Tax and Revenue Management: A government’s lifeblood

Thursday, 23 February 2012

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IT has provided the opportunities for governments to remodel the entire process of tax collection over the last decade. It is, however, a continuously evolving process and governments the world over need to constantly upgrade their tax systems to optimise their revenue workflows.

Unlocking Public Value

A recent SAP study confirmed that those organisations which adopt best practices in the areas of scope and adoption, process standardisation, technology and customer governance, do perform better, and do so as their best practice maturity increases.

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Central Government

Tax and Revenue Management: A government’s lifeblood

9 January 2012

Ancient Egypt, Greece and Rome were amongst the first societies to levy taxes on goods and citizens. This practice continues to this day, albeit somewhat differently. IT has provided the opportunities for governments to remodel the entire process of tax collection over the last decade. It is, however, a continuously evolving process and governments the world over need to constantly upgrade their tax systems to optimise their revenue workflows.

Australia’s complicated tax laws previously forced a majority of its population to employ an accountant to assist them in preparing their annual income tax return. The Australian government recently decided to make its laws simpler and proposed the possibility of creating automatically generated income tax returns for individuals. A recent media release by the Australian Taxation Office (ATO) said, “Only five weeks into tax time, over one million people have already chosen to lodge their tax return online using the ATO’s free tax preparation and lodgement service, e-tax.” It further said its pre-filing service is extremely popular.

So, what makes the governments spend money on revamping their tax collection mechanisms?

“With the current economic situation, introducing new taxes or raising tax rates is not a realistic option. The focus, therefore, is on making sure people pay their taxes. It is certainly a trend all tax agencies are embarking on. They need to get their foundation right, meaning they have to introduce an integrated tax system creating accurate information to be used during compliance activities. This will resolve the underlying issue of lack of data governance and transparency,” says Markus Werling, Vice-President, Solution Management Public Services, SAP.

In a bid to improve taxpayer services, the Philippines tax department is planning to move all its business processes online. Bureau of Internal Revenue (BIR) Deputy Commissioner Kim Jacinto Henares says the agency wants to make it smooth for those who want to register as taxpayers, and prevent identity fraud, by creating a database of biometric identities of each such individual. She said that this makes it essential to clean the department’s database in order to prevent tax evasion. Henares plans to coordinate with other government agencies that already have such databases and procure the same for use by BIR.

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SPOTLIGHT

Having a clean and comprehensive database, however, is not enough. It is important to make best use of data collected by the agencies over time, relate it to data from other agencies (residential data, business licenses, property information), and use predictive capabilities to assess, score and determine the right strategy to collect the taxes.

Explains Werling, “e-filing makes it easy for taxpayers who want to comply to file tax returns and pay their taxes. This drives voluntary compliance quite significantly.” He adds that a multi-channel access for taxpayers, providing access over the phone, e-filing as well as paper-based processes such as the SAP Tax and Revenue Management solution ensures better user experience. And this translates into better compliance and willingness to pay taxes, thus generating more revenue for the coffers at the minimum possible expenditure.

Mobile and Social Media will add to this in the very near future. They will be another channel for taxpayer interaction replacing other channels such as internet, call center or walk in. Social media is increasingly becoming popular and they are a very promising prospective channel for the governments to interact with taxpayers in a structured and very personal way. Some tax agencies have tested the water and seen good results.

Werling talks about a State tax agency having introduced Live Chat capabilities as an additional channel for taxpayers to interact with the agency. He says this channel received a lot of attention. As the service was being provided by the existing call centre Staff, there was no huge investment required to start this offering.

Korea’s National Tax Service has optimised its mobile phone application http://m.nts.go.kr for smartphones. The NTS Twitter account provides NTS news, recent tax information and collects customers’ comments. The year-end tax settlement app is also available on mobile devices along with tips on how to compute as well as save tax. It has Global Positioning System (GPS) built into the software to help locate local tax offices. Besides this, the NTS also sends SMS messages to taxpayers to notify tax arrears, status of complaints and other information regarding tax filing.

The Philippines’ BIR, which started its online services in 2001, is now a ‘virtual community’ which is now an online portal with a search facility, capability for single sign-on to all web-based applications, direct access to content-related resources and customisation of the views of users within the portal.

Given the fact that 90 per cent of the world population has access to mobile networks, mobile applications are increasingly likely to be the next buzz word in the world of tax services. It can also address concerns regarding countries with lower Internet penetration. Add to that the fact that the initial investment is not very high for introducing mobile applications and Return on Investment (RoI) is quick and substantial. Werling cites an example: “one tax authority offered functionality on mobile devices to look up the status of tax refunds. This app was downloaded nearly 250,000 times within two months. The development cost for the application was a mere USD 50,000.”

Talking of RoI, BIR’s Deputy Commissioner, Information System Group, Lilia C. Guillermo says mammoth restructuring projects could not have been undertaken earlier as bandwidth was very expensive. Increasing penetration of the Internet and decreasing maintenance and operations cost of IT has made it possible for BIR to connect 20 regional offices and 124 district offices to one central database as well as take up several other overhauling initiatives. There is no doubt that IT has made several projects economically viable by increasing the output of the labour force of tax departments across the globe, she adds.

IT has also helped several tax agencies revised their taxpayer segmentation which in the past was often based on large vs. small tax payers or segmentation by tax type. Nowadays, segmentation by compliance is receiving more attention, i.e. tax agencies are dealing differently with taxpayers based on whether or not are they willing to be compliant. So there is a clear relationship between making it easy for taxpayers to be compliant and the usage of multi-channel access, educational programs and better citizen services.

Yet another clear information technology-driven trend in the taxation domain is towards using analytical tools such as predictive modeling to detect and prevent fraud. This is facilitated by modern technology where data can be turned into useful information in seconds instead of going through a lengthy data transformation and loading process. The traditional way of securing citizens’ data was to lock it away and restrict access. Werling says this meant high maintenance costs and is, therefore, not a viable option. He adds that the increasing penetration of the Internet, mobile devices and social media warrant that data must be accessible and exchangeable in a secure and auditable manner.

Comprehensive authorisations and data access concepts embedded in the software solution are the key to handling data privacy and security security issues. Clearly laid out data management processes supported by procedural and organizational measures are mandatory to ensure data privacy.

Taxes are the lifeblood of a government and IT is helping governments manage it better so that it helps deliver better infrastructure for citizens and businesses, and improving user experience and services.