FIN 48 is an interpretation that was meant to provide clarity around certain aspects of FAS109, specifically, the computation and disclosure of Uncertain Tax Positions ("UTPs"). As such, FIN 48 is an integral part of FAS 109 and needs to be considered within the tax provision work flow. Under FIN 48, UTPs formerly computed under FAS 5 must now be reviewed under new standards for identification, probability, computation, and disclosure. Once this has been done, the results need to be fully integrated with the rest of the tax provision.
Originally, taxes were levied to pay for government expenses. But they underwent a malignant transformation. They began to be used to express social preferences. Tax revenues were diverted to pay for urban renewal, to encourage foreign investments through tax breaks and tax incentives, to enhance social equality by evenly redistributing income and so on. As Big Government became more derided - so were taxes perceived to be its instrument and the tide turned. Suddenly, the fashion was to downsize government, minimize its disruptive involvement in the marketplace and reduce the total tax burden as part of the GNP.
As we said, VAT works. Despite some doubts by various analysts, for the most part it remains true that, if a country needs or wants a simpler tax, it is well to have a VAT. Nonetheless VAT does not always work well, principally because we yet are so tax educated society ready for "self-assessment". VAT is by no means necessarily the 'money machine' for every government.. Indeed, the equally conventional conclusion that a VAT is the most economically desirable and administratively effective way in which to collect a given share of national income through a general consumption tax also holds -- provided, again, that the capacity exists to administer VAT adequately. Similarly, as with any tax, although increasing the rate of an existing VAT rates will neither necessarily increase revenues proportionately nor be costless, it may nonetheless be the economically most sensible way to expand revenue shares in economy, if that is the policy goal.
In the past, companies often shifted reserves within the payable with little or no disclosure. The roll forward of UTPs now requires companies to clearly breakout increases and decreases due to changes in judgment and the expiration of statute of limitations, both of which are offset by charges to the current tax provision. In practice, this means that the current tax provision related to the tax return needs to be tracked separately from the current provision related to UTPs to allow for separate roll forwards. Likewise, payments and refunds related to the filing of the tax return will have to be separated from payments and refunds related to the settlement of UTPs in order to populate the Settlement column of the UTP roll forward. Where a UTP is relieved with an audit settlement, a "true up" may have to be recorded as a PY Increase or PY Decrease, offset by an adjustment to the current tax provision.
How far Albania still seems to be from being able to run their tax systems on this basis? While there are many different reasons for this conclusion in different countries, only two points will be mentioned here. First, the policy process appears, almost inevitably, always to leave some problems in VAT design, and such problems are more likely to be exacerbated over time in the circumstances of Albania than those of developed countries. Secondly, the right way to implement a VAT is through "self-assessment". Potential taxpayers have many ways to escape the fiscal system. They (or at least their tax base) may, for instance, flee abroad. They may remain but hide in the shadow economy. They may secure some form of favorable treatment by exerting influence in various ways to have changes made in the law or its interpretation. If somehow trapped within the taxation system, they may finally seek relief by forgiveness of arrears through partially amnesty laws. Indeed, in some cases they may combine all of these methods of avoiding taxation. In some routine work of our tax administration the record over the years suggests that such processes have been at work, given the discouraging picture of repeated erosion of the base of the VAT through concessions at many levels as well as general administrative weaknesses.
Recent studies clearly indicate that a reverse relationship exists between the growth of the economy and the extent of public spending. Moreover, decades of progressive taxation did not reverse the trend of a growing gap between the rich and the poor. Income distribution has remained inequitable (ever more so all the time) - despite gigantic unilateral transfers of money from the state to the poorer socio - economic strata of society.
Originally, taxes were levied to pay for government expenses. But they underwent a malignant transformation. They began to be used to express social preferences. Tax revenues were diverted to pay for urban renewal, to encourage foreign investments through tax breaks and tax incentives, to enhance social equality by evenly redistributing income and so on. As Big Government became more derided - so were taxes perceived to be its instrument and the tide turned. Suddenly, the fashion was to downsize government, minimize its disruptive involvement in the marketplace and reduce the total tax burden as part of the GNP.
As we said, VAT works. Despite some doubts by various analysts, for the most part it remains true that, if a country needs or wants a simpler tax, it is well to have a VAT. Nonetheless VAT does not always work well, principally because we yet are so tax educated society ready for "self-assessment". VAT is by no means necessarily the 'money machine' for every government.. Indeed, the equally conventional conclusion that a VAT is the most economically desirable and administratively effective way in which to collect a given share of national income through a general consumption tax also holds -- provided, again, that the capacity exists to administer VAT adequately. Similarly, as with any tax, although increasing the rate of an existing VAT rates will neither necessarily increase revenues proportionately nor be costless, it may nonetheless be the economically most sensible way to expand revenue shares in economy, if that is the policy goal.
In the past, companies often shifted reserves within the payable with little or no disclosure. The roll forward of UTPs now requires companies to clearly breakout increases and decreases due to changes in judgment and the expiration of statute of limitations, both of which are offset by charges to the current tax provision. In practice, this means that the current tax provision related to the tax return needs to be tracked separately from the current provision related to UTPs to allow for separate roll forwards. Likewise, payments and refunds related to the filing of the tax return will have to be separated from payments and refunds related to the settlement of UTPs in order to populate the Settlement column of the UTP roll forward. Where a UTP is relieved with an audit settlement, a "true up" may have to be recorded as a PY Increase or PY Decrease, offset by an adjustment to the current tax provision.
How far Albania still seems to be from being able to run their tax systems on this basis? While there are many different reasons for this conclusion in different countries, only two points will be mentioned here. First, the policy process appears, almost inevitably, always to leave some problems in VAT design, and such problems are more likely to be exacerbated over time in the circumstances of Albania than those of developed countries. Secondly, the right way to implement a VAT is through "self-assessment". Potential taxpayers have many ways to escape the fiscal system. They (or at least their tax base) may, for instance, flee abroad. They may remain but hide in the shadow economy. They may secure some form of favorable treatment by exerting influence in various ways to have changes made in the law or its interpretation. If somehow trapped within the taxation system, they may finally seek relief by forgiveness of arrears through partially amnesty laws. Indeed, in some cases they may combine all of these methods of avoiding taxation. In some routine work of our tax administration the record over the years suggests that such processes have been at work, given the discouraging picture of repeated erosion of the base of the VAT through concessions at many levels as well as general administrative weaknesses.
Recent studies clearly indicate that a reverse relationship exists between the growth of the economy and the extent of public spending. Moreover, decades of progressive taxation did not reverse the trend of a growing gap between the rich and the poor. Income distribution has remained inequitable (ever more so all the time) - despite gigantic unilateral transfers of money from the state to the poorer socio - economic strata of society.
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