TOOL KIT FOR TAX ADMINISTRATION MANAGEMENT INFORMATION SYSTEM ASIAN DEVELOPMENT BANK © 2014 Asian Development Bank All rights reserved. Published 2014. Printed in the Philippines. ISBN 978-92-9254-564-2 (Print), 978-92-9254-565-9 (PDF) Publication Stock No. TIM146564-2 Cataloging-In-Publication Data Asian Development Bank. Tool Kit for Tax Administration Management Information System. Mandaluyong City, Philippines: Asian Development Bank, 2014. 1. ICT. 2. e-Governance. 3. Asian Development Bank. I. Asian Development Bank. The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. 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It was prepared by Seok Yong Yoon, senior public management specialist (e-Governance) of ADB’s Regional and Sustainable Development Department; Chava Chaithanya, e-governance consultant; Yunhi Won, tax management consultant; and Dongsung Kong, public sector management consultant. The authors would like to express their gratitude to ADB management and staff including Bart W. Édes, director of Poverty Reduction, Gender and Social Development Division; Sandra Nicoll, country director of Lao Resident Mission; Satoru Araki, public management specialist (taxation); and Iris Claus, senior economist for their comments and guidance. The authors also wish to thank Cynthia Lizzette Francisco and Kevin Donahue for their inputs and edits, and Ma. Carolina Faustino-Chan and Josephine J. Aquino for their assistance. iii Contents 1. The Tax MIS Tool Kit 1 1.1. Overview and Structure of the Tax MIS Tool Kit 2 2. The Business Case for Tax MIS 3 2.1. Key Issues in Tax Administration 3 2.2. Can ICT Help Streamline Tax Administration? 5 2.3. Can ICT-Enabled Systems Help Tax Authorities Transform Tax Administration? 8 3. Overview of Tax MIS 14 3.1. Key Objectives of Tax MIS Implementation 14 3.2. Key Benefits of Tax MIS Implementation 15 3.3. Tax MIS Conceptual Model 16 3.4. Tax MIS Users 18 3.5. Service Delivery Channels 18 3.6. Functionalities and Features of Tax MIS 20 3.7. Services and Functions of Tax MIS 21 3.7.1. Information Services 21 3.7.2. Transaction Services 23 3.7.3. Customer Relationship Management 26 3.7.4. MIS and Reporting 26 3.7.5. Workflow Management 26 3.7.6. Interfacing with Other ICT Systems 27 3.8. Other Key Considerations 27 4. Diagnostic Assessment of ICT Status 28 5. From Diagnostic Assessment to Prioritization of Taxes and Services 37 5.1. Summarizing Diagnostic Assessment Results 37 5.2. Strategic Objectives of Tax MIS Implementation 38 5.3. Prioritization Framework 38 5.3.1. Prioritization of Taxes and Services 39 iv Contents v 6. Tax MIS Implementation Approach: Stakeholders and Cost Estimate 42 6.1. Holistic Approach to Tax MIS Implementation 42 6.2. Tax MIS Implementation—Key Activities 45 6.3. Tax MIS Implementation—Stakeholders 53 6.4. Tax MIS Implementation—Cost Elements 56 7. Commercial Off-the-Shelf versus Custom-Developed Tax MIS Solutions 62 7.1. Overview of COTS and Custom Software Solutions 62 7.2. Comparative Analysis of COTS and Custom Tax MIS Solutions 64 7.3. Criteria for Selecting between COTS and Custom Tax MIS Solutions 65 8. Monitoring and Evaluation Framework 68 9. Key Barriers to Tax MIS Implementation 71 References 74 Tables and Figures Tables 1. Key Issues in Tax Administration 4 2. Role of ICT in Addressing Key Issues Confronted by Tax Authorities 7 3. Filing a Return Online 8 4. Electronic Payment of Taxes 9 5. Online Information about Tax Refunds 9 6. Data Processing and Management 10 7. Web-Based Portal and Service Delivery through Call Centers 11 8. Sharing Taxpayer Data with Other Agencies 12 9. Mobile Portal Access 13 10. Tax MIS Users (illustrative) 18 11. Service Delivery Channels for Tax MIS 19 12. Functional Coverage of Tax MIS (typical) 20 13. List of Transaction Services for Tax MIS 23 14. List of Taxes Administered (illustrative) 29 15. Stakeholders and Their Functions in Tax Administration (illustrative) 29 16. List of Automated Functions and Services (illustrative) 32 17. Benchmarking of Service Levels and KPIs 33 18. Statistical Analysis of Transaction Data 35 19. Assessment of Other Enabling Factors (indicative) 36 20. Summary of Diagnostic