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October 2019
Governance Global Practice
ACKNOWLEDGEMENTS
This policy note was prepared by a World Bank team led by Jonas Arp Fallov (Sr. Public Sector
Specialist) and Mediha Agar (Sr. Public Sector Specialist) and consisting of Jan Duijghuisen
(International Consultant), Ruzhdi Zeqiri and Valmira Rexhebeqaj (Local Consultants). Ivana
Bojic and Mjellma Rrecaj (Team Assistants) provided administrative support to the team.
The team received guidance from Marco Mantovanelli (Country Manager for the World Bank
in Kosovo), and Roby Senderowitsch (Practice Manager for Governance in the Europe and
Central Asia Region).
The team also benefitted from helpful peer review comments received from Samia Melhem
(Lead Digital Development Specialist), Rajul Awasthi (Sr. Public Sector Specialist) and
Constantin Rusu (Public Sector Specialist).
The team is particularly grateful for the support and collaboration from a wide range of
government officials, including from the Ministry of Finance and the Tax Administration of
Kosovo.
ii
PREFACE
This policy note was prepared as part of a World Bank funded project to support
implementation of reforms in tax administration and public service delivery. In addition to this
note, the project has also funded:
• the preparation of a policy note on “E-Services in Kosovo: Strengthening the Enabling
Environment for Digital Governance of Public Service Delivery �?, which identifies the
enabling conditions for digital governance of public service delivery, analysis the main
challenges and recommends short and medium term measures to address them.
• a workshop bringing together key stakeholders, including representatives of registry
agencies, to discuss how to improve data sharing.
The two policy notes under the project deal with different aspects of digital governance and are
related in the following ways: The note on “e-Services in Kosovo�? identifies enabling
conditions for the further development of e-Services and thereby provides a general framework.
Within this framework, the note on tax registration includes recommendations which will be
important to improve tax collections, and hence raise domestic revenues, but at the same time
tax registration is a prominent example of digital governance and e-Services development.
Firstly, because tax is a large public service area affecting most citizens and businesses with
strong links to other public service areas such as business registration, and registration of
citizens, property and addresses. Secondly, because the recommendations in the two notes are
mutually reinforcing. For example, sustainable improvements to the quality of the tax register
require sharing of data between registries, which relies on the further development of a common
interoperability framework for the Government of Kosovo. At the same time, data sharing
activities related to tax registration can help to push for the further development of such
common solutions through piloting of solutions and raising awareness among key stakeholders.
Due to these linkages, further government initiatives in this area could benefit from combining
e-Services development with activities to improve tax registration.
iii
ABBREVIATIONS
AIS Agency of Information Society
API Application Programming Interface
BEEPS Business Environment and Enterprise Performance Survey
CIT Corporate Income Tax
COTS Commercial Off-The-Shelf
CRA Civil Registry Agency
EU European Union
FY Fiscal Year
GDP Gross Domestic Product
GIZ German Society for International Cooperation
GoK Government of Kosovo
GSB Government Service Bus
HR Human Resources
HRM Human Resources Management
HRMIS Human Resources Management Information System
IA Internal Audit
ICT Information and Communications Technology
IMF International Monetary Fund
IT Information Technologies
ITAS Integrated Tax Administration System
KBRA Kosovo Business Registry Agency
KCA Kosovo Cadastral Agency
MCO Municipal Cadaster Office
MoED Ministry of Economic Development
MIA Ministry of Internal Affairs
MoF Ministry of Finance
MoPA Ministry of Public Administration
MOU Memorandum of Understanding
NIN National Identification Number
OECD Organization for Economic Co-operation and Development
PAR Public Administration Reform
P4D Partnership for Development
PIT Personal Income Tax
PFM Public Finance Management
PMO Prime Minister’s Office
SCD Strategic Country Diagnostic
SIGTAS Standard Integrated Government Tax Administration System
TA Technical Assistance
TADAT Tax Administration Diagnostic Assessment
TATP Tax Administration Transformation Program
TAK Tax Administration of Kosovo
UIN Unique Identification Number
USAID United States Agency for International Development
iv
VAT Value Added Tax
WB World Bank
v
TABLE OF CONTENTS
ACKNOWLEDGEMENTS ..................................................................................................... ii
ABBREVIATIONS ................................................................................................................. iv
TABLE OF CONTENTS ........................................................................................................ vi
LIST OF TABLES .................................................................................................................. vi
LIST OF FIGURES ............................................................................................................... vii
LIST OF BOXES .................................................................................................................... vii
Executive Summary ................................................................................................................... 1
Recommendations .................................................................................................................. 3
I. Introduction ........................................................................................................................ 7
Background and context ......................................................................................................... 7
The importance of tax registration ......................................................................................... 8
Objective and Structure of the Policy Note ............................................................................ 9
II. About tax registration ......................................................................................................... 9
What is tax registration? ......................................................................................................... 9
International good practice in tax registration ...................................................................... 11
Tax Registration in Kosovo.................................................................................................. 13
III. Key issues with tax registration in Kosovo ..................................................................... 3
Implications of inaccuracies in the tax register ...................................................................... 5
Main causes of inaccuracies in the tax register ...................................................................... 5
IV. Recommendations ......................................................................................................... 17
Step 1: Establish governance arrangements for data sharing and collaboration .................. 18
Step 2: Reengineer processes and prepare revisions to regulation, IT designs and business
plans ..................................................................................................................................... 19
Step 3: Implement process changes through regulation, IT- upgrades and information
campaigns ............................................................................................................................. 20
Step 4: Expand the size of the tax register ........................................................................... 21
Annexes .................................................................................................................................... 22
Annex 1: Action Plan ........................................................................................................... 22
Annex 2: Overview of on-going and planned donor support to TAK ................................. 25
LIST OF TABLES
Table 1: Prefilling of Dutch tax files: data elements and sources ............................................ 12
Table 2: Differences in number of registered businesses by type of registration, KBRA - TAK
2018 ............................................................................................................................................ 3
Table 3: Current situation with non-filers in the tax administration .......................................... 4
vi
Table 4: Overview of current data-sharing arrangements ........................................................ 15
LIST OF FIGURES
Figure 1: Important rules for collaboration .............................................................................. 13
Figure 2: High level business registration process in Kosovo (Individual businesses) ............. 6
Figure 3: High level business deregistration process initiated through KBRA (Individual
Businesses) ................................................................................................................................. 8
Figure 4: High level business deregistration process initiated through TAK (Individual
Businesses) ................................................................................................................................. 9
Figure 5: Key steps in improving tax registration in Kosovo ................................................. 18
LIST OF BOXES
Box 1: Defining key tax processes ........................................................................................... 10
Box 2: Taxpayer Registration in Kosovo ................................................................................. 14
Box 3: Taxpayer Deregistration ............................................................................................... 14
Box 4: Voluntary Deregistration .............................................................................................. 14
Box 5: Linkages to relevant registries owned by other authorities .......................................... 14
Box 6: Dutch Standardization Forum....................................................................................... 16
vii
Executive Summary
1. A key fiscal challenge for Kosovo is how to increase domestic revenues . Low
domestic revenues, currently at 26% of GDP which is well below the average for Emerging
Market Europe, are due to a number of factors, including low tax rates, a narrow tax base, and
a high level of informality in the Kosovar economy.
2. While increasing the domestic revenues will also require tax policy reforms, there
has been increasing recognition of the need to strengthen tax administration. With support
from the International Monetary Fund (IMF) – and based on two consecutive Tax
Administration Diagnostic Assessment Tool (TADAT) reviews completed in 2015 and 2018
respectively – the Tax Administration of Kosovo (TAK) has formulated a comprehensive
medium-term tax reform implementation plan. The implementation plan outlines reform
measures and targets in key technical areas such as improving on-time tax filing rates and
compliance risk management, reducing the time to process Value-Added Tax (VAT) refunds,
reducing tax arrears, strengthening tax audit procedures and increasing the accuracy of the
taxpayer register.
3. This policy note responds to a request from TAK for assistance in improving the
tax registration processes and the quality of information in the tax register. The objective
is to facilitate the dialogue with TAK on how to improve the quality of the taxpayer register,
thereby strengthening the efficiency and effectiveness of efforts to improve tax collections.
Within this overall objective, the assessment will identify and analyze possible actions to
improve tax registration, including expanding on already proposed remedies in the medium-
term action plan by identifying necessary preconditions for realizing the plan.
4. Proper taxation starts with a complete registration of all the taxpayers and their
activities. This information enables the tax administration to create accounts by tax type and to
establish relationships with taxpayers. Ideally the relationships between taxpayers, such as
household members with their employers or firms with their shareholders, can be made visible
by using the registration functions. As all strategies, analyses, and plans of action to improve
tax collections are based on this register, its accuracy is essential for achieving intended positive
results in tax reforms.
5. Shortcomings in the completeness and accuracy of the taxpayer register however
appear to be persistent. The issue was highlighted in the 2018 TADAT assessment as one of
the few areas where regress has been recorded compared to the 2015 TADAT report. Key
indicators of the inaccuracies are:
• Large discrepancies between the number of businesses registered in the business
register managed by the Kosovo Business Registry Agency (KBRA) and the
taxpayer register. This is especially the case for individual businesses where there is a
difference in the number of active businesses of more than 45,000 (35% of the
businesses in the KBRA business register) and in the number of closed businesses of
more than 23,000. These discrepancies stem from different and inconsistent practices
with respect to registration and numbering. Thus, individuals are able to open more than
one business at KBRA at the same time, whereas TAK registers them with a single fiscal
1
number, regardless of the number of individual businesses they own. Secondly, TAK
maintains the fiscal number provided to natural persons who are required to file taxes,
regardless if their business status is active, passive, or closed.
• The activity status of taxpayers in the tax register is not always accurate. This is
indicated by a combined problem of i) a large share of taxpayers listed as active, but not
filing; and ii) a large proportion of the non-filing businesses turning out to be closed or
not economically active. As of March 2019, the share of non-filers was more than 40%
on average and more than 85% in the category of natural persons. While the TAK is
obliged to investigate the group of non-filers, this is a resource-demanding task that has
so far produced few results in terms of additional tax revenues. More accurate
information on activity status would help achieve a better resource allocation in
investigating non-filers.
• Incorrect or no information on taxpayers’ addresses. There is no automatic or
controlled mechanism to reflect updates in business or private addresses in Kosovo. The
2018 World Bank study on Promoting Tax Compliance with Behavioral Insights found
significant information gaps. For example, nearly two-thirds of the entries for taxpayers
not having declared personal income tax were associated with incorrect addresses or no
addresses at all. The limited information of taxpayers’ addresses hampers
communication with taxpayers and makes investigations and collection enforcement
costlier.
