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Mr. Christophe J Waerzeggers, Mr. Cory Hillier, and Mr. Irving Aw
Nearly all tax systems have some form of interest and tax penalty regimes. Interest payable on any late or underpayment of tax seeks to protect the present value of the tax amount to the government budget, whereas penalties are intended to deter taxpayers from defaulting on their tax obligations—and to punish them if they do—to achieve horizontal equity vis-à-vis compliant taxpayers. As interest and penalties serve very different objectives, they should not be applied in a mutually exclusive manner. This Tax Law IMF Technical Note focuses on the key issues that should be taken into consideration in designing interest and penalty regimes in tax legislations.
Mr. Christophe J Waerzeggers, Mr. Cory Hillier, and Mr. Irving Aw

I. Overview Nearly all tax systems have some form of interest and tax penalty regimes . Interest payable on any late or underpayment of tax seeks to protect the present value of the tax amount to the government budget, whereas penalties are intended to deter taxpayers from defaulting on their tax obligations—and to punish them if they do—to achieve horizontal equity vis-à-vis compliant taxpayers. As interest and penalties serve very different objectives, they should not be applied in a mutually exclusive manner. This note focuses on the key issues that

Mr. Christophe J Waerzeggers, Mr. Cory Hillier, and Mr. Irving Aw

Front Matter Page IMF LEGAL DEPARTMENT Front Matter Page TAX LAW IMF TECHNICAL NOTE VOLUME 1 01 | 2019 DESIGNING INTEREST AND TAX PENALTY REGIMES Christophe Waerzeggers Cory Hillier Irving Aw INTERNATIONAL MONETARY | FUND IMF LEGAL DEPARTMENT Front Matter Page January 2019 Waerzeggers, Christophe , Cory Hillier, and Irving Aw, 2019, “Designing Interest and Tax Penalty Regimes”, Tax Law IMF Technical Note 1/2019, IMF Legal Department This Tax Law Note was prepared by the tax counsels of the IMF’s Legal Department

International Monetary Fund. European Dept.

2015, made improvements with tax debt management, with a decline in tax debts as well as tax arrears. Addressing an inadequate penalty regime and the lack of a criminal investigation function as inhibitors to the effective treatment of deliberate non-compliance are next planned activities. Expenditure measures include abolishing the Mothers’ lifetime benefit and adopting the time-limited provisions to compensate formerly-employed mothers, an additional reduction in wages of senior officials supported by a freeze in public sector employment. Given the sizable fiscal

International Monetary Fund

professional groups. The penalty regime leaves tax authorities significant discretion and does not take the degree of culpability of the taxpayer into account, in particular, with respect to property transfer taxes. Tax collection efforts are hampered by significant amounts of disputed assessments and accumulation of collectible tax arrears, which together exceeded 4 percent of total revenue in 2008-09. Budget execution systems are effective and comprehensive . Cash flow forecasts are prepared upfront for the fiscal year and are monitored through the treasury accounting