Tax Administration / Institutional Strengthening 10April 2011 Contents
Introduction
Tax Administration / Institutional Strengthening
• Transparency and Ethic as a Condition to Strengthen and Improve Institutional Effectiveness / Linda Lizzotte MacPherson. -- In: 44th CIAT General Assembly, Montevideo, Uruguay, 2010. • Management Tool and Relevant Contextual Aspects for Strengthening the Tax Administration / Andrew Reed. -- In: CIAT Technical Conference. Naples, Italy, 2009. • Strategies and Instruments for Improving Management in the Tax Administrations / Marcelo Lettieri Siqueira. -- In: 43th CIAT General Assembly, Santo Domingo, Dominican Republic, 2009. • Strategic Planning as Factor Contributing to the Improvement of Institutional Capacity/Néstor Díaz Saavedra. -- In: CIAT Technical Conference. Naples, Italy, 2009. • Strategic Planning as Factor Contributing to the Improvement of the Institutional Capacity / Mario Visco. -- In: CIAT Technical Conference. Naples, Italy, 2009. Introduction
CIAT Tax Thematic Series
In an effort to provide an ever better and highly qualified tax information service to its member countries, the Inter-American Center of Tax Administrations hereby presents the tenth issue of the CIAT Tax Thematic Series.
The purpose of this series is to disseminate relevant information on specific taxation issues to support the research and study work carried out by the tax administrations of the CIAT member countries.
The bibliographical material of this tenth issue is devoted to “Tax Administration/ Institutional Strengthening”. The material gathered includes studies and papers prepared by technical officials for presentation either at the general assemblies or technical conferences, essays, research scholarships and articles published in the tax administration review, among others.
To speed up the search and recovery of information a general table of contents and index is presented for each paper. The documents that are part of this issue are available in the CIAT Virtual Library and web page: www.ciat.org
Through this new documentary contribution CIAT, hopes to disseminate the bibliographical material existing in the Jorge Eduardo Corradine Library, for the benefit of the tax administrations. Tax Administration / Institutional Strengthening Transparency and Ethics as a Condition to Strengthen and Improve Institutional Effectiveness
1. Introduction. 1.1 Purpose of paper and scope. 1.2 Ethics, accountability and transparency in tax administration.
2. Promoting ethics within tax administrations. 2.1 Ethics as the foundation of effective organizations. 2.2 Human resources, training and other measures to promote ethics in tax administrations. 2.3 Public service ethics as an institutional attribute in tax administrations.
3. Promoting accountability and transparency in tax administrations. 3.1 Fundamental accountabilities of tax administrations. 3.2 Demonstrating accountability.
4. Compliance as an ethical issue. 4.1 Taxpayers and their tax ethics. 4.2 Responsible citizenship and corporate social responsibility.
5. Conclusion
Linda Lizzotte-MacPherson (Canada) Tax Thematic Series N°.10 - April 2011
1. Introduction
1.1 Purpose of Paper and Scope
Recent world events have focused much political and public attention on the principles of ethics, accountability and transparency and their function in good governance and institutional effectiveness. This paper briefly explores the purpose and role of these principles, and their relevance within the specific context of tax administration. This paper is written largely from a Canadian tax perspective and primarily uses examples from the CRA to illustrate concepts and ideas. To assist readers in understanding this context, an overview of the Canadian tax system is provided in Appendix A.
1.2 ethics, Accountability and Transparency in Tax Administration
1.2.1 Tax Administrations
The effectiveness of a tax administration in fulfilling its primary role to secure government revenues and protect the tax base is of utmost importance. A country’s tax system plays a key role in supporting its citizens’ quality of life, and tax administrations bear an enormous responsibility to ensure that tax is collected in order to finance public programs and services, and redistribute income. This is particularly true in the current era, where recent economic volatility has dampened government revenues and is expected to result in declining taxpayer compliance. As the economy slowly recovers, tax revenues in many countries are expected to remain difficult to collect as economic pressures continue to make it difficult for individuals and businesses to meet their obligations. Tax administrations worldwide now recognize the need to focus on maximizing compliance in a difficult environment.
Tax administrations are not without the tools necessary to face this, or any other set of circumstances. Governments and tax administrations have evolved a number of methods to obtain compliance from the taxpaying population. Notwithstanding these methods, a tax administration’s ability to fulfill its role—that is, its institutional effectiveness—remains in part dependent on the basic inclination of citizens to comply with the rules of the tax system. That taxpayers consent to transfer their resources to the state through taxation is not fully borne out of their legal obligation to support the tax system. Rather, it is widely thought that the intrinsic willingness of taxpayers to pay taxes1 is a public expression of trust and confidence in the tax administration to be fair and diligent in the exercise of its mandate, and in the government as a whole to meet the needs of the citizens that it serves. In other words, citizens are more likely to consider tax compliance as reasonable and appropriate when institutions are seen as legitimate. Put conversely, Braithwaite argues that:
“In return for taxes, taxpayers should not only receive goods and services, but also sound governance that is respectful and protective of democratic principles and processes...If taxpayers offer compliance, the tax office, as part of government, should reciprocate with integrity.”2
While tax administrations, even governments, may aim to demonstrate integrity in the discharge of their duties, integrity is difficult to quantify without looking at the more tangible elements of integrity: ethics, accountability and transparency. Although much attention is now is focused on these principles—or lack thereof—in the context of corporate conduct in the lead up to the global economic crisis, they are no less important for the public sector. In fact, all three have been identified as part of the founding principles of public administration.3
1 The literature refers to this willingness as tax morale. See for example: Feld, Lars P. and Frey, Bruno 2. Deterrence and Tax Morale: How Tax Administrations and Taxpayers Interact (2002) 2 Braithwaite, Valerie. Tax System Integrity and Compliance: The Democratic Management of the Tax System (2003) 3 Armstrong, Ella. “Integrity, Transparency and Accountability in Public Administration: Recent Trends, Regional and International Developments and Emerging Issues.” UN Public Administration Programme (2005): 1-10
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Perhaps nowhere are these fundamental principles more important than for a tax administration. Sound administration, administrative oversight and the tangible elements of public sector integrity are key to effective tax administration.
Any meaningful discussion on the role of ethics, accountability and transparency in tax administration must first start with the obvious: what these terms mean in this context.
Ethics describe one’s orientation relative to good or bad behaviours, where what is ethical aligns with the former and what is not, the latter. In the public domain, it is the public interest that defines what is good. For public servants, being ethical in one’s professional capacity requires one’s personal purpose to align with public service values. In practice, behaviour in the public domain must be governed by rules of conduct and sustained by organizational culture to ensure that as agents of government, public servants do not sacrifice the public good for private gain. Ethics can also be observed at the level of the collective. An ethical tax administration has an organizational character sufficiently orientated on the public interest, which endures despite leadership transitions and staff turnover. A tax administration’s ethical stance is reflected in its policies, programs and relationships with citizen-taxpayers and other branches of government.
Accountability presumes a type of moral contract between the tax administration and the public. It describes a relationship based on the tax administration’s obligation to demonstrate and take responsibility for performance—both the results achieved in light of citizen and stakeholder expectations, and the means used. In being accountable, public officials must subject themselves to whatever scrutiny is appropriate to their offices. For their part, citizens reciprocate by fulfilling their civic duties, of which tax compliance is fundamental.
Transparency makes the activities of the tax administration visible and is often considered the sustaining element of accountability. It implies disclosure of the full information required for collaboration, cooperation, collective decision making and verification.
These principles have universal appeal.4 Tax systems benefit from demonstrations of these principles but suffer in their absence. Research shows that the way tax administrations interact with taxpayers impacts taxpayer behaviour.5 Taxpayers who believe that tax laws are created and administered arbitrarily and unfairly may compensate by decreasing their tax liability through illegitimate means.6 Further, taxpayers remit their taxes with the expectation of real civic benefits, however perceptions that ‘their’ money is being used in a wasteful or inappropriate manner may provide the moral justification to opt out of the system. Such actions are unlikely to be constrained by social norms if many taxpayers share similar views. Some even suggest that technical reforms can offer little to offset the impacts of a significant erosion of public confidence in a tax administration.7 It is of little surprise then that many tax administrations view maintaining the public’s trust and confidence as fundamental to a self-assessment tax system, where high levels of participation with consent provides not only the basis for positive compliance outcomes, but also reduces the costs of administration and allows resources to be directed towards high-risk areas.
4 There is international acceptance of the positive nature of these principles. For instance, these principles are reflected in the CIAT Declaration on the Promotion of Ethics in Tax Administrations. Academically, recent research has studied why morality varies so much across cultures yet still shows so many similarities and recurrent themes. The University of Virginia’s Moral Foundations theory proposed innate and universally available psychological systems as the foundation of “intuitive ethics”, which in turn gives rise to the unique moralities we see around the world: University of Virginia Moral Foundation website. http://faculty.virginia.edu/haidtlab/mft/ index.php 5 Feld and Frey (2002) 6 Michael Wenzel has classified the concept of fairness in taxation as 1) the perceived fairness of outcomes (for example, tax burdens and tax-funded benefits), 2) fairness of procedures and treatment (for example, rights and respectful treatment), and 3) fairness of sanctions (for example, punishment and amnesties). Wenzel, Michael. Tax Compliance and the Psychology of Justice: Mapping the Field. Chapter 3, Taxing Democracy, Braithwaite, Valerie (Ed.) 2003. 7 Everest-Phillips, Max. Business Tax as State-building in Developing Countries: Applying Governance Principles in Private Sector Development. International Journal of Regulation and Governance, 8(2): 123-154
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1.2.2 Taxpayers
Even though tax administrations play a central role in ensuring compliance with the legislation they administer, they are but one component of the tax system. It is the CRA’s view, for example, that the tax system comprises the tax administration, taxpayers (businesses and individuals) who have obligations under the tax laws of the state, and the intermediaries who provide advice and assistance to taxpayers.8 While the integrity of public servants and tax administrations is one half of the discussion around transparency and ethics, the integrity of taxpayers (and the tax intermediaries who facilitate the arrangement of one’s tax affairs) is the other half. Compliance is, of course, mandated by law. However taxpayer integrity is not particularly about the end result, but rather implies an acceptance of the correctness of being in compliance, with actions subsequently carried out as a result of that value decision, not because of the coercive power of rules.
As with tax administrations, the principles of ethics, accountability and transparency apply equally to taxpayers. Taxpayers’ conceptions of what is right or wrong as manifested in their compliance decisions constitute their tax ethics. These influence the extent to which taxpayers willingly fulfil their tax obligations. In a self-assessment system that by its nature leaves some opportunities for non-compliance open, the tax ethics of individual taxpayers need to conform to broader responsibilities beyond one’s pure self- interest. Because tax law locates the responsibility for determining one’s tax liability with the taxpayer, compliance is the ultimate taxpayer accountability, reciprocating the obligation of tax administrations to account for performance. In the act of self-assessment, taxpayers demonstrate transparency in the disclosure of their activities and tax practices to the tax administration. At its simplest, transparency in managing one’s tax affairs means the proper declaration of income and deductions in arriving at one’s liability. At its highest level, it is an active interest by taxpayers in developing a relationship with the tax administration to ensure that the tax administration is aware of their current activities and tax practices.
Taxpayer behaviour is complex, however, and compliance postures can be influenced by a number of factors.9 Socio-psychological theories of compliance assume that factors such as moral and ethical preferences can lead taxpayers to follow through on their tax obligations, and more specifically, that certain ethical motivations set natural limits to the range of behaviours that some taxpayers will consider in managing their tax affairs.10
In other words, if taxpayers see compliance as an ethical issue with implications for self-image and reputation in light of values around honesty and social cohesion, for example, they will strive to meet their obligations regardless of the economic utility of non-compliance. Even from an economic analysis point of view, the desirability or demand for any outcome is based on underlying factors such as wants, needs, and values.
Therefore it is not surprising that studies have shown that the rate of compliance is higher when taxpayers have a strong belief that tax evasion is not ethical. Certainly ethical considerations offer a possible explanation for some individual taxpayer behaviour; however discussions around organizational character suggest that similar considerations could also inform corporate decision-making. To improve compliance outcomes, it may be that tax administrations can complement efforts to foster trust and confidence by appealing to taxpayers’ ethical values and promoting the concept of social duty.
8 The CRA also sees a fourth element: the federal, provincial and territorial laws and regulations it administers. 9 Considerable research has been done on factors influencing taxpayer compliance. This paper offers only a limited perspective. 10 Roark, Stephen J. The Influence of Ethical Attitudes on Taxpayer Compliance. National Tax Journal (1994)
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2. Promoting Ethics within Tax Administrations
2.1 ethics as the Foundation of Effective Organizations
The view that a revenue organization’s obligation to protect the integrity of a tax system demands that employees be held to the highest standards “Our success rests in large part of professional behaviour is one that is shared by on our professionalism and our many tax administrations and is enshrined in the integrity. Annually, we handle CIAT Declaration on the Promotion of Ethics in Tax 11 millions of transactions that have Administrations. The decisions and conduct of an impact on people and their revenue employees do affect people’s lives and can— opinions concerning us.” cumulatively over time—influence taxpayer behaviour. That employees be objective and impartial in carrying Canada Revenue Agency out their duties, seeing themselves and being seen by Annual Report to Parliament 2008-2009 others as professionals, is essential. In this light, ethics in a tax administration is as much about transparency as professional values.
Because public trust and confidence is more easily eroded than built, sustaining a culture of ethics in the workplace is important for all tax administrations. The management of risks then must reflect a tax administration’s unique context, suggesting a continuum of management models that likely begins with behavioural controls set out in strict rules and enforced with meaningful sanctions, and evolves towards a model where ethical behaviour is widely accepted and commanded at least as much by internal social norms as rules.
The practical benefits of proper conduct by taxation officials are well documented. New Zealand’s Inland Revenue Department notes that its mature ethical culture allows ‘previously constrained and tightly controlled services and products to become more streamlined, and more accessible and efficient for our [taxpayers].’12 In other words, a strong ethical culture in tax administrations creates opportunities for business improvement initiatives that otherwise would be ill-advised if not impossible. Moreover, if corruption thwarts the very purpose of taxation, by diverting payments made by taxpayers away from public accounts, then it’s opposite—integrity—upholds it.
2.2 human Resources, Training and Other Measures to Promote Ethics in Tax Administrations
Although administrative traditions vary according to historic and cultural context, there are universal expectations as to the way civil servants should fulfil their duties, namely with equity, probity and efficiency. Articulating standards of behaviour is fundamental for tax administrations. An ethical workforce has its foundation in a common understanding of the organizational values that are to guide the actions and decision-making of revenue staff of all levels, on a daily basis. Safeguarding the integrity of a tax administration requires a clear, consistent framework of rules and standards of behaviour that employees must adhere to or face meaningful sanctions. Conflict of interest regarding external business activities or investments, or the receipt of gifts and hospitality by public servants, are areas that require definition of what is permitted and what is not.
11 The Declaration on the Promotion of Ethics in Tax Administrations recognizes that the promotion of ethics must be at the heart of all policies of a tax administration. 12 New Zealand Internal Revenue Department. Internal Factors Influencing Inland Revenue’s Integrity Framework. Twenty Seventh Annual Technical Conference of the Commonwealth Association of Tax Administrators (2006)
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CRA Tools to Foster Ethical Conduct
The CRA has four enduring values that guide employee conduct:
• Integrity is the foundation of our administration. It means treating people fairly and applying the law fairly. • Professionalism is the key to success in achieving our mission. It means being committed to the highest standards of achievement. • Respect is the basis for our dealings with employees, colleagues, and clients. It means being sensitive and responsive to the rights of individuals. • Co-operation is the foundation for meeting the challenges of the future. It means building partnerships and working together toward common goals.
The CRA has also consolidated all policies dealing with ethical issues into a single Code of Ethics and Conduct. The Code describes the expected standard of behaviour in areas such as conflict of interest, confidentiality and disclosure of information, contact with the public, safety and health, financial matters, harassment and discrimination, off-duty conduct and political activity. It spells out the possible disciplinary action if there is misconduct. New employees must consent to abide by the condition of the Code.
The Conflict of Interest Policy directs employees to act in a way that is neither damaging nor potentially damaging to the organization. The Policy asks employees to avoid situations that may lead to real or perceived conflicts of interest, or that a third party would perceive to be a conflict of interest.
The Gifts, Hospitality and other Benefits Policy makes clear that an employee must decline any gifts, hospitality or other benefits that could influence his or her judgement or call into question the employees’ integrity, or that of the CRA.
The Electronic Networks Policy emphasizes that computer systems, software, equipment, networks, Internet, Intranet and e-mail are intended for authorized business purposes. Personal use of these facilities is allowed only to the extent that it does not affect productivity, infringe CRA policies and/or impose a storage burden on CRA systems.
Orientation programs for new employees integrate discussions on values and ethics. The CRA Award of Excellence recognizes individuals or teams whose work and behaviour best reflect the CRA’s mission, vision, and values.
Supporting a professional workforce is equally important. A tax administration can use a variety of techniques to limit opportunities for misconduct in the workplace, including rotating staff through different functions, controlling or restricting staff access to files or areas of work and segregating responsibilities among staff. However, moving towards a workforce where staffs self-regulate requires that employees be adequately compensated for their duties. Where remuneration is insufficient, employees may be tempted to engage in corrupt behaviour simply to ‘make ends meet.’
The ability to engage highly skilled, professional staff is recognized by many governments around the world as an important shield against corruption and a cornerstone of a well-functioning, effective tax administration.
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CRA Separate Employer Status and Human Resources Management The CRA is a separate employer under Schedule I, Part II of the Public Service Staff Relations Act. The CRA is not subject to the appointment provisions of the Public Service Employment Act (PSEA) which governs the majority of the Canadian public service, but has its own appointment authority under the Canada Revenue Agency Act. Staffing in the CRA is conducted based on eight staffing principles: non-partisanship; representativeness, competency, fairness, transparency, efficiency, adaptability, and productiveness.
As a separate employer, CRA is responsible for its own labour relations, including collective bargaining. The CRA has also adopted a competency-based approach to human resources management. This approach was developed to address business needs by allowing the Agency to put the right people in the right jobs at the right time and according to their skills and abilities, as defined through competencies. Oversight of human resources rests with the Board of Management, which is accountable to Parliament through the Minister of National Revenue.
Strong ethical leadership sets the tone in any organization and inspires staff to follow suit. It is accepted as necessary for, and fundamental to, building and sustaining a culture of ethics in any organization. But ethical leadership is not only the responsibility of senior management. Rather, employees often relate most to their immediate supervisors, so ethical leadership must be present at all levels. Managers are at the forefront of effective staff management, with responsibility for employee performance, development and discipline, and therefore are critical in the pursuit of organizational objectives involving ethics. Having in place a well-trained middle management cadre recognizes the importance of a manager’s role in supporting employees and fostering the desired behaviour.
CRA Management / Gestion Group In 2002, the CRA implemented the Management/Gestion (MG) group for managerial jobs. This new classification group supports the Agency’s goal of creating a management community that recognizes the importance of the manager’s role as a focal point for employees. All new managers participate in the MG Learning Program, a three-week introductory management course that introduces participants to key concepts in leadership, financial management, and human resources. Values and ethics are common themes woven throughout the curriculum.
Additionally, performance agreements for both management and senior executives include a core commitment to demonstrate ethical values-based behaviour. Performance pay and movement through the salary range are impacted by the extent to which these commitments are met
Simple, transparent and efficient processes and operational procedures complement rules- or motivation- based approaches to ethics. Traditional procedures require personal accountability and hand-over mechanisms at all stages to clearly document an audit trail.
Automated transaction processing and electronic self-service options offer a partial solution, removing the need for revenue employees to interact directly with taxpayers. Of course, even with automation there will always be a need for audit trails and personal accountability.
Any framework for public service ethics is incomplete without a system of internal monitoring. Internal oversight mechanisms are crucial to ensure that operational policies are being followed and that performance standards are being met. An internal affairs division is an important body within any effective tax administration, with duties to conduct investigations into suspected fraudulent employee activity like theft of assets or revenues, conflict of interest, unauthorized access and disclosure of information,
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misuse of information technology systems, and improper handling of public complaints. To be effective, an internal affairs division must be regarded as complementing and supporting management.
It is equally important that staff can come forward and disclose serious wrongdoing with sufficient protection from reprisals, and that allegations will be handled objectively. Making a disclosure in good faith is in itself an ethical act and complements ‘top-down’ approaches to fostering ethical behaviour. More broadly, internal disclosure provisions enhance organizations’ capacity to address these issues and provide concrete support for grounding organizational culture firmly in values and ethics.
Internal Disclosure at the CRA
The CRA is subject to the Public Servants Disclosure Protection Act (PSDPA). The Agency’s Internal Disclosures Office is responsible for coordinating the investigation of internal disclosures that fall within the definition of wrongdoing as described in the PSDPA. Employees have the choice to make a disclosure to their supervisor, to the Agency’s designated Senior Officer for Internal Disclosure (who is also the head of the internal affairs unit), or directly to the federal Public Sector Integrity Commissioner.
The CRA encourages employees that feel that a serious wrongdoing could be taking place to come forward using the provisions in the Act and to feel protected in doing so. Supervisors that have received a report of wrongdoing from an employee must treat it as a protected disclosure and contact the Internal Disclosures Office for assistance as soon as possible. Aggregate details of internal disclosure activity are publically reported by Canada’s Treasury Board Secretariat.
2.3 Public Service Ethics as an Institutional Attribute in Tax Administrations
If a tax administration as an entity can be said to have an ethical orientation, then fairness is at its heart. Intuitions about fairness are some of the most basic moral sentiments people have, and cannot be ignored in the realm of public administration. For tax administrations, fairness amounts to a delicate balance between upholding taxpayers’ rights, both codified and intrinsic, and exercising its authority when warranted. The complexity of tax administration in the modern era requires that fairness be exercised in many domains.
Not only must the laws be fair, but so too must be the way in which they are enforced. In an ethical framework, the tax administration’s powers of enforcement are balanced by a corresponding obligation for consistency in its application. A reasonable equilibrium can be achieved through a strategy of responsible enforcement, where enforcement responses are graduated based on the degree of non-compliance. Certainly, fairness in the enforcement of tax laws implies that tax administrations deal firmly with non- compliant taxpayers. However, fairness must also be evident to those taxpayers who are generally compliant. Excessively harsh treatment that is disproportionate to the seriousness of a contravention undermines perceptions of fairness and can turn the compliant into the non-compliant.
