Taxpayer Rating System

 Published: 29.10.2018. 16.06


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1. FUNDAMENTAL PRINCIPLES OF CREATION OF THE TAXPAYER RATING SYSTEM

  • 1.1. GOALS OF THE RATING SYSTEM
    • The following three main goals have been set for the Taxpayer Rating System:

      • to inform the taxpayer about the compliance of indicators characterising its economic activities with general economic trends;

      • to motivate the taxpayer to observe and improve its tax payment discipline;

      • to provide the taxpayer with a tool which the taxpayer can use to inform partners about its reputation and tax payment discipline, as well as the compliance of indicators characterising its economic activities with general economic trends

  • 1.2. TAXPAYERS TO WHOM RATING IS PROVIDED
    • The taxpayers’ rating is available to the following taxpayers/legal persons, regardless of their tax payment arrangement, which have been registered in the VAT Taxable Persons Register for at least six months:

      • limited liability companies;

      • joint stock companies;

      • farming and fishing enterprises, as well as individual enterprises which are submitters of annual accounts.

  • 1.3. INDICATORS OF THE RATING SYSTEM
    • The Taxpayer Rating System includes five analysis dimensions described by 12 indicators. To provide an objective assessment for various aspects of taxpayer activities, certain dimensions include more than one indicator.

      Table 1

      Indicators of the rating system

      Analysis dimensions

      Indicators of the rating system

      Assessment of registration data

      • “Assessment of registration data”

      Tax report submission discipline

      • “Tax report submission discipline”

      Debt of payments administered by the State Revenue Service

      • “Total debt of payments administered by the SRS”
      • “Ratio of the total debt of payments administered by the SRS to the instalments of payments administered by the SRS”
      • “Changes in the total debt of payments administered by the SRS”

      Wage indicators

      • “Conformity of the average monthly wage to the average monthly wage in the country”
      • “Conformity of the average monthly wage to the average monthly wage in the sector”
      • “Changes in the average monthly wage”

      Indicators of economic activities

      • “Profitability ratio”
      • “Overall liquidity ratio”
      • “Absolute liquidity ratio”
      • “Financial independence ratio”


      Indicators of the rating system are planned to be expanded in future by supplementing the range of both dimensions and used indicators.

  • 1.4. SCORING SYSTEM OF THE RATING SYSTEM AND THE OVERALL RATING
    • The overall rating of the taxpayer, ensured at the pilot project stage of the rating system, is insufficient to measure all taxpayer’s risks related to the fulfilment of tax obligations or business activities. Prior to the introduction of the next stages of the rating system, the overall rating of the rating system is expressed as a total number of points granted to the taxpayer in relation to the maximum number of points, which the taxpayer might potentially receive for the rating indicators to be measured. The overall rating is informative; therefore, the user of the rating is recommended to become acquainted with the evaluation of each rating indicator.

      A five-point scale is used to interpret the indicators of the Taxpayer Rating System. It would be difficult to define clear descriptions of gradation for a scale with a greater number of points; in turn, a smaller scale would fail to ensure the possibility of sufficiently differentiating the models of taxpayer behaviour.

      The Taxpayer Rating System provides for the following:

      • two positive grades — “4” and “5” points;

      • one neutral grade — “3” points, which indicates problems of occasional nature;

      • two negative grades — “2” points and “1” point

      Table 2

      Overall concept of rating

      Points

      Graphic depiction of points

      Description of points

      5

      The value of the indicator, which suggests successful business activities or the fulfilment of all tax obligations in full

      4

      The value of the indicator, which suggests the conformity of economic activities to the tendencies of the sector or good discipline in fulfilling tax obligations

      3

      The value of the indicator, which suggests periodic problems with the discipline in fulfilling tax obligations or with economic activities

      2

      The value of the indicator, which suggests poor discipline in fulfilling tax obligations or significant risks of economic activities

      1

      The value of the indicator, which suggests poor discipline in fulfilling tax obligations or high risks of economic activities

  • 1.5. FUNDAMENTAL PRINCIPLES OF THE RATING SYSTEM
    • The Taxpayer Rating System and the scoring determination algorithm are designed based on the following fundamental principles:

      • medium-long periods of analysis — for the majority of indicators used in rating, the period of analysis includes 12 months; It is designed to include the factor of business seasonality in the analysis;

      • comparison of similar indicators — the data of the analysed taxpayer are compared to the data of similar taxpayers. For example, in assessing wage, the tax payment arrangement is taken into account. The individual data of a merchant are compared to the average indicators in the country or the sector;

      • the possibility of starting to improve own rating already in the upcoming month — rating data are updated every month, moving the period of analysis for one month forward;

      • lower growth requirements for large businesses — criteria of growth indicators for large businesses are more modest. If a merchant pays salaries which significantly exceed the average wage determined in the country, it is objectively more difficult for the merchant to ensure a fast increase in salaries;
      • small “advance payments” for business starters — a new business may lack data on the condition of indicators 12 months ago; therefore, in assessing the dynamics of salary, the creation of jobs is perceived as a positive phenomenon, which must be evaluated with 4 points.