6. Since the tax register is the backbone of all tax administration processes, the
observed inaccuracies have several implications. They reduce the quality of subsequent tax
processes and increase their costs; and they negatively affect the credibility of TAK as an
authority which bases itself on principles of equal treatment of taxpayers.
7. The root causes of inaccuracies in the tax register are to be found in four main
areas:
• Lack of compliance with reporting requirements. This results from manual and
cumbersome procedures which reduce incentives of taxpayers to register/deregister and
report changes; only limited use of information campaigns to create awareness among
taxpayers on reporting obligations; and no sanctions built into the regulation in case of
non-compliance.
• Procedural gaps and misalignments. Procedures between KBRA and TAK on
registering, deregistering and ongoing changes as well as on the treatment of non-filers
are not unified. The passive nature of some registers, including the business register, is
also a key problem as it allows only changes initiated by businesses/taxpayers
themselves, thereby inhibiting updates based on automated data exchanges between
government organizations.
• Limitations in IT-functionality. Standard Integrated Government Tax Administration
System (SIGTAS), the standard integrated tax administration system currently used, can
accommodate most of TAK’s basic business requirements, but reportedly has technical
limitations in further developing e-services for taxpayers and in supporting risk-based
audits and other aspects of TAK’s compliance strategy. TAK is therefore in the final
2
stages of a comprehensive IT tender to procure a new tax information system. While
some redesign of business processes is incorporated in the functional requirements of
the new system, considerable further changes will be necessary to support a transition
to full digitalization and on-line services for taxpayers.
• Inadequate data sharing arrangements between TAK and other organizations
holding essential information about taxpayers. Automated data exchanges are
currently in place between TAK and other government organizations based on
individual technical solutions rather than through a common interoperability platform.
While many data exchanges are in place, it is noteworthy that there is no exchange
between TAK and the Kosovo Cadaster Agency (KCA) about addresses. This prevents
TAK from validating addresses against an authoritative external source. Further
standardization of data formats and terminology is needed and there is a lack of clear
protocols to guide data exchanges between some of the registries leading to information
not being updated and exchanged in a timely fashion. The critical collaboration between
KBRA and TAK needs to be formalized as a framework for addressing the persistent
issues between the two organizations. A well-designed data exchange needs a feedback
mechanism, which currently is not available. If TAK identifies errors in the data of other
registries, there must be a protocol in place to inform the responsible authority about the
findings. Such protocols do not always exist.
8. International good practice of tax registration increasingly emphasizes data
sharing and reliance on information from base registries and other external sources. Tax
authorities all over the world developed their own registers and collected data by themselves.
But this situation is rapidly changing with many governments opting for reuse of data across
organizational boundaries and even relying on third party information. This is in line with EU’s
interoperability platform for public administrations. Based on these principles, some advanced
countries are able to share pre-filled tax declarations with taxpayers, thus relieving taxpayers
of a significant administrative burden and improving the overall quality of tax assessments.
Recommendations
9. Recommendations to address inaccuracies in the tax register are guided by the
longer-term strategic vision of implementing the principle of “one report – many users�?
and the need to transform the approach to management of the tax register. Over time, it is
expected that the greater reliance on data sharing will lead to a demand for common
interoperability platform solutions which are likely to be superior to the current individual
“point-to-point�? solutions in terms of both cost-effectiveness and flexibility. A common
interoperability platform (Government Gateway) has been developed by the Agency of
Information Society (AIS), but there are still issues to be clarified in order for remaining
government institutions to connect to this platform, including the capacity of AIS to support
such an expansion. Since the data needs of the TAK are urgent, temporary solutions are worth
examination until the common interoperability platform led by AIS has matured.
10. The recommendations to improve tax registration in Kosovo follow four main
steps:
3
Step 1: Establish governance arrangements for data sharing and collaboration
11. A first critical step in improving tax registration is to establish the governance
arrangements and institutional structures that would help set the direction for all
recommended actions that follow. Governance arrangements should ensure coordination
between TAK (as user), KBRA (as both user and provider) and other government organizations
holding essential data for tax registration such as KCA, and the Civil Registry Agency (CRA)
(mainly data providers). This would help to fill a considerable void in the current situation,
where data sharing is not adequately supported institutionally. The governance arrangements
should also link up to broader government level initiatives to improve e-services including the
further development of the common interoperability platform led by AIS. This could also help
to define an arbitrage mechanism in those cases, where the collaborating institutions cannot
agree amongst themselves. However, while the broader government-level initiatives could act
as an umbrella for the improvements in tax registration, there is not 100% overlap between the
initiatives at the Government and TAK levels. Given TAK’s urgent need to improve the quality
of the tax register, institutional arrangements led by TAK will need to complement broader
government initiatives over the short term. For the medium to longer term, as TAK increasingly
becomes part of common platforms and solutions, the distinction between coordination forums
at the different levels is likely to dissolve.
12. Key recommendations are to:
• Establish a data sharing forum with representatives from the TAK, KBRA, CRA, KCA
and AIS. The data sharing working group should be chaired by TAK and represented
by each of the institutions at a high level with the option of delegating issues to technical
working groups.
• Create a Glossary of tax terms consistent with Kosovo tax legislation (in 3 languages);
ensure these terms are used in all reports from SIGTAS (or future system) and encourage
adoption of the glossary by other relevant institutions, e.g. the Kosovo Statistical
Agency.
Step 2: Reengineer processes and prepare revisions to regulation, IT designs and business
plans
13. A follow up next step informed by the data exchange forum and working groups is
to redesign business processes, regulation and IT systems to enable simplified and fully
digitalized processes. This will involve business process designs themselves, identification and
drafting of necessary legal changes as well as directly implementing smaller or less complicated
changes.
14. Key recommendations under step 2 are:
• Design reengineered processes for registration, deregistration and update of registration
details with a view to simplify these processes through automation and use of online
services. Simplified processes should be based on a reliable common digital signature
solution as well as minimizing the need for physical interaction between the tax
4
payer/registrant and the authorities. It should enable information to be shared between
authorities.
• Design a risk management approach for dealing with remaining non-filers. Rather than
attempting a 100% investigation of all cases, the TAK should formulate hypotheses for
which groups of non-filers are most critical to investigate and test these hypotheses on
available data from previous investigations.
• Revise reports of non-active taxpayers available on the TAK website. Revisions should
simplify reports and clarify terminology, including clarifying the meaning of key terms,
such as non-active business. Reports should be shared and published on the KBRA
website as well.
• Develop clear internal instructions on opening and closing of tax accounts. The revised
instructions should include defining at what point a tax account becomes passive and
use only terms defined in the MoF tax glossary.
• Develop a procedure to review large numbers of tax accounts opened with the same
fiscal number. There is already functionality in place to flag such occurrences in
SIGTAS, but a clear procedure for review and follow-up actions should be developed.
• Introduce compliance ratio reports for declaration filing at all levels of TAK to
incentivize appropriate conduct throughout the organization.
• Revisit implementation plans for data migration and cleaning to ensure there is an
accurate and precise path for these activities.
Step 3: Implement process changes through regulation, IT- upgrades and information
campaigns
15. With the conclusion of business process designs, TAK should be ready to move
towards implementation. This would involve implementation on a number of levels, including
issuing regulations, adopting technical solutions, and launching necessary information and
awareness campaigns. Implementation of data sharing arrangements might require some
piloting before implementing technical solutions in full scale. This should be considered on a
case-by-case basis.
16. Key recommendations of step 3 are:
• Implement online services for businesses to register, deregister and make changes to
their data through relevant regulatory changes and launching of relevant changes to IT-
systems, preferably based on common digital signature platforms. Implementation
could include incorporation of a taxpayers’ e-cabinet feature, where the taxpayer can
check his/her personal information, report inaccuracies, and request corrections.
• Develop and execute an information campaign to encourage taxpayers to review and
correct their data. A general campaign on tv and newspapers would be useful to start
with. It is sensible to hire a professional communication firm. Collaboration with the
KBRA is crucial to identify different target groups, which deserve specific attention.
Use the experiences and results from the World Bank-GIZ report “Promoting tax
5
compliance in Kosovo with behavioral insight�? of 2018.
• Consider fines for non-filing and non-reporting information on changes of business data
through an amendment to the Tax Administration and Procedures Law.
• Implement common interoperability platform solutions as appropriate. The overall
recommendation is to replace individual data exchange points with agreements to use a
common platform. This should include a consideration to use the Government Gateway,
although it should be based on the recommendations from the data exchange forum.
Step 4: Expand the size of the tax register
17. Once steps have been taken to improve the quality of the tax register within its
current scope, attention should gradually shift to expanding the size of the register. Given
the significant size of the informal economy, it will be important to target “unknown�? taxpayers
with a view to increase the number of taxpayers registered.
18. Key recommendations in step 4 are:
• Establish a unit or task force in TAK with the responsibility to receive, validate and
process third party data and introduce procedures for making this information available
for tax investigation teams.
• Expand the use information and awareness campaigns to encourage informal income
earners and businesses to register with the TAK and KBRA registers.
6
I. Introduction
Background and context
1. A key fiscal challenge for Kosovo is how to increase domestic revenues. Even though
total revenues have increased to around 26 percent of GDP in recent years, this rate is still 10
percentage points below the Emerging Market Europe average1. About three-quarters of
Kosovo's revenues derive from indirect taxes led by the Value-Added Tax (VAT) and excise
tax, making fiscal revenues vulnerable to consumption and imports.
2. The low domestic revenues are due to a number of factors, including low tax rates,
a narrow tax base, and a high level of informality in the Kosovar economy. According to
the most recent World Bank Business Environment and Enterprise Performance Survey
(BEEPS) of Kosovo, unfair competition from the informal sector is the biggest business
environment obstacle for firms in Kosovo and corruption is the third largest one. Domestic
companies face an uneven playing field in local and international markets. When asked about
the single most important obstacle to their growth and operations, 25 percent of firms
responding to the BEEPS survey pointed to the informal economy, which, they say, distorts the
market and disadvantages businesses that comply with the law. The second and third most often
cited obstacles were access to finance, in which unclear property rights affected collateral as an
important element (16 percent), and corruption (11 percent).2
3. Weaknesses in tax administration are also recognized as a major cause of
ineffective tax collections. A 2018 IMF Tax Administration Diagnostic Assessment Tool
(TADAT) assessment outlined weaknesses in the following areas of tax administration: issues
with the accuracy of the taxpayer register; limited analysis of the impact of compliance risk
mitigation activities on taxpayer behavior; weak management of tax arrears; largely manual and
not sufficiently risk-based VAT refund procedures; and lack of a structured process to manage
institutional risks.
