Options for Evaluating the Performance of a Tax Administration Agency

1. Options for Evaluating the Performance of a Tax Administration Agency Presented by Denise Edwards-Dowe Inland Revenue Dominica

2. Reasons for Evaluating Performance Private and Public Sector organizations require information on performance:- • For decision making • For development of strategic plans • To improve the efficiency and effectiveness of their organization

3. Regional Tax Administration Agencies and Performance Evaluation • With support from the ministries of finance, most tax administration agencies within the region have attempted to reform and modernize their agencies • The aim of the modernization, from the point of view of the ministries of finance has been:- to maximize collection of revenue • For the most part, the attempts at modernization has taken place through the development of information technology systems and restructuring the tax agency along functional lines • Ministries of finance throughout the region use the annual revenue collections to measure the performance of their tax administration agency

4. Regional Tax Administration Agencies and Performance Evaluation • For tax administrators in the region, the main focus is on performance in auditing, processing of returns, compliance and taxpayer education in order to satisfy the expectations of the ministries of finance – maximum revenue collection

5. Options used to Evaluating the Performance of Tax Administration Agencies Three options used by modern tax administration agencies to measure performance • Performance measurement system • Benchmarking • Performance standards

6. Performance Measurement System • Measuring is the act of assigning numbers to properties and characteristics • The purpose of a measurement system is to:- • provide information / feedback relative to the goals of the organization and its programs • enable the organization to identify areas requiring attention • to perform better in the future

7. Performance Measurement System A good performance measurement system has the following characteristics: • a plan identifying a set of objectives to be achieved • the activities and resources needed to accomplish those objectives • a process (IT) for capturing, identifying, collecting and analyzing information on how well the plan’s objectives are being met • a process for making decisions concerning activities undertaken in pursuit of the stated objectives • the corresponding allocation of resources

8. Performance Measurement System The performance process: Step 1: Define the tax administration agency’s objectives, and the strategies and resources to be employed to meet those objectives. That key step includes a determination of what should be measured. Step 2: Identify measurable indicators of the agency’s activities, output, and outcomes. In some instances, measures are more direct than others. For example, a tax administration agency that may want to improve its collections of arrears by 5% can measure its performance directly. However, that tax administration agency would find it difficult to measure improvements in the quality of audits. The agency may be better off measuring its efforts at improving the quality of the audits. It is important therefore, that measurement be as direct as possible

9. Performance Measurement System The performance process: Step 3: Define exactly how to collect and verify the data for the indicator - it is imperative that everyone understands the process. Step 4: Analyze the data Step 5: Forward data to management. Data is to be used to adjust strategies and reallocate resources

10. Performance Measurement System Examples of performance measurement used by tax administration agencies • Percent of data entry errors • Length of time to process a filed return • Length of time to process a VAT refund • Percent of complaints about client service • Length of time to process a VAT registration application

11. Benchmarking • Benchmarking is the process of determining who is the very best, who sets the standard, and what that standard is. • To benchmark, one first has to determine what has to be benchmarked and how to measure it. • Most importantly, the object is to figure out how the winner got to be the best and determine what has to be done to become a winner as well.

12. Benchmarking in Tax Administration • Benchmarking in tax administration involves learning, sharing information and adopting best practices to bring about changes in performance. It allows an agency to improve on its performance by learning from others.

13. Benchmarking in Tax Administration Benchmarking encompasses: • Regularly comparing aspects of performance with best practices and regional and national standards; • Identifying gaps in performance; • Seeking fresh approaches to bring about improvements in performance; • Following through with implementing improvements; and • Following up by monitoring progress and reviewing the benefits.

14. Benchmarking in Tax Administration Some of the international benchmarks used in tax administration: • VAT rate: The international benchmark is for a single rate of VAT at about 16% • Structure of a tax administration: The international norm is to have tax administrations organized based on functions as opposed to tax types. • Auditors as percent of administrative staff: The international benchmark indicated that about 30% of professional, administrative staff of the tax administration should be dedicated to audit.

15. Performance Standards • Generally, performance standards indicate what an organization should do and how the work of the organization is to be carried out. • These standards are based on the strategies contained within the organization’s annual plan and will measure different aspects of the organization’s operations.

16. Developing Performance Standards for Tax Administration Agencies In developing performance standards, administrators should ensure that: • The performance standard is uniformly applied across the whole organization. Every section should be required to meet the same basic standard. • The standards should be developed in such a way that the impact of extraneous factors such as change in the tax roll will not result their modification. • The performance data should be collected as part of the day to day activities of the organization, with information recorded and generated by computers. This will assist the organization in keep its time and cost of collecting performance data at a minimum.

17. Developing Performance Standards for Tax Administration Agencies In developing performance standards, administrators should ensure that: • Performance standards set in one part of the tax administration should not conflict with those set in another part of the administration. • The frequency and timeliness of performance information should be linked to management information requirements. • When performance standards are being developed, managers and staff should be consulted.

18. Developing Performance Standards for Tax Administration Agencies • For tax administrations, the number one priority is the collection of revenue. To meet this objective, standards are set to increase voluntary compliance by taxpayers, increase productivity in the audit and collection sections, and improve quality of client service. • The functional sections within the tax administration should be assigned the responsibility of setting and monitoring these performance standards. • The role of management is to approve of those standards.

19. Examples of Performance Standards for a Modern Tax Administration Agency Taxpayer registration • All taxpayer numbers to be issued with three days of receipt of applications for registration. Collections • Revenue targets, by month, tax type and age of arrears. Return processing • Percentage of filed income tax returns to be processed within a month of receipt

20. Examples of Performance Standards for a Modern Tax Administration Agency Non-filers • All non-filers for VAT to be contacted within five days of monthly return filing date. Arrears Collection • All PAYE taxpayers should be contacted within 10 days of the monthly payment date to collect outstanding payments

21. Examples of Performance Standards for a Modern Tax Administration Agency Auditing • Number of audits completed per person year, dollars re-assessed per case, hours per file. Client Service • Number of tax inquiries handled per person years by telephone, office interview and letter.

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