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An impartial, transparent and accessible redress process that is open to all taxpayers provides an important check that tax laws are applied as intended. Avenues for formal and objective recourse in the event of a dispute over tax liability demonstrate a tax administration’s commitment to fairness.
The CRA’s Approach to Redress The CRA provides an impartial and timely dispute resolution process that respects taxpayers’ fundamental right to redress in their dealings with the CRA.
The taxpayer can file an objection with the CRA for an independent review of the facts and or interpretation of the law. Appeals officers who were not involved in the original decision will conduct a formal and impartial review. If the dispute is not resolved at this level, the taxpayer may take his or her case to the Tax Court of Canada, then to the Federal Court of Appeal, and in the final instance, to the Supreme Court of Canada.
The CRA’s Approach to Redress cont… In addition, taxpayer relief provisions give the CRA common-sense ways to help taxpayers that are unable to meet their tax obligations because of extraordinary circumstances beyond their control, including natural or human-made disasters, civil disturbances or disruptions in services, serious illness or accident, or serious emotional or mental distress due to circumstances such as a death in the immediate family. These provisions allow the CRA to be more flexible and responsive to taxpayers’ circumstances when it is unreasonable or unfair to penalize them.
In a well-functioning tax system, taxpayers’ obligations are reciprocated with recognized rights. Beyond the most basic right to pay no more or less in taxes than what is required by law, many jurisdictions currently consider the right to the protection and confidential treatment of taxpayer information as fundamental to self-assessment tax systems.
Privacy and confidentiality provisions in the administration of tax tend to be consistent with broadly held social values of the same nature, so at least in principle, they are a natural extension of citizens’ broader
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rights. Notwithstanding these broader democratic rights, tax administrations have considerable power to intrude on taxpayer privacy, for example, in conducting audits and investigations. Taxpayer rights around privacy and confidentiality are a balance against this power, and are intended to safeguard against unnecessary intrusions and use of information for purposes other than those allowed by law.
As with any abuse of power, breaches of this nature can affect the legitimacy of the tax administration in the eyes of the public and thus undermine the tax system.
The CRA Taxpayer Bill of Rights The Taxpayer Bill of Rights is a set of fifteen rights confirming that the CRA will serve taxpayers with a high degree of accuracy, professionalism, courteousness and fairness under clear and established rules. The Taxpayer Bill of Rights is intended to make it easier for taxpayers to understand what can be expected in their dealings with the CRA. The Bill of Rights also outlines five service commitments to small businesses. The CRA has implemented a complaint resolution process to strengthen the Agency’s ability to respond to service-related problems across all programs. Founded on the Taxpayer Bill of Rights, the CRA Service Complaints Program provides taxpayers with a formal resolution process for complaints about mistakes, undue delays, and other issues related to service. See Appendix B for the complete listing of the Taxpayer Bill of Rights.
Taxpayers’ needs and expectations should also be considered in the delivery of programs and services. Modern tax administrations recognize that these ‘softer’ rights need to be respected, such as the right to courteous and considerate treatment and timely service.
In a self-assessment system, taxpayers might also be said to have a right to clear and accessible tax rules and procedures. Given the active role taxpayers are obliged to play in the tax system, this right encourages compliance. In extreme cases, this can also help guard taxpayers from the manipulations of corrupt tax officials, who could otherwise use the lack of clear and accessible rules to their advantage.
3. Promoting Accountability and Transparency in Tax Administrations
3.1 Fundamental Accountabilities of Tax Administrations
The delegation of powers from society to public authorities and institutions that is present in democratic societies means that citizens can rightly expect assurances that these powers are used effectively and prudently. The more precise act of delegation from political figures to public servants obligates leaders of all public sector institutions, tax administration included, to demonstrate results in the fulfillment of a given mandate and the wise use of resources. This expectation cannot be more relevant than it is now—even as the world economy slowly recovers, government resources will continue to be strained and citizens more than ever before will expect their tax dollars to be used in the best way possible.
A tax administration’s most basic external accountability can be said to comprise two elements: the first, accountability for the securing of government revenues as measured ultimately through the collection of all taxes owed (program results), and the second, accountability for the sound administration and management of allocated resources necessary to execute its mandate (operational results).These two accountabilities are inextricably linked, as operational results engender the effectiveness of a tax administration. There is also a third element: accountability for the means used to achieve operational and program objectives. Given tax administrations’ wide range of powers and potential to significantly impact the circumstances of individual and business taxpayers, the importance of this basic accountability cannot be understated.
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An expectation of accountability gives rise to its twin: the expectation of transparency. Transparency makes true accountability possible, and in its absence accountability becomes superficial. Transparency makes it difficult, if not impossible, for public servants to ignore their accountabilities around organizational performance or to avoid rendering an account of that same performance. Multilateral institutions and many governments now operate on the belief that public-sector decision-making should be visible and open to independent scrutiny in all manner of ways, and the current philosophy is that an increase in transparency leads to an increase in accountability. In most cases, this is probably true.13
Tax administrations whose operations are deeply founded in the public interest will naturally strive to perform in a manner consistent with public expectations. Perhaps the only caution in the quest for accountability and transparency in tax administrations is to avoid stifling over-bureaucratization to ensure accountabilities are met without fail. In fact, it has been noted that “accountability requires a culture where honest failure is not confused with criminal intent.”14
3.2 demonstrating Accountability
Accountability and transparency are universally accepted as cornerstones of maintaining the public’s trust. Strong accountability systems are key components of good governance in general and even more so in the realm of tax administration.
Accountability presumes that there is a clearly articulated and communicated performance expectation that stems from the organizational mandate and objectives. At the organizational level, tax administrations are said to ‘be accountable’ for performance, however material accountabilities ultimately reside with the head of the tax administration. Without accountability, a tax administration is likely to underperform.
Executive accountability can also be considered the pinnacle of a hierarchy of accountabilities that cascade downward through management and staff based on the delegation of duties and authorities. Individuals become responsible for assigned tasks, and through delegation of authority, powers are divided and allocated to subordinates in order to achieve organizational results. Effective delegation requires:
• clear roles, where authorities match accountabilities for specific results pursuant to assigned duties; • a strong commitment to organizational values, which enables tax administration staff to accept their accountabilities; • sufficient organizational capacity (infrastructure, tools, controls and management practices) and appropriate individual competencies (skills and knowledge) which equip staff to follow through on their duties to the best of their ability and assume accountabilities; • monitoring and learning mechanisms designed to improve effectiveness and to promote self-correction in support of the accountabilities; and • Consequences to compel staff to deliver on the results that they are accountable for.15
The literature describes “a very complex and rich set of tools [that] has been developed and implemented with an attempt to satisfy increasing demand for accountability and transparency.”16 A tax administration’s commitment to transparent management and accountability for results can be demonstrated in many ways. Most important among these is the periodic reporting of actions, initiatives, performance and expenditures to legislators and the public. This forthright disclosure of operations serves not only to
13 In the article The Proper Use of Transparency Instruments, Caron and Hunt reflect on policy implications of transparency issues, arguing that naive use of transparency mechanisms can have unintended effects and can drive strategic behaviour in order to avoid required documentation. Contracting arrangements designed to circumvent disclosure requires are cited as an example. Journal of Public Sector Management, Volume 36, Issue 3, September 2006 14 Sears, Robin V. The Old Accountability Shuffle. Policy Options, June 2006 15 Adapted from the Canadian International Development Agency Accountability Framework. 16 Ibid.
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ensure public accountability, but also to build public confidence. Statutory requirements for reporting and disclosure are common in modern tax administrations, and most are making use of the Internet to make a vast array of tax material accessible to the public. Independent offices of oversight and control also perform a critical monitoring and challenge function.
Demonstrating Accountability and Transparency at the CRA
Statutory requirements and internal Measures
Strategic Framework
The CRA’s strategic framework identifies performance measures to enable the CRA to measure and report on its progress in meeting its mandate, strategic outcomes and expected results for each of the program activities as identified in its program activity architecture. See Appendix C.
Corporate Business Plan / Summary of Corporate Business Plan / Report on Plans and Priorities
All three documents provide an overview of the CRA’s main priorities over a three year period and are structured by strategic outcome, program activity and expected results. Supporting information is also provided on human resource requirements, major capital projects and the net cost of CRA’s programs. The Corporate Business Plan is produced for the Treasury Board of Canada pursuant to the statutory requirements of the Canada Revenue Agency Act. The Summary of the Corporate Business Plan and the Report on Plans and Priorities are tabled in Parliament, by the Minister of National Revenue and the President of the Treasury Board respectively. Both become public after tabling, and are made widely available to Canadians via the Internet. Annual Report / Departmental Performance Report
The CRA Annual Report to Parliament is tabled in Parliament by the Minister of National Revenue, pursuant to the statutory requirements of the Canada Revenue Agency Act. It is produced concurrently with the Canada Revenue Agency Performance Report published by the Treasury Board of Canada Secretariat. Virtually identical, both provide a comprehensive report on the performance of the CRA for the previous fiscal year, and a rating of the CRA’s achievements against the key targets and indicators set out in the Corporate Business Plan. Each contains an assessment of the fairness and reliability of the information contained in the report and an audit of the Agency’s financial statements administered by the Auditor General of Canada.
Service Standards
Service standards support results-based performance measurement and are reported on in the Annual Report, where they are subject to the scrutiny of the Auditor General regarding the reliability of the information presented. The CRA’s inventory of service standards is designed to improve service to individual and business taxpayers as well as benefit recipients, and promote compliance with Canada’s tax and benefits legislation. Service standards represent the CRA’s public commitment to the level of service that taxpayers and benefit recipients can reasonably expect to encounter in areas of importance to them. For managers and employees, service standards help to increase understanding of service interactions from the service user’s perspective, and represent a willingness to be accountable for the transparent reporting of performance.
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Demonstrating Accountability and Transparency at the CRA
Executive Cadre (EC) Performance Management Regime
The CRA Agency Management Committee (AMC) sets out priorities and accountabilities for Agency executives (some 600 individuals) for the year ahead. Each EC performance agreement establishes a personal accountability for, and alignment with, these priorities. Priorities are based on the Agency’s planned deliverables, as well as the Government’s longer-term and Public Service-wide objectives.
Executive performance agreements consolidate core program and management responsibilities, along with leadership and special commitments. The agreements include assessable performance measures that help in the evaluation of the individual’s contribution to the achievement of Agency goals. Performance agreements are the foundation against which movement through the salary range and eligibility for performance pay is assessed annually. For the organization, the agreements contribute to better results management. As commitments to the achievement of Agency goals are cascaded throughout the Agency, shared accountabilities are identified and horizontal linkages are strengthened.
Management Accountability Framework
The CRA’s management accountability framework describes the standards for good public service management as established by those with Agency governance oversight responsibilities. Structured around the key elements that collectively represent the management function like resources, personnel and risk, the framework provides the basis for annual evaluations of the Agency’s management performance and practices. The results of this process enable the Agency’s senior management to identify the management priorities needed to strengthen overall organizational performance.
Internal Audit and Program Evaluation
The CRA’s internal audit and program evaluation functions support the achievement of the CRA’s strategic goals by providing independent and objective information, advice, and assurance on the soundness of the Agency’s operations. The results of the CRA’s audits and evaluations are posted on the CRA website to promote public accountability and transparency.
Proactive Disclosure
As part of government-wide efforts to strengthen public sector management by enhancing transparency and oversight of public resources in the federal government, the CRA is required to publish on its website: travel and hospitality expenses for senior level officials; contracts over $10,000 issued by or on behalf of the CRA; grants and contributions over $25,000 awarded by the CRA; and the reclassification of positions.
By making this information readily available on departmental web sites, Canadians and Parliament are better able to hold the Government and public sector officials to account.
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Demonstrating Accountability and Transparency at the CRA
Access to Information and Privacy
The Access to Information Act and the Privacy Act (known as the ATIP legislation) provide Canadian citizens, permanent residents or any persons present in Canada, with the legal right to obtain information in any form that is under the control of the federal government. This public right of access is subject to specific and limited exceptions and to an independent review of decisions on disclosure, and is balanced against the legitimate need to protect sensitive information and to permit the effective functioning of government. The Acts also recognize the right of government institutions to deny access to information affecting, for example, national security, commercial confidentiality, policy development, solicitor-client privilege and personal privacy. The Acts serve an essential democratic purpose by making government more open and transparent, and by promoting accountability through the participation by citizens in the decisions of government affecting them.
CRA Annual Corporate Survey
The Agency undertakes research on a regular basis to measure Canadians’ experiences and satisfac tion with the services and programs that the CRA provides. Since 2000, the CRA has been conducting an annual survey with national representative samples of Canadians to assess attitudes towards the Agency and satisfaction with aspects of specific programs.
EXTERNAL Oversight
Taxpayers’ Ombudsman
The Taxpayers’ Ombudsman is responsible for ensuring that the CRA respects the service rights outlined in the Taxpayer Bill of Rights and is mandated to: conduct impartial and independent reviews of service-related complaints; facilitate taxpayer access to assistance within the CRA; identify and review systemic and emerging service-related issues that have a negative impact on taxpayers; and provide advice to the Minister of National Revenue about service related matters in the CRA. The Taxpayers’ Ombudsman operates at arms-length from the management of the CRA and reports directly to the Minister of National Revenue. Together with the Taxpayer Bill of Rights and the CRA – Service Complaints initiative, the Office of the Taxpayers’ Ombudsman enhances the CRA’s accountability and provides taxpayers served by the CRA with renewed assurance that they will be treated fairly, equitably and with respect.
Office of the Auditor General of Canada In Canada, accountability is further buttressed by the Auditor General, who conducts independent audits of federal government operations and reports directly to Parliament. These audits cover not only a department or agency’s management of its expenditures, but also its performance in providing “value for money” to Canadians.
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4. Compliance as an Ethical Issue
4.1 Taxpayers and their Tax Ethics
Because the effectiveness of a tax administration in fulfilling its mandate hinges in part on the basic willingness of taxpayers to comply, any discussion of institutional effectiveness is incomplete without considering the tax ethics of taxpayers. Meeting one’s tax obligations can be seen as an ethical issue from multiple standpoints. Compliance is consistent with principles of duties under law and to society; it offers net benefits for the greatest number of people; and it responds to social expectations for fairness and equity. In this regard, to comply is to act ethically.
The simple equation of compliance and ethics is complicated somewhat by the fact that taxpayers have the right to minimize their tax burden within the bounds of the law. Taxpayers are entitled to undertake mitigation practices, such as taking advantage of credits, and effective tax planning consistent with the intent of the law. However, tax planning arrangements that are technically legal but contravene the object and spirit of the law cross the line between what is acceptable (and ethical) and what is not. Tax evasion, while clearly illegal, is also unethical. The current economic climate has raised the profile of compliance as an ethical issue. As Jeffrey owens, Director of the organization for Economic Cooperation and Development (OECD) Centre for Tax Policy and Administration, points out, “The threshold of tolerance for tax evasion has dropped to zero…governments need tax revenue and citizens need to be reassured that the tax burden is being fairly shared.”17
Although instances of abusive tax avoidance and tax evasion can be found in all taxpayer segments, there is international consensus that large corporate taxpayers and high wealth individuals represent a significant risk for tax administrations.18 Differing from most taxpayers in terms of magnitude of tax liability, access to resources and financial flexibility, these taxpayers are not confined by domestic boundaries in the management of their tax affairs, and instead, can be described as ‘global taxpayers.’ In fact, the OECD describes a tax world where,
“…taxpayers’ financial transactions take on an increasingly international flavour. International banking has become commonplace and it is no longer extraordinary for taxpayers to reside in one country, hold assets in another and have them managed from a third location. The proliferation of such financial relationships is a natural result of globalization, and may be motivated by tax concerns, commercial pressures or a variety of other considerations.19”
The international tax arena is one now characterized by globalized trade and financial systems, evolving multinational business structures and transactions, wide adoption of e-commerce and the presence of tax havens with strict bank secrecy laws. These conditions expand opportunities for taxpayers to engage in unethical tax minimization strategies, and at the same time, make the task of detecting and deterring non-compliance substantially more difficult for tax administrations.
The magnitude of global capital flight illustrates the impact of the compliance behaviour, and thus the related ethical stance, of people engaged in aggressive tax planning. Recent estimates put the value of individual and corporate assets held offshore in the trillions.20
17 Owens, Jeffrey. Moving Towards Better Transparency and Exchange of Information on Tax Matters. Bulleting for International Taxation, November 2009 18 Organization for Economic Cooperation and Development. Forum on Tax Administration. Study into the Role of Tax Intermediaries (2008) and Engaging High Net Worth Individuals on Tax Compliance (2009) 19 Organization for Economic Cooperation and Development. Tax Cooperation 2009: Towards a Level Playing Field (2009) 20 In his remarks at the 2008 Conference on the Fight Against International Tax Evasion and Avoidance, OECD Secretary-General Angel Gurría noted that cited an estimate in the range of USD 5-7 trillion. Other estimates cite figures as high as USD 11 trillion.
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No country is immune: In 2002, Canada’s Auditor General reported that “tax arrangements for foreign affiliates have eroded Canadian tax revenues of hundreds of millions of dollars over the past ten years.”21 Loss of potential tax revenues is particularly detrimental to developing or transitional counties needing to finance economic and social development programs. In considering global taxpayers, strong tax ethics can then be said to mean not only paying the right tax at the right time, but also in the right place.
4.2 responsible Citizenship and Corporate Social Responsibility
In addressing the compliance challenges presented by cross-border transactions, appealing to the duties of responsible citizenship can complement the necessary actions of controlling and enforcing compliance. In essence an ethical appeal, responsible citizenship means that individuals and businesses appreciate their civic responsibility to pay tax, and know that it is their tax contribution that enables them to enjoy all the benefits, rights and privileges that their resident country provides. Tax administrations can explore ways to enhance existing programs and introduce new activities that will improve voluntary compliance by increasing awareness amongst taxpayers, both individual and business, that their cooperation is needed to protect the valuable services that they demand from a responsive government.
An interesting sub-set of the discussions on responsible citizenship and tax ethics centres on the emergent view that, for large businesses, shouldering a fair tax burden as set out in law is an element of corporate social responsibility (CSR), in the same way that environmental stewardship and responsible labour practices are currently perceived. CSR is typically defined as a corporation’s commitment to a way of conducting business that takes into account the interests of all stakeholders, from shareholders and customers, to governments and society at large. A host of corporate failures and social activism has led to a business environment where increased corporate integrity and accountability are demanded.22 The origins of the current economic situation have focused even more attention on responsible corporate behaviours—or lack thereof—and the recent provision of government bailout packages to corporations that shift income and assets overseas has only exacerbated these public sensitivities.
A precise definition of socially responsible tax behaviour is difficult to frame because the issue is a nuanced matter. However, a sense of ethical and civic responsibility is thought to shape a corporation’s orientation on CSR and that stance, if genuine, should inform all of its business decisions, including those taken to minimize tax liability.23 The magnitude of a corporation’s tax liability is influenced by a number of decisions over which it has control, such as where to locate operations, where to register assets/ subsidiaries, how assets are priced when transferred between subsidiaries, and which tax credits to pursue. If tax is seen as a CSR issue, that position should come to bear in how a corporation conducts its affairs for tax purposes, the scope given to its tax practitioners, and in its self-assessment of what its fair tax obligation is, given the spirit of the law, and technicalities notwithstanding.
Calls on governments to create pressure on the business community to accept socially responsible tax practices, and to help foster an environment where aggressive tax planning is no longer acceptable,24 show some very early indications of gaining traction with the tax administrations of some countries, Canada included. The recognition that tax payments are an important contribution to society, and the showcasing of tax paid in Canada are elements of CSR reports for a number of large corporations including some in the financial and energy sectors.
If ever widely adopted, tax-as-CSR would theoretically lessen the need for governments to address corporate non-compliance through continual and ever-more complex legislative amendments. CSR would instead guide conduct in the multitude of situations that rules fail to fully address. Reputation
21 Auditor General of Canada. 2002 December Report of the Auditor General of Canada, Chapter 11 – Other Audit Observations 22 Conference Board of Canada. (2008). The Trust Imperative: Taking Governance to the Next Level. 23 Ibid. 24 OECD Observer. Taxation in a Global Environment (2002).
20 Linda Lizzotte-MacPherson Tax Administration / Institutional Strengthening N°.10 - April 2011 Tax Thematic Series considerations offer one potential driver, that is, how corporations would approach tax if faced with mounting customer and investor pressure.
A starting point for the creation of such drivers, and a concept which is gaining prominence in the international tax administration community, seeks to link tax management with good corporate governance by engaging corporate boards in discussion of the financial and reputational risks of particular tax strategies. That tax strategies can impact a corporation’s financial performance is well understood. What needs to be equally well embedded is that tax issues can affect a corporation’s carefully nurtured and much valued reputation, and secondly, that a reputation for good governance and tax integrity will bring corporations tangible benefits in their dealing with revenue authorities.
Promoting Compliance Among Individual and Corporate Taxpayers The CRA believes that a sustainable tax system is one where taxpayers appreciate that paying tax is a civic responsibility that enables taxpayers to enjoy all the rights that accompany being a Canadian resident or business. The Agency is undertaking a number of efforts to ensure that taxpayers understand that their active participation in Canada’s tax system is a necessary pre-condition. A comprehensive communications and outreach campaign targeting primarily individuals would be an example of these efforts. The CRA’s move to a risk-based approach for large corporate audits is another step. The Agency’s level of engagement with corporations will be based on a range of factors, like compliance history and degree of transparency in dealings with the CRA. In brief, a risk-based approach means that corporations that demonstrate strong governance and a willingness to work with CRA on an open and transparent basis will be subject to less CRA scrutiny. Agency resources that are saved through reduced audits of low-risk businesses will be re-focused to address taxpayers that represent a higher risk to the CRA. The Agency will advise taxpayers as to how they are perceived in light of risk factors, and indicate the commensurate compliance approach.