4. The Tax Administration of Kosovo (TAK) also displays cross-cutting
organizational and structural weaknesses. These include low staff capacity; insufficient use
of IT; limited flexibility to redeploy resources where needed; lack of coordination between units
internally and with external stakeholders; and a decentralized structure leading to limited
specialization and the parallel handling of several back-office functions in several regional
units. The efficiency of tax operations is generally not sufficiently taken into consideration by
management, and the experience in overseeing a large-scale transformation needed to
successfully implement reforms is limited.
5. While increasing total budget revenues will also require interventions in tax policy,
there has been increasing recognition of the need to strengthen tax administration. As
reflected in the 2018 World Bank Systematic Country Diagnostic (SCD) and the latest IMF
Article IV Consultation Staff Report, the dialogue between Government and international
1
6 percentage points, if contributions to the second pillar of the pension system are included.
2
See the World Bank Strategic Country Diagnostic (SCD), 2017.
7
development partners has emphasized the need to give priority to tax administration reform. In
recent years, the planned merger between TAK and Kosovo Customs has required a significant
commitment of managerial and staff resources. As a result, progress on implementation of
TAK’s own reform agenda has slowed. With this merger off the table, at least for now, the TAK
can focus more resources on its own transformation.
6. With support from the IMF, the TAK has formulated a comprehensive medium-
term reform implementation plan. The plan outlines reform measures and targets in key
technical areas such as increasing the accuracy of the tax register, improving on-time tax filing
rates and compliance risk management, reducing the time to process VAT-refunds, reducing
tax arrears and strengthening tax audit procedures. Strong emphasis is also given to address the
need for organizational strengthening and capacity building, including to better align the
organizational structure and resources to the estimated workload and risks, and to ensure
appropriate reform management and capacity building.
The importance of tax registration
7. One of the key factors in improving revenue collection is the accuracy of data in
the taxpayer register. The taxpayer register contains individual records of taxpayers, including
their declaration behavior in each tax system. All strategies, analyses, and plans of action to
improve tax collection are based on this register and its accuracy is essential for efficiently and
effectively addressing the various risks associated with tax collection and for maintaining
credibility in the work of the tax administration.
8. Issues with the quality of tax registration processes in Kosovo appear to be
persistent. The pilot project on behavioral insights and tax compliance conducted by the GiZ
and the World Bank in 2018 mentioned problems with the completeness and accuracy of data
in the taxpayer register, including missing or incomplete information on data such as address,
e-mail, telephone number, etc.3 These shortcomings in completeness and accuracy of the
taxpayer register were also highlighted by the 2018 TADAT assessment. In fact, registration is
one of the few issues where regress has been recorded compared to the 2015 TADAT report.
The identification of similar problems in other assessments conducted by the 2014 USAID
Partnership for Development (P4D) project as well as the Public Finance Management (PFM)
project conducted by GIZ (2018) indicate the persistent nature of the problems and the
difficulties in comprehensively addressing them.
9. Suggested actions to improve tax registration are included in TAK’s medium-term
action plan for 2019-21 but will require further regulatory and process changes. The
medium-term action plan highlights the lack of reliability of the tax register and suggests,
among other things, to improve data exchanges between TAK and other government
organizations, develop more effective internal procedures for cleaning and updating the
register, and encourage taxpayer compliance with the obligation to update contact information.
Aligned with the medium-term action plan, TAK has requested support for the formulation of
3
Promoting Tax Compliance in Kosovo with Behavioural Insights, World Bank, December 2018
8
further strategies and measures for addressing issues with tax registration.
Objective and Structure of the Policy Note
10. The objective of the policy note is to facilitate the dialogue with TAK on how to
improve the quality of the taxpayer register, thereby helping strengthen the efficiency and
effectiveness of efforts to improve tax collections. Within this overall objective, the
assessment will identify and analyze possible actions to improve tax registration, including
expanding on already proposed remedies in the medium-term action plan by identifying
necessary preconditions for executing the plan. The TAK is the main beneficiary of the findings
and recommendations of this note, but other government institutions holding various data of
relevance to improving the tax register may also benefit from the recommendations, including
on building common approaches to data sharing.
11. The subsequent sections of the note are structured as follows:
• Section II provides a conceptual overview of tax registration, international good
practices in tax registration as well as current practices in Kosovo, including the legal
and institutional framework. This section concludes with a description of the new legal
requirements on the Unique Identification Number (UIN), which have major influence
on data sharing moving forward.
• Section III outlines key issues with tax registration in Kosovo, their implications and
main causes, including lack of compliance with reporting requirements, procedural gaps
and misalignments, limitations in IT-functionality, and inadequate data sharing
arrangements.
• Section IV includes short and medium-term recommendations on how to overcome the
issues identified. This section is followed by an outline action plan (Annex 1) that
summarizes recommendations, deadlines, stakeholders and prioritization.
II. About tax registration
What is tax registration?
12. Registration and numbering of each taxpayer underpin all key operational tax
processes. Tax administrations must compile and maintain a complete database of all
businesses, individuals, and other entities that are required to register as well as their location,
and activity status. All next steps, such as return processes, filing, payment, and case
management are based on the registration and maintenance of such a database. It is therefore
essential that mechanisms are in place to ensure that the information held in the database is
complete, accurate, and up to date.
13. Box 1 below shows the operational processes to be distinguished to understand the
meaning of a taxpayer registration in the context of an Integrated Tax Administration
System (ITAS). ITAS information systems support the operational processes of tax
administration and are typically integrated systems with different modules supporting different
aspects of tax administration. TAK uses SIGTAS, which is a basic tax administration system
used widely internationally, which supports generic tax processes, including tax registration.
Supporting processes such as human resource management (HRM), payroll, knowledge
9
management and financial administration are typically not within the scope of the ITAS as they
are of such a generic nature that specialized products can be bought in the market.
Box 1: Defining key tax processes
Taxpayer registration: This process enables the administration to register taxpayers and their
activities. This information enables the tax administration to create accounts by tax type and to
establish communication with taxpayers. Ideally the relationships between taxpayers, such as family
members or businesses and their managers or shareholders can be made visible by using the
registration functions. In many countries this is a critical process, but centralized base registers for
citizens and companies in Kosovo are missing or of an insufficient quality.
Tax return process: This process allows the administration to receive declarations in paper-form or
electronically. Normally, this process also detects whether a tax return is a duplicate or a substitute.
Some assessments are already made in this process to check the consistency and completeness of the
information. The return process usually also comprises the detection of non-filers, including the
necessary follow-up actions.
Payment and collection process: Payments will be accounted for according to the agreed distribution
rules. As a result, the individual taxpayer account will be updated, and the payment will be registered
as revenue received. In addition to the main payment stream, additional processes are in place like
accruing, reversing and waiving interest and penalties, management of payment plans and refunds.
Taxpayer accounting process: This process allows tax officials to get an overview of the financial
relationship between the individual taxpayer and the tax administration.
Online self-service: Especially in less developed countries this is a crucial process to support
taxpayers in fulfilling their legal obligations. An online self-service will help to improve taxpayer
compliance in cases where a well-organized mail facility is lacking, or in case of unreliable addresses,
or long travel distances to a tax office or service points. This service allows taxpayers to create and
update their identification data (within restrictions based on authentication), to view their accounts
and returns and to search for generic information via a website or portal. This service can also be
delivered to intermediaries, such as tax advisors and accountants.
Revenue accounting process: At the level of the tax administration, this process allows to account
for the revenue by tax type, region, period, etc., both for levied as well as actual amounts received.
This information will be exchanged for reconciliation with the general ledger. On an aggregated level,
all this information can be used in reporting and intelligence processes. Examples of intelligence
processes are forecasting revenue and linking transactions to taxpayer accounts.
Case management processes: These processes ensure workflow management via generic
functionalities to control the flows of data within the tax administration. In general, there are some
main cases that are crucial for a tax administration, for example, (enforced) collection, audit,
bankruptcy and appeal.
Security process: This is a non-functional process focused on user authentication, authorization and
logging of the critical transactions. In case of online communication with taxpayers, confidential
information will be encrypted.
Source: https://www.taxcompact.net/documents/IT-Tax-Administration-Study.pdf
10
International good practice in tax registration
14. Use of a unique taxpayer identification number is generally considered a
cornerstone of a well-functioning tax administration framework. This is because a unique
identification number facilitates routine identification of taxpayers for administrative actions,
third party information reporting and data matching, and exchange of information with other
government agencies.
15. Previously, tax authorities all over the world developed their own registries based
on their own data collection. Tax administrations developed and used their own fiscal numbers
to establish the tax liability of natural persons and companies. In most cases, these registers
contained the critical data about taxpayers’ civil status and addresses. When these data differed
from the data of other government agencies, then the tax administrations typically preferred
their own data, because they – unlike data from some of the other registry databases - were
based on solid investigations.
16. But this situation is rapidly changing with many governments opting for data
sharing and re-use of data across different registries and organizational boundaries.
Rather than focusing on which organizations are responsible for which datasets, the focus is
increasingly on how to improve the quality of service delivery, including through provision of
online services, and then identify the data necessary to achieve this quality improvement
irrespective of their sources. “One report – many users�? is becoming the international standard
meaning that several users should be able to access the same report rather than trying to recreate
it using their own registry data or through additional data requests from citizens or businesses.
Current practices imply an increased dependency of tax authorities on data from external
registries, which has been followed by the introduction and compulsory use of common
identifiers, such as National Identification Numbers (NIN) and Unique Identification Numbers
(UIN), which can also be used for data matching across registries. The new approach also
reinforces the need for continuous cleaning and adjustment of data registries.
17. Data sharing and re-use of data is supported by longer-term EU-policies aiming at
creating seamless services and data flows across European public administrations. A new
European Interoperability Framework from March 2017 gives specific guidance on how to set
up interoperable digital public services. It offers 47 concrete recommendations to public
administrations on how to improve governance of their interoperability activities, establish
cross-organizational relationships, streamline processes supporting end-to-end digital services,
and ensure that both existing and new legislation do not compromise interoperability efforts.
