Amendment to the Rules of Submittin

On 23 April 2018, Law 29 of 2018 (the “Amendment”)[1] was issued amending Income Tax Law No. 91 of 2005 (the “Income Tax Law” or the “Law”).[2] The two provisions provided in the Amendment extend the period for submitting the supporting documents for income tax declarations to 60 days and change the order of settlement of tax claims and related delay fines, so that the amount for due tax is settled prior to the settlement of delay fines.  

Background

Article (82) of the Income Tax Law sets out the rules for submitting a tax declaration. It mandates that every tax payer submits an annual declaration on a set form. While Article (83) provides the deadlines for submitting these declarations, being prior to the first of April for individuals, and prior to the first of May – or within four months from the end of the fiscal year – for legal persons and corporations. On the other hand, Article (111) of the Law provides an order in which sums paid to the Tax Authority will be used to settle claims. It stated that a fine for delay will be treated in the same manner as the tax to which it is related. In this respect, the Article ranked sums that are paid to the Tax Authority as follows:

1. Administrative and judicial fees.
2. Delay fines.
3. Withholding tax.
4. Due tax.

This meant that a sum paid by a taxpayer to the Authority would first be used to settle any administrative and judicial fees, then any delay fines. Any amounts left after the exhaustion of the higher-ranking categories would then be directed towards settling the tax itself.

The Amendment

Articles (82) and (111) of the Law were amended so that Article (82) now mandates that a taxpayer submits an annual tax declaration on the dates provided in Article (83), along with supporting data within 60 days from the end of the specified deadline. A taxpayer may thus choose to submit said required documentation at the time of submitting the declaration or within the following 60-day window. A declaration submitted without the supporting documents will not be considered. As for Article (111), it was amended so that the order is now as follows:

1. Administrative and judicial fees.
2. Withholding tax.
3. Due tax.
4. Delay fines.

Conclusion

In its report dated 12 April 2018, the Parliamentary Budget Committee states the reasons for the amendments to the Income Tax Law that were proposed by Government. The report cites experiences in applying Law 79 of 2016 on the Settlement of Tax Disputes and some issues it has brought to the surface including what the report refers to as a trend of submitting blank tax declarations or declarations with missing information in order to appear as complying with the requirement of submitting a tax declaration. Furthermore, the report states that the Tax Authority is about to change the form used for tax declaration starting the new tax year, so that the form allows for more detailed information. The Government has thus seen to extend the period for the submission of supporting documents in order to facilitate the provision of said detailed information and avoid crowds at tax departments on the given deadlines. As for the change of the order of payment categories, the report states that the goal is to ease a taxpayer’s burden so that any sums that they submit to the Authority are first used towards settling the due tax in a manner which stops the accrual of more fines for delay and encourages the quick settlement of tax debts.   [1] Law No. 29/2018 amending certain provisions of Law No. 91/2005 on Income Tax, Official Gazette, Issue No. 16 (bis) (d), 23 April 2018. [2] Law No. 91/2005 on Income Tax, Official Gazette, Issue 23 (cont.), 09 June 2005.