Digital transformation has been well-and-truly embraced by private enterprises who have been quick to understand the competitive advantages that leveraging new technologies can offer, but public sector and governmental organisations have been lagging behind, especially in the areas of financial management.
This is quite understandable in many respects, as the collection of tax revenues from both corporate businesses and the general population is so critical to the ability of states to function, they are naturally reluctant to undertake such large-scale transformation projects that have the potential to cause massive disruption to public services and operations.
This potential risk is of course something that can be managed and mitigated with appropriate project planning. Additionally, with the continuous evolution of business practices, increasing numbers of taxpayers and the vast amount of information that is needed to keep track of collections and interactions, embracing more advanced tax collection and revenue management systems is no longer optional, but essential to ensuring efficient, accurate and comprehensive administration of public finances.
Want vs Need
There is no point in trying to run before you can walk – doing so only increases the risk of project failure, so it is vital to evaluate and understand the levels of functionality that are required at a base level versus those that are desirable to increase the effectiveness of tax administration.
There are a huge range of options for data collection, workflow automation, reporting and predictive analytics (just to begin with) and it is common for administrations to over-specify the requirements for reformation projects. Doing so can not only endanger the success of the implementation but even if it is completed, the overall user experience is likely to be negatively impacted which inevitably leads to additional problems with revenue collection and dispute resolution.
Core responsibilities should be addressed first and foremost, with the establishment of a set of basic functionalities to enable processes such as taxpayer registration, payment and returns processing and revenue accounting. Additional features such as audit targeting and debt collection may also be included in the initial phase of implementation.
More advanced services such as e-filing, e-payments, data sharing and matching, or taxpayer self-help portals may be desirable to many tax administrations, but consideration should be given to the IT skills required to manage these systems, as well as the associated infrastructure required to operate them.
Understanding the difference between “must-have” and “nice-to-have” is also crucial to managing the overall costs of the project, which can quickly escalate if the requirements are over-specified. Any tax management system worth its salt should be flexible enough to allow extra functionality to be added as and when it is suitable to do so.
Build vs Buy
Naturally, every tax administration is different and will have its own unique set of requirements. In the past, the preference was usually for systems to be custom-designed and built from scratch in order to ensure that the individual requirements were met and environmental considerations were taken into account.
Nowadays however, there are a number of pre-built tax systems available, known as Commercial-Off-The-Shelf (COTS) systems. These provide a set of ready-made features and functionality that can be configured to meet the individual requirements of any tax administration. Further, they provide the opportunity for progressive implementation of additional features and functionality as the requirements and/or the capabilities of the administrators evolve over time.
Major advantages of these COTS systems include a faster and higher-quality implementation of the core functionality, reducing the cost of the implementation and enabling additional functionality to be added when required without modification of the core system.
DIY vs Outsourcing
Due to the scale and importance of tax systems implementations, it is crucial for administrators to be honest with themselves about the capabilities of the organisation to carry out the project. The level of maturity of IT within administrations can vary dramatically and it is important not to bite off more than you can chew, lest it backfire and jeopardise the success of the project.
Considerations should include not just the current expertise available within an organisation, but also the availability of skilled IT staff within that region as well as the expense of recruiting them, as pay disparities between the public and private sectors can make it tricky to acquire people with the required skillsets.
It’s also crucial to bear in mind that it is not just the initial setup and implementation that must be considered, but the ongoing day-to-day requirements of the tax system, including maintenance, licensing and security. Monitoring of these aspects as well as planning for future enhancements to the system is no small task and requires a highly-skilled team of people working behind-the-scenes to ensure effectiveness and an optimum user experience.
Invenio Business Solutions are one of the top three consultancy firms globally for tax and revenue management implementations. For over ten years, we have worked with major governments and public sector organisations around the world conducting the design and implementation of tax systems, in addition to providing ongoing consultancy services and advice. For more information on how to approach the implementation or reformation of tax systems, feel free to contact us anytime.