The Tax Administrations and Information Systems for improving control. Some Iines on the subject.

As stated in a previous comment[1], there is currently the generalized consensus that the basic strategic objective of a modern Tax Administration (TA) is to increase the levels of taxpayer voluntary compliance, by means of two main lines of action. These are: by affording facilities to those who wish to comply and undertaking a radical struggle against fraud.

It has been stated for a long time, that this great objective requires that all taxpayers be registered, as provided by the law. Likewise, they must file the returns within the designated term, assessing the tax, as appropriate and paying the respective amount. In addition, said tax must be in keeping with the taxable events provided in the tax regulations.

Starting from this consideration, I hereby wish to highlight the importance of the information systems for rendering the control more efficient, without disregarding their vital relevance in all the service tasks carried out by a TA.

I have no doubt that currently TA involves administering information. Therefore, I wish to point out the great importance of counting on unique information systems for undertaking massive and intensive controls.

I thus state so, given that information is key for directing efforts toward greater risk sectors, which is essential for reducing the levels of evasion, in pursuit of the indicated strategic objective.

It is important to understand that there are different types of information to be dealt with. On the one hand, there is the taxpayer’s own information and on the other, third-party information.

Nevertheless, we should not disregard the fact that information also arises from the TA’s own actions.

However, without any doubt the most fertile area to continue advancing and improving is the one related to information resulting from national and international information exchange and the increasing cooperation between TAs and national and international organizations.

In relation to this topic, a recent OECD[2] report pointed out that over 90 jurisdictions that participate in a global transparency initiative under the OECD’s Common Reporting Standard since 2018, have currently exchanged information on 47 million accounts abroad, with an approximate total value of 4.9 billion Euros.

The automatic exchange of information initiative (AEOI) activated through 4,500 bilateral relations, represents the greatest exchange of tax information in history, as well as the culmination of over two decades of international efforts for counteracting tax evasion.

The voluntary dissemination of extraterritorial accounts, financial assets and revenues in the period prior to the total implementation of the AEOI initiative, generated over 95 billion Euros in additional revenues (taxes, interests and fines) for the OECD and G20 countries in the 2009-2019 period. This cumulative amount has been increased by 2 billion Euros since the last OECD report of November 2018.

It is important that the TAs make efficient use of this information for expanding the tax bases and detecting new taxpayers and/or taxed events.

To this end, I highlight the importance of the integral and systematic treatment of the information.

I specifically refer to the fact that it is key that all the information available in a TA be managed in a unique manner.

There should be a single information base available for the entire TA.

I consider this the main deficiency of many TAs, which in some cases have information bases that are not fully unified.

I understand that this is due to the incorporation of technology in a non-systematic manner, because of specific needs. Thus, later on they turn up as different systems that in practice appear as “islands”, since they are not interconnected or interoperative among themselves.

Undoubtedly, this should be the main challenge in relation to the topic being discussed. It is, therefore, important to invest in computerized resources to deal with all the information available in the TA, which is the raw material for control purposes.

The following aspects, among others, are key for developing and maintaining an information system:

  • Treatment of the quality of information.

  • Processing of large volumes of information.

  • Handling procedures.

  • Use of the information for assistance and control.

  • Internet as priority channel.

  • Evolution toward massive use of intelligent telephone and automatic connection of computers[3].

Other important aspects of the information system are its integrality and universality. It must store all the data, integrate all the management and control phases and allow any official to access the system in a safe and controlled manner.

A horizontal vision of the information system is also important, inasmuch as all the information of a taxpayer is consolidated and presented to all the users.

In sum, the system must abide by the principles of integrality, reliability, availability, security and confidentiality.

A vital aspect to be considered in this fourth industrial revolution, characterized by the technology that causes a massive digitalization of the TAs, is the respect for the taxpayer rights, which should be guaranteed in the treatment of all the information.

For control purposes, the information system should allow every type of information crosschecks. Noteworthy is the importance of confirming third-party information for carrying out said basic crosschecks, as well as making available to the taxpayers all of the TA’s information related to them.

On the other hand, it is also important that the TAs count on information inventories that allow all users to be aware of the systems available.

At this point, we would also like to emphasize the concept of Electronic Administration. According to the European Commission’s definition, it implies: “The use of ICTs in the Public Administrations, by combining organizational changes and new aptitudes, in order to improve public services and democratic processes as well as reinforce the support of public policies”.

This concept is being quickly developed in the TAs.

Electronic administration implies different coordinated elements. On the one hand, the development of electronic services, and on the other, the establishment of the regulations and technological instruments and likewise, a new public management model based on efficiency and effectiveness.

The main advantages of electronic administration are:

  • Lower costs and greater revenues.

  • Greater transparency.

  • Increase in efficiency and effectiveness.

  • Improvement of controls.

  • Struggle against corruption.

  • Electronic cooperation with other TAs.

  • Inter-operativeness (capacity for exchanging information and using it).

  • One-stop shop.

With respect to the term inter-operativeness, the Ibero-American Framework of Inter-operativeness[4]​ includes for the sphere of electronic administration, one of the most complete definitions currently existing, in line with the definition given by the European Commission. It defines inter-operativeness as the ability of dissimilar and diverse organizations and systems to interact with agreed and common objectives and for obtaining mutual benefits.

The interaction implies that the organizations involved share information and knowledge by means of their business processes, through the exchange of data between their respective systems of information and communication technology.

I believe this is a key aspect for the States to count on powerful information systems and in the particular case of the TA, they allow it to more efficiently achieve its objective.

The OECD and many Organizations and countries are earnestly working on the issue of electronic government and have issued, among other documents, a recommendation[5] whose objective is to support the development and implementation of digital government strategies that may bring the governments closer to the citizens and enterprises.

It is thus recognized that the current technology is not only a strategic promoter for improving the efficiency of the public sector, but that it may also support the effectiveness of the policies and create more open, transparent, innovative, participative and reliable governments.

However, the multiplication of technological options may generate new risks and greater social expectations, which the governments are not always prepared to face.

I deem it important that the new technology incorporated to the TAs may effectively serve to improve their performance, by generating a unique, complete, quality and reliable information system for making decisions and complying with their strategy.

All of the foregoing by noting, likewise, that the success or failure in the use of the new technology will also be a direct consequence of the human resources available in the TAs. The latter should distinguish themselves by their integrity and permanent motivation and training, with compensations in keeping with the tasks performed. They should also be willing to acquire new skills, specialized knowledge, continuous training, creativity and geographical mobility, in sum, nothing more or less than an adequate management of knowledge.

[1] Tax Administrations and the voluntary compliance strategy. Alfredo Collosa. CIAT Blog 8/5/2017.

[2] http://www.oecd.org/tax/exchange-of-tax-information/implementation-of-tax-transparency-initiative-delivering-concrete-and-impressive-results.htm

[3] I referred to this topic in: “Information and assistance in the Tax Administrations. The future is in the APPs”. Alfredo Collosa. CIAT blog 16/10/2017.

[4] Bases para una estrategia iberoamericana de interoperabilidad. Documento marco iberoamericano de interoperabilidad ratificado en 2010 por la XX Cumbre Iberoamericana de Jefes de Estado y de Gobierno.

[5] http://www.oecd.org/gov/digital-government/recommendation-on-digital-government-strategies.htm

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