While the framework does not have direct legal impact in Kosovo, it is part of the basis for EU
accession and is already emulated in Kosovo’s regulatory framework. This means that public
administrations confronted with a specific problem seek to benefit from the work of others by
looking at what is available, assessing its usefulness or relevance to the problem at hand. This
requires the public administration to be open to sharing its interoperability solutions, concepts,
frameworks, specifications, tools and components with others. To the extent possible, users
should be expected to provide data only once, and administrations should be able to retrieve
and share this data to serve the user, in accordance with data protection rules. The opportunity
to collect additional information from third parties should also be exploited.
11
18. A key element in the interoperability framework is the establishment of base
registries. A base registry is a trusted authentic source of information under the control of an
appointed public administration or organization appointed by government. It holds reliable
sources of basic information on items such as persons, companies, vehicles, licenses, buildings,
locations and roads, and forms – separately or in combination – the cornerstone of public
services. Most of the information on a business or a citizen needed by public administrations is
held in one or more registries. Registries are highly specialized (one type of register - one type
of information; e.g. persons, businesses, cadaster, vehicles, etc.). Public administrations could
(should) get any information from one or another base register without having to require its
separate provision from a business or citizen.
19. The tax authorities in Norway, Denmark and the Netherlands have developed good
examples of this practice. They combine the information collected from their own systems
with data from base-registries and data from third parties. Based on these combined datasets,
prefilled tax declarations are offered, online, to the taxpayers who can compare these data with
the data which they have gathered themselves and confirm their correctness.
20. As an example, the Dutch tax files for personal income tax are prefilled with the
following data from the mentioned sources (Table 1):
Table 1: Prefilling of Dutch tax files: data elements and sources
Data elements Data sources
Name, date of birth, civil status The Civil Registry (base-register)
Home address The Cadaster (base-register)
Annual wages, annuities, pensions Third party information from employers, pension funds,
insurance companies.
Owned Property The Cadaster (base-register)
Worth of property The Real Estate Worth database (base-register)
Mortgage debt Third party information from banks/insurance
companies.
Bank balances Third party information
Portfolio of bonds and stocks Third party information
21. These prefilling operations have become very successful, including by significantly
reducing the administrative burden on taxpayers. These results build on a number of
preconditions, including appropriate legislation, procedures, data protocols and information
technology. But even more important is the readiness of all involved parties to collaborate.
22. Different governance arrangements and forms of relationship management have
been developed to overcome the cultural barriers which exist between government
institutions and external third parties as well as between government institutions. One
such arrangement is to manage the relationship as an “alliance�?. An alliance is a partnership
between organizations that, in addition to their own objectives, pursue one or more jointly
12
selected (or politically imposed) objectives. These alliance partners are independent, although
they also depend on each other when it comes to achieving joint objectives. In this context,
alliance partners are confronted with a number of alliance features. A brochure “Mastering
Alliances�? published by the Dutch Alliance for Data and Tax on Wages gives practical guidance
on how to organize partnerships across organizations.4 Some key points are:
• Citizens and businesses see the government as one entity and expect public
organizations to share data and coordinate their day-to-day business in the public-
private domain.
• Public and private organizations are increasingly working together in alliances as well
as other forms of partnering.
• Making an alliance work is not so much a matter of technology (although ICT plays an
important role) but is primarily a people issue.
• In a cross-organizational partnership, people need not only to understand each other’s
processes and their interconnection, but they must also learn to work together (Figure
1).
Figure 1: Important rules for collaboration
Cultivate a mindset focused on collaboration;
Build trust among collaborating partners;
Communicate through an open dialogue;
Provide an appropriate management and governance structure;
Create transparency with regard to tasks, powers and Responsibilities, as
well as during the reporting;
Work on knowledge sharing during the collaboration;
Develop an inspiring, meaningful program between the partners.
Tax Registration in Kosovo
23. There are four types of tax registrations maintained by the TAK: Natural Persons,
Individual Businesses, Corporates/Legal Entities and Value Added Tax. Box 2 provides a brief
overview of each based on the main laws covering the relevant tax processes and procedures
under the authority of TAK (Law on Tax Administration and Procedures, Law on Personal
Income Tax, Law on Corporate Income Tax, and Law on Value Added Tax).
4
https://www.noraonline.nl/images/noraonline/0/01/Mastering_Alliances.pdf
13
Box 2: Taxpayer Registration in Kosovo
Natural persons: Natural Persons are obliged to file for Personal Income Tax (PIT) only when they
are active and have income from one or more sources. The PIT is total income-based and there is no
threshold. Natural persons are not registered as taxpayers and issued a personal income tax number
when they are subject to withholding tax, but only if they have one or more other sources of income
like rent/income from property or individually owned businesses. Declarations are voluntary, and
there is only very limited exchange of third-party information. As a result, most of the employed
citizens are not registered as taxpayers. This is different from Individually-owned businesses. When
starting a business as an individual, the business must be registered in the Kosovo Business Registry.
These records are transferred to the taxpayer register in TAK.
Corporates/Legal entities: Corporates are registered for Corporate Income Tax (CIT). After
transferring the data from the Business Register, TAK has the independent responsibility to assess
the tax liability of the registered business. Legal entities have this liability by law.
VAT: As per the Kosovo Law No. 05/L-037 on Value Added Tax, every person who meets all
conditions of the definition for taxable person is required to register for VAT if the turnover exceeds
30,000 € within a calendar year. When a person is registered for VAT purposes, TAK issues a
registration certificate containing the taxpayer’s name, fiscal number and unique VAT registration
number as well as the address or addresses where the business activity is carried out. When a physical
person is registered for VAT purposes with their personal identification number, TAK issues one
registration certificate with the same information as stated in the paragraph above. However, a
partnership and grouping of persons are identified by one single VAT registration number. Partners
or members of the persons’ grouping must appoint a general partner, respectively a member -
representative to fulfil the obligations and exercise the rights defined by the Law on VAT. When the
partners and members are not registered for VAT purposes yet, they may choose to be registered for
these purposes prior to the registration of the partnership or grouping of persons.
24. The applicable sub-legal acts include the conditions under which TAK can refuse
to issue a fiscal number, or under which it has the right to deregister a taxpayer from the
TAK register. Deregistration from the TAK register can be done independently, without
deregistration from KBRA and concerns only the tax liability. Deregistration from KBRA leads
inevitably to deregistration from TAK as well.
Box 3: Taxpayer Deregistration Box 4: Voluntary Deregistration
Taxpayers can be deregistered when there is a The taxpayers have the right to deregister only if
poor history of compliance or when there is they have paid all the unpaid tax obligations and
reasonable suspicion of a criminal tax offense and after submitting the closing balance sheet. TAK
when it can be reasonably expected that the is obliged to verify the tax situation and, when
taxpayer or the responsible person does not necessary, to carry out an audit of the taxpayer’s
intend or will not be able to comply with his tax activity. If TAK considers that the taxpayer has
co-operation duties. The TAK may deny not met the requirements for deregistration, it will
registration of any entity that includes in its notify the taxpayer in writing within 60 days of
personnel listing any officer or director receiving the request for deregistration. TAK is
(including managing director) or a responsible obliged to withdraw a dispute only when the
representative as described in Article 16 of the taxpayer has paid all the outstanding liabilities for
TAK Law who has a history of non-compliance which he has been notified in writing by TAK. If
14
(non-submission of declarations or non-payment TAK has not notified the taxpayer within 60 days,
of tax obligations) in any previous entity for the taxpayer will be considered for deregistration.
which he or she was a partner, owner, managing
director, or other responsible representative.
2
New legal requirements on the UIN
25. The Government of Kosovo has recently adopted a UIN, which is meant to serve
as an identification number for businesses both for registration and taxation purposes
(another identifier – the NIN – is developed for individuals).5 The Administrative Instruction
No. 01/2019 Setting Forth the Requirements, Conditions and Procedures for the Creation of the
UIN, which entered into force in April 2019, requires KBRA to issue a UIN for the
identification of business organizations for the following purposes:
a. registration in the KBRA register,
b. tax and customs liabilities,
c. pension contributions,
d. health insurance,
e. in relation to employment relationship inspection authorities, and
f. other purposes specified by law.
26. The UIN is mandatory for business and tax registration purposes but will also be
used to match data with other registries, although this is not obligatory at this point. As
of August 2019, the UIN has been fully implemented by TAK, Kosovo Customs and KBRA,
thereby replacing the Fiscal Number which was previously used as an identification number in
their databases. There are no bonusses or special advantages associated with having a UIN.
27. The UIN limits the scope for errors in issuing identification numbers. There appear
to have been few if any issues with errors in issuing identification numbers in TAK, for example
issuing more than one number for the same taxpayer. However, it has been an issue for the
business register in the past that businesses opened several numbers for the same business. With
the distribution of the UIN, this is no longer possible, since the number is linked to the natural
person.
28. The KBRA issues the UIN upon receiving confirmation from the TAK on receipt
of the application for registration. At the same time, TAK is required to use the UIN for
identifying businesses in the taxpayer register as well as all financial transactions. Furthermore,
the Administrative Instruction includes requirements to align procedures and strengthen data
exchanges and collaboration between the KBRA and TAK, including that KBRA must
immediately notify the TAK of any changes to the data approved by the KBRA. The new
instruction also requires the KBRA and TAK to have integrated electronic systems.
29. All business organizations currently registered with the KBRA must be equipped
with a UIN within a transitional period of three years. Pursuant to Article 266 of the Law
on Business Organization, KBRA, in cooperation with other government organizations, is
responsible for contacting all existing business organizations to ensure that the data included in
the register are updated. Existing business organizations which have not been issued a UIN
before the end of the transition period will be included in a list of passive business organizations.
5
Law No. 06/L-016 on Business Organization
2
With the successful implementation of these changes, the Business Register can be considered
an authentic and authoritative source of data.
III. Key issues with tax registration in Kosovo
30. Despite positive developments in the tax system in Kosovo, the tax registration
process shows several gaps leading to inaccuracies in the tax register. Some key indicators
are:
• There is a big difference in the number of individually owned businesses recorded in
the business and tax registries;
• Businesses which become inactive and stop their activities are not always recorded; and
• Addresses of businesses are often missing or not correct.
Difference in the number of individually owned businesses in the KBRA and TAK
registers
31. A large gap exists between the number of registered businesses in the KBRA and
the number of active businesses in the TAK register required to file tax. As seen in Table
2 below, the issue is mainly concentrated on individual businesses, where there is a difference
in the number of active businesses of more than 45,000 and in the number of closed businesses
of more than 23,000.
