Taxpayers' Rights and Tax Administration in Montenegro




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Taxpayers' Rights and Tax Administration in Montenegro


Predrag Goranovic, PhD, School of Economics, University of Montenegro, Podgorica


I. Taxpayers' Rights


Regulation of the relationship between the state as an active tax player, on one side, and taxpayers, as passive players, on the other side, results in the establishment of a special public and legal relationship of fiscal nature1.


As in other spheres of life where obligations are conditioned by certain rights, tax payment as a public duty is conditioned by the rights of taxpayers. In that way, not only economics relations are defined, but also the position of taxpayers in the legal system, in other words, their fiscal and legal position.


In appropriate legal procedure, the general principle of tax payment is individualized through the determination of legal basis and size of tax debt, enabling the exercise of tax rights and payment of tax obligation, the failure or delay of which would entail suitable penalties. This process of regulating the legal position of taxpayers is carried out through three segments:

  • by determining the rights,

  • by the protection and

  • by the control of the execution2.


The necessity of regulation of rights of taxpayers is not only conditioned by the required comparability of our tax system with the systems of countries with market economies, but also by the fact that successful functioning of a tax system implies necessary agreement and sense of fairness on the part of taxpayers with respect to the settlement of their tax obligations.


That is why a question raises which are the basic rights of taxpayers in our tax system, from the aspects of their protection, the obligation of tax authorities towards the taxpayers, the manner of lodging complaints and their comparison with the rights of taxpayers in the countries of developed market economies.

Although the powers of the tax authorities and the recognized rights of taxpayers are conditioned by the main character and method of functioning of the tax system in individual countries, there are some fundamental, common rights for all taxpayers3. These are:

  • right to information,

  • right of consistent application of legal provisions,

  • rights to security of taxpayers,

  • right to fair and equal position of taxpayers,

  • right of appeal and

  • right of data confidentiality and privacy.


The legislation governing tax procedures in our country basically contains all of these rights, but the issue of their explicit definition requires appropriate amendments in the taxing regulations, as well as greater consistency in their application.


1. Right to Information


The observance of tax laws implies the information of taxpayers on the functioning of tax system, manner of determination of tax obligations as well as the time and place of their payment. In that, the tax administration has an obligation to make the taxpayers aware of their rights and provide appropriate technical assistance in the process of taxation. This right is realized through information manuals, verbal and telephone explanations and giving appropriate opinions and information.


The right of taxpayers to be informed in the OECD countries enables them to be timely and conveniently informed about the current changes regarding tax obligations or the use of their rights. In addition, this implies the right of a taxpayer to be listened to and given needed assistance from relevant tax authorities.


According to the provisions of the Law on Public Revenues of Montenegro4, a taxpayer has the right of review of the records and data kept by the Public Revenues Administration and may demand modification of incomplete or incorrect information as well as the right to receive a copy of the minutes on the inspection made.


These rights are also provided by the Law on Control, Determination and Collection of Public Revenues in the Republic of Serbia5, as well as by the Law on General Administrative Proceedings6.


These rights are implemented in practice through the work of competent tax authorities, so that they can be said to be comparable to those in the OECD member-countries, from the aspect of both the legal regulation and the manner of implementation, as it can be seen in the comparative review in the table below.


Table 1



State

Available literature or guidelines on tax system


Free call line

How to fill a tax return

Availability of tax relief's

General publications

Special materials in schools

How tax revenues are spent

Australia

Yes

Yes

Yes

Yes

Yes

Yes

Austria

Yes

Yes

Yes

No

No

No

Belgium

Yes

Yes

Yes

No

No

No

Canada

Yes

Yes

Yes

Yes

No

Yes

Denmark

Yes

Yes

Yes

Yes

Yes

No

Finland

Yes

Yes

Yes

No

No

No

France

Yes

Yes

Yes

School Cur

Yes

No

Germany

Yes

Yes

Yes

No

Yes

No

Greece

Yes

Yes

Yes

No

No

No

Ireland

Yes

Yes

Yes

No

No

No

Italy

Yes

Yes

Yes

No

No

No

Japan

Yes

Yes

Yes

Yes

Yes

No

Holland

Yes

Yes

Yes

Yes

Yes

Yes

N. Zealand

Yes

Yes

Yes

Sch. Cur.

Yes

No

Norway

Yes

Yes

Yes

No

Some loc. authorities

No

Portugal

Yes

Yes

Yes

No

Yes

No

Spain

Yes

Yes

Yes

No

Yes

Yes

Sweden

Yes

Yes

Yes

Sch . Cur.

Yes

No

Switzerland

Yes

Yes

Yes

Yes

Yes

No

Turkey

Yes

Yes

Yes

No

No

No

UK

Yes

Yes

Yes

No

No

No

USA

Yes

Yes

Yes

Yes

Yes

Yes

Serbia

Yes

Yes

Yes

No

No

No

Montenegro

Yes

Yes

Yes

No

No

No


2. Right of Consistent Application of Legal Provisions


Legal provisions governing this right in practice for a taxpayer provide that the taxpayer need not pay a tax amount higher than prescribed by the law. This right includes the assistance offered by tax authorities in the fulfillment of tax obligation and in approving legally identified tax reliefs, deductions and repayment of surplus payments.


In our legal practice, taxpayers enjoy these rights and they are governed by the Law on Corporate Profit Tax7, Law on Property Taxes8, Law on Personal Income Tax9 and Law on Public Revenues10.