  • 1.6. COMPARISON OF TAXPAYER’S DATA WITH AVERAGE INDICATORS IN THE COUNTRY, THE SECTOR AND THE REGION
    • To enable the taxpayer to assess the conformity of its indicators to the general economic situation in the country, the sector or the region, in which the taxpayer operates, the majority of rating indicators are provided with statistical information regarding the average value of the indicator in the country, the sector and the region.

      Data of a particular merchant are linked to the data of its sector and region, which correspond to the principal area of activity declared by the taxpayer and to the legal address at the moment of analysis.

      The rating system distinguishes five planning regions: Kurzemes, Latgale, Riga, Vidzeme and Zemgale planning regions. In calculating the average values of the regions, the data of merchants, which have declared their legal address in the respective planning region at the moment of analysis, are taken into account.

      In determining average indicators in the sector, the areas of principal activities declared by taxpayers according to the four-digit code detalisation of NACE Rev. 2, which determines the description of the area of principal activity precisely enough, are taken into account. In an exceptional case, for sectors, in which a very small number of taxpayers operate, taxpayer’s data are compared to the relevant average two-digit detalisation code of NACE Rev. 2. For example, a sufficiently great number of taxpayers is registered in the sector “NACE code 0111: Growing of cereals (except rice), leguminous crops and oil seeds”; the indicator of taxpayers, who have declared this area of principal activity, to the mean value in the same NACE four-digit code “0111”. In turn, the data of several merchants, whose area of principal activity is “NACE 0112: Growing of rice”, are compared with the NACE two-digit statistical mean: “NACE summary code 01: Crop and animal production, hunting and related service activities”.
  • 1.7. INTERPRETATION OF MISSING DATA IN THE RATING
    • If a taxpayer has no data, based on which it would be possible to determine an individual taxpayer’s indicator, there are two scenarios provided:

      • the indicator is not reflected in the taxpayer’s rating, and the maximum possible amount of points reduces in proportion. Table 3 reflects situations when the taxpayer may lack certain indicators to be included in the rating:

      • the indicator is reflected in the taxpayer’s rating and is evaluated with “0”

      Table 3

      Situations when taxpayers may lack certain rating indicators

      Missing rating indicators

      Explanation of the situation

      Indicators characterising economic activities, derived from the data of the annual account:

      • profitability ratio;
      • overall liquidity ratio;
      • absolute liquidity ratio;
      • financial independence ratio.

      A group of indicators can be missing in cases when:

      • the taxpayer is a newly created company, for which, in accordance with Section 14 of the Law On Accounting, the first annual account can cover a period of up to 18 months;
      • the taxpayer submits a specific annual account, for example, an annual account of a bank or an insurance company.

      Wage indicator:

      • changes in the average monthly wage.

      An indicator can be missing in cases when:

      • within the period of 12 analysed months, the taxpayer has changed its tax payment arrangement.

2. METHODOLOGY FOR MEASUREMENT OF RATING INDICATORS

  • 2.1. INDICATOR “ASSESSMENT OF REGISTRATION DATA”
    • Goal of the indicator — to motivate taxpayers to pay more attention to the data forming the reputation of the company:

      • to focus more carefully on the process of selecting shareholders and members of the board

      • to prevent tax system violations, which might be the reason for the restriction of economic activities.

      Source of information for measuring the indicator — the accounting of State Revenue Service measures on the restriction of economic activities; taxpayer registration data; indicators of the risk management system of the State Revenue Service.

      Determination of the indicator — the indicator is determined by measuring the number of full months, which have passed since the last detection of registration risks.

      Both cases, when the merchant is excluded from registers or measures on the restriction of economic activities are applied thereto, and cases, when significant risks have been established with the taxpayer during the registration data assessment process, are considered to be registration risk incidents.

      Analysed registration risks:

      • the signs of a shell company have been identified with the taxpayer (for example, the company is registered using stolen passports and counterfeiting the signatures of passport owners; the company’s official has no set place of residence);

      • measures restricting taxpayer’s economic activities:
      - suspension or discontinuation of economic activities;
      - commencement of the process of exclusion from the Value Added Tax Taxable Persons Register upon the initiative of the State Revenue Service;
      - exclusion from the Value Added Tax Taxable Persons Register upon the initiative of the State Revenue Service due to the submission of false information and failure to cooperate with the State Revenue Service.

      • liquidation proceedings have been initiated for the taxpayer;

      • insolvency proceedings, legal protection proceedings or extra-judicial protection proceedings have been initiated for the taxpayer;

      • insolvency proceedings have been declared for the taxpayer;

      • the member of the board is deprived of the right to hold positions;
      • risks in taxpayer’s registration data (for example, the official is included on the list of high-risk persons).

      Granting of points — points are granted based on the number of months, which have passed since the last detection of registration risks. Taking into account that serious violations of requirements of the tax system are most often detected within a relatively short period after the introduction of significant changes in the principal registration data of companies, lower rating points are granted to merchants with relatively recent incidents of registration risk detection. “5” points are granted to the taxpayer, for which no risks have been identified over the last 36 months.

      Fig. 1. Data assessment period and scoring scale

      Table 4.

      Granting of points for the indicator “Assessment of registration data”

      Rating points

      Detailed description of the criterion for grating of rating points

      5

      No risks have been identified over the last 36 months

      4

      One of the risks has been identified 25-36 months earlier

      3

      One of the risks has been identified 13-24 months earlier

      2

      One of the risks has been identified 7-12 months earlier

      1

      One of the risks has been identified during the last 6 months

       
  • 2.2. INDICATOR “TAX REPORT SUBMISSION DISCIPLINE
    • Goal of the indicator — to motivate the taxpayer to submit tax reports and declarations in a timely manner.

