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? Tax Information Systems provide tools to support tax administration.Integrated Tax Information Systems provide tools to 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 Complia nce activities Taxpayer services Audit Back office processe s

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

Example of Functional Components (Philippines)

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 and Taxpayer 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)