A vision for Tax Administrations

Tax administrations (TAs) are public organizations which mission is to enforce tax systems with efficiency, to maximize collection by reducing the levels of tax evasion, and making tax compliance easier.

The globalization of the economy and trade and the possibilities offered by new technologies, the better knowledge of tax laws by taxpayers, tax competition between States, among other factors, have contributed to make the techniques used by taxpayers to avoid or evade taxes more sophisticated, and the best practices used by the TAs for an effective monitoring of taxpayer’s compliance with tax obligations are in high risk.

Tax administrations are organizations that handle large volumes of information; they are acting as large data processing factories, where the inputs are legal regulation, returns , taxpayer information, third party data, etc., processed through a series of activities usually automatized (collection, control, taxpayer assistance, etc.) to produce output information, which generally are: current account statements, guidelines for compliance, consultation and tax compliance communication which require a follow-up. The cycle ends with the evaluation of the established tax goals and parameters. Management effectiveness is measured and evaluated from the existing levels of tax evasion.

Tax Administrations have limited specialized human resources for tax audit or inspection. It is clear that this is not sufficient for the control and inspection of all taxpayers. This reality, which is widespread worldwide, forces TAs officials to find methods and analytical tools that enable an effective selection of taxpayers to be audited, to increase the productivity of the scarce human resources available for control tasks and reduce noncompliance risks.

The TAs can not keep analyzing what happened yesterday, last month or last year, or the evolution of collection in recent months or years, i.e. the organizational goals cannot be reached by looking in the rearview mirror. The TAs must be organizations able to anticipate and look towards the future, analyze trends, have data on evasion trends and perform simulations to see the impact that certain decisions would have on the tax base and the organization itself. In these times, planning ahead is a necessity, not a luxury.

These challenges calls for alternatives to the traditional management model that was oriented to ex post monitoring or controlling for compliance with the organization’s objectives and goals, for the compliance risk management strategy model and the use BI tools, business intelligence, to be used in a proactive management, supporting tax administrators in their decision making, effectively managing uncertainty, anticipating and minimizing risks of this management that may affect the achievement of the Tax Administration’s compliance goals.

Applying the compliance risk management model assumes that the TA has defined its mission, strategic and operational goals and performance indicators for all substantive support functional areas. The application of BI tools, with a spectacular evolution in the last two years, allows transforming data into useful information for decision-making purposes. It assumes that TAs can rely on quality transactional databases and third parties external data. Today, management and technology developments move in this direction and many TAs, from CIAT member countries as well as the European Union and the OECD are using them effectively.

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