      Source of information for measuring the indicator — information of the State Revenue Service regarding declarations submitted with delay.

      Determination of the indicator — the indicator is determined by assessing the number of tax reports and declarations submitted with delay, the term of submission of which started 13 months earlier and ended on the last date of the previous month.

                                                                                                                                                                                                                                                                                         Fig. 2. Data assessment period


      In determining the number of tax declarations/reports submitted with delay, the observance of the submission term is analysed for the following documents:

      • annual account;

      • report on mandatory State social insurance contributions from the employees’ work income, personal income tax and State business risk duty during the reporting month;

      • report regarding the work income, personal income tax and State mandatory social insurance contributions of the payers of the income tax for seasonal farm workers;

      • notification on amounts paid to natural persons (summary);

      • notification on amounts paid to a natural person;

      • value added tax declaration;

      • value added tax declaration for the taxation year;

      • corporate income tax declaration

      • tonnage tax declaration;

      • corporate income tax report on income gained and tax paid by a non-resident in the Republic of Latvia

      • excise duty declaration for alcoholic beverages;

      • excise duty declaration for tobacco products;

      • excise duty declaration for fluid used in electronic cigarettes;

      • excise duty declaration for oil products;

      • excise duty declaration for coffee and non-alcoholic beverages;

      • excise duty declaration for natural gas;

      • reports on the calculation of difference of excise goods inventory tax due to changes in tax rates;

      • report on the estimated natural resources tax;

      • electricity tax declaration;

      • subsidised electricity tax report;

      • micro-enterprise tax declaration;

      • report on the estimated gambling tax;

      • report on the estimated lottery tax for lotteries and instant lotteries of national and local scale.
       

      Documents which are submitted with a one-day delay (on the next day after the declaration/report submission deadline) are also considered to be declarations/reports submitted with delay.

      Granting of points — points are granted based on the number of declarations/reports submitted with delay.

      “5” points are granted to the taxpayer who has submitted all tax declarations/reports on time.

      Other limits of criteria for the granting of rating points are determined based on statistical data on the division of the number of declarations/reports submitted by individual merchants with delay.

      Table 5.

      Granting of indicators for the indicator “Tax report submission discipline”

      Rating points

      Detailed description of the criterion for grating of rating points

      5

      All taxpayer’s tax declarations/reports have been submitted on time

      4

      Delays in the submission terms of declarations/reports have been detected for the taxpayer no more than 3 times

      3

      Delays in the submission terms of declarations/reports have been detected for the taxpayer no more than 5 times

      2

      Delays in the submission terms of declarations/reports have been detected for the taxpayer no more than 10 times

      1

      Delays in the submission terms of declarations/reports have been detected for the taxpayer more than 10 times

       

      Determination of the average value in the country, the sector and the region — the average value is determined taking into account all legal persons which have submitted tax reports or declarations during the period of analysis. The calculation of the average value also includes taxpayers which have not delayed a single submission term of a tax declaration/report.

  • 2.3. INDICATOR “TOTAL DEBT OF PAYMENTS ADMINISTERED BY THE SRS”
    • Goal of the indicator — to motivate the taxpayer to extinguish the accumulated tax debt.

      Source of information for measuring the indicator — information of the State Revenue Service regarding the accounting of tax debts.

      Determination of the indicator — the measurement of the total amount of debts of payments administered by the State Revenue Service is carried out based on the condition of the debt at the end of the preceding month.

      Fig. 3. Data assessment period

      In measuring the total amount of debt of payments administered by the State Revenue Service, the debt is measured for the following taxes and mandatory payments:

      • value added tax;

      • corporate income tax;

      • personal income tax;

      • mandatory State social insurance contributions;

      • natural resources tax;

      • excise duty;

      • micro-enterprise tax;

      • customs duty;

      • lottery and gambling tax;

      • electricity tax;

      • subsidised electricity tax;

      • other income from dividends (income from the use of State/local government capital);

      • State duty for business risk;

      • fines imposed by the State Revenue Service;

      • contributions from the amounts of hidden and reduced income, exposed during inspections.

      In measuring the total debt, the total debt of payments administered by the State Revenue Service is taken into account, including the following categories of debts:

      • current debts;

      • suspended debts;

      • debts for which extensions of the tax payment term have been granted.

      In measuring the total debt of payments administered by the State Revenue Service, the debt decrease adjustment for the overpaid amounts of taxes or other payments is not made.

       

      Granting of points — points are granted based on the amount of the debt of payments administered by the State Revenue Service

      “5” points are granted to the taxpayer with no debts.

      “4” points are granted to the taxpayers whose tax debt is insignificant.

      Other limits of criteria for the granting of rating points are determined based on statistical data on the division of size of tax debts of individual merchants.