5. Conclusion
There is without doubt an element of reciprocity in how tax administrations and taxpayers engage with each other. In the moral contract between a tax administration and the public, each are to offer integrity: ethics and transparency on behalf of the tax administration in return for willing compliance and transparency on behalf of the public as taxpayers, with the two halves tied together by mutual accountability. In this accord, the actions and behaviours of one affect the other. In essence, how a tax administration engages with taxpayers affects the behaviour of those taxpayers, and subsequently, taxpayer behaviour influences how tax administrations interact with them. For this reinforcing cycle to be positive, it is incumbent on the tax administration, with the balance of power at the centre of the tax system, to take the lead in setting and sustaining the right context for a mutually acceptable relationship by demonstrating ethics, accountability and transparency. In turn, taxpayers can rightfully be expected to reciprocate.
Recent events that devastated the global economic and financial system have made apparent the need for a renewed call for higher standards to safeguard against similar occurrences in the future. As part of these broad discussions, this paper has attempted to underscore the importance of ethics, accountability and transparency to a tax system and has used the CRA experience to demonstrate some of the ways in which a tax administration can implement these principles in the exercise of its mandate.
Recognizing that each tax administration operates within a unique landscape, efforts to strengthen capacity in any of these areas will naturally reflect the particular challenges and context of each revenue authority. Regardless of the strategies taken, however, the more important point is that commitment to these principles is just that—a commitment that must endure even as sensitivities to these issues diminish as economic recovery takes hold.
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Appendix A – About the CRA
Canada is a large country that spans some 7,200 kilometres from east to west across six time zones. With a population of approximately 33 million people and a population density of 3.2/km2, it is one of the least densely inhabited yet one of the most prosperous countries in the world.
Canada’s tax system is based on voluntary compliance and self-assessment, which in Canada, is believed to be the most cost-effective way to administer taxes. Taxpayers are expected to determine what they owe under the law and then pay the correct amount of tax, without the CRA’s intervention. This means that taxpayers are expected to register as required under the law, file their tax returns on time, report complete and accurate information to determine tax liability and pay all amounts when due. Non-compliance is the failure, for whatever reason, to meet any of these requirements.
The CRA is responsible for the administration of tax programs and the delivery of economic and social benefits on behalf of federal, provincial and territorial governments, and First Nations. In 2008-2009, the CRA collected more than $366 billion25 in taxes and other revenues, and issued over $17 billion26 in benefit payments to millions of families and individuals. Revenues come from three key sources: income tax, excise taxes and duties, and GST/HST. In addition, the CRA administers a number of non- tax programs, such as delivery of Canada’s national child care benefit and debt collection for various government programs.
As the principal tax administrator for the Government of Canada, our primary responsibility is to protect Canada’s revenue base by ensuring compliance.
The CRA’s mission is:
“…to administer tax, benefits, and related programs, and to ensure compliance on behalf of governments across Canada, thereby contributing to the ongoing economic and social well-being of Canadians.”
The CRA’s vision is to be:
“…the model for trusted tax and benefit administration, providing unparalleled service and value to its clients, and offering its employees outstanding career opportunities.”
The CRA’s promise is a commitment to:
“…contributing to the well-being of Canadians and the efficiency of government by delivering world-class tax and benefit administration that is responsive, effective, and trusted.”
The CRA has a workforce of up to 45,000 permanent employees across Canada, and a term population that fluctuates to approximately 10,000 during peak tax-filing season.
The Agency operates out of 55 service sites across Canada, including 37 Tax Services Offices (TSOs), six Tax Centres (TCs), two combined TSOs and TCs, and 10 call centres.
25 Draft Annual Report to Parliament 2008-2009. 26 Draft Annual Report to Parliament 2008-2009.
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Appendix B – Taxpayer Bill of Rights and Commitment to Small Business
Taxpayer Bill of Rights
1. You have the right to receive entitlements and to pay no more and no less than what is required by law. 2. You have the right to service in both official languages. 3. You have the right to privacy and confidentiality. 4. You have the right to a formal review and a subsequent appeal. 5. You have the right to be treated professionally, courteously, and fairly. 6. You have the right to complete, accurate, clear, and timely information. 7. You have the right, as an individual, not to pay income tax amounts in dispute before you have had an impartial review. 8. You have the right to have the law applied consistently. 9. You have the right to lodge a service complaint and to be provided with an explanation of our findings. 10. You have the right to have the costs of compliance taken into account when administering tax legislation. 11. You have the right to expect us to be accountable. 12. You have the right to relief from penalties and interest under tax legislation because of extraordinary circumstances. 13. You have the right to expect us to publish our service standards and report annually. 14. You have the right to expect us to warn you about questionable tax schemes in a timely manner. 15. You have the right to be represented by a person of your choice.
The Canada Revenue Agency Commitment to Small Business
1. The CRA is committed to administering the tax system in a way that minimizes the costs of compliance for small businesses. 2. The CRA is committed to working with all governments to streamline service, minimize cost, and reduce the compliance burden. 3. The CRA is committed to providing service offerings that meet the needs of small businesses. 4. The CRA is committed to conducting outreach activities that help small businesses comply with the legislation we administer. 5. The CRA is committed to explaining how we conduct our business with small businesses.
Tax Administration / Institutional Strengthening Linda Lizzotte-MacPherson 23 Management Tool and Relevant Contextual Aspects for Strengthening the Tax Administration
1. Introduction.
2. Our strategic statement.
3. Organizational structure.
4. Planning and reporting.
5. Governance.
6. Measuring our effectiveness.
7. How we use our intranet.
8. International cooperation.
Andrew Reed (Australia) N°.10 - April 2011 Tax Thematic Series
1. INTRODUCTION
I have been asked to talk to you today about how Australia uses management tools and techniques as a basis for strengthening its tax administration. Our journey has been a long one – we are approaching our Centenary – and we recognise that it is a journey that will never end. We must continue to anticipate, and be responsive to, the challenges and opportunities that face tax administrations. And we will never stop seeking to learn from other tax administrations, including through forums such as this.
My presentation focuses on what we see as some of the building blocks for good management – our strategic plan, how we organise ourselves, our planning and reporting framework and our governance arrangements.
2. our STRATEGIC STATEMENT
At the heart of any tax administration is its strategic statement. Our strategic statement covers the years 2006 to 2010 and is, in some sense, becoming dated. Nevertheless, it has served us well. We will launch our strategic statement for 2010 to 2015 early next year.
Firstly, let me quickly cover the key elements of our strategic statement.
Our mission – why we exist
Our mission is to effectively manage and shape the administrative systems that support and fund services for Australians. We refer to this as our commitment to government.
The quality of life enjoyed by Australians is underpinned by a myriad government funded goods and services. Health, education, social security and so many other vital aspects of our society are supported by revenue raised through taxation. The tax system is also used to give effect to social and economic policy.
Our vision – what we want to be
Our vision is to work with the community in the fair administration and effective management of the tax system to add to value to our nation. We call this our aspiration.
Our vision is of a tax system that is owned by the community – and we will continue to work with the community in the care and management of its tax system.
Our strategic approach
Our strategic approach is to optimise voluntary compliance and make payments under the law in a way that builds community confidence. This is our business intent.
‘Optimise’ is not about chasing every last dollar of revenue, but making intelligent choices about where to apply our resources to create an environment that promotes compliance with the tax laws.
Making payments is about the benefits and refunds we administer. This includes income tax and GST refunds, excise grants and superannuation guarantee transfers.
Working ‘under the law’ recognises that the laws we administer determine what taxpayers owe the community and what the community owes them.
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We need to build community confidence to have a fair, efficient and sustainable tax system. This guides the way we go about our work, the administrative choices we make, the user-friendliness of the systems, the fairness of our approaches, and the professionalism of our dealings with taxpayers and their agents.
What about collecting the revenue?
I want to pause here to make an important point. If you look at our strategic statement you will not find a reference to collecting the revenue. Rather you see an emphasis on creating an environment that promotes high levels of voluntary compliance.
The point is that the amount of tax is really a concern for Treasury and Government. This is because it is the policy settings in the law that are the main determinants of the amount of tax collected.
Yes, we have a responsibility to support honest taxpayers by having effective compliance strategies in place, but this is more from the perspectives of promoting a level playing field and nurturing high levels of voluntary compliance than the direct collection of tax. Our mandate is only in relation to the liabilities (and benefits) provided under the law.
We are well placed to deliver on that mandate. We have a close relationship with Treasury which often enables us to have a good understanding of the policy intent of legislative provisions (particularly new measures). There is an inherent need to apply the tax law in the course of our activities and responsibilities, and we have long standing tax technical and interpretative skills.
Our values
Strong values build trust and community confidence in our management of the tax system. They are a final, but critical, component of our strategic statement.
We are fortunate to have a tax and compliance culture where the great bulk of Australians, many supported by their agents, voluntarily comply with their tax obligations – but this is no accident.
By building core values into our administration, service delivery and treatment of taxpayers, we have helped to foster high levels of community confidence in us.
Our values are: · Being fair and professional · Applying the rule of law · Supporting taxpayers who want to do the right thing and being fair but firm with those that do not · Being consultative, collaborative and willing to co-design · Being open and accountable · Being responsive to challenges and opportunities
In many respects these values are the day to day representation of our strategic intent. They have become part of the fabric of the organisation. The leadership in this area has come very clearly from the top. Our current Commissioner, Michael D’Ascenzo, has taken personal leadership in the articulation of these core values and their promotion both within, and outside, the organisation. Indeed, it would be rare for me to have a conversation with the Commissioner or to read something he has written without seeing many direct and indirect references back to our values. And we have certainly seen that they have also served us well in administering our tax system in the economic downturn.
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3. organISATIONAL STRUCTURE
How the tax administration organises itself to deliver its strategy is another key component of our management arrangements. If there is one observation that we can make from almost one hundred years of experience it is that organisational structures will forever change as we adapt to challenges and opportunities.
At the highest level the Tax Office is organised into five organisation sub units that we call ‘sub-plans’: · Operations · Compliance · Law · People & Place · Enterprise solutions & technology
This high level structure highlights that there has been a general shift in structural arrangements away from ‘tax type’ to ‘function’ or ‘taxpayer segment’ criteria. However, it is worth noting that you will find many elements of all three criteria as you probe the lower level organisational units of the Tax Office.
Non-functional structures are likely to lead to duplication and inefficiencies and failure to have integrated strategies significantly reduces the effectiveness of the organisation. The ideal would be to garner potential efficiencies while retaining the external focus on taxpayers and on the effectiveness of holistic and flexible strategies. For example, in the Tax Office we are making progress with enterprise-wide approaches (where that makes sense) and retaining the differentiation implicit in our Compliance Model. Eliminating ‘silo’ mentality wherever possible is critical to being responsive to challenges and opportunities. Structure should respond to strategy, not the other way around.
There is also an emerging trend towards creating specialist or dedicated operational units, such as national call centres and data processing centres, rationalising the size of office networks to deliver frontline tax administration operations. Nevertheless, the balance between back office and front line functions is difficult to set, particularly as new technology expands the remit of what is in essence front line work. For example, the Tax Office’s expanded use of data matching and pre-filling fits the descriptor of front line work. Moreover any tax administration that does not have an appropriate focus on enablers such as plan and manage, people and place and information technology and change is not only unlikely to be sustainable but will also limit its effectiveness and efficiency.
The role of our leadership group is the critical element in making sure that our structure works. As leaders in the organisation it is our job to ensure that the complexities of structure do not obstruct our delivery of the strategic intent.
4. PLANNING AND REPORTING
Another component of our management arrangements is a planning and reporting structure that brings our strategic statement to life. We have developed an integrated planning and reporting framework. It deals with the complexity of our administration yet at the same time it is something that can reach out to everyone in the organisation. More recently we have placed considerable attention on the need to keep the process efficient and streamlined.
There are a number of elements to our current planning and reporting framework.
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The Corporate Plan 2009-10
The Corporate Plan 2009-10 is a statement of our corporate priorities for the current year. The priorities are informed by our comprehensive scan of the environment and our processes to identify and assess risks to the tax system and its administration.
It is presented in a one page A3 document and is delivered to all staff just before the beginning of the 2009-10 year.
The ATO Plan 2009-10
The ATO (Australian Taxation Office) Plan 2009-10 outlines in more detail, but still at a high level, all the work we intend to do as an agency this financial year.
It identifies how we intend to deliver our corporate priorities and outlines the other work we will do to meet our commitments to government. It is shaped in terms of our program framework. We have five departmental programs: · Shape, design and build administrative systems · Management of revenue collections and transfers · Compliance assurance and support for revenue collections · Compliance assurance and support for transfers and regulation of superannuation funds · Services to government and agencies
We also have four enabling programs. · Governance and stewardship · People · Workplace · Information technology services The ATO Plan aligns directly to our annual report. The annual report is our main report to Parliament. As an open and accountable administration we publish this document to assure the government and community that the tax and superannuation systems are being effectively and efficiently managed. We report against the priorities we have outlined in the ATO Plan.
Translating the plan into action
Each sub-plan has an overview which outlines their key areas of focus, key priorities and key messages.
Each sub-plan contains a number of organisational units that we call ‘business lines’ or ‘service lines’. Each line has a plan setting out the tactics for delivering the strategies outlined in the ATO plan. In turn, the teams that work in each line have more detailed plans that set out activities to deliver the tactics outlined in the line delivery plan. Performance and development agreements complete the framework. These are individual agreements between staff and managers that outline tasks to deliver team activities, and measures of performance against the appropriate team, branch or line plans. These performance and development agreements and the conversations that they engender in both at the time of their preparation and at the time of regular reviews are what makes the whole system work.
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5. governanCE
Another important element of good tax administration is effective governance.
The governance arrangements that apply to the Tax Office are extensive. They include:
· formal accountability to Ministers and Parliament. For example, while statutorily independent in the applications of the laws we administer, we remain accountable to the Treasurer, the Assistant Treasurer and the Minister for Superannuation on our activities and performance. We must also report annually to Parliament · oversight by parliamentary bodies (e.g. Senate Estimates and Joint Committee on Public Accounts and Audit) · performance and financial statement audits by the Australian National Audit Office · examination of systemic issues by the Inspector-General of Taxation, and · Ombudsman Office investigates specific taxpayer disputes.
The Joint Committee of Public Accounts and Audit in its Report 410 observed the following about its biannual public meetings with the Tax Office: ‘Although the meetings give the Committee an opportunity to hold the ATO to account, they also give the ATO the opportunity to demonstrate that it performs at a high standard, to both the community and the Parliament.’
We support and facilitate this and other forms of external scrutiny through the publication of both our plans (strategic statement and corporate plan) and our results measured against these plans (in the annual report).
In the interests of transparency we publish a number of other key documents including our annual compliance program and our monthly performance against the service standards. We also publish our annual flagship statistical publication, Taxation statistics. This publication provides a summary of the tax returns and other reported tax information that we receive each financial year.
Formal accountability and governance requirements include a range of certifications which apply only to public sector agencies, for example, the Financial Management and Accountability Act and the Public Service Act as well as a range of Commonwealth guidelines.
Add to these, informal sources of governance and accountability, such as the Tax Office’s wide range of consultative forums, independent surveys and media scrutiny, and one might argue that this is significantly more than that faced by other organisations, including public and private companies.
Nevertheless we add to this a robust internal governance framework which includes internal audit and fraud prevention and control functions, as well as a substantial system of integrity indicators. The Tax Office has private sector representatives on its Audit Committee and a range of tax technical panels. Our values and integrity are further supported and reinforced by an independent Integrity Adviser.
6. measurING OUR EFFECTIVENESS
In case anyone should think that we are sitting back smugly with the view that we are doing as well as we can, let me assure you that this is far from the case. Good management demands that we understand our effectiveness. While we are generally able to have a good understanding of our operational efficiency, measuring our effectiveness is proving to be much more difficult.
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There are some areas where we have longstanding mechanisms in place that provide useful information about our overall effectiveness. For example, we have been able to measure community confidence over a long period of time through surveys conducted independently. Our community perceptions survey, business perceptions survey, professionalism survey and tax agents research program provide valuable insights on community perceptions of our professionalism and service.
However, it has been much more difficult to gauge our effectiveness in optimising compliance. Finding good measures of effectiveness is not easy and all performance indicators have their weaknesses and limitations. Nevertheless this is an important journey best illustrated by an example.
Registration is one of our ‘four pillars’ of ensuring compliance with the taxation and superannuation laws. The others are lodgment, correct reporting and correct payment.
We can readily gather information on our performance against service standards and the number of registrations processed.
This is important but does it fully answer the key question of whether we have all the right people and businesses registered in the system? The answer is no.
When we start to look for indicators of our effectiveness, our starting point is to try and benchmark our performance against an external data set.
In the case of registration for individuals, we can look to the Australian Bureau of Statistic (ABS) which has data sets on population. In 2008 there were 21.3 million Australian residents. At the same time the Tax Office had 17.7 million registered resident individuals.
The simple comparison with the number of taxpayers registered in the tax system and the total number of Australian citizens suggests that 83% of the resident population have a tax file number. However, this simple comparison is not the most useful given the differences in purposes of two data sets. Firstly, the ABS population estimates include those persons who have no need or obligation to register such as some children, students and pensioners. Secondly, the ABS estimate does not include non-residents while our tax file number data includes non-residents in receipt of Australian sourced income.
To account for these factors we make a comparison using the ABS population estimates for residents aged between 15 and 74 - focusing on the segment of the population that is more likely to have a need for a tax file number. We similarly align our registration counts by taking out those taxpayers who are under 15 or over 74 years of age. We also take out from our registration data set those taxpayers who are non-residents.
This leads to the following result. The ABS population reduces to 15.9 million residents aged between 15 and 74. Our adjusted registration data is 16.3 million registrations. The resultant 103% comparison has decreased from 113% two years ago, reflecting some resource intensive work in removing non- active registrations. The result seemingly suggests high levels of compliance albeit that there may still be some taxpayers currently registered in the tax system who should not have an active registration. However, a significant reason for the difference is that the tax file number data includes temporary residents while the ABS data does not. So a 103% comparison is an extremely good outcome.
Turning to businesses, there are difficulties in benchmarking against data from the Australian Bureau of Statistics because they use a different definition of business. There are further complications because the ABS data relies to some extent on our registration information. So we have turned to some other benchmarks. The ratio of Tax Office company tax file number registrations to the Australian Security and Investment Commission (ASIC) companies registrations currently is 105%. When the ATO series is
30 Andrew Reed Tax Administration / Institutional Strengthening N°.10 - April 2011 Tax Thematic Series adjusted to account for those entities that do not need to register with ASIC, such as strata title companies and limited partnerships this ratio falls to 87%.
Again, like all indicators this indicator is far from perfect. For example there are some ASIC registered entities such as ‘shelf companies’ that do not have a current tax obligation. Nevertheless the results from these two measurement approaches provide a reasonable level of confidence in relation to our registration activities.
Registrations are perhaps one of the more straightforward areas for measuring our effectiveness and these two examples illustrate the challenges in developing better measures of effectiveness. Nevertheless, this work is fundamental to best practice tax administration.
Our efforts in this area are a work in progress. And so is our work looking at the measurement of tax gaps. Tax gap measurement has its supporters. However we note concerns about the accuracy of the estimates and the fact they may shed little light on the sources of and reasons for non compliance. If they involve “random audits” they are administratively expensive both in resource and opportunity costs, impose unnecessary compliance costs and can reduce community confidence. The Joint Committee of Public Accounts and Audit recently supported the Tax Office’s risk-based approach to compliance which minimises the burden on compliant taxpayers As a new development we are undertaking some gap analysis for indirect taxes, relying on macro approaches such as those used in certain other jurisdictions, notably the UK. Here we are using ABS data together with GST (Goods and Services Tax - our value added tax) expenditure information to support comparison of theoretical GST liability and actual GST outcomes. Our assumption is that the difference emerging could be viewed as the lost revenue or ‘gap’.
In relation to income tax, rather than impose an additional burden arising from random audits on the generally compliant Australian taxpayer, we are looking at methods to extrapolate our active compliance (risk driven non-random based interventions) results across the broader community to obtain experimental estimates of potential reporting gaps. We also have ongoing work with Treasury and the Australian Bureau of Statistics to understand the relationship between independent measures of the economy with forecast and actual tax liabilities and collection, providing a platform for understanding apparent tax gaps.
We will then be better placed to evaluate whether tax gap measurement of this type adds value to our current approaches to risk identification and assessment.
7. how WE USE OUR INTRANET
I want to move on now to say a little bit about two other topics that have been identified as areas of particular interest for this technical conference. The first is the use of the intranet.
In brief, our current intranet website is a mix of information, communication, human resource systems, and transactional components. But it is primarily an information site with limited communication, human resources and other transactional elements.
The current intranet site structure and content is a mix of corporate topic, business line, role, work process based authoritative sites and information with links to other content in other sites and repositories.
Content on the site is deemed to be for the whole-of-Tax Office, and business line use. It currently does not include team and personal websites. These were removed from the intranet many years ago. Nor does it include content stored on personal and other shared drives.
Tax Administration / Institutional Strengthening Andrew Reed 31 Tax Thematic Series N°.10 - April 2011
Our intranet is designed to support office outcomes by providing a channel that delivers corporate wide work related information. It provides all staff with easy access to authoritative and endorsed corporate information.
Our goal is an intranet that meets user needs and we achieve this by ensuring that the published content: · Adheres to intranet standards and the principles of writing for the web. · Is fit for audience and is easy to understand. · Fits with the overall communication intent for that topic and audience. · Is easy to find and use through appropriate user-designed interface and navigation. · Is appropriately classified and captures the right metadata to make it searchable and easily discovered. · Is owned and maintained to assure currency, relevance and continued appropriateness for channel · Provides a consistent user experience through the use of a standardised structure and endorsed intranet navigational templates
Our intranet provides open access for all staff but content is limited to below ‘in confidence’ level. It does not have any secure or restricted sites. It is available for an Australia-wide audience, including mobile computing.
As an officer based in London I could not be more remote from the rest of my organisation. The intranet provides ready and easy access to the most up to date and authoritative statements of office policy. For me it is an important communication link and, like many others, I draw heavily upon some of the communication aspects such as the weekly on line news magazine. This magazine includes a mixture of work related and more personal topics, letters to the editor and, importantly, always starts with a column from the Commissioner.
Let me conclude my remarks on this topic with the recognition that we are limited by the intranet technology we currently have available to us. Our technology platform is dated and we are exploring more current technology that will allow us to tailor information services to meet the individual needs of our people more precisely.
8. INTERNATIONAL COOPERATION
Finally, let me touch upon harmonisation of tax administrations. This is not something that we focus on in Australia. However, in an increasingly interconnected world we recognise the value of having close working relationships between tax administrations around the world.
