1.1. In the Central Organisation for Control and Auditing (COCA) law there is a clear authority for the checking of government general receipts and that is attained through checking of information, especially on registers and ledgers of the auditee. Plans and procedures are prepared according to the type of revenue. COCA has the right to check tax assessments of individuals.
1.2. The difficulty of exercising such control is not due to the law but the lack of cooperation by tax authorities in relation to the preparation and availability of proper documentation. Auditors are facing obstacles and shortages in files and the contents of records.
2.1. Audit teams make use of many procedures in checking tax revenue, mainly:-
2.2. In accordance with the above, files are selected from various activities and levels of assignors and assessments for audit procedures.
3.1. The annual plan of audits has regard to the volume of work and the amount of human and technical resources required to audit large receipts and to lessen (minimise) the degree of risk. It is the duty of supervising management to evaluate the capabilities of auditors to undertake their assignments to meet the planned goals in the light of their previous experience and skills.
3.2. We give consideration when assigning team members to the fact that at least one of the staff members should be acquainted with, and understand, the law, administration and financial aspects of any activity. A team leader is assigned responsibility for achieving the assignment and providing practical team training. Depending on planning, it is intended that a team stays together for no more than two years. At that time members are assigned to new teams, while one original member remains.
3.3. For technical and financial reasons we have no experience in using computers in audit planning.
3.4. The scope of COCA's use of computers in administrative and financial activities and audit planning will develop and more experience will be gained in future.
4.1. On completion of the audit operation the audit team prepares a concise, precise and clear report to achieve its object and to contribute to the understanding of the unit to which the report is sent.
4.2. The Technical Office reviews the audit observations before the report is sent and advises where corrections or some additional recommendations are required. In a rare case the Office may refuse to send the report.
4.3. The report is discussed with the appropriate authorities. The unreconciled observations may be referred to higher levels of authority. Such reports may be sent to Ministers, if not the Prime Minister. The last resort is to notify the President of the Republic. Observations which are hugely material may even be discussed at the Parliamentary level.
4.4. Reports with obligatory COCA observations affecting the tax collection are raised with tax authorities to allow them to study and evaluate them.
4.5. Generally audit observations on tax and receipts matters are not wholly accepted by tax authorities and may be addressed only slowly or even be rejected.
4.6. COCA prepares the Report on the Government Budget final accounts five months after the accounts are prepared by the Ministry of Finance. The report is delivered to Parliament for discussion.
4.7. Discussions by the House of Representatives concentrate very heavily on expenditure items and the government is advised that more effort is required to promote receipts and compliance with COCA observations.
4.8. The Finance Committee discusses some reports and responsible officers may be asked to appear at Parliamentary hearings.
5.1. There are no IT audit techniques. Systems in COCA help, depending on audit operations. Traditional procedures are adopted in preparing information.
5.2. The Information is collected through field surveys and both permanent and current files are kept. Current files are annually renewed. There is no reliable information system in the tax authorities that could be considered as a database. There is a difficulty in extracting information because holdings are not systematic or fully informative.
5.3. In such situations when internal controls in tax authorities are weak, auditors are faced with high audit risk.
6.1. Training courses are conducted by COCA to upgrade the skills and qualifications of personnel. As to receipts auditing specifically, training can involve obtaining information to familiarise auditors with tax information and access to studies and information on all types of tax auditing. Training can be coordinated with tax authorities.
6.2. In conducting receipts audit, audit teams do not give detailed consideration to the potential budget required for the audit or its potential benefits in terms of increased receipts. By being able to secure increased tax revenue, tax audits can help to avoid/minimise that tax increases.
8.1. Procedural controls set the levels of tax settlements and the time periods by which tax must be notified, assessments made and objections delivered.
8.2. Due to the incorrect administration of laws by tax personnel and the presence of internal control weaknesses, simplified accounting and tax collection procedures cause many loopholes and incosistencies.