      Table 6

      Granting of points for the indicator “Total debt of payments administered by the SRS”

      Rating points

      Detailed description of the criterion for grating of rating points

      5

      To the taxpayer with no debts

      4

      The total amount of debt at the date of analysis does not exceed EUR 150

      3

      The total amount of debt at the date of analysis does not exceed EUR 1,000

      2

      The total amount of debt at the date of analysis does not exceed EUR 10,000

      1

      The total amount of debt at the date of analysis exceeds EUR 10,000


      Determination of the average value in the country, the sector and the region — the average value is determined taking into account all legal persons The calculation of the average value also includes taxpayers with no tax debts.

  • 2.4. INDICATOR “RATIO OF THE TOTAL DEBT OF PAYMENTS ADMINISTERED BY THE SRS TO THE INSTALMENTS OF PAYMENTS ADMINISTERED BY THE SRS”
    • Goal of the indicator — to balance the analysis dimension of the debt of payments administered by the State Revenue Service and the business size factor. Taking into account the fact that the amount of tax debt depends on the amount of tax obligations estimated in tax reports, taxpayers with a large turnover and a great number of employees have greater probability for the formation of large amounts of tax debts. In turn, for small taxpayers, the absolute amounts of tax debts are mostly small. Taking into account the aforementioned, it is important to measure not only the absolute value of debt, but also the possibility of extinguishing debt, specifying whether the accumulated amount of debt is commensurate to the cash flow of payments ensured by the merchant.

      Source of information for measuring the indicator — information of the State Revenue Service regarding the accounting of tax debts and the payment of taxes.

      Determination of the indicator — the indicator is determined as the ratio of the total debt of payments administered by the State Revenue Service to the instalments of payments administered by the State Revenue Service.

      The measurement of the total amount of debts of payments administered by the State Revenue Service is carried out based on the condition of the debt at the end of the preceding month. The amounts of instalments of payments administered by the State Revenue Service are measured based on the instalments of payments made by taxpayers during the last 12 months.

      Fig. 4. Data assessment period

      In measuring the total amount of debts of payments administered by the State Revenue Service and the instalments of payments administered by the State Revenue Service, the following taxes and statutory payments are analysed:
      • value added tax;

      • corporate income tax;

      • personal income tax;

      • mandatory State social insurance contributions;

      • micro-enterprise tax;

      • excise duty;

      • natural resources tax;

      • customs duty;

      • lottery and gambling tax;

      • electricity tax;

      • subsidised electricity tax;

      • income from dividends (income from the use of State/local government capital);

      • income from the payment of the Bank of Latvia;

      • State duty for business risk;

      • fines imposed by the State Revenue Service, incl. the Excise Goods Division of the State Revenue Service and the customs authorities of the State Revenue Service

      • contributions from amounts of hidden and reduced income, exposed during the inspections of the State Revenue Service and customs authorities;

      • other contributions from the amounts of hidden and reduced income, exposed during inspections;

      • penalties for general tax infringements.

      The total debt of payments administered by the State Revenue Service includes the following categories of debts:

      • current debts;

      • suspended debts;

      • debts for which extensions of the tax payment term have been granted.

      In measuring the total debt of payments administered by the State Revenue Service, the debt decrease adjustment for the overpaid amounts of taxes or other payments is not made.

      Instalments mean both the amount of payments made into the State combined budget and the amount of overpaid taxes used to extinguish the debts of other payments.

      In measuring the amount of instalments of payments administered by the State Revenue Service, the negative adjustment is not made for the amounts of overpayments refunded or used in other types of payments.

       

      Granting of points — points are granted by measuring the ratio of the total debt of payments administered by the State Revenue Service to the instalments of payments administered by the State Revenue Service.

      “5” points are granted to the taxpayer with no debts.

      “4” points are granted to taxpayers, for whom the ratio of the total debt of payments administered by the State Revenue Service to the instalments of payments administered by the State Revenue Service is insignificant.

      “1” point is granted if a taxpayer with a tax debt has not made any payments during the last 12 months.

      Other limits of criteria for the granting of rating points are determined based on statistical data on the division of the indicator for individual merchants.

      Table 7.

      Granting of points for the indicator “Ratio of the total debt of payments administered by the SRS to the instalments of payments administered by the SRS”

      Rating points

      Detailed description of the criterion for grating of rating points

      5

      The taxpayer has no debts

      4

      The ratio of the taxpayer’s total tax debt to tax contributions does not exceed 5%

      3

      The ratio of the taxpayer’s total tax debt to tax contributions does not exceed 10%

      2

      The ratio of the taxpayer’s total tax debt to tax contributions does not exceed 30%

      1

      The ratio of the taxpayer’s total tax debt to tax contributions exceeds 30%, or the taxpayer has a tax debt, but no tax contributions have been made

  • 2.5. INDICATOR “CHANGES IN THE TOTAL DEBT OF PAYMENTS ADMINISTERED BY THE SRS”
    • Goal of the indicator — to motivate the taxpayer to reduce the accumulated tax debt.

      Source of information for measuring the indicator — information of the State Revenue Service regarding the accounting of tax debts.

      Determination of the indicator — changes in the total debt of payments administered by the State Revenue Service are measured by comparing the condition of debts at the end of the preceding month and the condition of debts at the relevant date in the previous year.

