“Change makes something better – like making cars that go faster. Transformation is about the caterpillar and the butterfly: it’s about making a better something,” said Ruth Kennedy. “And in terms of tax administration, transformation is where we need to go.”
Speaking in the session on ‘Making tax less taxing’ at the 2024 Global Government Finance Summit – held this year in Dublin, where the Irish government played host to top finance department officials from 12 countries – Kennedy, a revenue commissioner in Ireland’s tax and customs agency, championed “natural taxation”. This is the idea that tax systems should fit around businesses’ and workers’ existing practices, rather than requiring them to carry out additional administrative processes to calculate their tax liabilities and report to government. “We’re making tax part of natural events, and getting the data direct from the source at the correct time,” she said.
Marine Khurtsidze, head of the Tax and Customs Policy Department at Georgia’s Ministry of Finance, said her country has spent years simplifying its tax system, reducing complexity and administrative work both for public servants and for businesses. Over the last two decades, she explained, the number of taxes has been cut from 22 to six.
Meanwhile, numerous reforms have been carried out to modernise tax administration – including the creation of personal web portals that support electronic tax returns and allow people to manage all their tax affairs in one place. “We’re trying under future reforms to support less communication between the tax administration and the taxpayers,” said Khurtsidze. “We’re oriented to becoming more digitised and more automated.”
Tax like a mosquito, not a mugger
Similarly, said Kennedy, Ireland’s Revenue agency is working to simplify its presentation and reduce the work it asks of citizens. “What we have to do is transform to hide the complexity, so that those engaged with us have a much more simple type of interface,” she said.
Kennedy cited as an example Revenue’s reform of Pay As You Earn (PAYE) processes, under which businesses automatically deduct employees’ tax payments at source. Previously, she explained, employers would pass tax payments to Revenue on a monthly basis; but they had 12 months from the end of the tax year to provide a full report on exactly what they’d charged each taxpayer – so government had to wait well over a year for a clear, high-resolution picture of its tax receipts. In 2019, Kennedy explained, the agency decided to “understand how employers run payroll, and to make all reporting obligations to the tax administration a by-product of the payroll process”.
Now, Revenue receives all the data it needs via automated data feeds from every employer’s payroll system – giving it an accurate, real-time picture of tax receipts, whilst eliminating the risk of errors as companies produced their annual reports. “Like an iceberg, all the administration is beneath the surface – orchestrated by the computer systems of both employers and Revenue,” she said. “Now, every time someone is paid, we have the information on what they’ve been paid and how much was deducted.”
In the first year, Kennedy continued, Revenue received an additional €70m “purely from getting the data in real time – so we had much more accurate and timely exchequer yield. From the citizen’s point of view, they had absolute transparency that the money withheld by their employer was reported to Revenue. From an employer’s perspective, they no longer had to do anything other than run their businesses. And from the Ministry of Finance’s perspective, they now have real-time information on what is happening in employment in Ireland each and every week – and that produces insights that can influence policy.”
“As a finance ministry, we don’t like spending money,” commented John McCarthy, chief economist at Ireland’s Ministry of Finance. “But one area in which we’ve been happy to spend money is in PAYE modernisation, because it means we get real-time data and better compliance. The information that comes back is so good that we get more revenue from it than we allocate.”
Such projects save money on several fronts, said McCarthy: the “simplicity of payment and collection” averts administrative costs, both inside and outside government; the automation of transactions reduces errors and drives up compliance; and the generation of real-time data enables finance leaders to “better design tax policies”. Revenue is also gathering data to inform enforcement operations aimed at some taxpayers, noted Kennedy, saying that the agency focuses on “milking the cows that come in to be milked; we need to find the ones that don’t”.
“We’ve been looking at the ‘online influencer’ community, because that’s a new industry and maybe the individuals involved aren’t traditional people who set up businesses and have tax advisers,” she added. “We’re able to get information from online platforms on who they’ve paid” for attracting large audiences: Revenue then contacts influencers, and asks them to declare all their earnings.
Another senior finance leader also provided an example of using data to boost compliance. “We can see in our systems when people own second properties, but quite a lot of them didn’t declare any income from them,” they recalled. So a couple of years ago, their ministry added a pop-up to its online tax return system: nowadays, “if you don’t declare income from a property that government knows you own, a chat box appears when you’re finalising your income statement, saying politely that we know you have another apartment, and telling people which processes to follow if they’re renting it out”. The results were dramatic: “We went from about 20% of apartments appearing to generate an income, to 80-something percent,” they said.
Content retrieved from: https://www.globalgovernmentforum.com/death-to-the-tax-return-tracking-the-revolution-in-revenue-collection/.
