In Focus: Tax Administration Learning at CEF: From the Enforced to Voluntary Compliance
Tax authorities across SEE are currently working on various initiatives to progress the modernization agenda towards adoption of EU blueprint requirements in tax. The valuable exchange of ideas and experiences among SEE tax officials on effective ways of managing changes when reforming tax administrations showed how simple changes of behaviours on the side of tax policymakers can lead to significantly improved compliance of the taxpayers. The experience shows that taxpayers who are treated as clients are typically more compliant. So the tax authorities are increasingly focusing on improving services to taxpayers by encouraging dialogue and by providing them with clear instructions, understandable forms, assistance and information.
A comprehensive and practical three-day curse introduced tax officials to the very valuable templates for faster and efficient implementation of tax administration reform contained in the EU Fiscal Blueprints as well as to the Tax Administration Diagnostic Assessment Tool (TADAT). The reform is shifting away from organising departments by geographical regions towards a focus on tax, sector and functions. Following this step, the second one is to strengthen risk-management and service-oriented approaches where tax authorities no longer examine all or most tax returns but instead concentrate enforcement efforts only on those taxpayers that represent a high risk. CEF facilitated the course jointly with the International Monetary Fund's Tax Administration Reform Advisor for South East Europe (SEE) Steffen Hansen, CEF Associate fellow Norman Gillanders, and Prof. Liam Delaney from the Sterling University.
Course participants discussed key insights of the behavioural economics and their relevance to public policy and regulation. On the occasion, Prof. Delaney gave some practical examples that turned out to be very successful in the UK. “When taxpayers received a letter from tax administration in which they were told that most people pay their tax on time, payment rates increased by up to 5%. This finding suggests that people want to do what majority of the population does. Another principle tax administrations can consider in prompting compliance is making it easier for taxpayers to do the right thing,” explains Delaney. In UK sending individuals directly to the form they needed to complete increased response rates from 19% to 23%.
Drawing on the IMF’s policies and previous personal experience in tax modernization, Mr. Gillanders offered his reflections on how the Irish transitioned to a modern revenue service. “One of the most important moves was the shift from the inspector driven assessment to self-driven assessment – it reduced the number of disputes of the taxpayers about their tax liability. Self-assessment gave the sense of fairness and reduced the burden of complains on the taxpayers.” Other key factors of this long time developing process were political support, strong commitment to reform, stable leadership with clear decisions and the provision of the necessary resources. In below video Mr. Gillanders explains how they changed perspective: from enforced to voluntary compliance.
The course was delivered as part of the Supporting Capacity Development of Tax Administrations in South East Europe project at the CEF on November 10-12, 2015. Throughout the event the discussions were captured also through the use of different social media. Such created shared memory makes important lessons learned from our face-to-face learning initiatives more accessible and convenient to a wider network of tax officials. In addition it also multiplies the effects of learning as crucial messages become an important learning resource.