Maximizing the Value of Investments in Tax

Administration

Terry Lutes

Principal, M Group

Agenda

• Goals of Tax Administration Modernization

• Obstacles to Success

• Policy, Business Process, and IT Components

• Keys to Success

• IT Modernization Models

• Background and Concepts of the SAP Solution

Agenda

• SAP Solution Functionality Overview

• Live Demonstration– Registration– Adobe Component– Taxpayer View– Bread & Butter Functionality

• Wrap Up and Q & A

The Big Question

If we understand our goal so clearly, why do we so rarely achieve it?

What Do We Want?

• Increased revenue– Broaden taxpayer base– Improve compliance

• Lower costs – Reduce the costs of revenue collection

• Improved services – Leverage technology, external organizations (e.g. banks),

information available elsewhere

• Greater transparency – Meet concerns of stakeholders – internal and external

Why Don’t We Get There

• Sheer physical and budget constraints• Environmental factors

– Changing economy – shift to services in systems designed to tax products

– External forces impacting domestic tax policies• Large cash/informal economies• Personnel challenges• Organizational transition challenges

– Focus on day to day revenue targets vs. longer term reforms– Imbalance between budget reality and reform potential

• Capacity to absorb change

Myths About How to Get There

• We just need IT modernization

• Policy isn’t important to IT investment

• We will organize our work around the IT systems

• We can do it quickly

• It will be a priority for the tax administration

• We can do it a piece at a time

What IT Can and Cannot Do

• IT solutions are not an acceptable alternative to efficient and effective business processes

• With effective planning, IT systems can increase the effectiveness and efficiency of tax administrations by, for example:– Easing burden of receiving and processing data from taxpayers

and third parties– Providing a holistic view of taxpayers across tax administration

functions improving service and compliance– Providing easy access to data not traditionally used in tax

compliance efforts– Providing automated analysis of data beyond the depth and

breadth possible in a manual or second generation IT world benefiting both policy development and tax compliance

Is IT the Answer? • Integrated Tax Information Tax Information

Systems provide tools to Systems provide tools to support tax administration.support tax administration.

• Tax administrator gets data on all financial transactions in An interconnected world

• Taxpayer has little to gain and a lot to lose from non-compliance

• IT reduces cost for administration

• Automation of processes allowing quick and ready information for policymakers

• Technology allows developing/transition nations to leap over to latest standards.

Policy, Process and IT

Back office processes

Audit

Taxpayerservices

Complianceactivities

Business Process before IT• IT solutions are not an acceptable alternative to

efficient and effective business processes

• Service Assessment and Improvement– Measurement: Tax administration/Taxpayer perspective– Distribution channel analysis – Analysis of gaps (Face-to-face, Telephone, E-government)

• Improvement strategy– Tax administration goal setting– Comprehensive mapping of business components and

processes– The strategic business input to IT planning

Key Issue: Tax Administration Reform Level

• Piecemeal reform of individual business processes

• Comprehensive tax administration reform

• Comprehensive financial reporting reforms to include tax reporting

Other Issues• Policy issues

– Ensuring policy and administration are in sync– Balance between tax types in revenue collection

objectives– Degree of centralisation– Unified administration of tax types (direct tax, VAT,

customs, property)• Implementation issues

– Personnel – Degree of outsourcing– Acceptance of timelines– Legacy records transition– Validation of earned value

Process Design Requirements for Desired State

• Supports all taxes

• Has common identifiers for taxpayers

• Automates routine tasks

• Allows risk management and supports efficient allocation of scarce resources

• Enables effective case management

• Supports internal controls

Reengineered Tax Administration Framework

E-Tax Administration Core Tax Processing System(s) Compliance Management

Technical framework (variety of vendor solutions)

E-Tax Self Serviceso Registrationo Filingo Payment o Complianceo Self Audit o Taxpayer Serviceo Research Policy

E-Data Store

Transaction Processing

o Registrationo Returnso Remittances

Authoritative Taxpayer Account Data

Taxpayer Accounting

o Personal Income

o Business Income

o Saleso Withholdingo Misc. Taxes

Workflow Management or CRM

Correspondence and Document Management

Strategy/Policy Development Performance Measurement

Taxpayer Behavior

Modeling Decision Engine

Compliance Components

o Collectiono Audit o Fraud Detectiono Legal

Compliance Data Warehouse

Tax Web Portal

Revenue Accounting

Identity management

Back office systems (personnel, finance, internal audit, asset management)

Example of Functional Components (Philippines)

Compliance Research / Case Selection

- Internal Data / Information- External Data / Information- Case selection

Work flow

Taxpayers

Interface

Intranet

Tax Accounting Systems

- Returns processing- Revenue processing- Account maintenance- Master file

Customer Service

- Telephone- Internet- Correspondence

- ExternalDatabases

- Laws andregulations

ElectronicProcessing

Interface w/Accounting systems

Paper Processing

Image / scanning

Electronicaccess viatelephone,

kiosk and/orInternet for

- filing- paying- inquiry

Papersubmission

for- filing- paying- inquiry

ComplianceProcessing

- InternalDatabases

From present to reengineered state

Rules Framework

Case Management

Back-office Services

Records Management

Current environment• Laws and regulations• Rule changes decided

by governments• Decisions by revenue

boards• Initiatives of revenue

officials• Revenue targets• Notifications• Paper/hybrid records• Manual, sub-optimal

work management• Limited use of IT for

assessment and accounting

• Functional stovepipes within administration

Returns Processing

Registration andTaxpayer services

Collection & Disbursement

Compliance Tasks & Projects

Assessment systems

IT Development Models• In-House Development

– Likely lowest cost– Usually not based on best practices and technology– Usually not well integrated

• Customized Development– 100% Tailor made– Long and complex development track– High risk– Expensive

• “Reusable” Solutions– Solution generally not initially designed for reuse– More development then reuse which adds to cost– Limited track record creates risk

IT Development Models (cont.)• ERP/CRM-Based Solutions

– Expensive– Strong financial modules– Proprietary technology for configuration, customization, and support– Strong workflow components– No source code (source code possibly in escrow)

• Commercial Off The Shelf (COTS) Solutions– Based on Best Practices in its domain– Proven solution /w track record and generally configurable – Faster implementation– Requires adjustment of agency processes– Less expensive but an integration challenge– No source code (source code possibly in escrow)