Copernican Revolution In Tax Administration

Putting the Client First The emerging “Copernican Revolution” of Tax Administration Stuart Hamilton Centre for Tax Policy & Administration OECD 12 August 2007

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Putting the Client First

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I’m from the OECD, and I’m here to help…. really…! There is an increasing recognition that helping clients comply in a way that assists them to grow: – enables better compliance… – allows clients to get on with the job of business, and – helps attract investment to the country in a fair and transparent manner. A Client Centric Strategy is a key part of enabling this

Aims 12 August 2007

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Changing world views - from:

Administration centric view

Client

Client

Client Tax

Client

Client Client

Traditional view: A client must meet the administration’s needs 12 August 2007

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Changing world views - to:

Client centric view

Tax

Tax

Tax Client Client Client Client Client

Tax

Tax Tax

A Copernican Revolution

New view: That the administration is responsive to client needs 12 August 2007

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Tax matters to business

 Revenue authorities are important in creating a viable market economy – Revenue authorities interact with all businesses in the economy - they need to do so even handedly – Revenue regulations can spur or retard markets. ‘Over’ regulation can stifle commerce, ‘under’ regulation can undermine honest compliant clients. – A careful balance is required.

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Effective neutrality of treatment between market segments is generally the policy aim.

Businesses and Revenue authorities - a developing partnership 12 August 2007

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There is a growing recognition by Revenue authorities that service provision to business and citizens is critical in ensuring high levels of voluntary compliance. – By making the system easier to comply with (Simplification) – By helping businesses to comply with the system (Service)

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Thus ‘enabling’ and 'encouraging' compliance

Revenue authorities and services to business and citizens 12 August 2007

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We want to have Clients who are ready, willing and able to comply - and do... • Ready (The client knows what compliance is - knowledge) – communication strategies • Willing (The client is prepared to comply - attitude) – incentives contained in instruments – relationship with the regulatory agency – acceptance of the reasons for the regulation – trust in government • Able (The client has the capacity to comply - systems) – regulatory design – simple to comply, low compliance costs – strategies that develop client capacities, business models

Clients who are: Ready, Willing and Able to comply 12 August 2007

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Remembering that ...

Compliance • Most clients pay most of their tax most of the time

...

Compliance models represent that most pay most of their tax 12 August 2007

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Not every problem is a nail … to which the only response is a hammer ...

Compliance Customer behaviour:

Revenue strategy:

Evading

Enforce

Resistant Resigned

Persuade Assist

Trying Uninformed Willing

Support Educate Encourage

Enabling compliance is the key factor for most Clients 12 August 2007

-Spectrum-

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Client rights and Client obligations… It is a two way street Right to:

Obligation

– Informed, assisted & heard

Honesty

– Appeal

Co-operative approach

– Pay correct tax only

Provide accurate information

– Certainty

Keep records

– Privacy

Pay tax on time

– Confidentiality Rights and obligations... 12 August 2007

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Systems Solving the tax Rubik Cube Client Group

Large Business Taxpayers Small – Medium Business Individuals – non business VAT Tax W&S/SS Withholding Tax Type Corporate Income Tax

Admin’ Function Filing, Payment, Audit, Debt Mgmt, Service, Appeals etc

Traditional systems are organised by tax type or admin’ function 12 August 2007

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Structures

Tax Administration

Tax Administration

Advisings C O M P L E X

S M B

N B U S

Audit C O M P L E X

S M B

ComplexLarge Corporates

Appeals N B U S

C O M P L E X

S M B

N B U S

A D V I C E

A U D I T

A P P E A L

Small and Medium Businesses A D V I C E

A U D I T

A P P E A L

Non Business Income Taxes A D V I C E

A U D I T

Client Client

Functional 12 August 2007

v’s

Market Structure 12

A P P E A L

Structures Cumulative distribution of tax paid 100% 90%

Proportion of total LB&I tax

80% 70% 60% 50% 40% 30% 20% 10% 0% 0

20 40

60

80 100 120 140 160 180 200 220 240 260 280 300 320 340 360 380 400 420 440 460 480 500 520 540 560 580 600 Rank of tax paid in class Chosen by largest tax contribution