3. Right to Security of Taxpayers


The right to security of taxpayers relates to changes in laws and their interpretation that cannot have a retroactive character. This is also regulated by the Constitutions of the Republics.


4. Right to Fair and Equal Position of Taxpayers


The meaning of this right is that taxpayers must be equally treated in equal circumstances. In relation to the accomplishment of this right in the countries with developed economies, our tax legislation, and primarily the practice, shows the biggest divergence.


First of all, it is the result of the penalty policy, but also of some incorporated elements with respect to the position of various taxpayers.


There are significant differences in the penalty provisions between the taxing laws in Serbia and Montenegro with respect to the manner of imposition, amount, number, violation penalties, as well as prescribing safeguards against untimely payment of tax obligations. Thus, for example, the Law on Excise Taxes and Turnover Tax of Serbia11 prescribes in its penalty provisions the fines ranging from 1,000 to 10,000 dinars for the violations committed by legal entities and from 500 to 5,000 dinars for those committed by entrepreneurs. The Law on Turnover Tax of Montenegro12 prescribe fines ranging from 10-fold to 50-fold official minimum net wages in the Republic for a violation committed by a legal entity and that from 10-fold to 40-fold of official minimum net wages in the Republic for a violation committed by private individual - entrepreneur.


The manner of penalty imposition in this and many other examples raises certain dilemmas. The first one refers to the different treatment of taxpayers for the same kind of violation. The second one is related to the fact that the manner of penalty imposition by applying the system of range between the minimum and maximum amount creates uncertainty and possible inequality in the penal system. Finally, the third one is that taxpayers are exposed to different penalties for the same violations depending on whether there are residents of one or the other republic.


The deviation from the principle of fairness and equal position of taxpayers is evident in the payment of social insurance contributions both in Serbia and Montenegro from the aspect of difference in bases and rates, but also the fact of lack of connection between the payment of contributions and the right that are especially notable in the field of pension and disability insurance and services in the health sector13.


In relation to this right is also the question of the scope and structure of public revenues and their sources, which demands special attention from the aspect of efficiency of the control and collection of public revenues, having in mind the acceptability of tax liability by taxpayers, without forgetting the principle of fairness in the distribution of tax burden.


Having all this in mind, a question raises about the changes in tax regulations governing these matters, their adjustment to the solutions in the countries with market economies, as well as necessary harmonization of tax systems in our country.


5. Right of Appeal


The protection of taxpayers includes their right to appeal against the resolutions of tax authorities that have a two-degree character within the tax authorities and then also within the court authorities. According to the practices in the developed countries that the jurisdiction in the second degree of the appealing procedure belongs to the authority on a higher hierarchical level of tax administration, the Law on Public Revenues of Montenegro provides that the taxpayer may complain against the resolution of the inspector or financial police officer in a relevant branch office to the head office of the Public Revenues Administration at the republic level. The similar solution is applied in the Republic of Serbia.


Regarding the protection of the taxpayers' right to appeal, the tax law in Serbia does not foresee penalties for offence made by the tax authority in the case of violation of this right unless the appeal is submitted to the first-degree authority, or objections of the second-degree authority are not followed, unlike the tax regulation in Montenegro, where such penalties exist14.

6. Right of Data Confidentiality and Privacy


The right to data confidentiality and privacy for a taxpayer represents the protection from possible abuses by tax administration. basically, it means that no information that is important for a taxpayer may be used in other purposes than for taxing. However, in most countries, these data can be used, under certain safeguards and for the purposes of social character or can be forwarded to foreign tax authorities on the basis of covenants foreseeing such exchange. Also, the data related to the banking operations of taxpayers that are also protected by law and are kept confidential, are in most OECD countries available to tax authorities that are legally authorized to use them. This actually means that, on one side, the confidentiality of taxing data is protected from individual abuse, which entail rigorous penalties, but are at the same time accessible to the state authorities for their needs.


The right to privacy implies the application of strict rules in connection with unauthorized access of taxing authorities in the taxpayer's apartment or office. There are significant differences in individual countries with respect to this right, ranging from the prescribed fee access with the consent of the taxpayer only or with a warrant if there is a doubt for tax evasion.


The Law on Public Revenues of Montenegro, as well as the law on Control, Determination and Collection of Public Revenues of Serbia, prescribe that the Public Revenues Administration of Montenegro and Republic Administration of Serbia, respectively, have to provide protection and confidentiality of information that might cause material or other damage to a taxpayer of other person in the process. However, none of the republic laws so far has foreseen the protection of this right in the form of prescribed penalties for the offence, except if it is considered that a more serious damage of the official duty is made that would entail appropriate consequences. Also, these laws provide that if there is a reasonable doubt that in the residential or other premises outside the registered business premises an economic or other taxable activity is carried on, the financial police may perform the search of such premises, on the basis of the court decision. In most OECD member states, the search of business or private premises by taxing authorities is allowed only with a warrant issued by appropriate authorities, and, as it can be seen from the comparative review presented in the table below.


Considering the importance of the relationship between the tax administration and taxpayers, increasingly more attention is devoted to its improvement, which results in increased tax revenues and reduced number of tax offences.


However, although it is true that there is no system or policy that cannot be even better, it is difficult to find such solutions that would reconcile the interests of the state and the interests of taxpayer, i.e. the same system and same measures shall always be interpreted in a different manner by active and passive tax subjects.

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