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International Training

Mr. Ousman Lowe, Assistant Auditor, Gambia

The writer attended an International Train­ing Programme on Audit of Receipts in Sep­tember - November 1989. The programme was arranged by SAI, India with assistance under TCS of Colombo Plan and Special Commonwealth African Assistance Plan.

2.    Raising public revenues and developing its sources, so as to progressively improve the yield, forms a very important facet of Governmental activity and has, of late, be­ come a specialized branch of public finance, calling for analytical approach, expert handling and specialised techniques. Increasing public expenditure in developing countries necessarily requires elasticity in public finance. For financing economic growth, they seek to devise measures to collect more from the existing sources and to explore new avenues. Taxation is no longer confined to raising resources for public expenditure, but is fast becoming an important tool for goals like leveling up of disparities of income and wealth among the people, achieving economic stability, accelerating industrial growth and ensuring social justice.

3.    Fiscal policies are drawn, formulated and administered keeping in view the basic economic objectives of the tax and budgetary policy of the country. Prudent fiscal policy aims at reducing costs, raising revenues, increasing efficiency of public spending and strengthening decentralised public entities. The tax system is one of the instruments of fiscal policy. Its primary function is to raise resources for the public sector by reducing private consumption and private investment in an equitable, acceptable and least harmful manner. The way taxes are raised have a profound impact on the economy both at the macro as well as micro level. Formulation of a sound tax policy and the search for a rational tax structure are, therefore, very important. Taxation constitutes one side of fiscal policy, the other side being allocation of its resources and financing the gap between aggregate expenditure and revenue.

4.    'Revenue' proper comprises current revenue and capital revenue. Current reve­nues are broadly classified into tax revenues and non-tax revenues. Tax revenue is derived from compulsory payments for public pur­poses. It is imposed by law and does not represent a direct quid-pro-quo for any service or supply. Non-tax revenue, on the other hand, arises from operation of law, rule or tariff or other departmental regulations and agreements regulating contracts, service or supply. Taxes fall broadly under two categories -

1. Direct taxes like taxes on income (Income Tax), profits of companies (Corporation Tax), Capital Gains (Capital Gains Tax), wealth Tax, Gift Tax and Capital Transfer tax, which are levied directly on the person re­ceiving the income;
2. Indirect taxes on goods and serv­ices, also known sometimes as outlay taxes, since they are paid only when particular purchases are made. Value Added Tax (VAT), Sales Tax, Cus­toms and Excise Duties, Taxes on Betting and Gaming, Land Revenue and Motor Vehicles Taxes and some other Licence Fees fall under this cate­gory. In all these cases the tax is paid indirectly as part of the payment for a commodity or service.

Taxes levied can also be broadly classified under the following heads :

1. Personal Taxation
2. Property Taxation
3. Commodity Taxation
4. Transaction taxation

5.    While a tax is generally levied for the common good of the people and not for the benefit of a section of them, there is a special type of tax called cess or betterment levy, the proceeds of which are applied to purposes or benefits specified in the law and is not for the general good of all the people. For instance, a cess may be levied on certain commodities so as to make the consumers pay for the betterment of the conditions of living of or payment of accident benefits to, the workers who produce these goods by their labour. A betterment levy, otherwise known as special assessment, may be made on owners of property when the value of their holdings appreciate due to public schemes such as construction of roads, drainage etc. Government, by this levy, may take a share of appreciation in value or recover a part of the cost of development made at public expense.

6.    Before a decision is taken by governments to levy a tax, several factors are taken into account, the more important among them being legal (or constitutional), economic, sociological and political.

7.    Fiscal policy and an appropriate machinery for efficient and proper tax administration are very important for all developing countries in their economic development activities. Fiscal policy is, of course, intricate and totally associated with the political will of the Nation. But the domain of revenue administration is the prerogative of the Executive. Therefore, Audit of Receipts assumes considerable significance in the realm of public administration as a whole to ensure the soundness of the tax administration. The objectives of the tax audit should be to discover 'loop­holes, lacunae and deficiencies' not only in tax administration but also in tax laws. Adequate procedures for identifying and dealing with tax avoidance arising from deficiencies in the laws, have a crucial role, to enable the Governments to take remedial action by amendments to the laws. Receipt audit involves a combination of different disciplines and calls for different approaches, depending on the circumstances and nature of each category of revenue. Revenue Audit is thus a specialised field of audit and the tax auditors like tax officials should have the requisite skills and expertise in interpreting the relevant legal provisions affecting tax assessments and collection, in conducting revenue audit effectively. However, a revenue auditor is not expected to be a legal luminary. A revenue auditor can be very good at his work, the develops keen interest to handle his work with due professional care and competency. By and large, the SAI determines the scope of audit, given the available resources, expertise and audit mandate and other relevant factors on the tax structure and the nature of revenues. Suitable audit techniques will have to be developed to cover each type of receipts, since the nature and content of each type of receipts is unique and has its own peculiarties. As in the case of expenditure audit, performance audit covering economy, efficiency and effectiveness is relevant for conducting receipt audit.

8.    A system of receipt audit should provide for two stages - examination of rules, regulations and orders and examination of assessments and collections, which includes review and appraisal of the internal control, system of the tax structure and administration. Scrutiny of rules and regulations framed and notifications issued by the executive under the relevant Acts, assumes importance in as much as loopholes, lacunae or inadequacies in tax laws, often result in giving unintended benefit to the tax payer and deprive the exchequer of revenue. The revenue department should have adequate procedures for identifying and dealing with avoidance of tax owing to deficiencies in tax laws. Tax authorities have quasi-judicial and discretionary powers in certain respects and scrutiny in audit of the exercise of such power has to be done with caution. Further, a number of incentives and disincentives are being built into tax laws for socio-economic purposes. It could be an important part of audit to see that monitoring and evaluation of systems exist to ensure the efficiency of such measures on a wider integrated audit perspective. It is generally accepted that in receipt audit, the 'general' is more important than the 'particular'. In other words, even when we report in the audit report, a single isolated objection that we come across, it should be with a view to highlight a shortcoming or deficiency in the system. Finally, Auditors do not question Government policies but regularise its implementation.

LIMA DECLARATION