect their origin. Our audit model allows us to more accurately identify fictitious entities which are often used in an effort to avoid VAT liabilities. As those situations are identified, we will give full consideration to criminal investigation and possible prosecution. 8.1 Establish, or continue, task force operations with Customs and KPS and other organizations, as appropriate, to address various forms of smuggling or other tax evasion activities 8.2 Draft the law on Tax Administration and Procedures and relevant administrative instructions. 8.3 Establish reliable link between Customs and TAK which will allow TAK full access to Customs data related to goods crossing the border, including the ownership of those goods, irrespective of the customs arrangement under which they enter Kosovo and irrespective of whether at the time they are subject to VAT, or not - mismatched items are to be subjected to audit activity 8.4 Develop information exchange procedures between TAK and Treasury, as well as between TAK and POE's such as KEK, PTK, and airport, as well. Information received must be integrated into the audit model and become a factor in the assessment of risk 8.5 Establish MOU s with law enforcement organizations, and other governmental organizations, for information exchange and assistance in identifying potential taxpayers and tax evaders (Operations) Director, Legal Office and Appeals Audit Audit Director General June November November October October February STRATEGIC PLAN

34 Pending income tax laws require that any business that withholds on interest, wages, and other forms of withholding must submit an annual report to TAK with a copy of the withholding documents. The information from these documents must be added to a research data base and added to the information available for our audit model and other applications, so that information can be matched against information reported by the taxpayer. The Law on Tax Administration and Procedures requires all businesses to submit an annual report describing those businesses from whom they purchased 500 or more during the course of the year (the initial report is due in ). We will revise the declarations of small businesses to add their gross domestic purchases to give us a more complete picture of the economic transactions in Kosovo. This information will be sorted and organized for research purposes and for matching the purchases from suppliers with the turnover reported by those suppliers. 8.6 Implement that section of the administrative instruction related to the Law 2004/48 dealing with goods for which the origin cannot be determined - publicize actions taken and give full consideration to criminal prosecution 8.7 Fully implement the reporting requirement for annual purchases of more than 500 from any one supplier with appropriate publicity and public information which will enable businesses to comply - ensure that information received is available for research and is integrated into the audit model and becomes a factor in the assessment of risk. 8.8 Establish and train a new tax investigation unit to investigate potential tax fraud and other tax -related crimes (Operations) (Operations) (Operations) Training June February We will automate the exchange of information between Treasury and TAK with respect to businesses with contracts that are being paid through Treasury. We will also establish information exchange procedures with the airport, KEK, PTK and other POE's to identify contractors receiving payments from those sources. All such information received will be used in our audit model and matched against income that has been reported on the contractor's various declarations. To enhance the value of this process, we will add a schedule to the income tax declarations which will reflect the gross income of the taxpayer and adjustments made to that income to arrive at the taxable income declared on the income tax declarations. Banks are required to report certain cash transactions to the Financial Information Center. We will improve our use of that information in our taxpayer investigations, both criminal and civil. 8.9 Ensure that information received related to withheld taxes is placed in a research file and integrated into the audit model so that the information can be considered in determining risk - publicize the new requirement and provide appropriate information, including criteria under which information must be transmitted electronically. TAK must be prepared to receive such information and process it into a useable form Obtain the services of a dedicated prosecutor who will be assigned to prosecute only tax cases and become expert in prosecution of tax - related crimes - as cases are prosecuted, issue public news releases to publicize the offense committed and the punishment for committing the offense Tax Investigation Unit January Director General November June 34 STRATEGIC PLAN -2015

35 Through the offices of the Minister of Economy and Finance and the Minister of Foreign Affairs, we will assist in establishing a network of tax treaties and/or exchange of information agreements to assist in preventing fiscal evasion. We will establish a unit within the tax administration that will become expert in international taxation and exchange of information under tax treaties. Through the use of exchange of information provisions, we will be able to verify the existence of businesses, confirm the probability that certain income is from legitimate foreign sources, confirm transactions, and exchange other information to assist in the prevention of fiscal evasion. We will regularly review the tax laws to determine if there are additions or corrections needed in order to assist in fighting evasion or avoidance. If TAK identifies abuses that can be corrected by legislation, it will recommend corrective legislation Establish an international unit in TAK which will be trained as experts in international tax issues. This unit will be responsible for negotiation of cases involving double taxation, preparing all correspondence related to international activity, and preparing and processing both incoming and outgoing information requests 8.12 Through audit quality review results, information obtained from the risk analysis unit, and Risk Management Unit propose changes in the appropriate tax laws to address areas of the law that are either unclear, need additional provisions, or need to be revised or eliminated. Analyze the current use made of information from FIC and identify ways in which it can be more effectively used in TAK; also identify roadblocks to its use and determine ways to eliminate the roadblocks. Director General Audit Manager Planning and Analysis Tax Investigation Unit Risk Management Unit March June May January 2012 STRATEGIC PLAN

36 9. EARLY AND EFFECTIVE COLLECTION ACTIVITY OBJECTIVE ACTION RESPONSIBLE BEGIN END Effective collection of taxes requires that collection of the tax debt occur at the earliest possible moment. With the implementation of improved declaration and payment processing under Strategy Five, tax debts will become evident at an earlier time. TAK officials will also gain more confidence in the data in the system so they will be less hesitant to take enforced collection action on tax debts. 9.1 Train collection officers in provisions of the Law on Tax Administration and Procedures to ensure that they are capable of implementing the new authorities and procedures 9.2 Update Enforced Collection Procedural handbook Enforced Collection Training Enforced Collection August November November We will automate the notice process so that assessment notices and final notices are sent automatically from the computer system to the taxpayer via PTK delivery. We will take advantage of that process to ensure that the taxpayer addresses in our system are accurate and up -to-date. Automation of notices will remove personal intervention from the notice process and ensure that all taxpayers receive their tax due notices on a timely basis. Issuance of an assessment notice is required before any collection activity can take place. The earlier it is issued, the earlier contact can be made and the earlier collection action can be taken. We will establish a call center as described in Strategy Four to receive calls regarding notices received. That call center will also be responsible for collection action on cases involving tax debts of less than 1,000. We will use SMS messages and messages to remind these taxpayers of their tax debts and the number they should call to resolve the account. Tax debts above that amount will be collected by field activity of collection officers in the regional offices. The Law on Tax Administration and Procedures provided additional authorities and provisions related to enforced collection of taxes. All collection officers will be trained in these new procedures and provisions. Cases involving transfers of assets to avoid payment of taxes and cases involving use of nominees or beneficial owners will be aggressively pursued. 9.3 Develop automated procedures for identifying cases that should be blocked at the border and place a tax administration official at key border points to identify goods being imported that belong to a debtor taxpayer (including taxpayers that have not submitted declarations). 9.4 Automate collection processes to the extent possible to increase accountability for timely case actions. 9.5 Increase use of third - party levy authority 9.6 Automate the notice routine for tax debts and deliver notices through PTK 9.7 Establish a call center to deal with inquiries resulting from automated notices and low value tax debts 9.8 Use variety of innovative methods of reminding taxpayers of their tax debts or un-submitted declarations including SMS and Enforced Collection Director Modernization Enforced Collection Enforced Collection Director Modernization Enforced Collection Director Modernization Taxpayer Education, Enforced Collection Enforced Collection August June June November February January November November 2012 January STRATEGIC PLAN -2015