Table 2: Differences in number of registered businesses by type of registration, KBRA -
TAK 2018
KBRA TAK Difference KBRA/TAK
Type of Business Active Closed Active Closed Active Closed
Individual Business 129,178 23,525 83,462 0 45,716 23,525
General Partnership 3,509 987 2,201 325 1,308 662
Limited Partnership 87 19 13 2 74 17
Limited Liability Company 26,881 775 26,267 671 614 104
Joint Stock Company 513 55 342 12 171 43
Foreign Company 807 125 610 92 197 33
Socially Owned Enterprise 29 2 360 18 -331 -16
Publicly Owned Enterprise 10 1 99 2 -89 -1
Agricultural Cooperative 133 5 120 2 13 3
Other enterprises under KPA
33 0 31 0 2 0
jurisdiction
Total 161,180 25,494 113,505 1,124 47,675 24,370
Source: Data provided by TAK
32. The discrepancies for individual businesses happen for two reasons. Firstly,
individuals are able to open more than one business at KBRA at the same time (thus receiving
several business registration numbers), whereas TAK registers them with a single fiscal
number, regardless of the number of individual businesses they own. Secondly, TAK maintains
the fiscal number provided to natural persons who are required to file taxes, regardless if their
business status is active, passive, or closed. Other categories also suffer from discrepancies,
although to a lesser extent, due to different approach to registration and deregistration in
comparison with individual businesses. For example, a limited liability business receives a
3
single number in both KBRA and TAK, unlike a natural person who can receive several
business numbers, but only one fiscal number for life.
Inactive businesses not always recorded
33. The activity status of taxpayers in the tax register is not accurate. This is indicated
by a combined problem of i) a large share of taxpayers listed as active, but not filing, and ii) a
large proportion of the non-filing businesses turning out to be closed or not economically active.
While the TAK is obliged to investigate the group of non-filers, this is a resource-demanding
task that has so far produced few results in terms of additional tax revenues. As shown in Table
3, as of March 2019, the share of non-filers was more than 40% on average and more than 85%
in the category of natural persons.
Table 3: Current situation with non-filers in the tax administration
Status Active (until Filers 2018 Non-filers % of non-filers
27.03.2019)
Individual businesses 57,893 43,665 14,228 24.6%
Legal entities 30,591 22,706 7,885 25.8%
Natural Persons 30,203 4,313 25,890 85.7%
Total 118,687 70,684 48,003 40.4%
Source: Data provided by TAK
Incorrect or no information on addresses
34. There is no automatic or controlled mechanism to reflect updates in business or
private addresses in Kosovo and a significant number of entries in the tax register have
incomplete information on taxpayer addresses. For example, the 2018 GiZ/World Bank
study on promoting tax compliance with behavioral insights found that among taxpayers not
having declared for personal income tax, nearly two-thirds of the entries were associated with
incorrect addresses or no addresses at all. The limited information of taxpayers’ addresses
hampers communication with taxpayers and makes investigations for collection enforcement
costlier.
35. The problem with incorrect addresses varies across different groups of taxpayers.
While TAK has the correct addresses of the fully compliant taxpayers due to the frequent
contacts with this group, the quality of the addresses is much poorer for taxpayers – individual
taxpayers as well as corporates – who have either neglected to update their data or who do not
file. TAK has a system of identifying and correcting addresses based on field visits to
businesses, however this is very limited and there is no sharing of data on addresses between
the TAK register and other relevant registers, such as the Kosovo Cadaster or KBRA register.
Furthermore, there is no online option that allows registered taxpayers to update addresses
themselves.
36. The problem with inaccuracies of the tax register varies in significance – and must
be addressed differently – across different groups of taxpayers. Generally, there are four
categories of taxpayers concerning their degree of compliance with registration obligations:
4
1. Fully compliant taxpayers: A non-problematic category where all taxpayers are
registered and where regular contacts between TAK and the taxpayer means that data
are up to date, including names and addresses.
2. Registered taxpayers with inaccurate information. Taxpayers are registered but
neglect the obligations to update their data. Addresses may have been changed or
activities altered resulting in incorrect or incomplete information in the register.
3. Non-filers. A special category. All business registered with KBRA must regularly file
to TAK as long as they are not deregistered or passivized in the TAK register. However,
the number of non-filers is very high in TAK. Filing is not obligatory for natural persons
(PIT). They must file only when they conclude by themselves that they have an income.
The exception is the so-called personal businesses which are obliged to file. These are
businesses without any personnel, e.g. freelancers and other one-person businesses.
Many of them do not file, or not regularly, or only in the beginning of their existence as
a business. Addresses and other contact data for these businesses become gradually
outdated. No further information exists from investigations or from third parties. In
many cases tax accounts stay open despite businesses not being active anymore or
having not been active at all.
4. Unregistered taxpayers. Given the size of the informal economy in Kosovo there are
a lot of “unknown�? taxpayers, i.e. taxpayers which are not registered, and in many cases
should be declaring taxable income. With limited information available from base
registries, there is little information about this category. If available, the basis data are
minimal elementary information to start investigations, to do statistical inquiries, to start
branches investigations, etc.
Implications of inaccuracies in the tax register
37. Since the tax register is the backbone of all tax administration processes, the
observed inaccuracies have several implications. First, it negatively affects the quality of
subsequent tax processes. Proper taxation starts with a good registration of all the taxpayers.
Without this registration it is impossible to properly levy and collect any form of taxes and
payments. Second, it increases the overall costs of operations. For example, more accurate
information about the active/inactive status and addresses of taxpayers could significantly
reduce costs of investigations. Inaccuracies of the tax register negatively affect the credibility
of TAK. Proper taxation is based on an equal treatment of taxpayers. When taxpayers realize
that all citizens and companies are taxed in the same manner, the credibility of the tax authority
will increase. However, this equity objective is inhibited by inaccuracies of the register as it
prevents a correct registration of all taxpayers.
Main causes of inaccuracies in the tax register
38. The main causes of inaccuracies in the tax register fall in four main categories
analyzed further below:
• Lack of compliance with reporting requirements, including complex procedures to
register/deregister and report changes, lack of on-line facilities, lack of fines and
inadequate information to taxpayers.
• Procedural gaps and misalignments, including the passive nature of the KBRA register,
and the lack of unified procedures between KBRA and TAK on registering,
5
deregistering, making updating changes, or treating non-filers
• Limitations in IT-functionality, including issues with migration and coordination with
users on business requirements
• Inadequate data sharing arrangements between TAK and other organizations holding
essential information about taxpayers, including limitations with respect to data sharing
technologies, protocols, feedback mechanisms and underlying standards and
terminology.
Lack of compliance with reporting requirements
39. All businesses in the KBRA register - personal and corporate – are part of the TAK
registers following a pre-defined registration process exemplified with the process for
individual businesses in Figure 2 below. The registration process begins with filling out of an
application form (obtained either at KBRA’s one-stop-shops or downloaded online) and
attaching all documents required depending on the type of business undergoing registration.
The application form, together with accompanying documents, is submitted to KBRA in person,
at which point a business registration certificate is issued, containing both the business
registration number and fiscal number. At this point, KBRA shares with TAK all registration
data on the newly registered business.
Figure 2: High level business registration process in Kosovo (Individual businesses)
Source: World Bank team based on information from TAK
Note: “M�? indicates that a step is manual, while “A�? means that it is automated.
40. The deregistration of businesses can happen in two ways - voluntary deregistration
initiated by the business and “forced�? deregistration initiated by TAK. Businesses
6
requesting voluntary deregistration currently have two windows through which to initiate the
request, depending on whether they wish to deregister the business completely or only wish to
deregister from TAK and no longer be tax liable, but keep the business alive:
• The first option is to submit a closing request to TAK, which verifies whether the
business has outstanding tax obligations. Once it is confirmed that all dues are paid,
TAK deregisters the business and provides a proof of deregistration to the business
requesting the document. This document must then be submitted by the business to
KBRA to continue with the business closing process. However, very often businesses
fail to submit this document to KBRA, which causes business to appear open in the
KBRA register and closed in the TAK register. Furthermore, TAK has no protocol in
place to directly share such closing documents with KBRA.
• The second option is to initiate the deregistration request through KBRA (Figure 3). In
this case, KBRA, after verifying the completeness of the documentation, shares it with
TAK to confirm that all dues are paid. Once the confirmation is received from TAK,
KBRA proceeds to deregister the business and notify both the taxpayer and TAK. Upon
receiving the notification, TAK proceeds to deregister the business in the tax register.
41. TAK initiates deregistration of businesses when there is a poor history of
compliance or when there is reasonable suspicion of a criminal tax offense and when it
can be reasonably expected that the taxpayer or the responsible person does not intend or
will not be able to comply with their tax duties. Again, information about this forced
deregistration (passivation) of businesses in TAK registers is not shared with KBRA, which
causes discrepancies of data in both registers.
7
Figure 3: High level business deregistration process initiated through KBRA
(Individual Businesses)
Source: World Bank team based on information from TAK
Note: “M�? indicates that a step is manual, while “A�? means that it is automated.
42. The procedure for making changes is also initiated either voluntarily by the
businesses themselves, or through TAK:
• Voluntary change requests are made by businesses through either KBRA or TAK. Given
the lack of sanctions for not reflecting changes at KBRA, businesses typically turn to
TAK to make the changes, however, TAK has no protocol in place to share the updated
data with the KBRA.
• Tax inspectors also initiate changes in the tax register, if discrepancies are identified
when businesses are contacted directly by TAK, but again, such changes are not shared
with KBRA.
43. The current processes for registration, deregistration and making changes could
be improved in several aspects to simplify and streamline the processes, thereby
encouraging better compliance from businesses.
8
Figure 4: High level business deregistration process initiated through TAK
(Individual Businesses)
Source: World Bank team based on information by TAK
Note: “M�? indicates that a step is manual, while “A�? means that it is automated.
44. An overall weakness is that the official business processes as depicted in Figures 2-
4 are not always clear or respected in practice. For the deregistration process, in particular,
the existence of two different deregistration requests with KRBA and with TAK increases the
unclarity. Moreover, these two options have different consequences. The problem is
exacerbated by the lack of clear protocols for sharing information from TAK to KBRA. It is
therefore up to the businesses to deregister with KBRA separately which they in some cases
fail to do. As there is currently no official procedure for TAK to share deregistration data with
KBRA this causes discrepancies between the two registries. Similarly, the option for businesses
to request changes in business data both in KBRA and in TAK – and for tax officials to initiate
such changes directly in the tax register – are causes of discrepancies.
