Maximizing the Value of Investments in Tax Administration

1. Maximizing the Value of Investments in Tax Administration Terry Lutes Principal, M Group

2. 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

3. Agenda • SAP Solution Functionality Overview • Live Demonstration • Registration • Adobe Component • Taxpayer View • Bread & Butter Functionality • Wrap Up and Q & A

4. The Big Question If we understand our goal so clearly, why do we so rarely achieve it?

5. 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

6. 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

7. 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

8. 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

9. 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. Is IT the Answer?

10. Policy, Process and IT

11. 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

12. Key Issue: TaxAdministrationReform Level • Piecemeal reform of individual business processes • Comprehensive tax administration reform • Comprehensive financial reporting reforms to include tax reporting

13. 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

14. 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

15. Reengineered Tax Administration Framework

16. Example of Functional Components (Philippines)

17. From present to reengineered state 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 Registration and Taxpayer services Returns Processing Compliance Tasks & Projects Collection & Disbursement Case Management Back-office Services Records Management Rules Framework Assessment systems

18. 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

19. 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)