Chosen by largest income reported

Chosen by largest total assets

Not all Clients are equal - some matter more than others 12 August 2007

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Structures

Countries with Dedicated Organisational Units for Large Taxpayers Africa

Algeria, Benin, Burkina Faso, Cameroon, Cote d'Ivoire, Gabon, Guinea, Kenya, Madagascar, Mali, Morocco, Niger, Togo, Uganda.

Asia

Bangladesh, Mongolia, Philippines, Sri Lanka, Cambodia

Ex Soviet Union

Azerbaijan, Georgia, Russia, Ukraine

Europe

Albania, Bulgaria, Finland, France, Hungary, Ireland, Latvia, Romania, Slovakia, United Kingdom, Serbia.

North America

USA.

Central and South America

Argentina, Bolivia, Columbia, Ecuador, El Salvador, Haiti, Mexico, Nicaragua, Paraguay, Peru, Venezuela.

Middle East

Iran, Pakistan, Saudi Arabia, Yemen.

Pacific

Australia, New Zealand.

The trend towards Large Taxpayer Units 12 August 2007

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Staffing

The Specialist

Depth of Knowledge

The Generalist

Width of Knowledge Breadth of Client needs The Frontline

Staff: Specialists v’s Generalists - no magic point of balance 12 August 2007

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Evolving system

Trends re service provision From

>

To

– Taxpayer

>

Client/Customer

– Segmented service

>

Integrated one stop shop

– Paper communications > Electronic – Cheques & cash

>

Electronic Funds Transfer

– Manual responses

>

Automated responses

– Reactive programmes – Assistance

>

Proactive programmes >

Self help & education

Emerging trends in revenue authority client service approaches 12 August 2007

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Evolving system PAPER v ON-LINE 

7-14 days v On-line batch/real time

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Pages of data to be keyed v small electronic data file

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Single interface v multiple interfaces/approaches

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Other benefits… Keying errors significantly reduced Requests for additional data reduced Better client service can be provided

It’s Better, Faster, Cheaper - but not easy! Paper v On-line processing 12 August 2007

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Evolving system

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Revenue authorities can ‘pull’ a country on-line by making services and materials available over the Internet: 24/7 – Legislation – Rulings & Guidelines – Tax record keeping and calculation software – ‘Help’ -> FAQs, KB Systems, Proactive assistance

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Governments can ‘push’ a country on-line by requiring payments and form filing to be made over the Internet – Generally medium to large businesses are targeted, though the systems are available to all

Revenue authorities - pulling and pushing a country on-line 12 August 2007

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Evolving system

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To pull a country on-line Revenue authorities have to be early adopters of technology – Interactive - SMEs are a key target audience here (Non-resident SMEs are a consideration - if you want them to comply.)

– Plain language guidance with relevant examples (multi-language may be a consideration)

– Linked with other relevant Government agencies (‘business entry point’ portal to Government)

– Grouped around business events

(Responsive to business needs at a point in time. One stop shop.)

‘Pull’ requirements 12 August 2007

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Evolving system

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To push a country on-line the necessary infrastructure must be created & available – It must be secure - but not difficult to use – It must be reliable > first time, every time, any time – It should be a win-win implementation and provide adoptees with something - cost savings &/or greater convenience &/or certainty. Eg: ability to estimate and keep track of taxes falling due ability to consolidate tax accounts - reduce payment churn ability to schedule payments (match to cash flows, i factor)

‘Push’ requirements 12 August 2007

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For deliberate evaders Better, Faster, Cheaper will have a down side 12 August 2007

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More info www.oecd.org Theme: “Taxation” Contact

[email protected]

Contact... ... 12 August 2007

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