45. Another key gap is that the current processes are not fully digitalized. While
taxpayers can download and fill registration and deregistration forms online, the submission
and issuance of the necessary certificates require face-to-face interaction with both TAK and
KBRA. Likewise, submitting changes to business contact data also require a face-to-face
interaction with either TAK or KBRA. A full digitalization would require the implementation
of digital signature, including the necessary legal amendments to the regulatory framework
under the Ministry of Economic Development, and the implementation of technical solutions.
The regulatory framework would also have to be adjusted to accept certificates in electronic
9
form.
46. The current business process does not allow validation of business addresses
during registration. Such a validation could save on the costs of subsequent processes such as
tax investigations, which rely on correct addresses and other contact information of taxpayers.
The validation could be implemented through data exchanges with the Kosovo Cadaster
Agency (KCA – see further below on issues of inadequate data exchanges). In many cases, the
validation could be automated but in case of discrepancies, some exchanges with the business
applying for registration would be needed.
47. The use of information and awareness campaigns targeted at improving taxpayer
compliance is limited. Examples of campaigns to encourage taxpayers to review and correct
their data are not known by the Bank team.
48. The lack of fines further reduces compliance with the obligations to register,
deregister and report changes in taxpayer information. The draft Law on Tax
Administration and Procedures currently does not include any sanctions in case taxpayers do
not update their information in a timely manner.
Procedural gaps and misalignments
49. Aside from the need to simplify the processes from the perspective of taxpayers to
ensure better compliance, the processes related to tax registration display additional gaps
and misalignments. One set of issues relate to the same data being updated separately in the
KBRA and TAK registries respectively. As seen from Figures 2-4, a registration or
deregistration of individual businesses is recorded and processed twice, once in each register.
This both raises issues of efficiency but also increases risks of mistakes creating discrepancies
between the two registries. Following the principle of “one report, many users�? an alternative
would be to initiate all registration and change requests for businesses through KBRA only
while automatically reflecting the changes in the tax register through an automated data
exchange, thus effectively integrating the two registries. This will require a clear agreement
between TAK and KBRA to ensure that all necessary information for the tax registration is
reflected in KBRA’s instructions and required documentation and clear protocols are in place
for the exchange (see further below).
50. Another set of issues relate to the treatment of non-filers and the efforts to clean
the data to accurately reflect their activity status. Many of the non-filing businesses are in
fact not active anymore, nevertheless they are not systematically deregistered in KBRA.
51. Considerable resources are devoted to combating the “non -filers�? problem as
there are in most cases no updated addresses or phone numbers. The approach is to first
contact taxpayers via email or text message, followed by an outbound call of the centralized
Call Center in Pristina, in case of no-response. When these calls are not successful, then these
businesses are visited by tax inspectors from the regional offices of TAK to check if they still
exist or are not active anymore.
52. Control visits are expensive and time-consuming but have so far only led to limited
10
additional revenues being collected. In daily practice it is impossible to accurately check tax
liability for every business, so risk management is necessary to reach well balanced choices on
where to place the efforts and allocate resources.
53. In cases where all the above-mentioned activities do not result in businesses
starting to file tax returns, then these businesses are recorded as “passive/inactive�? in the
registers. Despite the resource-demanding efforts, the results of these operations are low. Only
seven percent of the inactive/passive cases are made active again. The activities to deal with
non-filers are reflected in the medium-term reform implementation plan and will continue till
the end of 2019. The responsible managers are convinced that the integrity of the taxpayer base
will be improved by the end of the period, but this is unlikely due to the recurring nature of the
problem.
54. With respect to the personal income tax register, TAK requires natural persons
generating income to register at TAK and obtain a fiscal number for declaring PIT.
Natural persons are so called freelancers, businessmen not employing personnel. There are
around 40,000 of this type of taxpayer accounts at TAK, but they are not registered, nor in any
way evidenced, in the KBRA register. Since there is no third-party information from banks,
insurance companies, etc., it is difficult for TAK to detect further tax liability from natural
persons. The NIN is the key to resolving these issues as it can be used as an identifier for sharing
data between TAK and KBRA.
55. The corporate income tax register is in better shape, compared to the PIT filers
mentioned above, since all businesses registered at KBRA are transferred to the TAK
taxpayer register. But here, too, changes made in the TAK register during the business closing
process of Corporates, are not reflected in the KBRA.
56. Newly registered businesses often wrongfully register for VAT, and KBRA has no
control system in place to ensure that such businesses are fully informed about the
resulting legal requirements. Once they receive the VAT certificate, businesses are obliged
to file regardless whether they reach the Euro 30,000 Euro turnover threshold. Nevertheless, it
happens that businesses voluntarily register for VAT and receive the VAT certificate at
KBRA’s one-stop-shop, but then neglect to file if their annual turnover is less than 30,000 Euro.
This in turn causes inaccuracies in TAK’s active taxpayer register, since they never submit tax
declarations, thus increasing the number of non-filers.
57. The introduction of the UIN in the KBRA register changes the registration
processes of TAK. It means that both authorities use the same number for a newly registered
business. Electronic exchange regulates the transfer of the data. In addition, all existing
businesses must be renumbered. TAK has to adjust and add the new numbers to the existing
registries. That is a major operation which is ongoing at this moment. The old (fiscal) numbers
are stored and archived for administrative reasons.
58. By Law, the KBRA business registry is considered “passive�?. This implies that
changes in this register can only be made with the authorization of the concerned business. So,
deregistering seems to be possible only by an action taken by the subject business. When TAK
concludes that a business does not exist anymore it reports this to KBRA, but KBRA does not
11
record the change in its register. This strict legal view is not common internationally anymore
as the practice is growing that registries respond to signals from other authorities to maintain
the quality of their register.
Limitations in IT-functionality
59. Tax registration must be supported by an effective registration IT sub-system.
Generic business requirements for such a system include the following:
• Allocate a national UIN to each registered taxpayer;
• Validate UINs through use of check digits;
• Link associated entities and related parties of the taxpayer (e.g., where a company is
part of a corporate group, or a taxpayer is a partner in a partnership);
• Mitigate the risk of duplicate or conflicting records (e.g., where a company or individual
that is already registered for tax attempts to register again);
• Interface with other IT sub-systems to support filing and payment enforcement;
• Support the non-filing control to streamline processes;
• Provide frontline staff with a whole-of-taxpayer view of a taxpayer’s identification and
other details across all core taxes;
• Allow for deactivation or deregistration of taxpayers and archives information in a way
that can be restored if needed;
• Generate registration-related management information (e.g., statistics of registered
taxpayers by entity type, location, and economic sector) and provides an audit trail of
user access and changes made to taxpayer registration data; and
• Provide secure online access to businesses and individuals to register and, once
registered, to update details held in the database (e.g., a taxpayer’s postal or business
address).
60. The current ITAS in use by TAK, SIGTAS, is a standard Tax Administration
System widely used internationally. SIGTAS is custom-made to the individual requirements
of the user. Hence, different versions exist in different tax administrations, and none can have
access to upgrades as there is no upgrade path. The fact that the various functionalities
developed in all these countries have not been centralised in a single version of the system is
seen as a disadvantage. The term commercial off-the-shelf (COTS) is commonly used in the
field of information technology and it refers to software that is ready-made and available for
sale, lease or license. This type of solution is usually seen as an alternative to in-house
development of an off- software solutions. Typically, a COTS is highly configurable, which
allows the solution to be tailored to the specific needs of a client.
61. SIGTAS can accommodate most of the business requirements listed above, but
reportedly has technical limitations in further developing e-services for taxpayers and in
supporting risk-based audits and other aspects of the TAK’s compliance strategy. TAK is
therefore currently in the final stages of a comprehensive IT tender to procure a new tax
information system. The new system has been planned over a period of 3-4 years with
continuous donor support, including formulation of functional requirements.
62. While some redesign of business processes is incorporated in the functional
12
requirements of the new system, further changes will be necessary to support a transition
to full digitalization and on-line services for taxpayers. TAK is aware that its organization
and processes will have to undergo further changes to accommodate off-the-shelf-software that
is nowadays indispensable for automation of tax administrations. However, given the
procurement documents for the tender of the new system are currently in a final stage of
drafting, the timing of such further business process changes is unknown.
63. Frequent changes in business identification numbers over the past decade has
added to the workload associated with migrating the TAK register. Apparently, SIGTAS
could not cope with these changes, and the migration process is still ongoing including manual
manipulations of the data to achieve full synchronization of the databases.
Inadequate data sharing arrangements
64. Conversion to good international practices of tax registration will require effective
data sharing arrangements with organizations owning data of relevance for tax
registration (CRA, KCA, KBRA). Good cooperation with entities (AIS) with cross
coordination responsibilities for data sharing and interoperability will also be necessary.
65. Effective data sharing requires reaching a consensus between the parties on
essential standards:
1. Data definitions and standards to make sure data are presented in the same way across
systems and there is a common understanding of their meaning. A simple example
would be the way a birthday of a person is described.�? mm/dd/yy, or dd/mm/yy�?;
2. Standards to connect IT systems. International standards in line with the market are
preferable as these are sustainable and cheap;
3. A common platform for the transport and transfer data over the internet between parties;
and
4. Collective understanding of metadata, i.e. information about the characteristics of the
data in use.
13
66. TAK currently has data linkages with a number of other registries (Box 5):
Box 5: Linkages to relevant registries owned by other authorities
Civil Registry – Civil Registry Agency (CRA), Ministry of Internal Affairs: Civil Registry is kept
by the Civil Registry Agency as foreseen by the Law on Civil Status. According to this law all other
state and private institutions collecting and administering persons databases should supply the data in
question based on the request to the Agency and in accordance with the Law on Protection of Personal
Data. All civil registration data are linked to a single ID number issued at birth registration. The Civil
Registry Agency shares data with other public institutions through a Government Gateway Platform
as well as through individual connections, such as with TAK.
Kosovo Business Registry Agency (KBRA), Ministry of Trade and Industry: The KBRA has the
main responsibility to manage the Business Registry. In accordance with the provisions set in the Law
for Business Organization, KBRA is responsible for registration of business organizations, amending
and supplementing the data on business organizations and their de-registration.