                                                                                                                                                                       Fig. 5. Data assessment

      In measuring the total amount of debt of payments administered by the State Revenue Service, debts are taken into account for the following taxes and mandatory payments:

      • value added tax;

      • corporate income tax;

      • personal income tax;

      • mandatory State social insurance contributions;

      • natural resources tax;

      • excise duty;

      • micro-enterprise tax;

      • customs duty;

      • lottery and gambling tax;

      • electricity tax;

      • subsidised electricity tax;

      • other income from dividends (income from the use of State/local government capital);

      • State duty for business risk;

      • fines imposed by the State Revenue Service;

      • contributions from the amounts of hidden and reduced income, exposed during inspections.

      In measuring the indicator, the total debt of payments administered by the State Revenue Service is taken into account, including the following categories of debts:

      • current tax debts;

      • suspended tax debts;

      • debts for which extensions of the tax payment term have been granted.

      In measuring the total debt of payments administered by the State Revenue Service, the debt decrease adjustment for the overpaid amounts of taxes or other payments is not made.

      Granting of points — points are granted using two indicators:

      • the absolute value of increase in the amount of payment debts;

      • relative increase in the debt of payments, which is expressed in percentage terms and calculated as the ratio of the absolute value of increase in debt to the total amount of debt at the relevant date in the previous year.

      For example, if the total debt of the taxpayer amounted to EUR 170 as of 31 August 2018 and to EUR 140 as of 31 August 2017, the relative increase in debt is (170 – 140) : 140 x 100 % = 21 %.

      “5” points are granted to the taxpayer which had no payment debts at the end of the preceding month, regardless of the presence and amount of debt at the relevant date in the previous year.

      “4” points are granted to the taxpayers which have tax debts, but, compared to the relevant period of the previous year, the debt has decreased by at least by EUR 0.01.

      “3” points are granted to the taxpayers for which an increase in debt is insignificant.

      “1” point is granted to the taxpayers for which an increase in debt is significant. A significant increase in debt is identified for the taxpayers which comply with at least of the following signs:

      • the absolute increase in tax debt exceeds EUR 10,000;

      • the relative increase in tax debt exceeds 50%.

      “2” points are granted to other taxpayers with a moderate increase in debt.

      Table 8.

      Granting of points for the indicator “Changes in the total debt of payments administered by the SRS

      Rating points

      Detailed description of the criterion for grating of rating points

      5

      The taxpayer has no debts

      4

      The total tax debt of the taxpayer has decreased, but has not reached the zero value

      3

      The increase in the total tax debt of the taxpayer does not exceed EUR 150

      2

      The increase in the total tax debt of the taxpayer does not exceed EUR 10,000 or 50%

      1

      The increase in the total tax debt of the taxpayer exceeds EUR 10,000 or 50%

  • 2.6. INDICATOR “CONFORMITY OF THE AVERAGE MONTHLY WAGE TO THE AVERAGE MONTHLY WAGE IN THE COUNTRY”
    • Goal of the indicator — to inform the taxpayer about the compliance of indicators characterising its economic activities with general economic trends.

      Source of information for the measurement of the indicator — tax reports submitted by taxpayers:

      • report on mandatory State social insurance contributions from the employees' work income, personal income tax and State business risk duty during the reporting month (hereinafter — ER [Employer’s Report]);

      • micro-enterprise tax declaration (hereinafter — MET declaration).

      Determination of the indicator — the indicator is measured by comparing the average monthly wage of the taxpayer with the average monthly wage in the country. When calculating the average monthly wage, the total employment income of the taxpayer is divided by the total number of recipients of work income during the period of analysis (12 months).

        

      where: Di — the total work income in the i-th month;

      ASi — the number of recipients of work income in total in the i-th month.

      The indicator is expressed in EUR, rounding to whole months.

      Fig. 6. Data assessment period

       

      Granting of points — points are granted based on the size of the average wage. The indicator measurement scale differs for the taxpayers which operate under general or micro-enterprise tax arrangements which determine significant differences in these tax arrangements.

      The general tax arrangement provides for a relatively higher maximum of work income than that stipulated by the micro-enterprise tax arrangement and a relatively greater minimum of work income due to the following factors:

      • the ER reflects gross salary which includes the employer’s share of mandatory State social insurance contributions and personal income tax, whereas the MET declaration specifies the net income of the employee;

      • the MET arrangement provides for both direct limitations of work income and indirect limitations of salary payouts, which are implemented by limiting the increase in turnover.

      For taxpayers operating under the general tax arrangement:

      • “5” points are granted to the taxpayers whose average wage does not exceed the average wage in the country;

      • “1” point is granted to the taxpayer whose declared average wage does not exceed or is equal to the minimum wage determined in the country;

      • other limits of criteria for the granting of rating points are determined based on statistical data on the division of the indicator measured for individual merchants.

      For taxpayers operating under the micro-enterprise tax arrangement:

      • “5” points are granted to the taxpayers whose average wage does not exceed the average wage in the country;

      • “1” point is granted to the taxpayers whose average monthly wage does not exceed 40% of the average wage in the country;

      • other limits of criteria for the granting of rating points are determined based on statistical data on the division of the indicator measured for individual merchants.

      If the taxpayer has changed its tax payment arrangement during the analysed 12 months, the rating system assesses its declared wage according to the scale of points, which complies with the current tax payment arrangement at the moment of analysis.

      Table 9.