Australia takes part in a number of assistance programs aimed at improving the capacity and institutional governance of overseas revenue authorities, particularly in the local region. As well as these formal assistance programs, the Tax office receives a number of visits each year from representatives of other revenue authorities. The visits may be in the form of bilateral meetings between the Tax Office and another authority or may be multilateral meetings attended by a number of countries. Information and expertise are exchanged at these visits with the aim of increased cooperation and coordination between the jurisdictions.
Australia works closely with many tax administrations in a variety of other ways. It is also a member of a range of international tax associations and, of course, welcomes the opportunity to participate in forums such as this one organised by the Inter-American Centre of Tax Administrations.
I would like to finish with an important example of how we work co-operatively with other tax administrations and it involves my work with the Joint International Tax Shelter Information Centre.
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International dealings, once exclusively a large business issue, have become common as business and people have become engaged in trading, working and investing internationally. This means we are dealing with a range of compliance risks, everything from legitimate but highly complex cross-border tax planning where the issue often is — was the appropriate share of tax paid in each jurisdiction — through to, at the other extreme, deliberate concealment of income and assets by channelling arrangements through tax havens.
International collaboration among tax administrations has been much publicised in the context of combating abusive arrangements. As part of this effort the Joint International Tax Shelter Information Centre (‘JITSIC’) was established in 2004 by Australia, Canada, the United Kingdom and the United States.
JITSIC’s aim is to share information to curb abusive tax avoidance transactions, arrangements and schemes. What is unique is that each country participates through full-time members from each administration working together in one office to share information and experience, as quickly as they can, on abusive arrangements, their investors and promoters. With international structures and transactions, often the challenge is to put the puzzle together and understand the whole picture.
The original JITSIC office was established in Washington and a second office has been established in London, which is where I am based. The membership has also expanded to include Japan.
Over its short life JITSIC’s work has led to improvements in international compliance and much improved coordination to combat abusive arrangements. Recently the global financial crisis has led countries to consider how JITSIC can be best utilised in this dramatically changed environment.
Exchanging information in real-time is making a big difference to the complex task of tracking tax avoidance and abusive cross-border transactions. Delegates have identified and challenged highly artificial arrangements including:
· a scheme marketed cross-border, involving hundreds of taxpayers and tens of millions of dollars in improper deductions and unreported income from retirement account withdrawals · financial institutions creating financing structures selling the benefit of foreign tax credits separate from the economic benefit of the underlying income, and · brokers providing made-to-order losses on futures and options transactions for individuals in other jurisdictions, leading to a tax loss of over one hundred million dollars.
Plans have been made for the future development of JITSIC, along with a measured expansion beyond North America and Europe. This has broadened the focus of its activities, further sharing best practice on risk assessment and other key areas of interest, particularly increasing the transparency of cross- border transactions in order to create a level playing field for taxpayers who voluntarily comply with their tax obligations.
Tax Administration / Institutional Strengthening Andrew Reed 33 Strategies and Instruments for Improving Management in the Tax Administrations
1. Introduction.
2. Management strategies in the RFB environment.
3. Examples of specific projects. 3.1. Changes to work processes in administrative trials. 3.2. Digital federal revenues process of Brazil (e-Process). 3.3 National synchronized cadastre (CADSINC). 3.4 Public digital accounting system (SPED). 3.5 Electronic invoicing (NF-e). 3.6 Virtual taxpayer service center (e-CAC).
4. Final considerations
Marcelo Lettieri Siquiera (Brazil) N°.10 - April 2011 Tax Thematic Series
1. Introduction
Information technology has played a key and growing role in the management policies adopted or implemented by the Federal Revenues Secretariat of Brazil (RFB).
The facilities and opportunities stemming from the development of computer science have led to substantial and paradigmatic gains in the Brazilian Tax Administration. The best example was the intensive use of Internet for the reception of the Individual Income Tax (IRPF) returns. Since 2000, more than 90% of Brazilian taxpayers submit their returns using the worldwide web, which entails a substantial simplification, compared to the old paper tax returns. From the standpoint of internal management, the gains were no less important with a drastic reduction in administrative costs and in the reception and digitalization of information submitted by taxpayers, thus decreasing the number of errors and enabling a much faster access to such information.
Despite the achievements of the progress made with these technological tools, there are more challenges. Today, it is not enough for Tax Administration to receive tax returns via Internet; it is also expected to meet a large part of the needs of its taxpayers directly on the worldwide web and no longer in person. Thus, information corrections, explanations, the issuance of the Negative Debit Certificate, payments, and many other services can now be rendered online.
Therefore, just like technology is socially fundamental to address the demands of society, it also constitutes a source that creates new needs and demands that must be addressed as well.
This document will briefly describe the general guidelines of the management strategies adopted by the RFB, emphasizing the role of the intensive use of information technology. We will immediately present some examples of the management improvement tools that were already implemented or are about to be implemented, such as the new tools for administrative trial management, the digital process (e-process), the National Synchronized Cadastre (CadSinc), the Public Digital Accounting System (SPED), electronic invoicing (NF-e), and virtual taxpayer services (e-CAC), which are compatible with the spirit of modern tax administration of the CIAT General Assembly. The consolidation of the institutional maturity already reached by Brazilian Tax Administrations, which translates into a series of joint initiatives, will also be emphasized. In addition, some indicators showing the results already obtained or being expected from the aforementioned instruments will also be outlined. Finally, the final considerations of the Brazilian experience will be listed.
2. Management Strategies in the RFB Environment
The management strategies of the RFB are more broadly broached in the Planning and Management Strategy (PGE), which comprises four-year periods. The actual planning corresponds to the period between 2008 and 2011. Meanwhile, such planning is being revised, and the changes were seen in the RFB administration in the second half of 2008.
The PGE includes a strategic matrix for the period under consideration, which begins with the mission, vision, and values, unfolding the various dimensions of the PFB actions in five major levels: State, Society, Taxpayers, Processes, People and Resources. A total of 15 pluri-nominal strategic objectives, linked to strategic actions and institutional management indicators, were outlined in association to these five levels. At the end of each year, Institutional Directives are established, guiding the focus of the strategic actions for the following year, considering that the institutional planning and evaluation process is dynamic and must receive constant feedback.
The following general objectives, which were forged by the RFB, are grouped by dimensions of the institution’s actions.
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State Dimension 1. Help in the formulation of tax and foreign trade policies. 2. Promote the integration of the RFB with the other state institutions and national and international organizations.
Society Dimension 3. Augment the actions of the RFB in the fight against organized crime. 4. Strengthen the institutional image of the RFB and promote citizens’ tax awareness.
Taxpayer Dimension 5. Promote excellent services to taxpayers.
Processes Dimension 6. Optimize tax credit control and collection. 7. Improves the quality and production of fiscal work. 8. Increase the efficiency of oversight and repression of customs-related crimes. 9. Simplify, standardize, and expedite customs control. 10. Increase the efficiency and effectiveness in the preparation, analysis, and trials of administrative and tax processes. 11. Promote the improvement, simplification, and consolidation of federal tax legislation and standardize its interpretation.
People Dimension 12. Improve the people management policies of the RFB.
Resources Dimension 13. Increase the efficacy, efficiency, and effectiveness of budget, financial, capital, and confiscated merchandise management. 14. Refine the management policies of technology information and infrastructure. 15. Implement an excellent management in the RFB.
Once the objectives have been determined, the strategic initiatives are defined as a set of actions and projects necessary to achieve the strategic objectives, enabling the organization to go from the current state of affairs to the achievement of its goals.
In the case of the Secretariat of Federal Revenues of Brazil, the strategic initiatives were classified as levels 1, 2, or 3 strategic actions in the 2008/2011 Strategic Planning and Management program.
These actions must strengthen the RFB strategies, allowing compliance with institutional goals until 2011 and making sure that the strategic objectives are reached. The level 1 strategic initiatives are those directly followed by the Cabinet of the RFB and include projects and/or actions at the national level and are of great significance for the institution (see some projects in Chart 1). The level 1 strategic initiatives will be complemented by level 2 actions of sectorial and regional impact and by level 3 actions of impact on the local units and Offices of Processes (DRJ).
36 Marcelo Lettieri Siquiera Tax Administration / Institutional Strengthening N°.10 - April 2011 Tax Thematic Series
Chart 1 – National Strategic Projects Public Digital Ac- Promote the integrated actions of federal, state, and municipal treasuries through the counting System - standardization and streamlining of information and shared access to taxpayers’ digital Sped accounting by legally authorized people. Gauging the “fiscal Define and implement an institutional methodology to estimate the gap between the gap” collection defined by the legal potential and the actual collection. Arpia Project Application of computer intelligence models for risk analysis in order to reach further efficiency and effectiveness in customs-related procedures through the standardization and optimization of fiscal selection. Siscomex cargo Digitalize the control of movements of ships and their cargo in international transpor- tation, allowing a more effective customs control with a great savings in logistics by allowing the shipping of merchandise on water (freight on board). National Fiscal Edu- Educational actions that try to promote the conscious participation of citizens in the cation Program operation and improvement of the social and fiscal control instruments of the State, beginning with the awareness of people for the socioeconomic function of taxes by encouraging voluntary compliance. Proposal of a specific project aimed at internal fiscal education. Fiscal Cadastre System of overall control of compulsory taxes, beginning with taxpayers on differential Project follow-up, with the use of information from third parties and own information, enabling a preliminary estimate of the taxing power of taxpayers and the due accessory obligations. E-Process Electronic Administrative Process, which enables procedural actions and terms to be carried out electronically, putting aside the traditional use of paper processes and preserving the safety and authenticity of information. The documents will be authorized by the digital signature of both the official and the taxpayer through digital certification. Revision and Simplifi- Modeling and revision of organizational processes in order to promote the institutional cation of Processes modernization for the sake of the improvement and transparency of the services rendered, for the development and commitment of people, and for the management aimed at the achievement of results. National Synchro- Increase the effectiveness in the rendering of services by the RFB through the reduction nized Cadastre of compliance costs for taxpayers, the strengthening of oversight through the exchange of information with other tax administrations, and the reduction of the average time it takes to open companies in the country. National Plan to Develop and implement a plan to improve taxpayer services through various channels Improve Taxpayer in order to heed their demands in a standardized, proactive, integrated, and conclud- Services ing fashion.
All these projects have an impact on the tax administration of the RFB, and many of them also have a bearing on state and municipal administrations. This point is essentially important, because it shows a major concern about the integration of the treasuries of the various federal organizations. This approach was reinforced by the new administration of the RFB with the creation of the Fiscal Cooperation and Integration General Coordinating Board, aimed exclusively at easing integration among he Brazilian Tax Administrations.
Among the strategic projects outlined in Chart 1, some actions were selected for a deeper analysis in this document, given both the importance of the project and the intensive use of information technology or the participation of other federal institutions. Thus, in the following section, the SPED, e-Process, the National Synchronized Cadastre, and the National Plan to Improve Taxpayer Services – in their virtual attention module -- will be explained in more detail.
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3. Examples of Specific Projects
3.1 Changes to Work Processes in Administrative Trials
Before we discuss the e-Process, we will present some changes that have been made in the administrative arena.
a) Background
Among the institutional objectives of the RFB, we include the increase in the efficiency and efficacy in the preparation, analysis, and trial of administrative and fiscal processes with the commitment to expediting and giving quality to such trials.
In this regard, the search for an adequate measure contrasting with the degree of complexity of the administrative and fiscal processes and, therefore, with the estimate of the time necessary for the administrative trial, has been a constant since the creation of the Office of Processes in 1994.
Even though it is difficult to conceptualize, the possibility of drafting models that explain a substantial part of such complexity through objective criteria that can be compiled in the warrants right before the trials is unquestionable.
Such models, insofar as they are being implemented and improved, analyzing the historical data of the trials, enable the reduction of the uncertainty inherent to the contrast of values that, in principle, would be eminently subjective, as the complexity of the administrative and fiscal processes seem to be, regarding the time not used in their trials.
b) Current Management
The RFB is currently promoting the revision of the parameters for the determination of the degree of complexity of the processes, analyzing the historical data of trials, in a detailed fashion, managing to correct the distortions resulting from the use of certain parameters in the determination of the degree of complexity of the processes.
As an analysis strategy, hybrid models that associated statistical model solutions (generalized linear regression, independent for each table) with technical interventions done by representatives of each tax area, based upon their labor experiences, were used.
The results suggest that the parameters revised and the new ones that are proposed, if implemented, will reduce the distortions present in the determination of the degree of complexity of the processes. In this regard, using simulations with a database of national processes encompassing 2005 and 2006, it was observed that the difference between the actual number of hours of the trials and the estimated ones attributed to the degree of complexity dropped from the current -18.04% to -1.57%, and the dispersion of these variables was reduced by 59% (current MSE1 of 32.21 to an estimated MSE of 13.12), according to the tables presented in the section of results.
1 Mean Square Error is the measure used in this work.
38 Marcelo Lettieri Siquiera Tax Administration / Institutional Strengthening N°.10 - April 2011 Tax Thematic Series c) Technical analysis
Database
The database used was made up of 61,208 records resulting from the historical and statistical collection of data of the CP2 system, nationally consolidated in October 2007.
Methodology
Contrasting measures of the quality of results
The selection of the most adequate model, like the contrast of the quality of the results obtained, entails the use of one or more measures of comparison that represent the characteristics expected for the results of the analysis.
In this regard, the basis of the search for the ideal model expected was the reduction of the distortions between the actual number of hours of the trial and the estimated number of hours (associated to the degree of complexity), leading to the following actions: i) reduction in the difference observed between the averages of the estimated number of hours for the models and the actual number of hours reported by the judges for each one of the parameters3; ii) minimization of the dispersion presented between the estimated and actual numbers of hours.
In this way, the two measures of contrast defined next to represent the aforementioned actions, respectively, were used:
a) for the measurement of the difference – item (i) above – the average deviation per group of parameters, defined as the percentage deviation in relation to the average of the estimated number hours, for each group, between the average of the actual number of hours and the average of the estimated number of hours, was used; b) for the deviation of the dispersion, the mean square error (MSE), defined for the processes of each group as the average of the square of the deviation of the estimate, was used. Instead, the deviation of the estimates is defined as the difference between the estimated and the actual number of hours for each process.
Mathematical model
The objective was to estimate the time necessary for the decision of the process, given the characteristics that appear in the groups of parameters.
Such a phenomenon can be statistically modeled considering the hours spent in a trial as wasted time, randomly, to reach a certain distance associated, in the specific case, to the degree of complexity of the process. In this regard, the larger the complexity associated to the process (the distance to be run will be larger), the longer will be the expected time of work for the trial.
In this formulation, the expected time for the trial of the process has a statistic distribution known in literature as the Inverse Normal or Wald distribution4. 2 The Process Control System (CP) is one of the systems used to control the flow of administrative processes in the area of Federal Revenues of Brazil. 3 Due to the decision of not changing the structure of the CP in this first part of the work, the restriction of keeping fixed the groups of parameters of the existing tables that are outlined in Decree SRF No. 1.097/2005, being able to change only the weights and descriptions of the parameters of each table, is imposed. 4 Weisstein, Eric W. “Inverse Gaussian Distribution.” in MathWorld--A Wolfram Web Resource. http://mathworld. wolfram.com/InverseGaussianDistribution.html
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Thus, a generalized linear model (GLM), independent for each table, with identity as a function of relationship and Inverse Normal distribution family, using the actual number of hours used in the trial as the depending variable and the parameters that appear in each one of the aforementioned tables as the explicative variables, was used.
Empirical model
The mathematical models obtained, one for each group of parameters, were criticized by the representatives of each type of tax over the detection and correction of technical inconsistencies. Even though it adds a difference to the final results, such a procedure is necessary insofar as the mathematical models fail to show all the forms related to the complexity of the trial process. Thus the intervention of the technician representative of each group of taxes (tables) with the ability of detecting and proposing alternatives for the inconsistencies that may be present is indispensable. d) Results
The following table presents the current situation of the average percentage deviations, for the table of Decree SRF No. 1.097/2005, of the actual number of hours in relation to the number of hours attributed to the degree of complexity of the processes.
------table | frequency actual hours hp_degree deviation (%) ------1 | 18.265 16,16 19,29 -16,23 2 | 27.792 7,43 8,59 -13,45 3 | 4.285 13,93 23,93 -41,79 4 | 1.023 20,38 26,96 -24,41 5 | 2.291 14,61 9,97 46,57 6 | 4.693 5,31 8,24 -35,58 7 | 2.859 17,25 20,64 -16,42 | Total | 61.208 11,27 13,75 -18,04 ------
It is at once noticed that all deviations are above 10% and even above 40% in some cases. Such fact points the need to make adjustments to the complexity evaluation tables, justifying the revision of parameters.
With the implementation of the proposed models, the new average percentage deviations of the actual number of hours in relation to the number of hours attributed to the degree of complexity of the processes (estimated hours) went below 1%, with the exception of the processes of Table 5, whose reduction was from 46.57 to 14.67 percentage points. Such results suggest that the models proposed will reach the first goal of reducing the difference between the average of actual number of hours and those attributed to the degree of complexity.
Also regarding the measurement of the dispersion used, we notice an improvement in the performance of the total amount of (estimated) models proposed in relation to the current ones. With the models proposed, we managed to substantially reduce the dispersion between the number of hours actually worked and the estimated number of hours projected by the models. Thus, according to the results, the implementation of new sets of parameters will drastically reduce the current distortions in the evaluation of the degree of complexity of the processes.
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3.2 Federal Revenues Digital Process of Brazil (e-Process) a) What is e-Process?
The Secretariat of Federal Revenues of Brazil – RFB – is developing an electronic process system called e-Process. This system eliminates the use of paper in procedural actions carried out in the administrative realm in the form of petitions, document submittal, and presentation of consultations.
The system will integrate and control all the phases of the fiscal credit macroprocess, ranging from the fiscal launching and going through the taxpayers’ resources and the trial of administrative processes, up to the final collection of the tax credit without the need to print a single sheet of paper.
Beginning with this electronic tool, taxpayers will be able to consult tax legislation and find a solution to their consultation in an efficient and safe way, bringing forth more legal security to the treasury-taxpayer relationship.
The digital signature will enable taxpayers to submit procedural pieces and digital documents to make up the e-Process or the e-Query through the Virtual Taxpayer Service Center (e-CAC) to the e-mail address of the RFB -- www.receita.fazenda.gov.br.
Taxpayers will also be informed of the procedural actions electronically through their electronic e-mails available in the e-CAC. All taxpayers, individuals or companies, bearers of e-CPF or e-CNPJ Digital Certificates or any other certificates issued by the Certifying Authority accredited by the ICP-Brazil. Access through digital certificates guarantees the authenticity of the transactions.
The implementation of the e-Process is making progress to enable taxpayers and professionals of the area to avail themselves of numerous advantages, because they will be able to follow up on the steps of the process and carry out procedural actions at a distance — from their commercial establishments, offices, or homes – via the worldwide web.
The System represents savings, expedience, security, and transparency derived from the use of the e-Process in the area of Federal Revenues.
In the development and implementation of the system, the following basic principles are being observed: i) guarantee of transparency and traceability, with commitment and responsibility of each public action; ii) the elaboration of a generic and flexible system, allowing the parametrization of the specificities of each sector, type of unit, or competent body; iii) reduction of excess bureaucracy through the decentralization of power from those who wield it, guaranteeing further control and management of processes. b) Background
The idea of working with digital processes was conceived in the 5th Fiscal Region based in Salvador/ BA in mid-2003.
In 2004, the idea was adopted by the General Technology Coordinating Board, COTEC, and in 2005, the development of the process was chosen to be a priority project for the RFB.
In March 2006, the first digital process was created in the Federal Revenues Office of Brazil – Salvador DRF, the unit that was chosen as a pilot for the implementation of the system.
In October 2006, the first electronic process was tested in the Office of Federal Revenues Process – DRJ of Salvador.
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In July 2008, the dissemination of e-Process in the 22 units of the RFB and the Taxpayers Council began.
In 2009, the dissemination will be done in the other units and the National Finance Prosecutor’s Office -- PGFN.
c) Current management
There already are more than 3,500 digital fiscal processes in the units to be contemplated. In addition, in the pilot program in Salvador, approximately 90% of the new processes created with fiscal credit are already in digital format.
The expansion of the pilot Project to the 22 units of the RFB and the Taxpayers Council – CC – must end in late January 2009.
The development of the Proc Web module as part of e-Process, which is being implemented since December 2008, will enable the migration from paper processes to digital processes.
All the units contemplated in the first phase of the expansion of the e-Process were already trained and implemented. The only one remaining is Belem, which was scheduled for January 2009. The Proc Web pilot began in the DRJ of Ribeirao Preto/SP, incorporating functions of the DRJ’s and CC’s and opening the system to the control of 100% of processes in digital media and paper.
The following table shows how the existence of digital processes in the units already contemplated in the system:
####### ####### ####### 5-Nov-08 28-Nov-08 Launching Units Stock Stock Stock Stock Sotck DRF and DRJ/Salvador 2,249 2,274 2,226 2,336 2,535 DRF/Feira de Santana 19 20 39 47 35 Deinf and DRJ I and II/Rio de Janeiro 2 5 106 105 109 DRF and DRJ/Ribeirão Preto 28 29 128 151 171 DRF and DRJ/Curitiba 19 37 149 192 259 DRF and DRJ/Brasília 6 17 90 106 128 DRF and DRJ/Belo Horizonte 39 73 166 DRF and DRJ/Fortaleza 55 76 DRF and DRJ/Recife 61 DRF/Uruguaiana and DRJ/Santa Maria Implementation 01 a 05/12/2008 DRF and DRJ/Belem Implementation 19 a 23/01/2009 Total 2,323 2,382 2,777 3,065 3,540
In 2009, the second expansion of the e-Process will begin, contemplating most officers and inspector’s offices of the RFB. In addition, the development of the remaining modules will end. To do so, the team that is developing the project, under the coordination of Marcelo de Souza Silva, the Fiscal Auditor of Federal Revenues of Brazil, listed the following priorities:
1- Manage the errors and make the necessary adjustments, many of which are caused by the implementation of the new version of the system. 2- Purchase and rent equipment for the other units. The Programming and Logistics General Coordinating Board, Copol, is finishing the purchasing projects (monitors and plaques) and the renting projects (production scanner per administration unit).