Kosovo Cadastral Agency (KCA), Ministry of Environment and Spatial Planning: The Kosovo
Cadaster Agency (KCA), responsible for the overall cadaster, functions like an Executive Agency
within the Ministry of Environment and Spatial Planning. Kosovo’s Cadaster System is regulated by
a Law on Cadaster. There is a functioning cadaster system in place which operates under a two-tier
system. Cadaster data is managed and maintained by Municipal Cadaster Offices (MCO) and
controlled by the KCA. The Civil Registry is currently in the process of integration with the Address
Registry, being held at this Cadaster Agency of Kosovo.
Source: World Bank team based on information from TAK
67. Several automated data exchanges are currently in place between TAK and other
government organizations based on individual technical solutions (Table 4). Appropriate
IT solutions are established and in use, although these are “point to point�? solutions connecting
TAK systems with other systems individually rather than through a common interoperability
platform. The Government Gateway, established by the AIS as a common platform for data
exchanges within the GoK, is not being used.
68. Further standardization is needed as a foundation for effective data sharing. There
are currently different understandings within TAK itself and between TAK and other
government organizations on important terminology. Examples are codes of municipalities,
lists of cities, list of residences, and definitions of various terms like “closed business�? vs.
“deregistered business�?, “active/passive�?, “de-active and re-active�?.
69. While many data exchanges are in place, it is noteworthy that there is no exchange
between TAK and KCA about addresses. This prevents TAK from validating addresses
against an authoritative external source, which could help to overcome the issues with missing
or incomplete addresses in the tax register.6
6
The databases of TAK and the Postal Authorities are currently not connected either. This is an additional data
sharing option that could be explored to improve the quality of tax payer addresses.
14
Table 4: Overview of current data-sharing arrangements
Institution Data shared Data shared from Frequency Technology Protocols Governance
with TAK TAK of and form of arrangements
exchanges exchange
KBRA Business data Business status Real time WEB API Technical -
data (active, document
passive, closed)
CRA Civil registry - Real time WEB API SOP MoU
data
Vehicle Vehicle data Requests to block Real time WEB API Technical -
Registration (MI) vehicles document
Treasury Income, - Once a day Intermediary Technical -
expenditure database document
Social Welfare - Salary data Real time WEB API SOP MoU
e-Procurement - Business data and Real time WEB API SOP MoU
status
Accreditation - Salary data Real time WEB API SOP MoU
Agency
Customs7 Import, export Once a day Intermediary Technical -
database document
Statistics Agency - Business Once a day Intermediary Technical -
declaration data database document
Financial - Payments data Once a day Intermediary SOP MoU
Investigation database
Unit
Property Tax - Business data Real time WEB API Technical -
document
Source: Data provided by TAK
70. There is still a lack of clear protocols to guide data exchanges between some of the
registries leading to information not being updated and exchanged in a timely fashion.
While some of the exchanges are guided by high level agreements between the institutions such
as MoUs signed by the respective directors, others are guided by technical level documents
only. For the critical relationship between KBRA and TAK, an MoU was recently drafted but
has never been signed off and implemented. There is currently a need to formalize the
collaboration between the two organizations as a framework for addressing the persistent issues
between the two organizations.
71. A well-designed data exchange needs a feedback mechanism, which currently is
not available. If TAK identifies errors in the data of the registries, there should be a protocol
7
There is a tripartite MoU (TAK, Customs and Kosovo Police) defining overall agreement for corporation but no
specific MoU for data sharing.
15
in place which will inform the responsible authority about the findings. This authority has the
task to control the new data and to decide if the original data have to be changed, and if so, to
inform all the relevant users.
72. TAK is part of the Kosovo government, but there is currently no mechanism to
coordinate data sharing across government and with third parties. To enhance the control
of information contained in tax declarations, it will be important for TAK to be able to exchange
data with other parties, like ministries and agencies, commercial banks, the central bank, tax
withholding employers, telephone providers, the pension contribution fund, etc. In practice it is
necessary to tailor this type of services on a country level. The Agency for Information Society
(AIS) has an important role in this matter and should take the initiative to establish the relevant
coordination mechanisms. This could include staging areas where data, based on
selection/extraction rules, can be made available for sending or receiving purposes. This
component of the data exchange service is however not part of the standard functionality of an
ITAS and should therefore be done in close cooperation with AIS and other relevant parties.
73. The successful implementation of data sharing is less about finding the technical
IT-solutions and more about establishing the trust and cooperation among the parties to
the exchanges. Therefore, the development of soft skills and appropriate governance
arrangements are very important aspects of managing data sharing arrangements. It is advisable
to find ways of collaboration, which demand a strong effort from the participants who should
operate on terms of equality and shared interest. A good international example is the Dutch
Standardization Forum, which is an independent forum with professional members and
supported by an autonomous secretariat. The Forum advises on the use of open standards under
the motto “comply or explain�?, which means that all parties should use the chosen and
developed standards, unless they can make a convincing case that divergence is justified. This
prevents stalemates and obstructions.
Box 6: Dutch Standardization Forum
The Dutch Standardization Forum was established by decree by the Minister of Economic Affairs on
March 27, 2006 to ensure implementation of the policy on electronic data exchange and (re) use of
data and electronic services.
The Forum contributes to e-government goals such as further improvement of government services
and reducing administrative burdens by automating the flow of information between the government
and citizens and enterprises. This leads to lower expenditure, improved efficiency and better services
for citizens, businesses and public service providers through smart ICT solutions.
The Forum supports the Dutch government in the development, use and establishment of open
standards for electronic information exchange. In this way it promotes interoperability within the
Dutch government system itself, but also in the relations with citizens and private enterprises. It is
also an objective of the Standardization Forum is to prevent vendor lock-in and reduce costs in
government spending on ICT.
Most of the standards supported by the Forum supports are international standards. Therefore, the
Forum participates in several European initiatives like the multi-stakeholder platform on ICT
standardization and work programmed on electronic building blocks (e-Sens) and interoperability
solutions (ISA). The Forum also maintains an informal network with other EU member states.
16
Source: Dutch Standardization Forum (https://www.forumstandaardisatie.nl/content/english)
IV. Recommendations
74. This section elaborates on recommendations on how to address the key issues with
tax registration analyzed above. The recommendations are divided into short term
recommendations, which are assumed to be implementable within one year and which require
no or only limited legal and institutional changes and no or only limited investment; and
medium-term recommendations which can be implemented within approximately three years
and which may require some investment as well as some institutional and/or regulatory changes.
Within both categories, recommendations are linked to the main groups of issues identified in
the foregoing section.
75. Recommendations are guided by the GoK’s longer-term strategic vision of
implementing the principle of “one report – many users�? and the need to transform the
approach to management of the tax register. An implication of the gradual move towards
“one report - many users�? is the greater reliance on automated data exchanges with other
government organizations, which are in possession of data which are essential for the
completeness and accuracy of the tax register. The introduction of key identifiers to be used
across various datasets such as the NIN and the UIN indicate that this concept is gradually being
embraced by the involved organizations.
76. Over time, it is expected that the greater reliance on data sharing will lead to a
demand for common interoperability platform solutions which are likely to be superior
to the current individual “point-to-point�? solutions in terms of both cost-effectiveness and
flexibility. A common interoperability platform has been developed by AIS (Government
Gateway), but there are still issues to be clarified in order for remaining government institutions
to connect to this platform, including the capacity of AIS to support such an expansion.8
However, it is also true that data sharing of extensive data sets between institutions often
demand specific, tailormade solutions. Since the data needs of the TAK are urgent, temporary
solutions are worth examining until the common interoperability platform led by AIS has
matured.
77. As with other e-Government initiatives, the further development of automated
data sharing to improve the quality of tax registration should ideally be prepared taking
into account the longer-term need for a whole-of-government ICT Enterprise
Architecture (EA) and an overall vision for the development of shared services. EA is a
comprehensive tool for planning and aligning all ICT initiatives in the Government, while
shared services entails standardization, automation and consolidation of government functions
in one or more designated shared services units. There is currently no official direction or policy
from Government on these subjects, and it could take a significant amount of time before the
Government is ready to promote them more actively. In the meantime, the further development
8
The common interoperability platform is further described in the World Bank policy note on “E -Services in
Kosovo�? from October 2019.
17
of tax registration would have to continue, but it should be clarified where decisions are
necessary to avoid deviating from this longer-term development path.
78. The suggested areas of intervention are selected to ensure complementarity with
the work of other donors. The focus on tax registration was deliberately chosen to support the
TAK medium-term reform action plan in a significant area that is not being supported by others.
Annex 2 provides an overview of previous and ongoing donor support to TAK.
Complementarity entails, for example, building on previous and on-going work by the GiZ and
the World Bank on behavioral approaches to tax administration. At the same time, the
recommendations of this note will reinforce the work of other donors by strengthening the tax
register as the foundation for risk management, investigations and other areas of tax
administration.
79. The recommendations to improve tax registration in Kosovo follow four main
steps. These steps are ordered in a logical sequence so that each step is a precondition for – or
makes most sense if conducted before – the subsequent step (figure 5).
Figure 5: Key steps in improving tax registration in Kosovo
Reengineer Implement
Establish processes and changes Expand tax
governance prepare through registry by
arrangements revisions to regulation, IT- targeting
for data regulation, IT upgrades and unregistered
sharing and business information taxpayers
plans campaigns
Source: World Bank team
Step 1: Establish governance arrangements for data sharing and collaboration
80. A first critical step in improving tax registration is to establish the governance
arrangements and institutional structures that would help set the direction for all
recommended actions that follow. Governance arrangements should ensure coordination
between TAK (as user), KBRA (as both user and provider) and other government organizations
holding essential data for tax registration such as KCA, and CRA (mainly data providers) and
would help to fill a considerable void in the current situation, where data sharing is not
adequately supported institutionally. The governance arrangements should also link up to
broader government level initiatives to improve e-services including the further development
of the common interoperability platform led by AIS. This could also help to define an arbitrage
mechanism in those cases, where the collaborating institutions cannot agree amongst
themselves. However, while the broader government-level initiatives could act as an umbrella
for the improvements in tax registration, there is not 100% overlap between the initiatives at
Government and TAK levels. Given TAK’s urgent need to improve the quality of the tax
register, specific institutional arrangements led by TAK will be needed to complement broader
18
government efforts for the short term. For the medium to longer term, as TAK is increasingly
becoming part of common platforms and solutions, the distinction between coordination forums
at the different levels is likely to dissolve.