Assessment Results (sales tax) 37 21. Prioritization Framework for Services 39 22. Prioritization of Taxes 39 23. Prioritization of Functions and Services for Income Tax (illustrative) 40 24. Cost Components of Tax MIS Implementation 47 25. Stakeholder Responsibilities for Tax MIS Implementation 54 26. Cost Components of Tax MIS Implementation 56 vi Tables and Figures vii Tables 27. Comparative Analysis of COTS and Custom Solutions 64 28. Key Factors in Deciding between COTS and Custom Solutions (illustrative) 65 29. Monitoring and Evaluation Framework (illustrative) 68 Figures 1. Key Issues in Tax Administration 3 2. Customer Journey in Obtaining Tax Refunds 6 3. Demystifying Tax MIS 16 4. Tax MIS Conceptual Model 17 5. Step-by-Step Guide for Diagnostic Assessment of Current Tax MIS 28 6. Taxpayer versus Revenue Contribution Distribution 34 7. Prioritized Services for Income Tax (visibility to taxpayer) 41 8. Tax MIS Framework—A Holistic Approach for Implementation 43 9. Tax MIS Implementation Framework—Life Cycle Diagram 46 1. The Tax MIS Tool Kit eforms in government administration and service delivery have been on the policy agenda of countries and donor agencies over the past 2 decades, with several billion dollars having Rbeen invested toward achieving the objectives of this agenda. Factors such as (i) a heightened focus on quality, timeliness, and transparency in public service delivery; (ii) extensive growth in the volume of public service delivery transactions; and (iii) limited manpower have necessitated governments to pursue innovative methods for improving internal efficiency and delivering better services to citizens and businesses. Leveraging information and communication technologies (ICTs), in particular, for the modernization of public administration and service delivery has received wider attention from governments and donor agencies. Governments have benefitted substantially by adopting ICT to minimize the time, cost, and resources used in administration and service delivery, which has led to enhanced convenience, transparency, and trust in public service delivery. At the same time, public sector ICT projects have received criticism for not being able to deliver the desired results and/or leading to unproductive investments in ICT systems and infrastructure without much enhancement in the quality of service delivery. The experiences of ICT investments have been diverse and many factors—such as strategic planning, commitment from the government, ICT maturity levels among stakeholders, acceptance of the systems within and outside the government, and technological complexities—have influenced the outcomes of these projects. Well-planned, coordinated, and managed ICT initiatives have generally proven effective in delivering desired results to stakeholders, both in the public and private sectors. The application of ICT in tax administration is receiving increasing attention from governments worldwide considering its significance in generating much-needed revenues to fund development and social programs. Limited manpower, exponential growth in the taxpayer base, and related transactions have presented various challenges to the tax authorities, including (i) incomplete coverage of businesses and individuals in the taxpayer base; (ii) inadequate monitoring of taxpayer compliance with obligations; (iii) inconveniences, longer times, and higher costs for taxpayers in complying with taxation requirements; and (iv) delays and discretion in the collection and remittance of state revenues. Several governments have been successful in adopting ICT to address these issues and in achieving higher levels of compliance and increased revenues. The World Bank’s Doing Business1 study focuses on the efficiency and effectiveness of tax administration systems worldwide and measures the performance of various countries in parameters such as tax rates, number of payments, and time to comply with tax regulatory requirements. Studies over the past few years on these parameters have shown reasonable to substantial improvements in tax administration in various economies around the world and have revealed that tax authorities