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What is Tax Identification Number and why it is important!

Introduction

As we know all that tax is levied in all countries around the world for different purposes based on each country’s priority, need, and its agenda, tax also levied so many years back in the medieval era, to some extent, we also know that tax is considered to be a obligatory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization in order to finance countless public expenditures.

Since payment of taxes is obligatory as stated above, we can assure that taxes are a civic duty, although doing so is also a requirement of the law. I.e. if you do not pay your taxes, the government agency that oversees taxes –tax courts- will require you to pay your taxes or else face penalties, such as fines, going to jail or any other disciplinary manner.

The money you pay in taxes mostly goes to many places. In addition to paying the salaries of government workers, your tax money also helps to support common resources, such as police and security agencies.

Tax money helps to ensure the roads you travel on are safe and well-maintained. Taxes fund public facilities such as basic healthcare and so on. Taxes are also used to fund many types of government programs that help the poor and less fortunate, as well as many schools!

The effectiveness and efficiency of tax administration are dependent not only on their essential value but also on the level of legal power (tax laws), elasticity, manpower and political will in administering them.

In Somalia, tax structure in general, is faced by the reality of hesitation to pay taxes, tax evasion and underreporting of tax activities in order to pay the least amount of taxable income, these practices came as a result of government collapse in the earlier of the ’90s, were luck of security and collapse of government institutional was a common fact that the citizens faced in those rough times.

After a series of meetings held by politicians, clan leaders, and elders, in 1998 Puntland state established a regional government (semi-autonomous state) to ensure security, the role of law and governance in its administrative regions.

Most of the state resources of revenue, if not all, were collected from the port of Bosaso and some few airports to collect customs duty to fuel and facilitate the regional government functionality.

After 21 years of establishment, a lot has been changed since then, the number of businesses has grown significantly with the growth of the population resulted in increasing the number of workers who get paid regularly.

Here comes the challenge of collecting the appropriate taxes from both businesses as well as individual persons, and from each tax collection campaigns one after the other to provide tax payment awareness and combat tax evasion, delinquency and underreporting financial activities used to be a prevailing status, those efforts were insufficient due to absence of a system to monitor the information and tax payments of the taxpayers since the system has long using manual system in financial registration and reporting.

Furthermore, due to the manual system, it was also difficult to determine who has paid tax and who has not, making the problem of tax compliance unavoidable.

To address this problem, the Revenue Department at the Ministry of Finance implemented a serious of reforms that aim to promote efficiency in collecting taxes and enhance compliance, and further to boost the performance of the tax administration system, one of which is the introduction of the taxpayer database system.

A pre-condition to an effective tax administration is to know in fact who are our taxpayers, where they are located and whether they are active or inactive, moreover, to better identify the taxpayers, it is important to adopt a unique identification number that will give quick access on the taxpayer’s information.

The use of taxpayer identification number (TIN) is certainly an important development in tax administration combined with accurate assessment, efficient collection of taxes, viable enforcement, responsible and skilled staff will result in an efficient and effective tax administration system for the state.

In the following part, the article will give more an overview and detailed information on the definition, purpose, where we can find it and finally the advantages of TIN for both the Ministry of Finance and taxpayer within the state.

What is Tax Identification Number?

A tax or taxpayer identification number, also known as a TIN for short, is a number issued to individuals and organizations to track tax obligations and payments they make to the revenue authority. In Puntland, TIN consists of a fourteen-digit number assigned to individuals, sole proprietors, corporations, partnerships, non-governmental organizations, and other entities for tax filing and reporting purposes.

Tax Identification Number purpose

Most taxpayers have liabilities for more than one type of tax or revenue payment. Simply, the TIN system enables current and expected the taxpayer to be brought together on a single database, instead of being held and dealt with by various revenue collecting agencies.

Besides, the TIN system will help to improve taxpayer services, facilitate the tax return process, deal with each taxpayer separately through creating taxpayers own file, eliminate redundancy of taxpayer information, improve efficiency for both taxpayers and tax authority, help to catch tax evaders and finally it helps to widen the tax base.

Who needs to take TIN

Everyone who conducting business in the state or otherwise who has financial activities will need to get a TIN, to be more specifically, TIN number will be taken by all type of business owners, NGO’s, international organizations, and also government agencies.

When and where to apply TIN

If you already have an ongoing business you are required to take TIN immediately, otherwise, new taxpayers must apply before beginning their new business or engaging in any taxable activities. Applications for TIN should be submitted to the Inland Revenue office closest to the applicant residency.

What are the requirements to get TIN number

Applicants should bring a completed TIN application with supporting documents for the entrances on the form. These include a business license and individual identity card.

Benefits of TIN for Taxpayers

Proper TIN registration provides the taxpayer with the following benefits:
⦁ Obtaining local and international contracts
⦁ Operating in a legal manner
⦁ Safeguarding your business name
⦁ Enhance and improve the relationship between taxpayers and tax authority
⦁ Safeguarding of taxpayers accounts
⦁ Preferential treatment from the government
⦁ Easing tax clearance certificate from the Revenue Department
Conclusion

Taking an effective role towards the improvement and development of our society is a common responsibility, each member of the citizen whether he/she is an individual or business owners, shall take his/her part in the overall development of the country. As the famous wisdom says “Alone we can do so little, together we can do so much”

The responsibility of the Ministry of Finance and particularly the Revenue Department is huge and cannot be done without the participation of the whole citizens, the ministry efforts are unstoppable both at the individuals and the ministerial level, and therefore, it is important to work collectively side by side towards the achievement of overall objectives of the state.

Finally, I would like to inspire all business owners to be courageous and take the initiative to register TIN number and help the Ministry of Finance to improve and develop the taxation system for country’s betterment towards improving the service delivery and increasing economic growth.

By: Farah Hassan Farah
Revenue Consultant and University Lecturer
Email: faarahkolyale@gmail.com
Phone: 0907737200 – 0907966632