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Tools to Help Tax Administrations in their Digitalization Journey

Jan. 12, 2022, 8:00 AM

Supporting the digitalization of tax administrations (TAs) is a priority for many international organizations, as it can bring about positive changes in the tax administration itself, the wider government and, indeed, the entire society.

A recent report from the Organization for Economic Cooperation and Development (OECD) says that using the tools, a TA can accelerate the analysis process, uncovering the strengths and weaknesses of its organization, help identify priority areas for action, identify strategic objectives and execute more successful digitalization projects.

Tax Administration Diagnostic Assessment Tool (TADAT)

TADAT, launched in 2015, aims to help the TA assess its strengths and weaknesses as objectively as possible according to a baseline of what the authors perceive to be internationally good practice for tax administration.

It provides a baseline that informs country authorities on areas in need of improvement so that they can prioritize, plan and sequence responses/interventions.

TADAT uses 32 high-level indicators assessed on a scale from A to D, where A indicates performance at or above the level of internationally accepted good practice, and D is inadequate. The indicators contribute to assessing the following nine performance outcome areas:

  • integrity of the registered taxpayer base;
  • effective risk management;
  • supporting voluntary compliance;
  • on-time filing of declarations;
  • on-time payment of taxes;
  • accurate reporting in declarations;
  • effective tax dispute resolution;
  • efficient revenue management;
  • accountability and transparency.

For each of the nine areas, the assessed value for indicators is based on a range of evidence-based questions, and although none of the areas directly relate to digitalization, the indicators and corresponding questions help the administration assess if digitalization can be part of the solution in weak areas.

As the name indicates, an assessment based on this tool may give the administration a high-level overview of the current state, not only of aspects related to information communications technology (ICT), but also of other important aspects of tax policy and administration. To date, 118 TADAT assessments have been carried out.

International Survey on Revenue Administration (ISORA)

ISORA aims to collect and present a large set of comparable data concerning revenue administration responsibilities, mandates and results, to facilitate comparison, statistics and trend analysis. It is the result of collaboration between the Inter-American Center of Tax Administrations (CIAT), the International Monetary Fund (IMF), the Intra-European Organization of Tax Administrations (IOTA) and the OECD.

The 2021 collection process (for fiscal year 2020) will ask questions from the following areas:

  • introduction: revenue types or categories for which the administration has responsibility;
  • revenue key figures;
  • expenditure, resource key figures and ICT infrastructure;
  • human resource information;
  • taxpayer segment information;
  • operational metrics like number of taxpayers filing returns, payments, etc;
  • information related to taxpayer and other stakeholder interactions.

Medium-Term Revenue Strategy (MTRS)

The MTRS, presented in 2016 by the Platform for Collaboration on Tax (PCT), partners the IMF, the OECD, the United Nations (UN), and the World Bank Group (WBG), based on an initiative from the G-20. It is a comprehensive approach for undertaking effective tax system reform, boosting tax revenue, and improving the tax system over the medium term through a country-led and whole-of-government approach.

The MTRS provides a setting to achieve all these critical goals. An MTRS does not mean that benefits come only in the medium term; it also provides the setting for short-term measures that are of high quality and consistent with the vision of fundamental improvement.

The MTRS has four interdependent components:

  • revenue and other goals to finance expenditure needs;
  • tax system reform to meet goals;
  • sustained political commitment to fully develop and implement tax system reform;
  • coordinated capacity-building to support implementation of tax system reform.

Some 25 countries are currently involved in discussing, formulating, and implementing MTRSs.

Development of Implementation and Monitoring Directives for Tax Reform (DIAMOND)

The WBG has made available the Tax DIAMOND for use by tax and customs administrations.

This is a set of tools for evaluating strengths and weaknesses of the TA and producing recommendations for improvement. It is often used to prepare technical assistance or lending, can be used either for self-assessment or guided assessment, and focuses on four areas:

  • The core assessment area is used to evaluate non-technical drivers of policy reform.
  • The business process area is used to evaluate and offer improvement suggestions for business processes, and offers business process mapping methodology specifically designed for tax and customs administrations.
  • The ICT assessment area contains five modules, covering core ICT governance assessment, tax administration automation assessment, customs automation assessment, information security assessment, and infrastructure investment needs.
  • The in-depth assessment area is currently used for in-depth focused assessments such as human resources, tax audit, international tax unit, revenue forecasting and tax gap analysis.