81. Key recommendations are:
• Establish a data sharing forum with representatives from the TAK, KBRA, CRA,
KCA and AIS. The data sharing working group should be chaired by TAK and
represented by each of the institutions at a high level with the option of delegating issues
to technical working groups. Key responsibilities of the forum would be to:
o standardize data formats and definitions;
o agree on data sharing and communication protocols;
o analyze and recommend options for common interoperability platform solutions
to replace the current individual point-to-point solutions;
o map out and analyze data in the involved registries and recommend options for
delineations of data ownership;
o recommend options further data sharing; initiate and oversee piloting of such
additional data sharing as needed;
o discuss ad hoc data sharing and collaboration issues as they arise and make
recommendations for their resolution.
• Create a Glossary of tax terms consistent with Kosovo tax legislation (in 3
languages); ensure these terms are used in all reports from SIGTAS (or future system)
and encourage adoption of the glossary by other relevant institutions, e.g. Kosovo
Statistical Agency.
Step 2: Reengineer processes and prepare revisions to regulation, IT designs and
business plans
82. A key initial step informed by the data exchange forum and working groups is to
redesign business processes, regulation and IT system designs to enable simplified and
fully digitalized processes. This will involve business process designs themselves,
identification and drafting of necessary legal changes as well as directly implementing smaller
or less complicated changes.
83. Key recommendations under step 2 are:
• Design reengineered processes for registration, deregistration and update of
registration details with a view to simplify these processes through automation and
use of online services. Simplified processes should be guided by the principles of
phasing out physical paper certificates and using online services wherever possible
based on a reliable common digital signature solution as well as minimizing the need
for physical interaction between the taxpayer/registrant and the authorities and enabling
the same information to be shared between authorities. KBRA and TAK should work
jointly on the relevant parts of the business process reengineering exercise due to the
transgressing nature of some of processes and the need for alignment of processes and
19
integration of systems between the two institutions. A starting point of this
reengineering process must be that “one report-many users�? postulates that changes,
which are reported to or are made by one of the organizations must be submitted to the
other one.
• Design a risk management approach for dealing with remaining non-filers. Rather
than attempting a 100% investigation of all cases, the TAK should formulate hypotheses
for which groups of non-filers are most critical to investigate and test these hypotheses
on available data from previous investigations. Additional data could be collected as
necessary and in case of inadequate data for designing the risk management system,
clear instructions should be issued to investigative teams to ensure sufficient data going
forward. Once the system is up and running, non-filers should be cleared on a regular
basis. Implementation of this recommendation will require a brief diagnostic phase
during which hypotheses are formulated and tested followed by the issuance of
instructions and guidance to the investigative teams.
• Revise reports of non-active taxpayers available on the TAK website. Revisions
should simplify reports and clarify terminology, including clarifying the meaning of key
terms such as non-active business. Reports should be shared and published on the
KBRA website as well.
• Develop clear internal instructions on opening and closing of tax accounts . The
revised instructions should include defining at what point a tax account becomes passive
and use only terms defined in the MoF tax glossary.
• Develop a procedure to review large numbers of tax accounts opened within the
same fiscal number. There is already functionality in place to flag such occurrences in
SIGTAS, but a clear procedure for review and follow-up actions should be developed.
• Introduce compliance ratio reports for declaration filing at all levels of TAK to
incentivize appropriate conduct throughout the organization.
• Revisit implementation plans for data migration and cleaning to ensure there is an
accurate and precise path for these activities.
Step 3: Implement process changes through regulation, IT- upgrades and
information campaigns
84. With the conclusion of business process designs, TAK should be ready to move
towards implementation. It would involve implementation on a number of levels, including
via adopting regulation, technical solutions, and launching necessary information and
awareness campaigns. Implementation of data sharing arrangements might require some
piloting before implementing technical solution in full scale. This should be considered on a
case-by-case basis.
85. Key recommendations of step 3 are:
• Implement online services for businesses to register, deregister and make changes
to their data. Implementation is based on previously reengineered business processes,
through relevant regulatory changes and launching of relevant changes to IT-systems,
20
preferably based on common digital signature platforms. Implementation could include
incorporation of a taxpayers’ e-cabinet feature, where the taxpayer can check his/her
personal information, report inaccuracies, and request corrections.
• Develop and execute an information campaign to encourage taxpayers to review
and correct their data. A general campaign on tv and newspapers is useful to start
with. It is sensible to hire a professional communication firm. Collaboration with the
KBRA is crucial to identify different target groups, which deserve specific attention.
Use the experiences and results out of the World Bank-GIZ report “Promoting tax
compliance in Kosovo with behavioral insight 2018.
• Consider fines for non-filing and non-reporting information for changes of
business data. This will require an amendment to the Tax Administration and
Procedures Law.
• Implement common interoperability platform solutions as appropriate. The overall
recommendation is to replace individual data exchange points with agreements to use a
common platform. This should include a consideration to use the Government Gateway,
although it should be based on the recommendations from the data exchange forum (see
above),
Step 4: Expand the size of the tax register
86. Once steps have been taken to improve the quality of the tax register within its
current scope, attention should gradually shift to expanding the size of the register. Given
the significant size of the informal economy, it will be important to target “unknown�? taxpayers
with a view to increase the number of taxpayers registered.
87. Key recommendations in step 4 are:
• Establish a unit or task force in TAK with the responsibility to receive, validate
and process third party data and introduce procedures for making this
information available for tax investigation teams. The data would be linked to NIN,
UIN, address and telephone numbers, including transactions in real estate, luxury cars,
bills of utility companies, bank information etc.
• Expand the use information and awareness campaigns to encourage informal
income earners and businesses to register with the TAK and KBRA registries. TAK
and KBRA should consider using the existing data infrastructure through the census or
public service providers to reach individuals and firms through simple messages to
underline their obligations. The messages should make it clear that TAK and KBRA
have increasing knowledge on the informal economy, thereby convincing earners to
comply.
88. An action plan is provided in Annex 1 summarizing recommendations along with
information about pre-conditions, responsibilities and need for external support.
21
Annexes
Annex 1: Action Plan
No. Recommendation Issue addressed Short (S), Responsibilities Pre-conditions Need for external
Medium (M) or and institutional support?
Long term (L) arrangements
Step 1: Establish governance arrangements for data sharing and collaboration
1. Establish data sharing forum Inadequate data S TAK (lead), - Technical assistance
sharing KBRA, CRA,
arrangements KCA, AIS
2. Create a Glossary of tax terms Inadequate data S TAK (lead), -
consistent with Kosovo tax legislation sharing KBRA
arrangements
Step 2: Reengineer processes and prepare revisions to regulation, IT designs and business plans
3. Design reengineered processes for Compliance with S TAK, KBRA - Technical assistance
business registration/deregistration reporting
obligations
4. Design a risk management approach for Procedural gaps S TAK - Technical assistance
dealing with remaining non-filers and
misalignments
5. Develop clear procedures and Procedural gaps S TAK -
instructions on the closing tax accounts and
misalignments
22
6. Develop a procedure to review large Procedural gaps S TAK -
numbers of tax accounts opened within and
same fiscal number. misalignments
7. Introduce compliance ratio reports for Procedural gaps S TAK -
declaration filing at all levels of TAK and
to incentivize appropriate conduct misalignments
throughout the organization.
8. Revisit implementation plans for data Limited IT S TAK - Technical assistance
migration and cleaning to ensure there is functionality
an accurate and precise path for these
activities.
Step 3: Implement process changes through regulation, IT- upgrades and information campaigns
9. Implement online services to Limited M KBRA, TAK Adoption of legal Support to
(de)register and change business compliance with changes; digital investment financing
register reporting signature and other
obligations IT solutions;
change passive
status of KBRA
business register
10. Develop and execute an information Limited M TAK, KBRA - Technical Assistance
campaign to encourage taxpayers to compliance with
review and correct their data reporting
obligations
11. Consider fines by non-filing Limited M TAK - -
compliance with
reporting
23
obligations
Step 4: Expand the size of the taxpayer register
12. Establish a unit or task force in TAK Limited L TAK, KBRA and - Technical Assistance
with the responsibility to receive, compliance with third parties
validate and process third party data reporting
and introduce procedures for making obligations
this information available for tax
investigation teams.
13. Expand the use information and Limited L TAK & KBRA - Technical assistance
awareness campaigns to encourage compliance with
informal income earners and businesses reporting
to register with the TAK and KBRA obligations
registries.
24
Annex 2: Overview of on-going and planned donor support to TAK
GIZ
Uniform application of tax legislation and equal treatment of taxpayers
GIZ has supported the establishment of the Office for Fines and Administrative Penalties
(ZGJoNA). The project will continue to support TAK in coordinating with other relevant actors
in the process of handling fines and administrative penalties, including tax crimes. Activities
are planned to identify possibilities for a better coordination between TAK’s tax investigation
and other related actors such as prosecution and courts to ensure uniform application of tax
legislation and equal treatment of taxpayers by all law enforcing institutions.
Compliance Risk Management
There will be direct support to TAK from the Federal State of Bavaria in the field of compliance
risk management. This will be defined more concretely in the coming months together with
TAK and in coordination with IMF.
Communication with taxpayers
A number of trainings to improve communication with taxpayers will be provided to a number
of units in TAK (i.e. Call Center, ZGjoNA, Tax Investigation Unit, etc.). Communication
aspects will also be dealt with to support compliance strategy for specific sectors. A taxpayer
survey will be conducted in 2019 with GIZ support.
Improving tax compliance through behavioral insights
This was a joint activity with the WB in 2018/19, which will be continued starting in the fall of
2019.
IMF
IMF’s technical assistance will continue for the coming 3 years to support: the reorganization
of TAK; development of TAK’s overall strategy and compliance strategy and the development
of KPIs in the main performance outcome areas; implementation of the new tax IT system
currently being procured; establishment of tax compliance risk criteria; analysis of the current
data for generating management information, analytical reports etc.; increasing revenue
collection performance of the Large Taxpayers Office; fostering voluntary compliance and;
improving tax debt collection processes.
EU
Technical assistance
The EU provides technical assistance to the implementation of VAT legislation, double taxation
treaties, transfer pricing and internal audit. The technical assistance is implemented through
workshops, short-term missions and study visits.
25
Budget support
EU budget support is provided to finance TAK IT software procurement.
USAID
Comprehensive support is planned for improvement of both tax administration and tax policy
to be initiated in second half of 2019 within a larger PFM support program. The scope of the
program will be adjusted based on the inception report to be provided by the incoming
consultant firm.
26