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3- Search for multitasking with layers of software that enable a better image quality in the smallest size possible, with automatic brightness and contrast adjustments. 4- Increase the investment in infrastructure, especially in the creation of local cache memory for the increased performance in the display of images of a document, reducing the need to increase the Internet band. 5- Give e-Process access to the PGFN, with the standardization of digital certification, which also remains pending with the Disin/Cotec. d) Expected results:
With the implementation of the e-Process, both society and the Tax Administration must obtain significant benefits. We can outline these among the most important ones:
1. Increase in tax collection due to the drastic reduction in the time it takes to enter a digital administrative process in the realm of contentious and fiscal execution. 2. Reduce bureaucracy at the RFB in terms of easy steps taxpayers will have to take to accompany and view the process and the carrying out of procedural actions via Internet. 3. Availability, security, expedience, standardization, and automation of bureaucratic procedures. 4. Direct saving of budgetary resources for public administration.
1 Paper process -- current situation 134 320 186 640 2 Implantation of digital processes 108 20% 288 10% 148 20% 544 3 Integration session of judg. with CT 108 288 104 30% 499 4 Reception of petitiions via e-CAC 75 30% 288 104 468 5 Integration with the W Decision System 75 230 20% 104 410 6 Electronic form petitions 23 70% 230 104 358 7 Electronic decisions PF/SCC/e-Safira 23 69 70% 104 196 8 Massificação da Ciência Eletrônica 23 69 31 70% 123
5. Reduction in the procedural times according to the initial expectation shown in the following table: e) Achieved results
The use of e-Process is already substantially reducing the procedural times, but it is still too early to quantify if the reduction goals outlined in the previous table will be achieved.
Insofar as new units are integrated into the system and the new statistics on stock and procedural flows are available, it will be possible to accurately quantify the gains obtained from the implementation of the digital administrative process in the RFB.
3.3 National Synchronized Cadastre (CadSinc) a) What is the National Synchronized Cadastre?
The National Synchronized Cadastre (CadSinc) is the integration of the cadastral procedures of corporations and other institutions in the Tax Administrations of the Union, the States, the Federal District, and Municipalities, as well as other organizations and institutions that are part of the business registration and legalization processes in Brazil.
One of the pillars of the CadSinc is the use of the registration number in the National Corporations Cadastre (CNPJ) as the identifier in all sectors of the government.
Tax Administration / Institutional Strengthening Marcelo Lettieri Siquiera 43 Tax Thematic Series N°.10 - April 2011
As a shared solution among the very different organizations involved in the registration and formalization of companies and other institutions, the CadSinc is not a single cadastre, but a synchronization among the various existing cadastres – they all show the same cadastre information, respecting the demands or organizations and (competent) institutions in relation to the need for specific information from each one. The main objectives of the CadSinc is the simplification and streamlining of the processes of registration, modifications, and closure of corporations and other institutions (economic entities), leading to a reduction of costs and terms, in addition to the guarantee for further transparency in all processes and the standardization of the cadastral information of corporations and other institutions, enabling them to act with further efficiency and efficacy.
In the construction of the Synchronized Cadastre and according to Cooperation Protocol ENAT nº 01/2004, the following premises were observed: a) single data entry; b) independent, albeit synchronized databases; c) reciprocity in the acceptance of the legislation of each signatory institution; and d) adoption of the registration number of the National Corporations Cadastre (CNPJ) as the cadastral identifier of the taxpayers of the ICMS and ISS.
With the Synchronized Cadastre, it is much easier and faster for entrepreneurial citizens to open a company. After registering the charter, the interested party must fill out and forward the registration petition to the CNPJ through one of the available applications. If the petition is accepted, the inscription will be ready not only at the CNPJ, but also at the pertinent State and/or municipalities.
In the States where there are agreements with the Trade Tribunals, entrepreneurial citizens can submit the registration petition along with the registration petition of their charters. If the documents submitted and the data transmitted are correct and if they made the petition in a single place, the companies will therefore be registered and the registration at the National Corporations Cadastre (CNPJ) and the state and/or municipal registrations generated simultaneously will be done all at once!.
In addition to the aforementioned benefits, it is also possible to use the state passwords or digital certificates to take action at the cadastre. In a simple, easy, and quick step, this electronic signature eliminates the need to authenticate the signatures and often eliminates the need to appear before the body (Federal Revenues, SEFAZ5, SEFIN6, and so on) to demand the carrying out of the cadastral action (the change is processed automatically. Example, the change to the commercial name, telephone number, electronic mail, and so on).
Thus, when the Synchronized Cadastre is fully implemented, all Government Institutions related to Tax Administration, at all levels, and the registration of corporations will be working in a synchronized fashion; in other words, citizens will submit their petitions in one way only. b) Background The search for the simplification in cadastral processes in the three levels of Government began in 1990s, mainly beginning with the signing of the ICMS Agreement 08/1996, through Normative Directive SRF No. 27, which created the National Corporations Cadastre (CNPJ), replacing the old General Taxpayers Cadastre (CGC). The CNPJ began as a proposal to streamline the resources and procedures of the various existing cadastres and prior to the joining of all state and municipal tax administrations, with a later national integration of the tax cadastre. Meanwhile, due to legislation matters and operational difficulties attributed to the time, especially in the technological area, the CNPJ failed to achieve the expected objectives.
5 Finance Secretariats of the States 6 Finance Secretariats of the Municipalities
44 Marcelo Lettieri Siquiera Tax Administration / Institutional Strengthening N°.10 - April 2011 Tax Thematic Series
The simplification process of cadastral procedures takes on a new impetus in late 2003, when Constitutional Amendment No. 42 was approved. It introduced paragraph XXII in Article 37 of the Federal Constitution, establishing that the new tax administrations of the Union, States, the Federal District, and Municipalities act in an integrated fashion, even sharing fiscal cadastres and information.
In order to heed this constitutional mandate, in July 2004, the First National Meeting of Tax Administrators (ENAT) was held in Salvador. It gathered the heads of the Federal, States, Federal District, and Municipal Capital Tax Administrations. The objective of the meeting was to search joint solutions for the three levels of government enabling integrated actions and sharing fiscal and cadastral information among the Tax Administrations. The main document resulting from this meeting was the ENAT Cooperation Protocol No. 01/2004, whose objective was the construction of a cadastre that would heed the interests of the respective Tax Administrations.
Along the same line of simplification of cadastral procedures, rules encompassing the integration of procedures among the bodies responsible for the registration and legalization of businessmen and corporations were established for micro- and small-sized companies through Complementary Law 123 of December 14th, 2006. The goal was the prevent the duplicity of requirements for citizens, while guaranteeing the setting into motion of the single entry of cadastral data (in order to keep businessmen or corporations from having to make the same petition for cadastral actions – registration, changes, closures – at the various institutions involved). The same Complementary Law also defined that the databases of the institutions that are involved in the process of registration and legalization of corporations will keep independent databases, which reinforced the idea of the construction of a Synchronized Cadastre. c) Current Management
The implementation of the National Synchronized Cadastre is being done gradually. Currently, various Tax Administrations are already participation in the CadSinc, and in addition to them, other organizations and institutions that are involved in the process of registration and opening of corporations and other entities have the power to join the project, such as Commercial Courts, Fire Departments, Sanitary Overseeing Offices, and so on.
Thus far, the CadSinc has already been implemented in the States of Alagoas, Bahia, Maranhao, Minas Gerais, Para, Rio Grande do Norte, and Sao Paulo and in the municipalities of Belem/PA, Belo Horizonte/MG, Curitiba/PR, Natal/RN, Salvador/BA, Sao Luis/MA, and Vitoria/ES. There already are signed agreements, with their implementation schedules in draft (Phase III, first half of 2009), with the states of Acre, Amazonas, Ceara, Distrito Federal, Mato Grosso, Mato Grosso do Sul, Paraiba, Pernambuco, Piaui, Parana, Roraima, Santa Catarina, Sergipe, and Tocantins and the municipalities of Aracaju/SE, Barra Mansa/RJ, Boa Vista/RR, Campo Grande/MS, Montes Claros/MG, Petropolis/ RJ, Pinhais, Recife/PE, Sao Paulo/SP, Rio de Janeiro/RJ, Santarem/PA, and Sorocaba/SP. There also are signed agreements, but with the schedule still undetermined, with the states of Amapa, Espirito Santo, Rio Grande do Sul, Goias, Rio de Janeiro, and Rondonia and the municipalities of Bragança/ PA, Camaçari/BA, Contagem/MG, Maceio/AL, Manaus/AM, Palmas/TO, Piraju/SP, Ribeirao Preto/SP, Santos/SP, and Sete Lagoas/MG. d) Expected results
With the implementation of the Synchronized Cadastre, the following results are expected to be obtained:
1. From the point of view of citizens: i) reduction of the terms and procedures to create, modify and close companies; ii) further transparency in the process; iii) simplification and standardization of compliance with obligations; iv) less need to go to the involved institutions; and v) reduction in the expenses for document copies, mail, and filing.
Tax Administration / Institutional Strengthening Marcelo Lettieri Siquiera 45 Tax Thematic Series N°.10 - April 2011
2. From the point of view of Public Administrations: i) more stimulus for the formalization of businesses due to a reduced creation cost; ii) reduction of operational costs; iii) further integration, quality, and standardization of information; iv) improvement of the image before society; and v) more effectiveness of fiscal actions. e) Achieved Results
The use of the Synchronized Cadastre enabled a substantial reduction in the period between the petition and the registration at the Federal Revenues of Brazil, in state and/or municipal revenues, and in states and municipalities where the system had already been implemented.
As shown in the following chart, in Bahia, for instance, the Cadastre reduced to only 2 or 3 days the period between the petition and the formalization of the registration, which used to be 7 days. This reduction in time was verified, more or less, in the other offices of state and municipal revenues.
3.4 Public Digital Accounting System (SPED) a) What is SPED?
Created by Decree No. 6.022 of January 22nd, 2007, the Public Digital Accounting System (SPED) Project, in general terms, consists of the modernization of the current system of compliance with accessory obligations, submitted by taxpayers to tax administrations and the oversight bodies, using the digital certification in order to obtain a signature for electronic documents, thus guaranteeing their legal validity in digital form. The system is one of the projects that make up the 2007-2010 Growth Acceleration Program (PAC) of the federal government of Brazil.
The SPED is made up by three major subprojects: Digitally Recordable Accounting (ECD), the Digital Fiscal Accounting (EFD), and Electronic Invoicing (NF-e). In this section, we focus on the issue of accounting, while the NF-e will be broached in a separate section, because it is in a more advanced stage. The new system represents an integrated initiative by the tax administrations at the three levels of government and is a partnership with 20 institutions, including public organizations, class councils, civil associations and institutions, in the joint implementation of the project.
For the implementation of the SPED, the following premises were adopted: i) promote a better business environment for the country’s companies; ii) eliminate unfair competition by increasing competitiveness among companies; iii) the official document is the electronic document with legal validity for all purposes; iv) use the Standard ICP Brazil Digital Certification; v) promote information sharing; vi) reduction of costs for taxpayers; vii) minimum interference in the taxpayers’ environment; and viii) make available applications for the issuance and transmission of Digital Accounting and NF-e for the optional use by taxpayers.
46 Marcelo Lettieri Siquiera Tax Administration / Institutional Strengthening N°.10 - April 2011 Tax Thematic Series
Among the objectives, we have promoting further integration of the treasuries by sharing accounting and fiscal information, simplifying compliance with the taxpayers’ accessory obligations since the obligations with various institutions will be complied with in a single transmission, and improving oversight, which will be able to identify illegal tax-related actions faster, given the quick information access. b) Background
Just like in the other cases involving integration among treasuries, the initial reference is Constitutional Amendment No. 42 of December 19th, 2003, which established that the tax administrations of the Union, states, Federal District, and municipalities act in an integrated fashion, even sharing their cadastres and fiscal information.
In later meetings by tax administrations, joint actions were delineated to comply with the constitutional mandate. Thus, Cooperation Protocols were signed at the ENAT II – National Meeting of Tax Administrators – in order to develop and implement the Public Digital Accounting and Electronic Invoicing System.
Regarding the issue of the Improvement of the Tax System, the implementation of the Public Digital Accounting System (SPED) and Electronic Invoicing (NF-e) in two years is among the measures announced by the Federal Government on January 22nd, 2007 for the 2007-2010 Growth Acceleration Program (PAC), because the two projects are aimed at removing administrative and bureaucratic obstacles to economic growth, promoting a business environment for the country, and reducing the “Brazil cost.” c) Current Management
Regarding the subprojects dealing with accounting, it can be established, in a very simplified way, that in both cases, it is the replacement of the current fiscal and accounting books for their digital equivalents.
In the terms of Decree No. 6.022/2007, the term for the implementation of the ECD began on 01/01/2008 for companies subjected to the differentiated economic-tax accompaniment and subject to Real Profits7. On 01/01/2009, the system began encompassing all the companies subject to tax on Real Profits.
In a simplified manner, the operation of the accounting SPED is shown in Figure 1 in the following page.
Regarding the EFD, the definition of the companies obligated to submit digital fiscal accounting is slated for the first half of 2009.
7 Characteristics of the tax system of the largest companies once it demands fully recordable fiscal acounting.
Tax Administration / Institutional Strengthening Marcelo Lettieri Siquiera 47 Tax Thematic Series N°.10 - April 2011
Figure 1 – Digitally Recordable Accounting System
d) Expected Results
The benefits are varied and favor both the Tax Administrations and taxpayers. The following stand out among the results: · Cost reduction with the elimination of issuance and storage of paper documents; · Elimination of paper; · Cost reduction with the streamlining and simplification of accessory obligations; · Standardization of the information taxpayers give to the various federal units; · Simplification and expedition of procedures subject to control by the tax administration (foreign trade, special systems, and transit among federal units); · Strengthening of the control and oversight through the exchange of information among the tax administrations; · Quicker access to information; · Reduction in administrative costs; · Improvement in the quality of information; · Possibility of cross reference between accounting and fiscal data; · Availability of authentic and valid accounting copies for various uses and concomitants; · Reduction of the “Brazil Cost;” · Improvement in the fight against evasion; · Preservation of the environment through a reduction in paper consumption.
The main difficulties refer to problems of coordination among organizations during the implementation of the SPED. These problems are being overcome, given the common interest of the organizations involved, the leadership of the RFB, and the acceptance by society, which has been very positive since the system will reduce a large part of the accessory obligations of taxpayers, as well as will eliminate unfair competition in the economy. Even so, there are some sectors that have criticized the project for its allegedly legal weaknesses and an exacerbated increase in the power of oversight.
48 Marcelo Lettieri Siquiera Tax Administration / Institutional Strengthening N°.10 - April 2011 Tax Thematic Series e) Achieved Results Regarding the results, the SPED in the area of accounting is still in its initial execution stage, but it should start gaining ground beginning in 2009 with the compulsoriness of submission by all companies subject to Real Profits, which equals approximately 180,000 taxpayers8. In the period between 01/01/2008 and 04/11/2008, 50 files were submitted with the Accounting SPED.
3.5 Electronic Invoicing (NF-e) a) What is Electronic Invoicing (NF-e)? The NF-e is a document issued and stored electronically that exists only in its digital version. The objective is to document an operation of merchandise transfer and service rendering between two parties, whose legal validity is guaranteed by the digital signature of the issuer and the reception, by the treasury, before the occurrence of a Generating Event. The objective of the NF-e is the implementation of a national electronic fiscal document model that will replace the issuance of a fiscal document in paper, with legal validity guaranteed by the digital signature of the issuer, simplifying the accessory obligations of taxpayers while enabling the follow- up in real time of the commercial operations by the Treasury. b) Background
As is the case with one of the subprojects of the SPED, the origin of the NF-e is also found in Constitutional Amendment No. 42 and its implementation, with the signing of protocols of the II ENAT, and is part of the 2007-2010 Growth Acceleration Program (PAC) of the federal government. c) Current Management
The NF-e has already been implemented in some states and economic sectors, according to the following chart, but its coverage will substantially increase beginning on 01/04/2009.
Chart 02 – Sectors already Implemented Date Sectors - cigar makers; - cigar distributors or wholesalers; Beginning on - liquid fuel manufacturers, producers, and importers; 01/04/2008 - liquid fuel distributors - retail transporters and resellers - manufacturers of automobiles, vans, SUVs, trucks, buses, and motorcycles; - cement manufacturers - manufacturers, distributors, and wholesalers of allopathic medicines for human consumption; - cold containers and wholesalers that promote the sale of fresh, refrigerated, or frozen meat from cows, pork, buffalo, or poultry; Beginning on - manufacturers of alcoholic beverages, including beer and draft beer; 01/12/2008 - refreshment manufacturers; - agents that play the role of electric energy providers in the area of the Electric Energy Commer- cialization Chamber; - manufacturers of semi-finishes, plain or long laminates, re-laminates, and wire drawing and sec- tional steel; - manufacturers of first fusion steel.
8 Data of the DIPJ/2004.
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The following figure is a summary of how the NF-e Works:
Figure 3 – Electronic Invoicing System
When a buyer and seller conduct a business transaction, the later with its digital signature requests authorization via Internet for the issuance of the NF-e to the State Finance Secretariat from its jurisdiction. The SEFAZ in turn returns the pre-validated NF-e receipt. This Use Authorization notice enables the transportation of merchandise. Beginning with this authorization, the Auxiliary Electronic Invoice Document (DANFE) is printed. The NF-e information will be transmitted by the SEFAZ of the taxpayer to the SEFAZ of the destination of the merchandise and Federal Revenues. The SEFAZ will make available for consultation, through the Internet, the NF-e information.
The DANFE is a simple graphic representation of the NF-e, can be printed in common paper, and is used to cover the transfer of merchandise and NF-e accounting auxiliary when the addressee does not participate in the system. By itself, it has no legal value, and its validity is conditioned upon the existence of the NF-e. d) Expected Results
It is estimated that the adoption of the NF-e will bring positive results for all the parties involved. The following results stand out: Benefits for the Selling Taxpayer – NF-e Issuer (reduction in the costs of paper, printing, and storage; simplification of accessory obligations; reduction in the time trucks stop at fiscal offices; incentive for the use of electronic relations with clients - B2B); Benefits for the Buying Taxpayer – NF-e Receiver (elimination of the digitalization of invoices in the reception of merchandise and incentive for the use of electronic relations - B2B); Benefits for Tax Administrations(increase in the trustworthiness of the invoice, improvement in the fiscal control process, further information exchange and sharing among treasuries, reduction in the in-transit merchandise invoice control process, and support for fiscal electronic accounting projects of the RFB (Public Digital Accounting System – SPED)).
50 Marcelo Lettieri Siquiera Tax Administration / Institutional Strengthening N°.10 - April 2011 Tax Thematic Series e) Achieved Results
Regarding the results according to the sites that follow up on the program9 on 15/01/2009, 81 million NF-e’s totaling more than R$1.6 quintillions have already been issued.
3.6 Virtual Taxpayer Service Center (e-CAC) a) What is the Virtual Taxpayer Service Center?
In order to provide more options to render services to taxpayers, the Secretariat of Federal Revenues of Brazil, RFB, on 12/12/2005, through Normative Directive No. SRF No. 580, created the Virtual Taxpayer Service Center, called e-CAC, which is accessed through the RFB portal in the worldwide web.
To access the e-CAC services, it is necessary for taxpayers to have the e-CPF or e-CNPJ, or any certificate of corporation or person from the Brazilian Public Password Infrastructure ICP-Brazil.
Citizens can access e-CAC from their homes or offices via the Internet through the use of Digital Certification technology, which guarantees the safety and integrity of the transactions done.
The e-CAC operates 24 hours a day, seven days a week in order to provide more comfort to taxpayers, without having to move and stand in line. It also increases the time available for his attention considerably.
The services rendered through the e-CAC are automatic and are grouped according to the nature and type of taxpayers – corporations or individuals – and can be accessed, respectively, with the use of their e-CPF and e-CNPJ Digital Certificates, or through their representatives, as long as they have previously been listed in the cadastre through the specific service. It is certified that an individual, with his e-CPF, will be able to use the applications for the corporation for which he is responsible before the CNPJ.
The digital certificate is the tool that enables taxpayers to access the services protected by the fiscal secret in the e-CAC. It is a process that guarantees that the information exchanged in electronic transactions will not be accessed by third parties and that they will not be changed in the route they follow. Thus, the certificate guarantees the identity of the origin and destination of the information.
The certification process generates an electronic file that identifies who the owner is, which in an electronic means, is the equivalent of an identification card.
In order to obtain the e-CNPJ or e-CPF digital certificate, taxpayers must choose one of the companies authorized by Federal Revenues to issue an identification card. b) Current Management
Currently, the e-CAC has he following services, among others, at taxpayers’ disposal:
1. POSTAL ADDRESS: e-CAC users will be able to receive completely safe and reliable messages from the RFB, either general or personal, reminders for compliance with accessory obligations, and notices on the deadlines to pay taxes, as well as pending actions present in the RFB systems. Information of the exclusive interest of taxpayers who have a POSTAL ADDRESS will be able to circulate fully guaranteeing the inviolability of the fiscal secret.
9 http://www.nfe.fazenda.gov.br/portal/Default.aspx
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2. CADASTRES:
a) CPF: it is available to consult its cadastral data, as well as the possibility of updating some of these data, even the address. b) CNPJ: it is available to consult the cadastral situation of companies and the issuance of the registration receipt.
3. reTURN COPY:
a) returns of Individuals: taxpayers will be able to retrieve copy of the return filed via Ingresosnet in the last few years, whether IRPF, ITR, and IRRF. b) returns of Corporations: taxpayers will be able to retrieve copy of the return filed via Ingresosnet in the last five years, whether IRPF, ITR, and IRRF.
4. suBMITTED RETURNS: Individuals and corporations will be able to view the last tax returns submitted, as well as to make consultations on their processing (processing extract) and on the amounts to be returned for the following types of tax returns: DIRPF – Individual Income Tax Return; Dirf – Source-Withheld Tax Returns; DIPJ – Statement of Fiscal and Economic Information of Corporations; Simplified PJ – Simplified Corporate Returns; DITR – Rural Property Tax Returns; DCTF – Federal Tax Debit and Credit Returns.
5. PAYMENTS: e-CAC users will be able to consult the list of payments made, print payment receipts (a very useful option when the original DARF is lost), and correct mistakes made when the DARF or the DARF-SIMPLE are filled out. The corrections allowed will be fully automatic in case the payments are available.