      Granting of points for the indicator “Conformity of the average monthly wage to the average monthly wage in the country”

      (for taxpayers of the general tax payment arrangement)

      Rating points

      Detailed description of the criterion for grating of rating points

      5

      The average wage of the taxpayer does not exceed the average wage in the country

      4

      The average wage of the taxpayer varies within the range from 81% to 100% of the average wage in the country

      3

      The average wage of the taxpayer varies within the range from 61% to 80% of the average wage in the country

      2

      The average wage of the taxpayer varies does not exceed 60% of the average wage in the country

      1

      The average wage of the taxpayer does not exceed or is equal to the minimum wage determined in the country

       

      Table 10.

      Granting of points for the indicator “Conformity of the average monthly wage to the average monthly wage in the country”

      (for payers of micro-enterprise tax)

      Rating points

      Detailed description of the criterion for grating of rating points

      5

      The average monthly wage of the taxpayer exceeds the average wage of employed persons in the country (with a payer of micro-enterprise tax)

      4

      The average monthly wage of the taxpayer varies within the range of 81% to 100% of the average wage of employed persons in the country (with a payer of micro-enterprise tax)

      3

      The average monthly wage of the taxpayer varies within the range of 61% to 80% of the average wage of employed persons in the country (with a payer of micro-enterprise tax)

      2

      The average monthly wage of the taxpayer varies within the range of 41% to 60% of the average wage of employed persons in the country (with a payer of micro-enterprise tax)

      1

      The average monthly wage of the taxpayer does not exceed 40% of the average wage of employed persons in the country (with a payer of micro-enterprise tax)

  • 2.7. INDICATOR “CONFORMITY OF THE AVERAGE MONTHLY WAGE TO THE AVERAGE MONTHLY WAGE IN THE SECTOR”
    • Goal of the indicator — to inform the taxpayer about the compliance of indicators characterising its economic activities with general economic trends.

      Source of information for the measurement of the indicator — tax reports submitted by taxpayers:

      • report on mandatory State social insurance contributions from the employees' work income, personal income tax and State business risk duty during the reporting month (hereinafter — ER [Employer’s Report]);

      • micro-enterprise tax declaration (hereinafter — MET declaration).

      Determination of the indicator — the indicator is measured by comparing the average monthly wage of the taxpayer with the average monthly wage in the sector. For the calculation of the average monthly wage, see Section 2.6.

      Fig. 7. Data assessment period

      Granting of points — points are granted based on the size of the average wage. Unlike the previous indicator, the measurement scale for all taxpayers is the same.

      “5” points are granted to the taxpayers whose average wage does not exceed the average wage in the sector by more than 20%;

      “1” point is granted to the taxpayers whose average monthly wage does not exceed 50% of the average wage in the sector.

      Other limits of criteria for the granting of rating points are determined based on statistical data on the division of the indicator measured for individual merchants.

      Table 11.

      Granting of points for the indicator “Conformity of the average monthly wage to the average monthly wage in the sector”

      Rating points

      Detailed description of the criterion for grating of rating points

      5

      The average wage of the taxpayer does not exceed the average wage in the sector by more than 20%

      4

      The average wage of the taxpayer does not exceed the average wage in the sector by not more than 20%

      3

      The average wage of the taxpayer does not exceed the average wage in the sector

      2

      The average wage of the taxpayer varies does not exceed 70% of the average wage in the sector

      1

      The average wage of the taxpayer varies does not exceed 50% of the average wage in the sector

  • 2.8. INDICATOR “CHANGES IN THE AVERAGE MONTHLY WAGE”
    • Goal of the indicator — to inform the taxpayer about the compliance of indicators characterising its economic activities with general economic trends.

      Source of information for the measurement of the indicator — tax reports submitted by taxpayers:

      • report on mandatory State social insurance contributions from the employees' work income, personal income tax and State business risk duty during the reporting month (hereinafter — ER [Employer’s Report]);

      • micro-enterprise tax declaration (hereinafter — MET declaration).

      Determination of the indicator — the indicator is measured by comparing the size of the average wage during the last 12 months with this indicator during the relevant period in the previous year. For the calculation of the average monthly wage, see Section 2.6.

      Fig. 8. Data assessment period

      Granting of points — points are granted based on the changes in the average wage. The limits of criteria for the granting of rating points are determined based on statistical data on the division of the indicator measured for individual merchants.

      Table 12.


      Granting of points for the indicator “Changes in the average monthly wage”

      Rating points

      Detailed description of the criterion for grating of rating points

      5

      The increase in the taxpayer’s average wage exceeds 7%

      4

      The increase in the taxpayer’s average wage does not exceed 7%

      3

      The changes in the taxpayer’s average wage are insignificant (+/–3%)

      2

      The decrease in the taxpayer’s average wage does not exceed 7%

      1

      The decrease in the taxpayer’s average wage exceeds 7%


      If the taxpayer lacks data for the previous period, in measuring the dynamics of wage, the fact of creation of jobs during the last 12 months is perceived positively, being marked with “4” points.

      If the taxpayer has changed its tax payment arrangement within the period of analysed 12 months, the indicator is not calculated.

      The indicator measurement scale differs for payers of large salaries — for the taxpayers whose average monthly wage exceeds the average wage in the country at least two times. If a merchant pays salaries which significantly exceed the average wage determined in the country, it is objectively more difficult for him to ensure a fast increase in salaries.

      Table 13.

