Andrew Okello – IMF Fiscal Affairs Department

Identification and selection of large business and main criteria

A critical task is to identify precisely which taxpayers are to be administered by the LBU

The LBU should be responsible for managing all major domestic taxes

Within this context, an analysis must be conducted to stratify the taxpayer population in order to identify the large taxpayers

Tax administrations use varying techniques to identify large taxpayers

Problems Tax minimization/holidays

Non labor intensive sectors

Undervalues service sector

Small companies and big non-corporates

Many small players in open exporting economies

Large competitive markets

Criteria Tax paid or tax

liability Employee numbers Capital base Entity type

International transactions

Industry type

Turnover, the best measure of size Simple concept Easily understood Easily measured Basis for VAT Correlation to actual/potential tax liability Thresholds to delineate segments

All economic activity should be included in the turnover calculation whether it is subject to tax or not

The intention is to find the point in the taxpayer stratification that optimizes the revenue leverage compared with the number of taxpayers included in the net

Amount of annual income (HNWI) Value of assets Level of imports/experts Type of economic activity Treating formal groupings as a single entity The small number of domestic excise

taxpayers

If the LBU is allowed to grow too large in terms of taxpayer numbers, its effectiveness will be diluted because it will be unable to maintain the intensive and concentrated compliance activities required in this market segment

Potential new entries to the large taxpayer segment should be monitored and only transferred to the LBU when they exceeded the turnover limits for several consecutive years