6. PARTIAL PAYMENTS: enable e-CAC users to make partial debit payments at Federal Revenues, payments dealing with federal taxes and dues under the current legislation.
7. eleCTRONIC POWER: enables e-CAC users to delegate to third parties who have their Digital Certification their representation at the Federal Revenues. Individuals and corporations will be able to do the following: i) select what available services their representative can access and also specify the date of expiration of his power; ii) consult the powers previously registered by taxpayers in favor of their proxies, as well as the powers granted to third parties on their behalf, being able to view their data and respective expiration dates; and iii) cancel those powers they do not wish to keep.
8. FISCAL SITUATION: e-CAC users will have detailed access to their fiscal situation at Federal Revenues. In addition to being able to view their cadastral and fiscal data, taxpayers will be able to obtain orientation on the regularization of their pending cases existing by chance.
9. sISCOMEX: individuals previously registered at Federal Revenues will be able to conduct transactions regarding the Foreign Trade Integrated System, such as registration of legal representatives, exports, Mantra, imports, customs movement, and the use of the Manaus Free Zone.
The aforementioned services constitute only a small sample of what has already been implemented in order to ease the burdens of taxpayers and their communications with the Tax Administration. Federal Revenues will continue to work to broaden the universes of services to be rendered by means of the Virtual Taxpayer Service Center, e-CAC. The complete list of services rendered by the e-CAC can be consulted in the following address: http:// www.receita.fazenda.gov.br/atendvirtual/defaultDemaisServicos.htm.
52 Marcelo Lettieri Siquiera Tax Administration / Institutional Strengthening N°.10 - April 2011 Tax Thematic Series c) Expected Results:
With the implementation of the e-CAC, both society and the Tax Administration must obtain significant benefits. The following stand out among the most important ones: i) For taxpayers/citizens: time saving, comfort, and practical sense as the services are available full time at the RFB site. ii) For Tax Administrations: reduction in operational costs, such as filing materials, among others. Reduction in the search for personal services at the Taxpayer Service Centers, enabling the change/ qualification of servers to render more specialized services, thus contributing to reducing the time spent in lines, diminishing the average time of attention, eliminating repressed demand, and increasing the conclusion of cases. d) Achieved Results:
The use of e-CAC substantially reduced the flow of taxpayers at Service Centers for Federal Revenues, reducing the time spent in lines and the average time of attention.
The number of accesses has increased insofar as taxpayers become aware of the types of services already available via Internet. The following graph shows the statistics for digital certification accesses:
Statistics on e-CAC Acess w ith Digital Certification (in thousands)
25,000
20,000
15,000
10,000
5,000
0 2006 2007 JAN FEV MAR ABR MAI JUN JUL AGO SET OUT NOV
Quantidade de Acessos/mês 1,415 3,543 11,82 11,38 13,82 14,26 11,23 13,07 15,46 17,45 19,10 18,23 15,24
The major challenge is to also reduce personal attention even more, which reached 1.5 million taxpayers in 2008, and replace it by virtual attention.
4. Final Considerations
As we tried to show, the RFB has sought management solutions leading to a reduction in costs and simplification of the obligations of taxpayers while increasing efficiency in tax administration, as well as further promoting communications among States and Municipalities. It must be recalled that the integration among the Tax Administrations has not been too great in federal countries, especially in those that, like Brazil, have a high degree of fiscal decentralization.
The partnerships, protocols, and joint projects among the RFB and the state and municipal Tax Administrations represent progress in the country’s institutional maturity, strengthening the actions of the State with more agile and powerful instruments against fiscal evasion and making the business environment more propitious for the citizens and corporations that try to operate in accordance with national laws.
Tax Administration / Institutional Strengthening Marcelo Lettieri Siquiera 53 Strategic Planning as Factor Contributing to the Improvement of Institutional Capacity
1. Presentation. 2. Legal competency. 3. Quality and internal control management system. 4. Strategic map. 5. Strategic review. 6. National development plan. 7. Mission and vision. 8. Institutional policies and good governance code. 9. Strategic direction. 10. Strategic initiatives per process. 11. Annual operational plan. 12. Operational plan of the section or execution level. 13. Individual level planning. 14. Internal audit plan. 15. Institutional development and improvement plan. 16. Communication of the strategy. 17. Evaluation of the strategy and management. 18. Areas that intervene. 19. Challenges.
Néstor Díaz Saavedra (Colombia) N°.10 - April 2011 Tax Thematic Series
1. Presentation
I would like to thank CIAT for the opportunity of presenting to you the strategic Management experience adopted for some years now by DIAN, which is centered in the alignment of the strategy with institutional development with the purpose of reaching optimum collection levels and enable foreign trade, while at the same time it fights evasion and contraband, in agreement with item 3.3: Strategic Planning as Factor Contributing to the Improvement of Institutional Capacity – of the agenda.
This presentation covers some of the elements that form part of the strategic Management model adapted by the entity and its alignment with the institution’s development, as seen herein:
Hereinafter are all the elements of the strategic Framework and their systemic interaction.
2. legal Competency
DIAN is in charge of:
· The management of income and complimentary taxes, national stamp taxes and sales taxes; customs’ fees and other national excise taxes which competency is not assigned to other State entities, whether these are excise taxes or foreign trade taxes; as well as the management and administration of customs, including seizures, confiscation or abandonment statement in favor of the Nation of goods and their management and disposition. · Controlling and overseeing compliance with the exchange regime for the importing and exporting of goods and services, expenses associated thereto, the financing of imports and exports in foreign currency, and the under-invoicing and over-invoicing of these operations. · Tax Management involves their withholding, examination, settlement, discussion, collection, refund, sanction and all other aspects relating to the compliance with the tax obligations.
Tax Administration / Institutional Strengthening Néstor Díaz Saavedra 55 Tax Thematic Series N°.10 - April 2011
· The administration of customs fees and other taxes to foreign trade, involves their collection, examination, assessment, discussion, withholding, sanction and all other aspects relating to compliance with customs obligations. · The Management and administration of customs involves service and support for foreign trade operations, the apprehension, confiscation or statement of abandonment of the goods in favor of the Nation, their Management, control and disposal, as well as the administration and control of the Special Import-Export Systems, Free Zones, Special Economic Export Zones and International Marketing Corporations, pursuant to the policies designed by the Ministry of Commerce, Industry and Tourism on the issue, for the latter, excepting contracts relating to Free Zones. · Acting legal and statistical authority on tax, customs issues, and exchange control in regards to the issues of its competency, as well as those pertaining to Special Import-Export Systems, Free Zones, Special Economic Export Zones and International Marketing Corporations.
3. quality and Internal Control Management System
In developing the government policy of standardizing a Management model for the Public Administration, DIAN has been consolidating a Quality and Internal Control Management System that is adequate for the intention of building the Single Income and Automated Control Service (MUISCA, in Spanish), which harmonizes the Public Management Quality Technical Standard, the Internal Control Standard Model, the Risk Management System, environmental management standards and DIAN’s specific administrative career path system, with the other governmental guidelines, in the development of the competencies mandated by the law and its regulations to the organization, in agreement with the annual strategic reviews. The system sits on an operations by processes model, which defines and formalizes actions and interactions, whereby the entity achieves to transform inputs into the products and services in order to generate value, harmonize the institution’s mission and vision towards management by process, which in their interaction, interdependence and the cause-effect relation, tend towards the efficient execution and compliance with the objectives of the entity in function of all parties interested to give the best possible products and services. In the development of the Quality and Internal Control Management System, DIAN structure in the Processes Map as the concentric axis thereof.
Processes Map
56 Néstor Díaz Saavedra Tax Administration / Institutional Strengthening N°.10 - April 2011 Tax Thematic Series
Master List of Processes Version 2 Resolution 01718 December 2008
Processes Sub-processes Procedures 15 38 199 Payment facilities Judicial Deposit Securities Administration Enforced collection Non-coercive recovery Portfolio Portfolio streamlining Management Portfolio management support and control and special processes Requests management and non-assigned debt certifications Distribution and Inventory Obligation Applications Management Inventory, Filing and Distribution of Files and Portfolio Obligations Management Seizure, recognition and goods’ Seizure of Goods or Direct Seizure appraisal Definition of the legal status of Trail proceedings and Decision on the Substance the goods Automotive procedural steps Examination procedural steps for Tax Assessment Examination Decision on the Substance for Tax Assessment Assessment Decision on the Substance for Tax Assessment Official Tax andL ien Assessments Customs information exchange and Payments Review of examination and payment actions Procedural steps to propose official customs payments Decision on the Substance for official customs payments Decision on the Substance to levy tax sanctions Examination and Decision on the Substance to assess tax sanctions Payment Procedural steps to assess tax sanctions Default of obligations and Effectiveness of Customs Guarantees Determination and imposition of Procedural steps to propose levying of Customs sanctions sanctions Decision on the Substance to levy Customs sanctions Exchange operations controls Controls for professionals who buy and sell foreign currency Decision on the Substance to levy exchange sanctions Investigation of International Economic Operations and foreign investment Prevention and control of money laundering Money Laundering Operations Supply of information to state entities on the subject of money laundering Criminal investigation Operational support and back-up Support and back-up to Tax Examination, Customs and Exchange Actions Police Intelligence Client attention and follow-up Service channel management M I SS ON P RO C ESSES Customer Management of the Complaints, Claims and Suggestion System Assistance Complaints, Claims, Suggestion and Requests Management - QRSP Legal counseling Correction of inconsistencies In person receipt of External Information Issue and renewal of the digital mechanism Annulment of the digital mechanism Mass Control of Formal Obligations Update of the Master Taxpayer File Management Special Requests and Internal Situations Decision Billing authorization Accounting books registry Administration of electronic IT services Management of the Master Taxpayer File Management of the Refund Revolving Fund (DTN, in Spanish) Disclosure of Statements, Reports and Accounting Reports Recognition of transactions or Accounting Operations and Later Value Updates Analysis, review and consolidation of accounting information Management of the Integrated Financial Information System – SIIF Revenue accounting Streamlining of accounting information Streamlining of accounting information Management Management of collection and charge actions Inconsistencies correction management Collection Self-withholding control Imposition of sanctions on authorized collection entities Administration of the Lien on Financial Movements Control of entities authorized to Verification of Document transmission make collections Receipt of documents for authorized collection entities Section directorates for the control of authorized collection entities Control visits to authorized collection entities Returns and/or compensations Refunds and/or compensations management Refunds Payment
Tax Administration / Institutional Strengthening Néstor Díaz Saavedra 57 Tax Thematic Series N°.10 - April 2011
Master List of Processes Version 2 Resolution 01718 December 2008 Processes Sub-processes Procedures
Revenue and inventory of Goods and Assets to market Goods and Assets Inventory System Control Goods and Assets Custody Control Execution of third party controls Recognition and Accounting Marketing Disposal of Goods, Assets and Ser- Sale of Goods and Services of the Entity vices Disposal of Goods Execution Disposal of Goods Supervision Analysis and Sentencing of Central Level Resources Administrative Channels Analysis and Sentencing of Resources and other Section Requests Legal Remedies Secretariat Regulatory Framework, Case Law, Doctrine and International Trea- ties Issues Compilation Response to Inquiries pursuant to the Existing Regulatory Framework, Regulatory Framework and Doctrine Case Law and Doctrine Legal Management Support and Control of Legal Management Response to Inquiries and Comments to Draft Bills and/or Treaties and the negotiation thereof. Intervention in legal and administrative processes Punishable Behaviors in Tax, Customs and Exchange Affairs and External Representation other Punishable Behaviors. Intervention of the Administration in Special Collection Processes Entry and Recognition of Cargo Entry and Recognition of Goods of postal traffic and urgent deliveries Control of Abandoned Goods Goods Inspection Travelers’ Luggage Entry and Exit Controls and Foreign Exchange Entry of Goods into the National Cus- Control toms Territory Acceptance, Cancellation, Custody and Control of Guarantees Authorization of Manual Proceedings (Logs) Inquiries and Acceptances prior to the return Goods Control in the Free Zone M I SS ONS P RO C ESSES Support and Control of the application of customs regimes Administration of the Customs IT System Departure of Goods from the National Authorization, shipment and termination of the exit of goods Customs Territory Acceptance, Recognition, Authorization and Conclusion of the Cus- Customs Transit Customs Operations toms Transit Operation Physical/Chemical Laboratory and Assistance in the Physical – Chemical Analysis of Goods Analysis of Goods Physical/Chemical Analysis of the Goods Decision on the Substance for requests to obtain, renew, homologate or amend the customs registry Auxiliary Authorization and Control Customs Registry Inquiry of the Customs Public Service and Control Customs Management and registry Customs Users Preliminary analysis of custom registry requests Customs Registry Document Management Management of control tools on the customs valuation issues Orientation in the application of Goods Rules of Origin Goods Valuation and Origin Management of Customs Valuation Information Administration Information Administration on the origin of goods Goods Tariff Classification Customs Tariffs Technical Studies and Solution of Inquiries on Tariff Issues Tariff Update
Disciplinary Action
Disciplinary Investigation Disciplinary Technical Secretariat Evaluation and Auditing
ESSES Internal Quality Audit C Internal Control Self-Assessment and Supervision RO C ON T ROL Complains Management, Taxpayer Advocate and Customs User P
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Master List of Processes Version 2 Resolution 01718 December 2008 Processes Sub-processes Procedures Recognition of accounting transactions or operations, value and adjustments updates General Accounting Disclosure of financial statements, reports and accounting reports Accounting Orientation and follow-up Budgetary Execution Financial Budget Budgetary Programming Budgetary Control and Follow-up Resources Petty Cash Revenue Management Investment Management Treasury Liabilities Payment Treasury Payment Payment Recognition and/or Monetary Liabilities Compensation Real Estate Management Inventory Management Security Coordination General Services Infrastructure Management Transport DIAN Headquarters Administration Inventories Accounting Physical Resources Execution of Security Plans Installation of IT Networks Preparation of the Purchases Plan Acquisition of Goods and Services Contracting of Goods and Services Administration of Goods given as Payment in Kind Registries Control Document Management Notices systems management Solutions building Foreign Exchange Management Identification and Definition of Requirements Execution of Functional and Performance Tests IT Services Dimensioning and assessment of technological resources Architecture Management Modeling of technical architecture Technical Support Service Availability Solutions Maintenance and Update Work certificates and evidences Payroll Payment Social Security Management Analysis and coordination of the occupational health program Implementation of Individual Performance Evaluation and management administration agreements Personnel Registry and Information Generation Dismissal due to Unsatisfactory Performance Evaluation Human Resources Personnel Management Coordination of social security services Management Implementation of the occupational health program Analysis and planning of labor welfare and incentive programs
SU PP OR T P RO C ESSES Execution of labor welfare and incentive programs Personnel entry management Administrative situations management Labor history management Payroll management support Training Knowledge Management Library Management Liaison with Foreign Agents Institutional means Events Coordination and Execution Communication with Local State Agents Communication Press and media Internal Communication Correspondence Notices Advertising Risk profile Tax Studies Operations Analysis Strategic Planning and Evaluation Operational Planning and Evaluation Requirements Attention Corporate Intelligence Relations Management and other inter- Promotion of information exchange, knowledge and experience ested parties Organizational Analysis Control of Product not In agreement and Application of Corrective and Preventive Actions Processes Dynamics Procedures Characterization Documents Design Coordination and Evaluation of the Quality Management System and Internal Control Occupational Analysis Analysis of the Individual Performance Evaluation System Labor Competencies Dynamics Design of Career Path Management Proposals Values Management and Labor Competencies
Cross Cutting Procedures Secretarial Management Administrative support Processes Advisory Administrative Assistance Technical Assistance to Processes Security Services Rendering Leadership
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4. sTrategic Map
DIAN’s strategic map is framed in the Corporate Intelligence process and responds to the need of articulating requirements on planning established in the technical norm defined in the Quality Management and Internal Control System, as from the functional competencies granted to the tax and customs administration by Colombian law, the same provides strategic, planning and institutional evaluation reference points, the improvement of the anticipation capacity regarding potential risks and the adequate materialization of systemic organizational actions in order to reach organizational effectiveness.
The strategic planning becomes the essential tool for decision making, the follow-up of fiscal targets, facilitation of foreign trade and solidifies the Corporate Intelligence process, with the purpose of substantially reducing tax evasion levels, contraband and violations to the exchange regime in general and endeavor the necessary institutional synergies.
The strategic map is the managerial tool that orients the performance of the entity to satisfy the legal and institutional competencies assigned, which are materialized in the mission and vision, with the purpose of attaining the State’s fiscal sustainability in the medium term, for the benefit of society-at-large.
The strategic map involves holistically and systemically the challenges of the tax, customs and exchange administration and incorporates spaces for strategic review, specially those generated by the speed of technological changes and the adaptation and competitiveness needs generated by economic globalization.
Strategic Objectives which guides its actions
A- Attain operational excellence B- Redirect the entity towards a service orientation C- Consolidate autonomy and legitimacy D- Contribute towards the country’s competitiveness
DIAN develops objectives as from the strategies defined in the graph.
60 Néstor Díaz Saavedra Tax Administration / Institutional Strengthening N°.10 - T ax Contribute towards the Country’s Administration /Institutinal Strengthening Attain excellence in operation s Re-direct the entity towards service Consolidate autonomy and identi ty competitiveness April 2011
Maximize tax revenue pursuant to the regulatory frame work
ce Maximize access income n Optimize Reduce costs a Optimize Maximize the value of to national and Reduce client costs
n Optmi ize the Cost/Benefit ratoi tax collection Relating to compliance comprehensive the DIAN brand international relating to Fi coverage entry by clients cooperation resources with obligations customs operations
Promootin actoi ns to cuonter evasoin, avodi ance, contraband and exchange voi lations
Build trust, credbiility and image mi provemetn t
Mobilize the communication of the results on the use en Improve reaction Mobilize TAC LegislationProvide juridical stability Offer customers of state resources
Cli times in regards Increase customer satisfaction levels simplification and certainty permanent assistance to clients Promote transparency and Generate a culture and harmonization with a united criteria interact with the community of voluntary compliance
Orient, speed-up, make more flexible the entity’s Modify, align and shield process against subjectivity, Strengthen intelligence Asegurar la process towards knowledge on corruption and the violation of values and comprehensive confiabilidad de los the client and deliver of value Actively contribute in
Lead the development control procesos Strengthen the speeding-up the Develop enabling of national mass prevalence strategy strategic alliances management and Prioritize service of the tax authority and planning of the services network Facilitate and optimize vocation in the regulatory framework Processes Speed-up, simplify and make customs operations official’s career Make the administrative processes more flexible path plan regulatory framework more flexible
Prioritize service Néstor DíazSaavedra Transform internal
on vocation in the culture towards Generate a culture official’s career Innovate with Improve the capacity Strengthen the Generate organizational capacity customer service of transparency, vati effective of the Corporate entity’s path plan commitment and o to use the information control tools Intelligence process strategic skills n value generation n Investigate and innovate in service
Tax d i models and means
Consolidate organizational capacity to accomplish the mission and achieve the vision Thematic Series gan n Strengthen and implement a system to attract, train, develop, assess, retain and continuously and adequately compensate personnel
n i Assure the generation, management and dissemination of the required knowledge throughout the organization as well as its value chain
Lear Have available reliable information and qualified and sustainable technological support 61
Tax Thematic Series N°.10 - April 2011
5. sTrategic Review
The strategic review is the analysis, evaluation and interpretation of set of internal and external variables which allow as a diagnosis, to know the political, economic, social context and the state of the art of organizational context, as fundamental pillars to solidify the institution’s mission and formulate a challenging vision in agreement with the demands of modern society.
Involves the systematic analysis of the external trends and individually weighs each input that forms part of the tax customs and exchange system, in agreement with the operational capacity of the tax administration, similarly it involves the studies carried out by the entity and by other public or private, national or international organizations.
Each year the strategic coordination committee is in charge of reviewing the scope of the advances of the strategic map and makes the corrective measures and initiatives in next year’s strategic direction.
6. national Development Plan
The National Development Plan defines the general guidelines of the National Government for the constitutional period and it harmonizes the set of public policies that are established for public administration in general and the tax and customs administration in particular, especially those referring to the simplification of proceedings, the moralization of public administration and the State’s modernization in function o the principles of the administrative function defined in our country’s Political Constitution.
“Community Development for all” 2006 - 2010
Objectives · Community based State: Development for all · Political Defense and Democratic Security · Reduce Poverty and Promote Employment and Equality · High and Sustained Growth: The Condition for Development with Equality · Environmental and Risk Management which promotes Sustainable Development · Better State at the Citizen’s Service
7. mIssion and Vision
MISSION
“At the National Directorate of Taxes and Customs of Colombia, we are responsible of rendering a facilitation and control service to economic agents, for compliance with the standards that form part of the Tax, Customs and Exchange System, obeying to the constitutional principles of the administrative function, in order to collect the correct amount of taxes, speed-up foreign trade operations, promote the conditions for fair competition, provide reliable and timely information, and contribute towards the social and economic wellbeing of Colombians.”
VISION
“In 2010 the National Directorate of Taxes and Customs of Colombia has consolidated: the State’s fiscal authority, the institutional autonomy, high degrees of voluntary compliance with the obligations that it controls and facilitates, full use and comprehensiveness of information, processes and regulatory framework, the contribution of technical elements for the adaptation of the fiscal burden and the streamlining of the tax system.
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With the aid of committed and trained officials to safeguard the interests of the State with a sense of service, with comprehensive and permanently updated technological support, and the special administrative regime of a modern entity that responds to the needs of society, officials, taxpayers and users.”
8. Institutional Policies and Good Governance Code
DIAN established a code of good governance as the voluntary and participatory expression of self- regulation and commitment of all civil servants, who endeavor to carryout a comprehensive, efficient and transparent Management, to strengthen citizen credibility and trust in the Entity.
It is formed by the set of ethical guidelines and values – Respect, Honesty, Responsibility, Commitment, – and for the set of policies or guidelines that must characterize the entity’s Management style.
Good governance policies correspond to the set of guidelines formally expressed by top management, through which the action framework which orients public activity in a specific field, to comply with the constitution and the mission purposes of the entity, so as to guarantee coherence between purposes and practices.
Administrative Development Policies – Human and Quality Management Control Policies – Internal Control, Control Organizations and Audits. Operational Risks Policies Information and Communications Policies – Information management and control, information security, organizational and informational Communications. Social Responsibility Policies – accountability, environment. Policy regarding stakeholders – service, suppliers and contractors.
