Jun 17, 2015

Bulgaria Implementing Compliance Risk Management

Being a regional knowledge hub, part of the CEF’s work relates also to showcasing the reform efforts of our member countries. At the recent event on modern approaches to tax compliance, colleagues from Bulgaria, Ms. Boryana Georgieva and Ms. Evgenia Cholakova, shared their country's experience in implementing compliance risk management (CRM). This is their story.

“The National Revenue Agency (NRA) began to develop a strategy for risk management in 2008. We have set up a special directorate that is responsible for applying a unified approach in risk management, which provides effectiveness in identifying, analyzing and treating risks from non-compliance with the tax and social security legislation. The work is guided by the principles set out in the OECD’s model of the CRM process.

My colleague Boryana and I are both responsible for the management and coordination of the processes that aim to increase the level of voluntary compliance of taxpayers. Together with the experts from the Risk Management Directorate we identify a list of potential risks, assess and prioritize them, and define the measures to be taken to ensure that non-compliance with the tax law is kept to a minimum.

At NRA, it is our Client Services Directorate that is responsible for informing taxpayers about their liabilities, and providing them with necessary information. In our work we understand that there are different degrees of non-compliance. For example, some taxpayers make a mistake and they submit wrong or incomplete data. Others do not understand their liabilities due to complex legislation, which is often also subject to change, and then there are those who do not pay their taxes and try to avoid them. Such different compliance levels require different treatment strategies.

In one of the compliance projects that dealt with the risk of undeclared liabilities for social security contributions by self-employed persons, we together with the experts from the Risk Management Directorate established how to identify taxpayers that had to be treated within this risk. As this is a very heterogeneous group of taxpayers involved in a whole range of different activities, it was difficult to develop specific treatment strategies. The fact that this group of taxpayers is not part of a specific business or industry association posed an additional challenge how to tackle the compliance issues related to this group. This required us to treat them individually and not as a group. What made it even more difficult was that for the majority of them we did not have their telephone numbers or e-mail addresses.

In 2009 a risk analysis pertaining to the undeclared liabilities for social security contributions by self-employed persons showed that about 38% of the self-employed failed to meet their obligations. It was estimated that the potential damage would amount to about 28 million euros. 

Several measures were undertaken to address this compliance risk. Firstly, our colleagues from the Call Center contacted those that did not fulfill their obligations and reminded them to submit the declarations. After some time experts from the Client Services Directorate sent official letters to those taxpayers who still did not submit their declarations after the phone call. These customized letters provided them with clear instructions and further information for a timely filling of required tax information. Finally, when the taxpayers still did not submit their declaration an audit was started. Simultaneously an educational brochure about the liabilities of self-employed persons was published and disclosed on the NRA’s website.

After analyzing the results of the treatment through different measures, we estimated that this CRM project was successful. As a result of the phone calls about 42% of the contacted taxpayers submitted their declarations. After official letters and audits the potential damage was further reduced. The analysis showed that many taxpayers were not compliant because of lack of knowledge of their tax obligations and their forgetfulness. So, we concluded that this risk was effectively minimized, and a decision was taken and this compliance risk is no longer included in the national program for 2015.

The future focus of the NRA experts lies in developing knowledge about taxpayers’ behavior and compliance psychology. The goal here is to further develop our capacities in the area of segmentation and profiling of taxpayers for compliance risk management purposes.”

Boryana and Evgenia shared their country's experience in implementing CRM when attending the learning course on modern approaches to tax compliance that we ran on May 12–14, 2015. The course was delivered as part of the Supporting Capacity Development of Tax Administrations in South East Europe project, primarily supported by the Dutch Ministry of Finance, Center of Excellence in Finance, International Monetary Fund, and Assistance Technique France (Adetef). The overall objective of the project is to contribute to strengthening of beneficiary institutions’ capacity in implementing the EU’s recommendations under which the revenue authorities can deliver tax compliance risk management.