MISSA may have lost millions of $ from fraudulent tax returns
posted 7/18/06
For the past six months, MISSA tax auditors have already uncovered significant tax deficiencies from about a dozen employers, estimated to exceed $0.5 million.
Initially, these employers tried to point the blame back to MISSA, saying that tax compliance personnel failed to explain to them completely MISSA’s implementing tax guidelines.
However, the auditors believe otherwise. The result of their verification revealed that most of the tax deficiencies were caused by the employers intentionally under-declaring the gross taxable wages of both themselves and their employees in their quarterly tax returns.
In the past, tax audits have also been performed. by MISSA’s tax officers. But as they also perform other tax compliance functions (aside from payroll audit), the extent of their verification was not as in depth as what the present auditors are now doing. Thus, no significant tax deficiencies were discovered, as only a handful of employers were examined in the past.
To address the declining tax compliance and rampant under declaration of gross taxable wages by employers, the Administration created the Tax Audit Department late last year, tasked to focus only on payroll audit. In just a matter of months, significant tax deficiencies were discovered and now the Administration is getting a big boost to its declining tax collection.
A check for $197,508 was already received by MISSA as full settlement from a foreign–owned group of companies operating in Majuro. Likewise, two big businesses have entered into a payment plan with an aggregate total of $75,735 and started paying their monthly installments.
(Photo - The “A-Team”: Tax auditors from MISSA and the RMI government attended a tax audit training sponsored by the USDA Graduate School. The 4-day seminar was facilitated by Charles Hester (seated in the middle) and focused on the techniques and methods of auditing businesses and self-employed workers who have no or incomplete records.)
In Ebeye, two employers also settled in full their tax deficiencies with an aggregate total of $19,196, while another grocery store owner will soon be presented with a $46,000 tax assessment. Further, a certain foreign-owned business in Ebeye has been consistently paying in installment a $8,779 tax assessment by MISSA.
Several more businesses in Majuro and Ebeye are currently under audit and initial findings revealed that their tax deficiencies may exceed $200,000.
The MISSA tax auditors are now in constant communication with their counterparts from the Customs, Revenue and Taxation Office of the Ministry of Finance, in a concerted effort to bring together whatever resources both audit teams have. These include the sharing of audit findings and other information related to payroll taxes.
During a refresher payroll audit training at MISSA, the RMI Tax Auditors were invited and both teams were able to learn from each other their experiences and problems encountered during their audit field work.
The close alliance of MISSA and the Ministry of Finance have already gone to a higher level, as the MISSA Administrator, Saane K. Aho, and Finance Assistant Secretary for Customs, Revenue & Taxation, Casten Nemra, have had a series of discussions regarding key tax issues.
One vital concern that MISSA and the Ministry of Finance have given priority is the issue on how the taxi business will be regulated as far as taxation is concerned.
A few months ago, a team from the Ministry of Finance conducted a survey of 14 taxi owners who operate a ombined fleet of 214 taxi units in Majuro. It was learned in the survey that a taxi driver pays the owner an average rental of $30 to $35 a day which is, more often than not, bigger than the amount the taxi drive earns, net of fuel expenses. Then, during the weekend, he is allowed to drive the taxi for one day, free of rent.
Considering this prevailing practice, the taxi operator is deemed to have earned at least $600 a month, per taxi unit. However, in most cases, the corresponding gross revenue and social security taxes are not declared and paid by the employer. In the same manner, most of the taxi drivers do not declare and pay their income and social security taxes, too.
To address this issue, MISSA will now tax these taxi operators based on the $600 earnings per month, per taxi unit. This means that every taxi operator who owns at least three taxi units will be deemed to have earned at least $5,000 per quarter, the maximum gross taxable wage.
Tax Auditors are now coordinating with the local governments and department of public safety to obtain a complete listing of all taxi operators in Majuro and Ebeye. More taxes is expected to be generated from this business sector.