ABSTRACT
There has been a widespread tendency in recent decades for governments to adopt self assessment as the basis for tax administration. Under self assessment, taxpayers are required to assess their own tax on the basis of published tax rules, and then pay it on the due date without receiving an assessment or tax demand from the government. Self assessment is usually associated with an approach summed up as “process now, audit later.” Self assessment has clear advantages for the government. It transfers virtually all routine administration to taxpayers, and also requires their full participation in the non-routine task of applying complex tax law. Small taxpayers may lack the technical and administrative capacity to shoulder these burdens, but they are not generally a problem for large resource production companies.1 Self assessment frees up government resource for more difficult, non-routine functions. The clear separation of the functions of assessment and audit reduces opportunities for collusion. Self assessment also requires the government to make tax rules clear, public, unambiguous and non-discretionary. So self assessment increases transparency and reduces demands on administrative capacity. It is therefore a good basis for resource tax administration. Many resource tax regimes have adopted the key feature of self assessment, namely the requirement (reinforced by sanctions) to pay tax on the due date
without the need for a government assessment. But some such countries could further improve the simplicity and transparency of administration by embracing self assessment more fully, for example by eliminating some remaining requirements for administrative intervention in tax calculations, and removing the need for tax authorities to make a formal assessment where no amendment to the company’s figures is required. An objection sometimes made against self assessment is that it is all well and good for countries with sophisticated and compliant resource production companies concerned to maintain their good reputation; but not for countries where companies with little concern for either reputation or standards have an important presence in the resource production industry.2 The implication is that self assessment weakens the government’s ability to deal with such companies, but there is no reason why that should be the case in a well-designed self assessment regime. Such a regime reinforces taxpayer obligations with strong penalties to deter non-compliance, and allows the tax authorities to assume assessment and collection functions quickly and forcefully wherever companies, despite those penalties, fail to comply. Of course tax authorities do need to be ready to take vigorous enforcement and penalty action where that is necessary, but that is the case in any tax regime, and the advantage of self assessment is that the need for administrative intervention is limited to the non-compliant minority. The tax authorities also need the capacity for effective audit of resource companies’ self assessment tax returns, but self assessment should not significantly increase the audit burden, since audit of large company tax returns is something they already ought to be doing anyway. Although self assessment is now common in resource tax regimes, production sharing does not generally follow self assessment principles, since companies have to submit budgets and costs for government approval on a continuous basis in order for costs to be recoverable. For most costs the rules allow approval to be assumed if no objection is received within a certain time, so the extent of administrative intervention by the government may be limited in practice, but even so it is generally very far from being a “process now, audit later” approach.