8.3. Taxation by-laws (regulations) supplement the framework of taxation administration.
8.4. When a conflict in legal interpretations between COCA and taxation authorities arises, the legal department in COCA reflects COCA's views and sends this to the taxation authorities. Conflicts are raised to the Ministry of Legal Affairs for settlement. Resolution of such conflicts takes time.
9.1. Although COCA does not raise any cases concerning the variety of taxation receipts to the General Funds Courts, this does not mean that there are no such cases or no irregularities in the collection of tax receipts.
10.1. Many legal cases are ignored by units or solved using improper procedures. Moreover cases are not properly handled in that the revenue authorities do not dispute them and give promises to resolve matters.
10.2. Tax principles and laws are made available to auditors in manual guidelines.
11.1. The Taxation administration has prepared many reforms, legislative changes and simplifications of procedures to increase taxation earnings. These are designed to reform financial administration and promote national economic development. The taxation authorities have undertaken a two-stage reform process as follows:-
12.1. In Yemen inadequacies in taxation legislation reduces the effectiveness of provisions, causing problems in administration, avoidance of the payment of tax and decreased collections. Measures encouraging tax incentives, tax deferrals and reduced rates, the harmonised system and difficulties in interpretation contribute to the development of administrative problems and make this a high risk area.
12.2. The Taxation administration faces inadequate taxpayer information and documentation, such that taxpayers provide incorrect and misleading information on their expenditure, allowing them to minimise their declared profit or even claim a loss in order to minimise their tax assessments. These factors contribute to reduction in collection of tax receipts by 20% to 30%.
13.1. The Tariff and customs administration applies the unified or harmonised system in Yemen. It is being reviewed prior to being sent to the Parliament for discussion and approval as law.
13.2. The Customs Cooperative Council applies the system of cccn as the system to classify and value commodities for taxation. In Yemen the one thousand commodities of economic and commercial nature are classified into one of twenty one divisions and then into 99 subdivisions.
13.3. The Tariff and custom administration is to join the International Custom Association, which is responsible for the application of the harmonised (unified) system, adopted internationally.
14.1. Audit check the efficiency of internal control systems in taxation administration by tracing staff work and studying the extent to which departments discharge their administrative responsibilities and attain the goals required by law. Auditors face many problems in accountability and ascertainment. These problems arise from the tax inspecting staff not applying the law to determine responsibilities and from a lack of coordination between departments. These are the result of tax inspectors carrying out various activities, some of which are external to, or beyond, their functions as defined in job descriptions.
14.2. The responsibilities of many jobs such as assessment, collection and accounting do not fit within an administrative hierarchy or any integrated organisational structure.
14.3. Weakness in the internal control system follows from accountability or responsibility not being clearly defined. Such variations in systematic procedures lead to novel approaches and acts by the tax inspector which are without precedent and go beyond the scope of the law. The lack of clearly defined responsibilities or job descriptions create obstacles in obtaining accountability regarding compliance with the law and provisions relating to administrative requirements.
14.4. The absence of such legislative accountability in revenue departments makes it hard for auditors and users of audit reports to use these for their purpose as a means of control.
15.1. Improvements such as computerised information systems are not utilised to provide reliable database information. Reliance is placed manual systems. Details of revenue from various taxes compared with total revenue are reproduced below:
Revenue 1993 - Million Riyals
| Direct Taxes | |
| ZAKH Receipts | 0.5 |
| Income tax and profits | 8.1 |
| Capital taxes | 0.2 |
| Total Direct Taxes | 8.8 |
| Indirect Taxes | |
| External Trade Fees Taxes | 7.5 |
| Taxes on Consumption | 1.7 |
| Stamp Duty | 0.4 |
| Production Tax | 3.4 |
| Other Fees Taxes | 0.1 |
| Total Indirect Taxes | 13.2 |
| Total Tax Revenue | 22.0 |
| Total Revenue | 38.1 |
| Ratio of Tax Revenue to General Revenue | 57.7% |
15.3. As mentioned previously, there is no accurate or reliable information base for statistical data preparation. This means that it is difficult to apportion and analyse the cost of each tax collection group compared with the cost associated with overall collections. Insufficient data makes it difficult to assess the cost of tax collection.