9. sTrategic Direction
Strategic Direction is the planning instrument defined by the entity, which establishes the specific elements, where institutional management will focus on during a fiscal year. Not all the objectives of the Strategic Plan are necessarily developed simultaneously, therefore it is necessary to determine every year the aspects in which the entity’s management is focused on.
Strategic Direction must include, for all institutional processes expected achievements, instruments and tools to be used to attain the same, as well as their incidence in the strategic map and the result indicators to assess their obtainment, as indicated hereinafter:
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2009 STRATEGIC DIRECTION Achievements Instruments/Tools Strategic Map Incidence Indicators Focus 1. Compliance with the Institution’s Mission Compliance with collec- Maximize tax revenue pursuant to Target Compliance tion targets the regulatory framework in force Portfolio recovery and streamlining Evasion indicator Evasion Decline Proposed management
Risk Generation Strengthen Intelligence and com- Tax Control technical systems by concepts and sec- prehensive control tors, identifying evasion and contraband sources as well as customer risk profiles Develop Qualifying Strategic Al- Effectiveness in the inspection of imports liances Review of manual proceedings Treaties held Information Protection Increase customer satisfaction Institutional presence levels Educational cultural campaigns on contributions Reduction of primary and secondary information inconsistencies Facilitate and assist Optimize the cost/benefit ratio Creation of new contact points Service, control and facilitation compliance with obli- actions; regulatory framework Payment service through electronic channels gations in force; survey Receipt of images Time reduction in refunds and compensations Reduction of the average time per customs opera- tion carried out Streamlining of the disposal of goods for legal definition Strengthening of collec- Build trust, credibility and improve Accounting Manual tion and paying accounts the image
Tax System Mobilize TAC Laws simplification Harmonized customs code Simplification and harmonization Substantive proposals and simplification procedures
Legal criteria unification Provide legal certainty and stability Socialization of instruction for the decision of rem- with a single criteria edies Duly supported files Focus 2. Consolidation of the Management Model and the Quality and Internal Control Systems Processes moderniza- Review plan, adjustment and Assure processes reliability Administrative orders for procedures tion, technology and hu- procedures formalization man talent Review plan, adjustment and Measured relevant indicators measurement of operational indicators Have reliable information and Organizational ridxbox administration plan Management of the organiza- sustainable technological support tion risks system Compliance with IT services requirements for pro- Electronic services sustainabil- cesses ity and maintenance plan and other applications Development and operation plan of new IT services Strengthening of the Technical and Management Strengthen and implement a system Individual, institutional, managerial and training career path system Competencies strengthening to attract, train, develop, evaluate, development plans. withhold, and compensate person- Individual and managerial performance evaluation Administrative Career Path nel continuously and adequately Job opening examination call System application plan Strengthening of the Awareness and quality experi- Built trust, credibility and image Public employees covered by the program self-control principle in ence program and internal improvement the organization control Public employees covered by the program Occupational Health and Life Quality Program Public employees covered by the program
Program to improve contracting Public employees covered by the program and programming and expens- es and investments execution Public employees covered by the program
Planning appropriation program and follow-up and evaluation
Prevention and control program
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10. Strategic Initiatives per Process
The Director of each process is in charge of setting the specific guidelines that must accompany the process, in regards to the new procedures that are to be carried out, during the term; management goals and the strategies corresponding to processes are implemented in the annual plan.
11. annual Operational Plan
Every year the annual plan is consolidated, and the same has defined requirements, while it implements the production and development goals that must be attained by those responsible and the compliance dates for central levels and the Section Directorates.
It must also involve self-assessment and supervision, which must be developed by each person responsible of the process.
Finally, the commitments of each official in the development of the individual performance evaluation process, which are directly related to the annual operation plan and its goals, are broken down into a cascade.
12. oPerational Plan of the Section or Execution Level
The development of the Annual Plan is the responsibility of offices, divisions and groups of the Section Directorates and the delegate administrations. This plan has the description of the main actions that must be carried out during one year to achieve the goals proposed; it materializes the commitments established by the central level at a Section Directorate.
The Annual Plan of the execution level is formed by three components: production, development and evaluation. The component described herein, group the different activities set forth, pursuant to the nature thereof:
· Production Component: these are the set of activities that will allow attaining the achievement of the goals established by the Central Level.
· Development Component: these are the set of project support activities established by the central level.
· Evaluation and Improvement Component: comprises all activities that an administration must execute to permanently and specifically review its commitments, for correct compliance with its management.
· The Managerial plan, management plans defined in the evaluation guidelines, improvement actions and quarterly self-assessment reports must be inputs for the formulation of the execution level annual plan.
13. Individual Level Planning
In charge with the establishment of labor commitments that public employees must reach in a determinate term, in the development of the mission, the institutional purposes, strategic planning, managerial and execution level. It is carried out pursuant to the guidelines defined by the Deputy Director of Process Management and Human Talent for the individual performance evaluation process.
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14. Internal Audit Plan
The Internal Control Office is in charge of advancing the audit plan, which is presented and approved at the Internal Control Office, which is presented and approved at the Internal Control Committee of which all Management Directors are a part of and it has National Coverage.
15. Institutional Development and Improvement Plan
This refers to the group of innovative projects referring to the institutional improvement that must be developed subject to the terms defined by the National Planning Department, once these are financed by the resources of the investment, credit and technical assistance budget.
16. Communication of the Strategy
The organizational strategy must be understood by all and every official of the DIAN therefore, the training of officials must inevitably include the understanding and management of the tools involved in institutional development and specifically must identify the contribution of its work to the guidelines defined.
The strategic plan must be disseminated to all officials, through different internal institutional means, and an essential part of the training, development and improvement of the competencies of the official of the tax and customs administration, similarly, it is published in electronic media for the knowledge of the citizens.
17. evaluation of the Strategy and Management
As a result of the institutional planning exercise, the entity carries out quarterly follow-up of compliance with the annual plan and a monthly follow-up of the Management goals.
18. areas that Intervene
In agreement with DIAN’s organic structure (see flow chart)
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This is the responsibility of the General Director
· Direct and manage the exercise of the competencies and functions assigned to the entity.
This is the responsibility of the Strategic Coordination Committee
· Propose to the General Director for his approval, the Institutional Strategic Plan.
· Carryout follow-up with compliance with Strategic Plan and issue the relevant observations and recommendations.
This is the responsibility of the Organization Management Directorate
· Direct and coordinate the formulation of the Institutional Strategic Plan incorporating the annual plan to fight evasion and contraband and the operational plans, their evaluation and adjustments and present it to the corresponding instances for their approval.
· Provide scenarios that allow the formulation, evaluation and adjustments to the strategic plan and the annual budget draft-bill and the annual income and expenses budget.
· Establish the methods, procedures and indicators which allow measuring compliance with the strategic plan and their impact in the organization.
This is the responsibility of the Management Directors and Deputy Directors
· Participate in the formulation of the Institutional Strategic Plan, respond for their execution, evaluation and the accountability of the results.
· Direct, coordinate and supervise the elaboration and execution of operational plans of the dependencies under its responsibility.
· Propose in agreement with the Institutional Strategic Plan, the annual budget income and expenses draft-bill at its dependencies and guarantee its execution.
This is the responsibility of the Section Directors
· Respond for the execution of the Institutional Strategic Plan and propose the necessary adjustments.
· Direct, coordinate and supervise the preparation and execution of operational plans at the dependencies under its responsibility.
This is the responsibility of the Internal Control Office
· Evaluate the state of the design, implementation of the operation and improvement of the Internal Control System of the entity and propose the recommendations for their optimization.
19. Challenges
DIAN is carrying out the harmonization process of the elements that form part of the strategic Framework, where the guidelines of the National Development Plan are considered and the strategic framework and institutional competencies are defined by the National Government, and these are consolidated in
68 Néstor Díaz Saavedra Tax Administration / Institutional Strengthening N°.10 - April 2011 Tax Thematic Series annual plans, and this is the manner in which DIAN seeks to strategically direct a useful tool to achieve the institutional objectives, therefore, it promotes the harmonization of the plan, and the sources of financing, the realization of an agile evaluation of the organizational effectiveness, the monthly follow-up of management results and the advances of the plan, strengthen the communication and information process as from the adoption of a management accounting system, supported on real time indicators.
Similarly, and in consideration of size and complexity of the tax, customs and exchange administration, DIAN works in function of aligning the work force in function of the strategy for the benefit of the Entity, the State and society-at-large.
Tax Administration / Institutional Strengthening Néstor Díaz Saavedra 69 Strategic Planning as Factor Contributing to the Improvement of the Institutional Capacity
1. Preface.
2. The financial and strategic planning process of the Italian state administrations.
3. Tax administration’s strategic planning cycle.
Mario Visco (Italy) N°.10 - April 2011 Tax Thematic Series
1. Preface This address describes the strategic planning process of the Italian Tax Administration involving the strategic planning of the “Ministero dell’Economia e delle Finanze” (Ministry of Economy and Finance) and that specific to the “Dipartimento delle Finanze-Agenzie Fiscali” (Department of Finance–Tax Agen- cies) system, laid down by the reform of Legislative Decree No 300/99.
In fact, the Department of Finance is the recipient of the strategic planning by the Ministry of Economy and Finance, which sets strategic objectives in relation to the mission of institutional governance of the taxation system, and at the same time is the actor called to transform the Tax Administration’s strategic objectives into operational objectives to be assigned to Tax Agencies through an Agreement (“Conven- tion”) between the Minister and Agencies.
In order to describe the development of the operational plans and their alignment with the strategic plans, it has been considered appropriate to focus attention on the process of preparation of the Minister-Tax Agencies Agreements, with particular reference to the instruments to attain compliance and combat tax evasion being deployed by the Italian Revenue Agency.
2. The financial and strategic planning process of the Italian State Administrations.
The planning process in the State Administrations has the objective to organize effectively and efficiently all activities and resources aimed at defining the policy and implementing it through administrative acts and actions.
The principles underlying the activity of planning are the following:
• improvement of the quality of services supplied to citizens; • interaction between Minister, management and internal control service (“Se.C.In.”); • consistency between strategic and governance planning; • consistency between financial planning and strategic planning; • conformity of financial planning and strategic planning with the constraints arising from Italy’s membership of the European Union; • agreement between strategic planning and the framework of institutional missions entrusted to the administration by law; • appropriateness of strategic planning for the organizational and managerial. structure. The process of financial and strategic planning is governed by a set of rules, given below:
• Article 3 of Law No 468/78, introducing the economic and financial planning document (DPEF), which defines the movements of public finances for the period in the multi-annual budget; • Articles 4 and 2 of Law No 468/78, governing respectively the State multi-annual and annual budgets; • Article 8 of Legislative Decree No 286 of 30 July 1999, according to which the Minister’s annual Directive, issued in accordance with any guidance by the President of the Council of Ministers, “constitutes the basic document for the planning and targeting of objectives for first level management”, identifying the main results to be achieved and determining, “in relation to the resources allocated, the targets for improvement “; • Articles 4 and 14 of Legislative Decree No 165 of 30 March 2001 which provide that the Minister periodically, but not later than ten days after publication of the budget law, on the basis also of proposals by managers:
a) defines the objectives, priorities, plans and programmes to be implemented and issues the relevant General Directives for Administrative Action and Management;
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b) conducts, in order to fulfil the tasks set out under letter a), the allocation to the managers in charge of Responsibility Centres in their respective administrations of human, material and economic- financial resources to be assigned to the various purposes and their allotment to the offices of general manager level;
• Article 3 of Legislative Decree 7 No 279 of August 1997, for which “the Ministers within ten days after publication of the budget law, allocate (...) the resources to general managers in charge of responsibility centres in their respective administrations, after defining the objectives that the administration intends to pursue.”
Guidelines The Guidelines for the strategic-financial planning process are defined in the guidance Directives by the Presidency of the Council of 12 March 2007 and 25 February 2009 which reiterate the need to emphasize the links between strategic planning and financial planning cycles, in order to ensure that the Government’s entire administrative activity develops in an environment consistent with the Executive’s programme.
These Guidelines are subdivided in a general section that identifies the main objectives that the Government is called to attain, and a further section dealing with methodological issues, intended to specify the guidelines for the strategic planning process with particular reference to the role of the Internal Control Services in each Administration.
The cycle of strategic financial planning
The cycle of strategic and financial planning of the State administrations of the State envisages as “cornerstone” documents the Policy Measure for the Definition of Political Priorities of each Minister and the Directive for Administrative Action and Management issued by each Minister within 10 days the publication of the budget law. The integrated cycle of strategic planning and budget drawing is divided into the following phases:
Definition of political priorities
The Minister sets out the political priorities of the administration for the coming year with his own Policy measure, by March of each year, specifying and complementing the Government’s policy priorities indicated in the Prime Minister’s Directive, within the scope of the mission of the Administration.
Below is an example of the description of the Department of Finance’s targets relating to the tax enforcement action set out in the Policy measure for the definition of political priorities for the year 2009.
Example: objective taken from the Policy measure for the Definition of Political Priorities for the year 2009 Fight against tax evasion The Administration will favour the recovery of evaded taxable base through a profitable and systematic fight against tax evasion and avoidance to be achieved by means of:
o an accurate and specific selection of taxable persons to be audited at national and territorial level, by type of tax fraud and economic sector; o the strengthening of anti-fraud strategies; o an increase in the number and quality of actions to ensure the safety of passenger and goods traffic.
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The countering of tax fraud, moreover, will be guaranteed by a specific and accurate analysis of socio-economic reality of the territory in order to proper understand the complexity of tax evasion and avoidance phenomena at both local and national level. All synergies will be ensured between the various institutional actors, also international ones, in the fight against fraudulent activities, by developing an all-round and shared perspective of tax evasion and the ways to counter it. To this end, the development and utilization of international co-operation is to become more and more widespread in control activities, thus going beyond the consolidated though now inadequate scope of a mere exchange of information between collaborating Countries and Organizations.
Elaboration of draft strategic objectives and Preliminary Note
Persons in charge of Responsibility Centres formulate a proposal including the strategic objectives aimed at achieving the political priorities identified by the Minister’s Policy measure. Draft strategic objectives must be incorporated into the Preliminary Note to estimates by which each Ministry transfers into the budget process the objectives set and indicators to measure them by link- ing them to the political priorities established by the Minister, as well as to the strategic choices of the Government’s economic and social policy.
The Preliminary Note is submitted to the “Ministero dell’Economia e delle Finanze, Dipartimento della Ragioneria Generale dello Stato” (Ministry of Economy and Finance, State Accounts Department) through an automated acquisition system directly from the Responsibility Centres.
In conjunction with the drafting of the Preliminary Note, the transmission of the file-cards/items of expenditure takes place, by means of which the Administration formulates the budget proposals at un- changed legislation, making reference to the individual items making up the estimates of expenditure of the State Budget.
By the first decade of September, the Internal Control Services proceed to verify the data fed by Respon- sibility Centres, and submit the first version of the Preliminary Note to the State Accounts Department. Within 10 days after publication of the Budget Law, the Responsibility Centres provide any possible updating of Preliminary Note and the Internal Control Services, with a feedback of information entered, transmit the final version of the document. During preparation of the State’s General Financial Statement, Internal Control Services draw up the final Preliminary Notes for the Administrations on the basis of information coming from the Responsibility Centres which fill in the cards for the objectives pursued, comparing them with the information provided when planning the Preliminary Notes in estimate acts.
Issuance of the General Directive for Administrative Action and Management.
The Minister issues the General Directive for Administrative Action and Management, pursuant to paragraph 1 of Article 14 of Legislative Decree No 165 of 2001, within ten days after publication of the Budget Law.
By consolidating the proposals submitted by managers in charge of Responsibility Centres, the Directive sets the strategic goals to be achieved in order to attain the policy priorities established at the beginning of the process, taking into account the resources allocated in the Budget approved by Parliament.
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It also indicates the strategic objectives assigned to first-level management units to be achieved through specific action plans, which include operational goals as well as targets for the improvement of routine institutional action to be pursued during the year.
Lastly, the Directive specifies the mechanisms and instruments for monitoring and evaluating its implementation in order to detect the degree of achievement of targets and relevant action plans, and any necessary changes by means of corrective actions.
The following table taken from the General Directive for Administrative Action and Management for 2009 explicitly states the objectives for the Department of Finance.
Summary overview of strategic objectives assigned to the Department of Finance with the 2009 Directive
DEPARTMENT OF FINANCE
POLICY PRIORITIES MISSION PROGRAMME (Policy Measure of 11 JULY STRATEGIC OBECTIVES 2008)
MEASURES INTENDED TO RE- MEASURES INTENDED TO RE- VIEW TAXATION POLICIES FOR VIEW TAXATION POLICIES FOR BUSINESSES, HOUSEHOLDS AND BUSINESSES, HOUSEHOLDS AND YOUNG PEOPLE YOUNG PEOPLE
GOVERNANCE, REGULATION AND TO ENSURE SUPPORT TO TAXA- FUNCTIONING OF TAX COURTS TION JUSTICE ECONOMIC- REGULATION OF JU- FINANCIAL RISDICTION AND CO- AND BUDGET ORDINATION OF THE IMPLEMENTATION OF FISCAL IMPLEMENTATION OF FISCAL POLICIES TAXATION SYSTEM FEDERALISM – RE-BALANCING OF FEDERALISM – RE-BALANCING OF RESOURCES TO REGIONS AND RESOURCES TO REGIONS AND LO- LOCAL GOVERNMENTS CAL GOVERNMENTS
CO-ORDINATION AND CONTROL FIGHT AGAINST TAX EVASION OF AN EFFICIENT AND EFFECTIVE EXERCISE OF FISCAL FUNCTIONS BY TAX AGENCIES AND ENTITIES, WITH SPECIAL REFERENCE TO THE FIGHT AGAINST TAX EVASION
Monitoring and verifying the Directive’s implementation
The Internal Control Services, on the basis of data provided by the Responsibility Centres, carry out the annual monitoring of the Directive and prepare periodic and annual reports which are transmitted to their Minister for the necessary steps. The periodic mid-annual verifications aim at detecting the progress of action plans and any deviations from the levels expected, and if necessary to signal the amendments to be made to planning owing to objective factors during the course of time or the occurrence of unexpected difficulties.
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The end-of-year final report provides an assessment of the implementation of the Minister’s Directive and indicates, for each target, the degree of achievement through the execution of the action plans. The document must indicate the objectives not achieved that will be abandoned as outdated or not obtainable, and those that, though not achieved, are going to be re-proposed. On the basis of this paper, a performance report is drawn up, to be circulated outside, which is leaner than internal reports and, therefore, understandable also to the layman.
Information on the monitoring of actions by individual Ministries is sent to the Technical Scientific Committee for strategic control in State Administrations and the Minister’s offices for the programme implementation, which are entrusted with the overall monitoring of policy action.
The new structure of national budget
During 2007, pursuant to the mandate entrusted to the Ministry of Economy and Finance by Finance Law for 2007, a process of revision of the national budget classification was started together with an analysis and evaluation plan concerning the main spending programmes of the Administrations (spending review) to be performed in co-operation with the Ministries in order to examine the effectiveness and efficiency of current spending programmes and to identify the appropriate objectives and to match them with result indicators for the future.
The provisional budget is based on a new classification which deeply innovates the previous structure pivoting on administrative Responsibility Centres: the budget plan is organised in 34 public missions and 168 programmes.
The budget re-classification marks the shift from the traditional concept encapsulated in the formula “the one who manages” to the new one summarised by the rule “what is managed and what is done”. Its primary goal is to make the link between resources allotted and actions pursued clearer and more direct in the planning of Government actions and allocation of available public funds. In such a way it will be possible to carry out periodical spending review, i.e. analysis and revision of public spending so that this can be orientated towards overriding public policies and its quality can be improved. Such rigorous and accurate review of budget allocations will guide – in the future - the single Administrations in submitting spending proposals according to the new philosophy focussed on spending programmes. Therefore, giving up the incremental historical expenditure criterion and replacing it with a policy one as to functional needs and concretely pursuable objectives also considering the burdens of programmes and projects of each Administration can favour the re-consideration of all expenditures in terms of costs and benefits in order to recover manoeuvring room for a different resource allocation and to identify result targets to meet with assigned funds.
Here follows a classification example concerning national budget missions and programmes for 2009 for the institutional mission economic-financial and budget policies of the Ministry of Economy and Finance.
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Example of classification into missions and programmes of the State Budget for 2009
MISSION PROGRAMME ADMINISTRATION ACTIVITIES Elaboration of guidelines of fiscal policy and production of relevant legislation; Co-ordination and monitoring of REGULATI O N o F MINISTRY o F fiscal system; Co-ordination and control of Tax Agencies; JURISDICTION AND CO- EC O N O MY AND Tax assistance and advice to citizens and businesses; Tax ORDINATION oF THE FINANCE TAXATION SYSTEM collection; Service contract with the State Property Agency and Agreements with the Revenue, Land, and Customs Agencies; State Monopolies, transfers to the taxpayers’ watchdog; Assistance to Tax Courts and tax law bodies; Fees to Concessionaires Elaboration of economic and financial planning documents; Analysis of economic, monetary and financial domestic and international issues; Monitoring of Italian economy and check of macroeconomic estimates; Analysis of public accounts; Estimates and verification of State requirements and borrowing; Statistical elaboration, development and management of econometric model; Issuance and EC O N O MIC- ECONOMIC-FINANCIAL MINISTRY o F FINANCIAL management of national debt; Strategic monitoring of cash PLANNING AND EC O N O MY AND AND BUDGET accounts; Management and divestment of entities and BUDGET POLICIES FINANCE POLICIES companies; Coining; Analysis of stock markets; Management of state holdings; Payment of contributions, funds and compensations; Management of financial operations; State budget; State General financial statement; Management of treasury accounts; Analysis of cash flow; Economic accounting; Surveillance of local government bodies; Inspection of public finances; Economic and financial legislation; Monitoring of public finances, expenditure acts, internal stability pact, social expenditure, cost of personnel in Public administration Prevention and fight against forgery of means of payment; Money laundering; Prevention and prosecution of fraud against national and EU financial interests; Fight against PREVENTI O N AND MINISTRY o F recycling, usury and financial illegal practices; Fight against PR O SECUTI O N o F EC O N O MY AND FRAUD AND VIOLATION FINANCE terrorist financing; Corporate offences and bankruptcy OF TAX OBLIGATIONS crimes; Fight against counterfeiting and cost of living; Safeguard of competition and the market; Recruitment and training of personnel for the “Guardia di Finanza”
3. Tax Administration’s Strategic Planning Cycle
The reference model of Tax Agencies
The Italian Tax Administration is organised in a governance administrative structure (Department of Finance) and four Tax Agencies (State Property, Customs, Revenue and Land Agencies) endowed with regulatory, administrative, patrimonial, organisational, accounting and financial autonomy. The creation of Tax Agencies is due to the unavoidable need to recover effectiveness and efficiency of the Italian tax Administration through the use of a new organisational reference model.
