Performance Audit of Montserrat’s Inland Revenue Division

(Press Release) The Office of the Auditor General is pleased to announce that its report entitled Performance Audit of the Inland Revenue Division: Governance, Efficiency, Effectiveness & Quality of Service was presented to the Legislative Assembly on September 29^th, 2023. It assessed the administration of the major types of taxes in Montserrat including tax-assessments, tax-collection and tax-refunds.

Background: The I.R.D. is mandated by the M.C.R.S. (Enabling) Act No. 6 of 2017 to collect several direct taxes (e.g., Income Taxes, taxes on business profits, Property Taxes, Insurance Levy, Bank Levy, and Hotel Levy) and fees on behalf of the GOM. The M.C.R.S., including the I.R.D., contributes over 80% of the GOM’s local revenues and is thus vital to public budgets & the economy.

Key Findings:

1. The Inland Revenue Department (I.R.D.) has a satisfactory governance framework and oversight for its operations. The I.R.D. is a division within the M.C.R.S. which reports to the Ministry of Finance & Economic Management on its operations and on the results of all matters of taxation. Generally, good internal controls are in place as the I.R.D. ensures that there is clear and consistent segregation of duties within its staff.

2. Tax-payers files tax-returns on paper and in person. The I.R.D. relies heavily on its staff to process all paper submissions. Accumulation of decades of paper-forms and physical taxpayer files poses risks to employees’ health and to the quality and security of files. These archaic modes of paper-forms and manual processes are very inefficient to the I.R.D. and inconvenient to tax-payers. Surveyed taxpayers gave instances that they submitted documents to the I.R.D and they were misplaced or lost; in other cases, tax-payments were made but not applied to taxpayers’ accounts, or were incorrectly applied.

3. Large and growing backlog of tax-assessments and tax-refunds. Consistent large return processing backlogs over the past decade highlight how dramatically tax-payers are impacted as this essential process continues to falter. The number of returns filed each year for the past five years has decreased by 23%. For tax-refunds, the lag is up to 6 years; priority is on the oldest items, except in medical cases.

4. Tax-payers files tax-returns on paper and in person. The I.R.D. relies heavily on its staff to process all paper submissions. Accumulation of decades of paper-forms and physical taxpayer files poses risks to employees’ health and to the quality and security of files. These archaic modes of paper-forms and manual processes are very inefficient to the I.R.D. and inconvenient to tax-payers. Surveyed taxpayers gave instances that they submitted documents to the I.R.D and they were misplaced or lost; in other cases, tax-payments were made but not applied to taxpayers’ accounts, or were incorrectly applied.

5. The actual taxable population is unknown. Contributing factors include: outdated client-records, unrecorded deaths, emigration, changes of address, changes of employer, new businesses/employees not registered with the I.R.D., and inadequate communication with tax-payers.

6. The Tax Advisory Board and the Montserrat Customs & Revenue Commissioners rarely function. Meetings are very infrequent and there is no evidence that minutes are formally kept. The Board secretaries average 1 to 2 times per year for meetings held. The two entities are responsible for advising the GOM on tax-matters and for adjudicating taxpayers’ appeals of I.R.D. assessments, respectively. Contrary to the law, these Committees have not been reporting regularly.

Key Recommendations:

1. Strengthen the I.R.D’s efficiency and revenue capacity. The MCRS should advocate through the Financial Secretary and the Minister of Finance for the soonest equipping of the IRD/MCRS with a Compliance Unit and a Legal Unit.

2. Urgently reduce the backlog of tax-assessments & tax-refunds. The I.R.D. should design and implement clear milestones to reduce the backlogs much faster; this should also be reported to the public to boost accountability and transparency. Shift the focus from stopgap measures to choosing methods/technologies sustainable and suitable for Montserrat’s tax population.

3. Enhance the I.R.D’s accountability and transparency at all levels. For example, the I.R.D. should (a) convene a regular forum with businesses, acting on their feedback, (b) use multiple channels of communication with individual tax-payers and the public, improving their knowledge of tax-laws and procedures, while addressing queries, concerns, and complaints, and (c) report to the public each year on its performance and progress. This would extend the I.R.D’s/M.C.R.S’s transparency beyond the annual financial audits reported to the Legislative Assembly.

The full audit report highlights several other findings and recommendations. Their implementation will bring significant improvements in client-services and the management and administration of taxes and tax-refunds, and boost their long-term contributions to Montserrat’s public services, society, workforce, & economy.

10-11-23 – Performance Audit Inland Revenue Division Final September 2023

The report in its entirety can be found at the Montserrat Public Library, on the Office of the Auditor General Publications Page or by requesting an electronic copy from the Office of the Auditor General, located upstairs Angelo’s Complex, Brades. E-mail: audit@gov.ms; Telephone: (664) 491 – 3460 or 491 – 4569.