Tax Administrations and the importance of the operational continuity plan

Following a recent IMF report[1], the purpose of this comment is to highlight the importance for Tax Administrations (TAs) of having an Operational Continuity Plan (OCP) which guarantees the permanence of operations in the face of situations that may arise, as a result of the COVID-19 pandemic.

A OCP, also called a Business Continuity Plan, describes how an organization will function during an emergency or unforeseeable risk, such as a disease outbreak, natural disaster, strike or other emergency, whether it occurs on a local, regional, or national scale.

The current economic and social crisis presents unique and exceptional challenges for the Tax Administrations in order to manage the numerous and varied aspects at stake, as well as the different factors that allow guaranteeing not only the continuity of all essential activities, but also the health, safety and general well-being of both employees and recipients of products and services throughout the duration of the pandemic. Practical experience is showing that those TAs that have a OCP manage to face the crisis in a better way.

Although the IMF document is referenced to an epidemic situation, it can be applied to other situations of catastrophes or natural disasters that occur in a given country.

Previously, we had commented on the importance for the Tax Administrations of Compliance Risk Management (CRM)[2] , highlighting that it is essentially a methodology for orderly decision-making supported by information and with emphasis on preventive actions.

In the context of the CRM, a risk is understood to be any fact or uncertain circumstance that may make difficult for the organization to achieve its strategic objective, that is, voluntary compliance. Risks can be external (operational) derived from the behavior of taxpayers, or internal (corporate) and must be assessed according to the probability of their occurrence and their impact.

The analysis of corporate risks requires evaluating the operation, strengths and weaknesses of all aspects that condition the operation of the TAs, an important aspects being the OCP, as a detailed plan to respond to possible foreseeable or unforeseeable events such as the current coronavirus crisis.

There we conclude that the CRM is a reasonable solution to globally face the problems and needs of the TAs and it is not a simple fashion but a technique that can be very useful for orderly decision-making based on information and focused on preventive measures to improve the levels of voluntary compliance by taxpayers.

According to the IMF publication cited earlier in this article, although the structure and content of OCPs differ between TAs, many share the following components:

  • A crisis management organization.
  • A set of processes to identify and determine responses to crisis events.
  • Action plans to preserve the critical functions of the TA.
  • Systems to maintain the operational availability of the OPC when it is not in use.

It is said that OPCs for an epidemic are often designed around the following key goals:

  • Maintain the functioning of the most critical operational and support services of the TAs.
  • Operate at an acceptable performance level.
  • Protect the health and safety of TA personnel and taxpayers.
  • Allow temporary replacement of TA administration and staff in case they are not available or unable to fulfill their functions.
  • Protect the facilities, the registries, and other essential assets of the TA.
  • Contribute to government-wide responses to an epidemic.

As for the organizational structure to manage an OCP, it is usually made up of a Commissioner, a Crisis Management Team, local implementation teams and the internal audit unit.

This structure becomes operational when the OCP itself is activated, which in many TAs is achieved by using a classification matrix to order the incidents (including those involving an epidemic) and determine how they should be handled.

The severity of the incidents, along with their potential patterns and impacts, can elicit a tiered response, which may include the implementation of the OCP.

An epidemic will almost always lead to the direct involvement of top management and the deployment of the OCP. Once activated, the OCP’s crisis management team assumes command and control responsibilities for the duration.

For an OCP to be well designed, it must include contingency action plans that are reviewed, approved, and implemented by the Crisis Management Team at the time of its activation. To be effective, it is necessary to invest sufficient time and resources in their preparation and with a sufficient level of detail.

Contingency action plans are generally developed for 6 areas:

  • Mission critical functions. Independent action plans for each mission critical function (e.g., Presentation, payment) identified from objective analysis.
  • Health & Safety A unique plan of action that incorporates national and international guidance, especially with regard to infectious diseases.
  • Workforce deployment. A single action plan that outlines the transition of personnel to a remote work setting and between mission-critical functions.
  • Information Technology. A single action plan that guarantees the uninterrupted availability of basic processing systems and electronic services for the taxpayer.
  • Facilities: A single action plan that facilitates the secure closure, reopening and limited access to an AT’s branch network.
  • Communications. A single action plan that specifies both internal and external communication channels, authorities and processes during the crisis.

It should be noted that the IMF document presents illustrative guides and examples for each of the six themes of the action plan. Likewise, an appendix is presented with a methodology to identify the most important (“critical-mission”) functions of a TA and another appendix with the elements of an information technology support plan.

It is said that to ensure the viability and effectiveness of the OCP it is necessary to establish procedures for the personnel to carry out periodic reviews and simulations of the same. For this purpose, at a minimum, the OCP must be reviewed and modified annually.

I want to highlight that the types of possible operational risks faced by TAs vary in complexity and severity. They include internal (e.g., computer systems failures) and external (e.g., earthquakes, infectious diseases) outages. Interruptions can be localized (affecting one or some tax offices) or national (affecting all operations of the tax administration).

In short, hereby I want to highlight the importance of having a well-designed OCP for which it is essential that time and resources are invested in its design, implementation and continuous monitoring, since ultimately no one would dare to affirm that this will be the last unforeseen event that the TAs have to go through.

Although OCPs may take time to develop and implement, I am convinced that they allow TAs to have a state of readiness to respond quickly and systematically to future emergency scenarios.

The current pandemic that we are going through has shown that those TAs that have a robust OCP have a defined strategy to continue operating successfully. However, I would like to point out that out of 92 TADAT (Tax Administration Assessment Diagnostic Tool) evaluations[3] carried out to date, the majority of low income, and middle-income countries did not have robust OCPs[4].

As I always say, the ultimate goal is to open the topic for debate, so I await your valuable comments.

[1]Tax Administration: Designing a Business Continuity Plan for an Epidemic John Brondolo, Joshua Aslett, and Andja Komso. Fiscal Affairs Department. International Monetary Fund.
[2]Compliance Risk Management (GRC). Fashion or Necessity for Tax Administrations? Fernando Diaz Yubero and Alfredo Collosa CIAT Blog 03/19/2020.
[3]https://www.tadat.org/
[4]https://www.imf.org/~/media/Files/Publications/covid19-special-notes/Spanish/sp-special-series-on-covid-19-business-continuity-for-revenue-administration.ashx

 

 

 

 

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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