A happy customer is a good customer

Chapter 4. Tax Returns, payments and refunds processing
  ICT as a Strategic Tool to Leapfrog the Efficiency of Tax Administrations

 

I’ve always been of the opinion that tax administrations should be run as a business. OK, I’ll let you get a little cynical. So, you think I’ll go out of business because nobody will want to buy my product? Well, there’s some truth in that, and it’s called noncompliance. Or, bad customer service. But let’s look at it from a purely operational perspective.

I hope you’ve had a chance to browse over the recent CIAT publication on “ICT [Information and Communication Technology] as a Strategic Tool to Leapfrog the Efficiency of Tax Administrations.” To a great extent it lays out the building blocks on how to attain exponential progress in tax administration employing advanced technology and other creative initiatives employed by today’s more progressive tax administrations. As you may have seen, the publication touches on all the major facets of a tax administration and how technology is continuously improving particular administrations’ performance.

Now getting back to my tax administration company, Revenuer, Inc., possibly the most similar type of business could be something very close to the banking industry. (And with just cause, throughout the decades the tax administrations and banking industry have had a close working relationship. They both handled paper, money, electronics, collection and clients.) Think about it for a second. You’ve got transactions with paper and digital documents; you’ve got deposits of funds; refunds of financial assets; and, debt collection when required. And of course, a great need for customer service in order to keep your clients coming back. Note that in the same fashion that banks have online banking, a large number of tax administrations allow their taxpayers to complete just about all transactions online. The brick-and-mortar sights are gone or reduced in many tax jurisdictions.

Chapter 4 of the aforementioned CIAT publication lays out key elements of the “business” concept I’m referring to. In summary, these are:

  • dealing with tax returns;

  • paying taxes;

  • tax debt collection; and,

  • tax refunds.

In essence, these are the core elements of tax administration. I’ll call it the “semi-ecclesiastical model,”[1] where in a perfect world all responsible parties comply with their civil duty — file their tax declarations and pay the correct amount of taxes as required by law. Could you just imagine? You would barely need a staff to run that operation. But let’s wake up and face the real world. Of course, the greater majority of the population comply with the tax laws, just like angels. However, there are a few who don’t and that’s why we have examination functions and tax fraud units. Also, as all well operating enterprises, we need a customer service unit. These topics are all covered in other chapters of the publication as well as their nexus to ICT.

Now let’s get back to Chapter 4. The first topic addressed here is the filing of tax returns (Chapter 4.1.). There are quite a few authorities on tax compliance out there and they all agree that right after taxpayer registration, the next single most important factor for compliance is the proper (correct) filing of tax returns. And as Chapter 4.1. points out, we’ve come a long way from using an abacus to figure out our tax liability and submitting the paper declaration. The section has gems of information on tax returns and one in particular stands out; it’s titled “Technological best practices.” It focusses on all the possible ways to file a tax return. Reading through the evolutionary progress of tax returns can be compared to man’s evolution of transportation — from walking, to horseback, to trains, planes and rockets.[2] There is an excellent piece from Chile that focuses on pre-filled VAT tax returns.

Section 2 of Chapter 4 deals with paying taxes. Of course, something we all love to do. OK, my turn to be cynical. So, if we can’t make it fun and enjoyable, let’s try to make as least troublesome as possible for the taxpayer. In Table 4.2-1 of this section there is a listing of current payment methods – advantages and disadvantages. Let’s put our “businessperson” thinking caps on. The Table provides information on low technology payment methods and some of the leading-edge methods employed in several countries. Personally, I like the mobile payment methodology. It has major advantages BUT requires a significant technological infrastructure. What’s the bottom-line here? Simple, one-size-does-not-fit-all. We need to see what produces the greatest advantage, at a reasonable cost and acceptance by the greater majority of the tax paying public. Nevertheless, we should not lose sight of the need for progress. And that comes with change; and, change is good but challenging.

The next section addresses tax debt collection. Section 4.3.6. touches on “best technological practices.” The best technological practices that can be associated to a successful collection process have to do with information technology (IT) developments aimed at preventing delinquency through preventive measures. For example, sending reminder messages to taxpayers before a tax payment reaches a delinquency stage, or immediately following a delayed payment. Also, technology aids in the extensive process of information gathering to identify the taxpayer’s assets when collection needs to be enforced.

New data analytic techniques and artificial intelligence are being tested by some countries to improve the selection of cases and maximize recovery.[3] Another technique in use is a result of studies of behavioral economics. This technique is called Nudge and it aims, through letters or specially prepared messages for specific groups or classes of taxpayers, to convince them to pay their debts to the treasury.

The advances include automating the collection process by introducing more and more intelligence, such as, the introduction of rules of action so the system itself may make decisions regarding the actions to be executed for different universes of debtors in various stages of the collection process.

One thing we can’t lose sight of is the fact that all these advances have been accomplished through using progressive forms of technology. I used the business similarity for tax administration simply because there are many analogous elements between the two. However, in reality I realize that there are other major factors (government, politics, etc.) that tax administrators live with that private sector executives don’t face on a daily basis.

I don’t want to spill all the beans on the nuggets that Chapter 4 contains in this flagship publication. There’s a wealth of information for everyone who’s interested in the field of tax administration. Chapter 4 is just part of 600-plus pages that lay out great advances in technology that have been employed by progressive tax administrations. To some extent it’s a real go-to book when you want to find out what are the latest advances in the use of technology for tax administration. Who could benefit from this publication? Just about anyone. There are some sections that focus on basic elements of administration and discuss how the advancements in technology have both enhanced and simplified the process. On the other hand, there are sections that are highly technical and definitely good reading for your Director of Information Systems. I would be remiss if I didn’t mention that there are some sections which are really heavy stuff. But even then, there are opening summaries which are very informative and good reading for top level executives with little spare time and who just want to get an idea of certain aspects of technology.

If you get a chance to read through Chapter 4 and see something innovative that you like, ask yourself, “How did they do it?” I’m sure that the CIAT member colleague will be more than happy to share their experience with you.

No, I don’t think that CIAT is planning to make a star-studded cast movie from the book. But hey, if you become president next year and you promised your brother-in-law the baker the title of tax director, this may be good reading for him and get him ready for the job.

Hasta la vista!

 


 

[1] Why semi-ecclesiastical? Because “tax debt collection” snuck in there and we all know angles pay on time.
[2] Of course, you’ll have to wait a bit longer for Scotty to beam you up.
[3] Good old fashion return on investment (ROI) from a business perspective.

“This Blog series was prepared before the outbreak of the Covid Crisis. We hope that this publication will be of interest to strengthen the capability of Tax Administrations through the use of ICTs during this period.”

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Disclaimer. Readers are informed that the views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author's employer, organization, committee or other group the author might be associated with, nor to the Executive Secretariat of CIAT. The author is also responsible for the precision and accuracy of data and sources.

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