Design and implementation of taxpayer services Juan Toro Division Chief Revenue Administration Division International Monetary Fund

Tax systems are based on two key principles: Tax systems are based on two key principles: Taxes (policy) are based on economic activities Taxes (policy) are based on economic activities  Commercial transactions  Businesses/Entrepreneurship  Professional/Employee Generate taxpayer compliance liabilities (in dif. segments) Tax system—taxpayer compliance Someone has an idea, formulates a project and starts a business  A new economic agent This agent buys raw material and services, hires people, and sales products and services Needs to know about the business: registers operations, makes balance, and determines results/profits Interacts with other agents, tax issues arise (w) that have to be informed to tax adm, as well as to other agents Taxes arise during commercial operations (VAT) that the agent needs to declare and pay Mistakes can be made in declaring and paying the taxes; they need to be corrected and fines to be paid The agent can change business, address, etc.  Inform tax department and other agents If business does not work, better to close it timely without pending tax issues to start another business Tax documents (invoices, sales receipts, income receipts) Tax accounting system, purchase and sales book, and simplified income tax regime Third-party reporting, tax compliance certificate, tax compliance statement Filing and payments of all taxes (including pre-filling) Corrections of filing and payments, including fines Modifications and update of information in the taxpayer registry. Taxpayer registration and taxpayer identification number (TIN) Tax payer de- registration termination of business Tax compliance lifecycle mirrors business lifecycle 2

Tax systems are based on two key principles: Tax systems are based on two key principles: Taxes (policy) are based on economic activities, and Taxes (policy) are based on economic activities, and Taxpayer compliance is based on self-assessment Taxpayer compliance is based on self-assessment In this context, two key mandates to tax administration: In this context, two key mandates to tax administration: Apply the policy framework: identify/register taxpayers, establish filing/payments procedures, etc. Apply the policy framework: identify/register taxpayers, establish filing/payments procedures, etc. Enforce compliance, when needed: control filing- payment, audit, recover debt, prosecute tax fraud, etc. Enforce compliance, when needed: control filing- payment, audit, recover debt, prosecute tax fraud, etc. Goal: Maximize taxpayer compliance (including voluntary) Tax system—taxpayer compliance  Assume taxpayer knowledge  Sanction for non compliance Cost of compliance, and non compliance 3

Several questions to answer: Several questions to answer: Level of taxpayer compliance or tax gap? Level of taxpayer compliance or tax gap? Composition of tax gap by taxpayer segments? Composition of tax gap by taxpayer segments? By symptoms: non filing-payment, underreporting? By symptoms: non filing-payment, underreporting? Reasons/Drivers? Reasons/Drivers?  Lack of tax education/costly and not always transparent advice  Complex, contradictory, and opaque tax laws (avoidance).  Complex tax administration processes (high cost).  Lack of trust: corruption, misuse of resources, harassment.  Risk takers/cheat the Nation (low capacity of tax admin).  Blatant abuse of the tax system (false refund claims). Tax system—compliance risks A comprehensive response to manage compliance risks is critical Taxpayer services is a key component—others are also critical 4

A specialized strategy, based on previous findings: A specialized strategy, based on previous findings: To make self-assessment feasible  support/foster voluntary compliance To make self-assessment feasible  support/foster voluntary compliance To mitigate some tax compliance risks / action on causes rather than symptoms (long-term vs. short-term) To mitigate some tax compliance risks / action on causes rather than symptoms (long-term vs. short-term) Not substitute where enforcement is the optimal response, or other responses are needed (legal, org) Not substitute where enforcement is the optimal response, or other responses are needed (legal, org) Adequate budget and organizational rank and visibility Adequate budget and organizational rank and visibility Comprising multiple channels to taxpayer services: Internet, phone, written (letter), and face to face. Comprising multiple channels to taxpayer services: Internet, phone, written (letter), and face to face. Taxpayer services—foster compliance 5

Providing services is more complex than goods Providing services is more complex than goods Good: consumption after production and quality control before consumption Good: consumption after production and quality control before consumption Service: consumption during production and quality control after consumption Service: consumption during production and quality control after consumption The moment of truth (tax administration & taxpayer) Challenging to ensure standardization, transparency, no arbitrariness, homogeneity, and ‘twin’ experiences Taxpayer services—challenges 6

The complexity is further increased due to: The complexity is further increased due to: Multiple taxpayer services channels Multiple taxpayer services channels Different taxpayer segments Different taxpayer segments  sometime differentiated segment-based services (LEs-SMEs, businesses-employees)  sometime identical services (e-filing) Difficult (tension in) ‘border’ delimitation with other tax administration core functions/processes, e.g., in Difficult (tension in) ‘border’ delimitation with other tax administration core functions/processes, e.g., in  explaining the tax system  making it easier to comply  reducing compliance cost  dealing with compliance issues (call centers) Taxpayer services—challenges 7

e-tax compliance and e-tax administration is seen as a strategic option for delivering taxpayer services to promote tax compliance—other channels (e.g., are in declining trend. e-tax compliance and e-tax administration is seen as a strategic option for delivering taxpayer services to promote tax compliance—other channels (e.g., face to face and walk-in offices) are in declining trend. Provide high quality, transparent, less intrusive, and a more standard approach to taxpayer services. Minimize compliance costs and face to face contacts with tax admin, banks (collection), reporting agents, and other organizations. Strengthen enforcement capacity (e.g., cross-checking) with more reliable information, more often provided directly by taxpayers. Encourage use of ICT through e-tax compliance and improvements on taxpayers´ business lifecycles. Produce demonstration effects to other agencies, and private sector. Taxpayer services—Responses/Trends 8

Taxpayer services as a key component of the tax administration compliance strategy, based on risk management. Taxpayer services as a key component of the tax administration compliance strategy, based on risk management. Systematic identification/measure of compliance risks Systematic identification/measure of compliance risks Diverse & tailored responses to mitigate different risks Diverse & tailored responses to mitigate different risks Enhanced administration of information Enhanced administration of information Taxpayer services : Not substitute where enforcement (or another) is the optimal response Taxpayer services : Not substitute where enforcement (or another) is the optimal response Taxpayer services—Responses/Trends 9

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