The need for innovation has been determined by both the specific history of the Italian Tax Administration and the particularly stratified and complex legislative and regulatory reference context
The most important points in the restructuring process can be identified as follows: · to design independent and separate structures as to the management of production factors also to improve resource organisation · to maximise management autonomy of new organisational bodies guaranteeing the management of human resources and to ensure flexibility to management to attain the objectives assigned
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· to reunify the political-administrative responsibility as regards the competences of the Economy and Finance sector by creating a single Ministry, once the technical-managerial activity of taxation has been separated.
The performance of the governance function by the Department of Finance implies the close co-operation of all subject involved in keeping with the various levels of autonomy envisaged by rules and regulations in all typical stages of governance itself (guidance, coordination, monitoring and control).
The planning cycle
In view of the typical character of the Italian Tax Administration, the Ministry of Economy and Finance, besides being involved in the strategic planning cycle as all state administrations, carries out a parallel planning cycle which is specific for Tax Agencies and is composed of the following documents: the three- year Policy measure for the attainment of tax policy objectives and the three-year Agreements between the Minister and Tax Agencies.
After Parliament’s approval of the Economic and Financial Planning Document and in line with the constraints and targets contained therein, the Minister issues the policy measure for the attainment of tax policy objectives. This determines - yearly, by the end of September, and for a period of three years - tax policy developments, general guidelines and objectives of tax management, financial indicators and the other conditions in which Tax Agencies’ activity takes place.
On the basis of such policy measure the Minister concludes with Tax Agencies four different three-year agreements for each financial year (Agreements with Revenue, State Property and Customs Agencies and Service Contract with the Land Agency). The Agreements are essential instruments in regulating the relationship with Tax Agencies.
Agreements
The Agreements define the targets to reach in keeping with the multiyear political-administrative guidelines (Minister’s policy measure). Such objectives are monitored and controlled by the Department of Finance and are linked to economic incentive systems for Tax Agencies’ staff.
Tax Agencies perform the central function of legal regulation of the relationships between Ministry and Agency and they are a powerful instrument to convert strategic into operational objectives and, at the same time, to govern system performance.
The 2009-2011 Agreement is the result of a long negotiation process started by the Department with all tax Agencies and this led to a shared revision of the agreement structure, mainly aimed at streamlining the Ministry/Tax Agencies relationship in all sectors concerned.
Therefore, the Agreement is made up of the following documents: ● Articles (Rule document) governing the duration and subject of the Agreement and providing for an immediate and concise description of the basic objectives of the Agency’s action and the commitments undertaken by the Ministry including the financial ones needed for structures’ operation; ● Ministry/Tax Agencies Relation System (Annex 1) regulating the performance of the surveillance function, the initiatives of institutional communication, the methods of customer satisfaction detection, the coordination to define common strategies concerning taxation information system and the contents of administrative and operational cooperation; ● Tax Agency’s Plan (Annex 2) including strategic areas, three-year objectives, critical success factors and indicators with their expected results;
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● Incentive System (Annex 3) defining the terms of payment of the incentive share connected to the attainment of management objectives. In particular there is the indication of the objectives connected to Tax Agency’s incentive for the activities carried out in the year, the rules to measure results obtained as to objectives and calculation methods of result synthetic score to which the incentive quantity is linked; ● Management Monitoring and Result Control (Annex 4) containing the rules on the execution of manage monitoring and the result control;
With regard to the topic of this paper here follows an analysis focussed on the description of the Tax Agencies’ Plans, - with particular reference to the Revenue Agency’s Plan as to tax compliance - as well as monitoring and result control stages.
The Activity Plan
The Plan of each Agency is developed according to the analysis of external (macroeconomic scenario, public finance constraints), institutional (Government programme, policy measure, measures in relation to public finance) and internal (development stage of Tax Agency’s organisation and criticalities) variables.
Tax Agencies’ Plans are aimed at attaining: a) the spontaneous compliance of tax obligations through the simplification of the relationship with taxpayers and the quality of services supplied; b) the effectiveness of the fight against tax evasion improving tax assessment quality; c) the simplification of the tax system also with the participation of all tax intermediaries and trade associations; d) the improvement of telematic services in order to guarantee their widespread availability also to less computerised users e) the cooperation with other public structures and other taxation subjects also at international level; f) the cost-effectiveness of administrative action also through the streamlining of local organisational structures; g) a constant policy of professional training and retraining; h) the correct, efficient and effective management as well as competence development of the Taxation Information System in compliance with regulations and standards in force according to the guidelines of competent bodies, as well guaranteeing the unity, interoperability and security of the Taxation Information System; i) the quality of processed data.
In the Activity Plans the following is identified:
● “strategic areas of intervention” to improve the overall performance of the taxation system as to the competence sector of each Tax Agency; ● significant objectives of the administrative action related with the priorities identified in the policy measure and in the measures in relation to public finance; ● critical success factors (considered as factors needed to reach the objectives set) and related indicators and expected outcome to assess the Tax Agency’s ability to realise what needed to meet the targets.
The following slides illustrate the elements characterising the three Tax Agencies’ Plans for 2009.
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The Customs Agency’s Plan: features The Customs Agency’s Plan shows the following goals:
Prevention and fight against tax and extra-tax evasion 1. To continue the fight against evasion, illegal acts and fraud by transposing the strategies adopted at both Community and international level as well as the indications contained in the Policy Measure by the Minister and taking into account the economic scenario resulting from the current business climate; 2. To focus on new scopes of activity in order to prevent extra-tax illegal acts (controls on postal consignments and to protect public safety); 3. To streamline administrative co-operation activities with national entities and bodies, in particular the Guar- dia di Finanza and Revenue Agency, as well as with EU and international bodies in order to enhance the effectiveness of action against illegal activities.
Simplification 1. To further strengthen the digitalisation and automated data communication for customs and excise duty services; 2. To strengthen activities aimed at granting special conditions to economic operators with high reliability profiles in compliance with EU Directives (AEO, Authorized Economic Operator: a certification programme which applies to economic operators and their trade partners involved in the international supply chain); 3. To arrange all necessary measures to implement the “Single Window Customs”.
Governance and support 1. To ensure the functioning of organization according to the Agency’s restructuring programme to be completed by 2010; 2. To enhance professional skills through training activities, also with the aid of innovative teaching in major strategic sectors; 3. To increase internal efficiency also by enhancing the digital wealth of information.
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The Revenue Agency’s Plan: features
The Revenue Agency’s Plan shows the following goals:
Prevention and prosecution of tax evasion • Definition of objectives in terms of actual controls; • Setting of an objective of achievement of revenue estimates from U.P.B. 2 (Forecast Unit Base 2 of statement of estimates of revenue called “Revenue from assessment and control activities”) equal to Euro 7.2 billion; • Increase to 41% of use of resources for tax evasion prevention and countering actions; • Strengthening of the fight against tax evasion through: • 140,000 assessments on initiative of taxable persons carrying on an activity, trade or profes- sion, including those deriving from sectors studies; • 7,500 assessments helped by financial investigations; • 12,500 assessments carried out according to synthetic definitions of income for natural persons on the basis of elements revealing their taxable capacity.
Services rendered to taxpayers and society at large 1. Increase in the use of on-line instruments; 2. Improvement of services supplied through the enhancement of a Multi-Channel Approach; 3. Reduction of the backlog of refunds; 4. Definition of Customer Satisfaction targets in specific areas of assistance to users.
Governance and support • Initiatives aimed at evaluating the impact of training on key processes; • Estimated targets of implementation capacity and expenditure capacity for the investment plan.
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The Land Agency’s Plan: features
The Land Agency’s Plan shows the following goals:
Improvement of quality of services to taxpayers 1. To continue the Agency’s commitment to make quality objectives already achieved more challeng- ing and to attain grater uniformity of the service levels on the national territory; 2. To increase the supply of services through a greater use of the IT channel to update and comple- ment databases.
Improvement of fiscal action effectiveness 5. To strengthen recovery actions for tax evasion and avoidance also in co-operation with the Revenue Agency, Municipalities and AGEA (Italian Agency for Agricultural Supply), by improving automa- tion control processes (this is the activity that the Land Agency carries out in the tax field through automated, manual or spot control actions cadastral rents and the detection of real estate not ap- pearing in cadastral registers); 6. To improve the quality and equity of real-estate estimates, in order to support the reform of the Cadastre’s appraisal system.
Improvement of production process efficiency 1. To develop services and ITC; 2. To enhance professional competence with special reference to managerial and technical skills, also through the adoption of more advanced reward systems.
As regards the Revenue Agency’s Plan, the strategies to be adopted are defined according to all main points of reference which are conducive to the development of a plan that allows, on the one hand, to consolidate the results obtained, and, on the other, to give further impetus to the administrative action, to comply ever more effectively with the demands of politics.
These strategies are essentially based on two fundamental pillars: strengthening the assessment action, and simplifying compliance for taxpayers, thus facilitating their dialogue with the Revenue. To support this effort, the baseline scenario has been analyzed in relation to the market and Public Administration as well as to the evolution of the regulatory framework and technological and organizational developments.
The Revenue Agency’s strategy will develop around these themes over the next three years and, accordingly, the Convention is structured to reflect a logical model for which the activities to be carried out are included in three strategic areas:
Ø Strategic Area 1 - Prevention and countering of tax evasion Ø Strategic Area 2 - Services rendered to taxpayers and society at large Ø Strategic Area 3 – Governance and support action
Also for the Revenue Agency, within each of the above areas, the strategic objectives regarded as significant are made clear and explicit and, for each of these, the critical success factors are identified. These represent the key elements for achieving the strategic objectives and constitute, arranged by priority level, the components to be monitored to verify the actual achievement of the Agency’s institutional
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mission. The attainment of critical success factors is ensured by the underlying individual actions and projects, and is measured by appropriate performance indicators.
As can be inferred from the strategic map and by examples of the plan’s articulation below, the latter was formulated on the basis of the Balanced Scorecard methodology, highlighting the convergence between interests and expectations of all stakeholders in the tax system with the objectives and activities that the Revenue Agency undertakes to put in place in the institutional areas of competence.
In fact, the charts below illustrate how - for each strategic area - objectives and relevant indicators of impact to one or more categories of stakeholders, critical success factors and underlying indicators along with the prospects for value generation have been identified.
Pursuance of the highest level of tax compliance (tax compliance conducive to the achievement of fiscal equity in the whole system) (Legislative Decree No 300/99)
E C
I IMPROVING THE SAFEGUARDING THE ENSURING V I G
T EFFECTIVENESS OF CENTRALITY OF ORGANIZATIONAL E C T PREVENTION AND RELATIONSHIP WITH DEVELOPMENT AND E A J
R PROSECUTION OF TAX TAXPAYERS AND QUALITY CONSOLIDATION OF THE B T
O EVASION OF SERVICES SUPPLIED MANAGEMENT MODEL S
Strengthening control Improving the quality Ensuring the actions and making of services to development and them more profitable taxpayers growth of human R
O resources T C A
F Fine-tuning the criteria Improving the quality of Enhancing S to select the taxable management processes S building property E persons to be audited for tax return filing and C delivery of refunds and digital wealth C of IT applications U S
L Making tax collection
A more effective and Safeguarding and C I
T efficient enhancing the I
R interpretation of tax C legislation Making the tax claim more sustainable
Prospects for value generation: Quality / taxpayer Economic-financial Organization / processes Training and growth
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STRATEGIC AREA 2 - SERVICES RENDERED TO TAXPAYERS AND SOCIETY AT LARGE
Expected outcome Stakeholder Objectives and Indicators impact related FCSs 2009 2010 2011 Dimension BSC
Number of phone answers provided 90% of requests re- ceived up to a maxi- increase increase INCENTIVE OBJECTIVE mum of 1.710.000 Objective: Number of answers provided in writing (sms, Safeguarding the centrality of 55.000 increase increase Taxpayer relationship with taxpay- web-mail) ers and quality of services + 10% against final supplied Rate of utilization of on-line instruments1 increase increase result 2008
Percentage of communication of irregularities 24% decrease decrease cancelled
Percentage of answers provided in writing within 80% constant constant the second working day after reception FCS 1 Improvement of quality of Percentage of answers requests to CAMs solved Q 85% constant constant services and simplification of at the first contact compliance on taxpayers Findings of customer satisfaction survey on 3,5 - 4 (on a 1 to 7 assistance services supplied by CAMs relating - - scale) to communication of irregularities
Findings of customer satisfaction survey on 3,5 - 4 (on a 1 to 7 assistance services supplied by offices relating - - scale) to communication of irregularities
Findings of customer satisfaction survey on 3,5 - 4 (on a 1 to 7 assistance services supplied by CAMs as for - - scale) the filing of tax returns
Findings of customer satisfaction survey on the 3,5 - 4 (on a 1 to 7 - - FCS 1 tax return filing system through “Fisconline” scale) Improvement of quality of Q services and simplification of Findings of customer satisfaction survey on 3,5 - 4 (on a 1 to 7 compliance on taxpayers - - the tax return filing system through “Entratel” scale)
Percentage of taxpayers that booked an appoint- ment and were assisted within 10 minutes from the time fixed 95% constant constant
INCENTIVE OBJECTIVE Preparation of precompiled “Unico” tax return at full at full poten- evolving forms potential tial
Percentage of private acts (including lease con- tracts) registered and submitted on the same day 90% constant constant FCS 1 INCENTIVE OBJECTIVE Improvement of quality of Q services and simplification of Number of initiatives with educational establish- compliance on taxpayers ments at all levels aimed at spreading the culture 1.200 constant constant of fiscal legality among young generations, also through the use of information material
......
1 Weighted average of following on-line instruments: 35% “Cassetto Fiscale”, 35% “UnicoPF Fiscoonline”, 20% “Prenotazione Telematica”, 10% “Contratti Locazione Fisconline”.
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The main elements of the Revenue Agency’s planning
Below are the main management aspects planned for the Revenue Agency:
Strategic Area 1: Prevention and countering of tax evasion
A strategic objective “Improving the effectiveness of actions to prevent and counter tax evasion” and four related critical success factors (strengthening and profitability of control, criteria for selection of taxable persons to be assessed, effectiveness and efficiency of tax collection, sustainability of tax claims) have been identified.
The plan shows significant elements of discontinuity from the previous year reflecting the Revenue Agency’s commitment to pursue the objectives of effectiveness and efficiency envisaged by the recent tax legislation on prevention and countering of tax evasion.
In particular, the Agency will prepare an extraordinary plan of inspections for the summary determination of income of natural persons, in controls of companies with a high fiscal interest and of individuals with fictitious residences abroad, in strengthening investigations carried out by anti-fraud offices and assessments assisted by financial investigations. Sector studies-related assessments will require a more demanding activity of investigation due to the greater detail required in the hearing phase and in evaluating the findings of the study.
The new strategy aims to focus the action of control by macro types of taxpayers and to adopt control methodologies based on analyses and evaluations of the risk of tax evasion and/or avoidance specific for taxpayers and territorial realities.
Therefore, this new methodological approach to counter tax evasion involves a new optimal allocation of resources (both in quantitative and qualitative terms) depending on the evolution and concentration of that risk, and a likewise optimal selection of positions, avoiding to pursue situations of little relevance or mere violations of a formal nature.
To ensure the achievement of the objectives outlined above, the Revenue Agency will continue in the priority allocation of resources on actions countering tax evasion, by increasing from 39.6 (final statement for 2008) to 41 the percentage of hours earmarked for control activities.
Also as regards tax collection from assessment and audit activities (assessment taxrolls, institutions reducing litigation, sanctions and interest), the Agency has formally committed to the achievement of the estimated revenue defined in the State Budget for 2009.
Strategic Area 2: Services rendered to taxpayers and society at large
The scheme of the 2009-11 Convention contains the strategic objective “Safeguarding the centrality of relationship with taxpayers and the quality of services supplied” subdivided into three critical success factors (quality of services and simplification of compliance for taxpayers, quality of tax return processing and delivery of refunds, enhancement of interpretation of tax rules) that focus the Agency’s complex sphere of action within the context of assistance to taxpayers and tax management.
A major innovation consists in the use within the critical success factor “Improvement of quality of services and simplification of taxpayers’ compliance” of five indicators related to the findings from customer satisfaction surveys conducted by the Revenue Agency on assistance services supplied by CAMs (Multi-channel Assistance Centres) and offices on communication of irregularities, on services provided by CAMs for tax return filing and lastly on on-line tax return filing.
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In this regard, it should be noted that the Department, on the basis of general and governance rules, coordinates within the Tax Administration, the systematic detection, measurement and enhancement of customer satisfaction with respect to the quality of fiscal services and of the Revenue-taxpayers relationship.
The Department of Finance, together with the structures supplying services and via a constant benchmarking, both at national and international level, ensures - in a Total Quality Management perspective - effective governance and regulation of the related operational activities.
A system of shared roles, responsibilities and duties has been therefore defined, which includes:
- as for Tax Agencies, in their managerial autonomy: · conduction of independent customer satisfaction surveys on services supplied in line with crucial, universally recognized methodological and operational principles (statistical representativeness of surveys, their systematic / periodic frequency, multi-channel extension of key services to various categories of users) · accountability for survey outcomes and their communication · transmission of the above outcomes, according to a specific common information notice, to the Department of Finance - Institutional Communication Directorate for Taxation · enhancement of customer satisfaction outcomes in continuous improvement planning, by identifying priority actions from the taxpayer’s perspective
- as for the Department of Finance, through the Institutional Communication Directorate for Taxation, in its governance function: · ascertaining compliance with the above methodological principles · collection, analysis and processing of survey outcomes (not data) and coordination of public communication initiatives · completion of the information framework with specific monitoring and/or surveys on the taxpayers’ perceptions / expectations not strictly connected with delivery / utilization of services · running and implementation of a High-Quality Database (“Banca dati della qualità”) to systematically and historically organize all relevant information supporting conventional and strategic functions of the Italian Ministry of Economy and Finance, as regards the improvement of service quality and satisfaction of users / taxpayers.
With a medium-term perspective, corresponding to three-year periods, each Agency - on the basis of its Strategic Plan - negotiates its annual commitment on all strategic Areas of intervention with the Department of Finance.
A specific Strategic Area of the Agreements between the Ministry of Economy and Finance and Tax Agencies, concerning services rendered to the citizens / taxpayers, identifies inter alia, as regards customer satisfaction activities, a number of punctual objectives, projects and related performance indicators on which the Department conducts periodic monitoring actions.
Strategic Area 3 – Governance and support activities
With respect to the initiatives aimed at improving training and staff selection processes, the Agency evaluates the effectiveness of training on key processes in the service area and the area relating to the countering of tax evasion, and the launch of a study / test to evaluate the managers’ potentiality.
In order to contain the resources allocated to support activities, in line with the most recent sectoral legislation, a 10% ceiling of employed staff is allowed.
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As regards investment monitoring and the percentage of work in progress to be achieved, the Agency will adopt a spending capacity indicator intended to be the ratio of investment spending to the value of investments planned.
The system of results monitoring and verification
The Convention defines also the procedures to exercise the function of regular monitoring aimed at increasing awareness and insight into the Agency’s governance issues conducted by the Department through the analysis of information set out in the Convention and systematically transmitted to the Agency several times a year and the implementation of in-depth thematic studies according to schedules and procedures agreed with the Agency on a case-by-case basis.
The good functioning of the Agency’s management systems according to sound business management practices is the prerequisite for the monitoring activity. Purpose of monitoring will therefore be the analysis of the evolution of these systems to ensure the quality and timeliness of information to all stakeholders in the control.
The findings on the progress achieved on the management side are submitted to the political authority. To conduct the monitoring, the Agency provides: Ø the results achieved against objectives set in the Convention’s Plan; Ø information on the use of key resources: financial, human and information technology resources; Ø additional management information, not included in the Agency’s Plan and needed to enhance the administrative action; Ø documents relating to other significant managerial and organizational aspects.
During the year, changes can also be made to the Convention text if the monitoring reveals a non- standard progress in the level of targets achieved against planned results, with the agreement between the Department and Agency.
The possibility of signing supplementary or additional acts is envisaged if there are major changes in the national economic scenario, regulatory amendments, modifications relating to significant organizational features, or changes in financial resources available that significantly affect the attainment of individual objectives contained in Plans.
Of special relevance is the verification of results as at 31 December each year relating in respect to all the items included in the current Plan. The Agency submits before 15 March the necessary data and information, together with an explanatory report containing all commitments made in the Convention’s Plan of activities and investments.
The Department of Finance examines the results supplied by checking the level of achievement of objectives and evaluating the reasons given in case of discrepancies or non-standard patterns. The Department prepares the draft audit report and submits it to the Agency. Its discussion and sharing may also take place during special meetings with the Agency’s technical contacts.
By 31 May, the audit report shared with the Agency’s technical contacts is submitted to the Director General of Finance and the Agency’s Director for summary conclusions and signing.
The audit report highlights the results achieved against expected results and includes the following: - a summary of management results; - individual results with respect to critical success factors and individual projects identified in the plan in force; - a calculation of the result synthetic score for the incentive share.
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The audit report signed, including the result synthetic score according to which the incentive share due to the Agency is determined, is transmitted to the Italian Minister of Finance by 10 June of each year following that of reference, and published on the Tax Administration’s websites for dissemination to stakeholders.
In case of disputes on the interpretation and application of the Convention, in particular during the performance review phase, the Agreement lays down the rules for settlement of litigation entailing the communication in writing of the subject and reasons for the dispute, and commitment to a joint discussion within the maximum period of 5 days after notification, in order to settle the dispute amicably.
In the event of failure of an attempt of settlement, the matter shall be referred to a specially-appointed committee, whose determinations form the basis of a Minister’s directive to which the Department and Agency shall conform their decisions.
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