      Granting of points for the indicator “Changes in the average monthly wage” to payers of large salaries 

      Rating points

      Detailed description of the criterion for grating of rating points

      5

      The increase in the taxpayer’s average wage exceeds 7%

      4

      The changes in the taxpayer’s average wage are insignificant (+/–7%)

      3

      The decrease in the taxpayer’s average wage exceeds 7%

      2

      The decrease in the taxpayer’s average wage exceeds 14%

      1

      The decrease in the taxpayer’s average wage exceeds 21%

  • 2.9. INDICATOR “PROFITABILITY RATIO”
    • Goal of the indicator — to inform the taxpayer about the compliance of indicators characterising its economic activities with general economic trends..

      Source of information for the measurement of the indicator — the income statement of annual accounts submitted by taxpayers.

      Determination of the indicator — in calculating the overall profitability ratio, profit or loss is calculated by dividing the item “Profit or loss of the reporting year” by the item “Net sales”. The result of the division is expressed in percentage terms.

      Fig. 9. Data assessment period

      Granting of points — points are granted based on the size of the profitability ratio.u.

      “5” points are granted to the taxpayers whose profitability exceeds the average profitability ratio in the sector.

      “4” points are granted to the taxpayers whose profitability varies within the range from 81% to 100% of the average profitability ratio in the sector.

      “1” point is granted to the taxpayers which have closed the year with losses or which have not carried out economic activities, declaring zero net turnover.

      Other limits of criteria for the granting of rating points are determined based on statistical data on the division of the indicator measured for individual merchants.

      Table 14.

      Table 13.

      Granting of points for the indicator “Profitability ratio”

      Rating points

      Detailed description of the criterion for grating of rating points

      5

      Taxpayer’s profitability is positive and exceeds the average profitability ratio in the sector

      4

      Taxpayer’s profitability is positive and does not exceed the average profitability ratio in the sector

      3

      Taxpayer’s profitability is positive and does not exceed 80% of the average profitability ratio in the sector

      2

      Taxpayer’s profitability is positive and does not exceed 50% of the average profitability ratio in the sector

      1

      Taxpayer’s profitability is negative — the taxpayer has closed the year with losses or has not carried out economic activities

  • 2.10. INDICATOR “OVERALL LIQUIDITY RATIO”
    • Goal of the indicator — to inform the taxpayer about the compliance of indicators characterising its economic activities with general economic trends.

      Source of information for the measurement of the indicator — balance sheets of annual accounts submitted by taxpayers.

      Determination of the indicator — the overall liquidity ratio is calculated by dividing the amount of current funds by the total amount of short-term creditor obligations. The result of the division is expressed in the form of a ratio.

      Fig. 10. Data assessment period

      Granting of points — points are granted based on the size of the overall liquidity ratio..

      “5” points are granted to the taxpayer with the optimal ratio value which varies from 1 to 2.

      “4” points are granted to the taxpayers whose overall liquidity ratio exceeds 2, which suggests excess funds in current assets, which might be used in a more effective manner.

      “4” points are also granted to the taxpayer with no short-term obligations, which is not typical of the companies which carry out active economic activities (i.e., receive advance payments from customers, receive regular supplies of materials, calculate salaries and tax amounts, gain profit from economic activities, etc.).

      “3”, “2” and “1” point reflects situations when the taxpayer’s current funds are insufficient to cover all short-term obligations; the limits of criteria for the granting of this evaluation are determined based on statistical data regarding the division of the indicator measured for individual merchants.

      “1” point is also granted to the taxpayers which have no current assets, but have short-term obligations.

      Table 15.

      Granting of points for the indicator “Overall liquidity ratio”

      Rating points

      Detailed description of the criterion for grating of rating points

      5

      The overall liquidity ratio of the taxpayer varies within the range from 1.00 to 2.00; the taxpayer has sufficient current funds

      4

      The overall liquidity ratio of the taxpayer exceeds 2.00, which suggests excess funds in current assets, which might be used in a more effective manner; the taxpayer has no short-term obligations

      3

      The overall liquidity ratio of the taxpayer does not exceed 1.00; the taxpayer has insufficient current assets to cover short-term obligations

      2

      The overall liquidity ratio of the taxpayer does not exceed 0.70; the taxpayer is unable to cover short-term obligations; the taxpayer works under the conditions of financial risk

      1

      The overall liquidity ratio of the taxpayer does not exceed 0.50; the taxpayer is unable to cover short-term obligations; the taxpayer works under the conditions of financial risk

  • 2.11. INDICATOR “ABSOLUTE LIQUIDITY RATIO”
    • Goal of the indicator — to inform the taxpayer about the compliance of indicators characterising its economic activities with general economic trends.

      Source of information for the measurement of the indicator — balance sheets of annual accounts submitted by taxpayers.

      Determination of the indicator — the absolute liquidity ratio is calculated by dividing the amount of highly liquid assets (cash and securities) by the total amount of short-term creditor obligations. The indicator is expressed in the form of a ratio.

      where:
      AL – absolute liquidity rate;
      N – cash;
      VP – securities;
      IK – total amount of short-term payables.

      Fig. 11. Data assessment period

      Granting of points — points are granted based on the size of the absolute liquidity ratio.

      “5” points are granted to the taxpayers with the optimal ratio value which varies within the range from 0.31 to 1.20.