OECD Tax Administration Maturity Models

Maturity models are often used on a self-assessment basis, to help organizations understand their current level of capability in a particular functional, strategic or organizational area. In addition, such models, through the discussion of different levels and descriptors of maturity, may help administrators to understand the changes needed to attain a higher level of maturity.

The intention of the Forum on Tax Administration maturity models is to:

  • allow TAs to self-assess through internal discussions as to where they see themselves as regards maturity in various activities and functions;
  • provide officials working in an area, including senior leadership of the TA, with a good oversight of the level of maturity based on input from other stakeholders across the organization;
  • help facilitate discussions on future strategy and identify areas for further short-term improvement, including where that needs to be supported by the actions of other parts of the TA;
  • allow TAs to see where they sit compared to their peers.

Models available include Enterprise Risk Management, Tax Debt Management, Tax Compliance Burden, Tax Crime Investigation and the Digital Transformation Maturity Model.

Tax Administrations Digital Maturity Index

This carries out an analysis based on the premise that TAs are organizations that consume data to produce digital services based on information, that allow citizens to comply with their tax obligations easily and equitably.

The Inter-American Development Bank (IDB), together with other international organizations such as the OECD, IOTA and CIAT, have developed a very intense dialogue that made it possible to identify and document best practices in the use of ICTs for tax collection. Because of this dialogue, best practices are considered to be based on the following principles:

  • the data enters the system only once (data-only-once);
  • data is managed and processed centrally for various products and services (single source of truth)
  • the dataflows travel and are stored in digital media (paperless);
  • information is received and processed in real time.

The index builds a scale with four levels of maturity: initial, intermediate, advanced, and best practices, which allows the characterizing of the progress of a given TA in a series of dimensions that group the most critical aspects related to data and information services for tax collection.

The dimensions of the index are grouped in the enablers of the digital transformation process such as the country’s digital environment and the resources available to the TA. There are also two-dimensional aspects, such as the collection of the data and the electronic invoice. Finally, the generation of digital products and services is considered.

The implementation of this index allows public managers to map these dimensions in detail and diagnose their strengths and the gaps to be closed in order to continue driving a digital transformation that brings the expected efficiency gains.

The IDB has already promoted the use of the digital maturity index to carry out studies in countries such as Guatemala, Colombia, Chile and the Dominican Republic.

Final Thoughts

Today we are witnessing a historic moment in the digitalization of TAs which was evidently accelerated, unplanned and unforeseen, due to the isolation measures and closure of many facilities as a result of the Covid-19 pandemic.

This unprecedented economic, health and social crisis that we are going through is causing a huge loss of revenue, which is why many countries are planning tax reforms and processes to modernize their TAs.

Digitalization has become a key aspect for all countries and the times we are living through have made it clear that technological maturity is key to the resilience of governments and their institutions.

Digital transformation is a new opportunity for countries, since those who pursue it will be able to develop more quickly and avoid the inequalities that can be generated if it is not included as a state policy.

This highlights the importance of digitalizing the public sector and TAs—where citizens should always be placed as the center of all digital transformation—always seeking to be more efficient in the provision of public services.

It is important to recognize how the tools, frameworks and offerings commented on in this article can support different stages of a digitalization journey.

Reducing compliance costs for taxpayers and TAs alike is vital throughout the whole digitalization process.

I have highlighted the initiatives promoted which should serve not only to analyze the digital development of each TA in their functions, processes and structures, but fundamentally to discover the best practices and allow guidance for those administrations that want to advance in the digitalization process.

I am convinced that these studies will be strengthened, with collaboration and cooperation between different countries and international organizations in conjunction with the private sector, in order to make the digital transformation of TAs more efficient and effective.

In short, as has been said, “The future is today, remember that the first step does not take you where you want to go, but it moves you from where you are.”

This column does not necessarily reflect the opinion of The Bureau of National Affairs Inc. or its owners.

Author Information

Alfredo Collosa is a consultant and tutor in tax administration at the Inter-American Center of Tax Administrations (CIAT), professor, investigator, author of books and publications, and lecturer. He holds an Official Masters in Public Finance and Tax Administration (UNED-IEF).

The author may be contacted at: aecollosa@gmail.com