      “4” points are granted to the taxpayers whose total liquidity ratio exceeds 1.20, which suggests excess funds in current assets, which might be used in a more effective manner

      “4” points are also granted to the taxpayer with no short-term obligations, which is not typical of the companies which carry out active economic activities (i.e., receive advance payments from customers, receive regular supplies of materials, calculate salaries and tax amounts, gain profit from economic activities, etc.).

      “3”, “2” and “1” point reflects situations when the taxpayer’s ability to quickly cover all short-term obligations is restricted; the limits of criteria for the granting of this grade are determined based on statistical data regarding the division of the indicator measured for individual merchants.

      “1” point is granted to the taxpayers which have no highly liquid assets, but have short-term obligations.

      Table 16.

      Granting of points for the indicator “Absolute liquidity ratio”

      Rating points

      Detailed description of the criterion for grating of rating points

      5

      The absolute liquidity ratio of the taxpayer varies within the range from 0.31 to 1.2; the taxpayer is able to quickly repay short-term loans

      4

      The absolute liquidity ratio of the taxpayer exceeds 1.20; the taxpayer is able to quickly repay short-term loans; simultaneously, there is a possibility of improving return on capital by optimising the balance-sheet structure; the taxpayer has no short-term obligations

      3

      The absolute liquidity ratio of the taxpayer does not exceed 0.30; the taxpayer is able to cover quickly from 21% to 30% of its short-term obligations

      2

      The absolute liquidity ratio of the taxpayer does not exceed 0.20; the taxpayer is able to cover quickly from 11% to 20% of its short-term obligations

      1

      The absolute liquidity ratio of the taxpayer does not exceed 0.10; the taxpayer is able to cover quickly no more than 10% of its short-term obligations

  • 2.12. INDICATOR “FINANCIAL INDEPENDENCE RATIO”
    • Goal of the indicator — to inform the taxpayer about the compliance of indicators characterising its economic activities with general economic trends.

      Source of information for the measurement of the indicator — balance sheets of annual accounts submitted by taxpayers.

      Determination of the indicator — the financial independence ratio is calculated by dividing the balance sheet item “Total equity capital” by the total sum of the balance sheet. The indicator is expressed in the form of a ratio.

      Fig. 12. Data assessment period

      Granting of points — points are granted based on the size of the financial independence ratio.

      “5” points are granted to the taxpayers whose financial independence ratio varies within the range from 0.51 to 0.7, which suggests the low dependence of the taxpayers on payables.

      “4” points are granted to the taxpayers whose financial independence ratio varies within the range from 0.71 to 1, which suggests the low dependence of the taxpayer on payables, but simultaneously suggests the non-used possibility of improving return on capital by attracting additionally borrowed funds.

      “1” point is granted to the taxpayers with a negative financial independence ratio, which suggests that the losses accumulated during closed financial years have exceeded the combined amount of the share capital and reserves, and the activities of the company are actually ensured from borrowed funds. Likewise, “1” point is granted in abnormal cases when the calculated financial independence ratio exceeds 1, which means that the equity capital exceeds the total amount of assets (may occur if there are significant deviations in the preparation of the annual account; for example, the declared negative total amount of payables). “1” point is also granted to the taxpayers whose total amount of assets is equal to 0.

      Other limits of criteria for the granting of rating points are determined based on statistical data on the division of the indicator measured for individual merchants.

      Table 17.

      Granting of points for the indicator Financial independence ratio

      Rating points

      Detailed description of the criterion for grating of rating points

      5

      The financial independence ratio of the taxpayer varies within the range from 0.51 to 0.70; the taxpayer’s capital is at an optimal level

      4

      The financial independence ratio of the taxpayer varies within the range from 0.71 to 1.00; the taxpayer has low dependence on payables, but can improve return on capital by attracting additional funds

      3

      The financial independence ratio of the taxpayer varies within the range from 0.31 to 0.50; the taxpayer’s capital is close to the good level; however, there is a risk of financial dependence

      2

      The financial independence ratio of the taxpayer varies within the range from 0 to 0.30; the taxpayer’s capital is highly dependent on payables

      1

      The financial independence ratio of the taxpayer is negative or exceeds 1; the taxpayer’s equity capital is negative; the taxpayer is highly dependent on payables

3. CURRENT TECHNICAL IMPLEMENTATION OF THE TAXPAYER RATING SYSTEM

  • 3.1. AVAILABILITY OF TAXPAYER RATING TO THIRD PARTIES
    • Taking into account that some indicators used in the rating system involve a commercial secret, the State Revenue Service is not entitled:

      • to publish the personalised indicators of the Taxpayer Rating System;

      • to inform third parties about the individual indicators of the Taxpayer Rating System;

      • to comment by phone on the rating indicators of particular taxpayers.

      Taxpayer rating is available only to the taxpayer itself in the Electronic Declaration System. The distribution of the rating is the responsibility of the taxpayer himself.

      To reduce the possibility of third parties to become acquainted with the rating of particular taxpayers without the consent from the taxpayer, the State Revenue Service replies to questions, which concern particular rating indicators of taxpayers, only in writing, by sending the reply to an inbox in the Electronic Declaration System.

  • 3.2. UPDATING OF THE TAXPAYER RATING
    • Taxpayer ratings are updated once a month, on the 20th-25th date.