1. Developing a Compliance Strategy
Stan Shrosbree
Fiscal Affairs Department (PFTAC) International Monetary Fund
Tuesday 19 April, 2016

2. Primary Goal of a Revenue Administration
TO ENSURE COMPLIANCE WITH THE TAX LAWS

3. Outline Introduction Compliance Improvement Strategies
Identifying risks
Assessing and prioritizing risks
Analyzing compliance behavior
Developing Risk Treatment Strategies
Evaluating results
Creating a common platform for Revenue Administrations and Ministries to understand the potential of working together to improve compliance

4. Old Tax Administration V New Tax Administration

5. What is a Compliance Improvement Strategy?
A Revenue Administration document that describes
The major risks to be addressed
Which taxpayers they relate to
How the risks should be treated to achieve the best possible outcomes

6. What is Risk Management?
Compliance risk management is a structured process for the systematic identification, assessment, ranking, and treatment of tax compliance risks (e.g., failure to register, failure to properly report tax liabilities etc). It is an iterative process that consists of well-defined steps to support improved decision-making.

7. Compliance …. with what? • Registration in the system
• Timely filing or lodgment of requisite taxation information
• Reporting of complete and accurate information (incorporating good record keeping) and
Payment of taxation obligations on time

8. The role of RA’s
All revenue authorities are generally required to maximize the overall level of compliance
They are appropriated a finite level of resources, meaning that careful decisions are required as to how those resources are to be applied to achieve the best possible compliance outcome, in short:
- What are the major compliance risks to be addressed?
- Which taxpayers do they relate to?
- How should these risks be treated to achieve the best possible outcome?

9. Benefits of a Compliance Plan
Structured basis for strategic planning
Method for reserving the harsher compliance tools for the more non-compliant taxpayers
Allocation of resources to identified risk levels
Improved compliance and program outcomes
Introducing performance standards to monitor progress and improvements in compliance

10. The link between modernization and improving compliance
Government/Donors
Higher revenues
Cost efficiency and effectiveness
Return of investment
Staff
Development of people
Application of modern technology
Taxpayers
Equity
Cost efficient administration
Professional service delivery
Confidentiality
Tax Administration Modernization
Public
More social services
Building the nation

11. Making our taxpayers understand why tax compliance is necessary
Quality
of Life
Standard of Living
Work
Housing
Recreation/ Sport
Safety and Security
Pension
funds
Infrastructure
Education
Health
HUMAN NEEDS
Transport
Welfare
Understanding the needs and reasons of taxation

12. Risk Management Cycle (OECD Model)
Assess and prioritise risks
Analyse compliance behaviour
(causes, options for treatment)
Determine treatment strategies
Plan and implement strategies
Identify risks
Monitor
performance
against plan
Operating Context
Evaluate
compliance
outcomes •
Registration
Filing
Reporting
Payment
Assess and prioritize risks
Analyze compliance behaviour

13. Key Compliance Issues Aggressive tax planning Underground economy
VAT fraud
Revenue collections and non-filers
Question
What would the Budget impact be if we improved compliance across these areas? Is it worth an investment in the tax administration and what would the return on that investment be?

14. Developing Program Strategies
LINKING STRATEGY TO ATTITUDES

15. Applying the CM to tax arrears

16. The enforcement compliance model
The model
Provides the different interventions that Revenue Administrations (RAs) can use to generate the required revenue
Suggests that RAs have the ability to influence taxpayer behavior by their responses and interactions
Poses a challenge for RAs to get the right balance of services and enforcement actions across the different populations of taxpayers

17. Developing Program Strategies
REMEMBERING TAXPAYER BEHAVIOUR
Need to develop tailored compliance solutions based on an integrated view of our clients
RAs working relationship with clients must be influenced by their compliance record
Cross-program client compliance profile captures compliance and risk history of all taxpayers
Profile also links associated entities (Taxpayer A owns Company B owns Company C etc.)

18. Understanding Taxpayer Behavior
WHAT is occurring?
WHO is doing it?
WHY are they doing it?
e.g., under-reporting of income,
over-claiming expenses,
e.g., lack of knowledge, cost of compliance, perceived inequity, dishonesty
Characteristics of the taxpayer
What are we going to do about it?

19. Potential reasons for Non- Compliance
Equity
Is the taxpayer treated fairly?
Does the government make good use of the tax revenue
Opportunity for non-compliance
Cash based businesses
Individual differences
Risk taxpayers (e.g. younger males)
Social norms
Everybody does it …..
Dissatisfaction with the Revenue Authorities or Government

20. Designing treatment options
Make obligations clear and make it easy to comply
Understandable legislation and tax returns
Readily accessible help (taxpayer services)
Proactive education
Use escalating sanctions
Publicize service and enforcement activities

21. Making it easy … and reducing compliance costs

22. Remember: The ultimate goal is not to find non-compliance, it is to prevent non-compliance

23. Segmentation in developing a Compliance Improvement Strategy
It is grouping of taxpayers according to similar attention, assistance and examination characteristics and thus offer a quality service implementation specialized and differentiated treatments for these segments.

24. Compliance V Segmentation
From the compliance perspective, segmentation plays a vital role, as it differentiates group of taxpayers with their different needs
Large
Medium
Small
Furthermore, segmentation based on an industry matrix can also part of the strategy. For example:
Real Estate
Construction
Manufacturers
Pharmaceuticals
Wholesalers/Retailers etc

25. Evaluating a Compliance Improvement Strategy
Key questions
Were the right risks identified?
Were they analyzed correctly?
Was the right treatment selected?
Was the risk reduced?
Is outside help needed from the Ministry
Legislative changes?
Additional resources?
IT Investments?

26. Evaluating a Compliance Improvement Strategy
Look beyond outputs to outcomes – look to see if taxpayer behavior is changing
Are the trends moving in the right way over time?
Taxpayer Surveys
Filing and paying rates – are they improving?
Correct reporting – audit results going down?
Registration rates – going up?
Is the tax gap being reduced?

27. An Evaluation Model
Evaluating compliance trends is difficult, but …. what gets measured gets done!
Input
Activities
Output
Outcomes

28. Design … an important element of modern Revenue Administration
Using data and business intelligence to build compliance improvement plans
Understanding taxpayer behavior
Employing the right people
Exploring new ways of work
Assistance
Service
Persuasion
Education

29. Making taxpayers aware of RA plans and results
Communication of the plan is key
You must act according to the plan
Deliver what you said you would and communicate it – fraud identified , imprisonment etc
The results of the CIS

30. Developing a Compliance Improvement Strategy (CIS)
Represents a new way of work for many PICs
Takes leadership and guidance to implement
A CIS will challenge your current business model … hard decisions to be made
Breaking away from old traditional tax administration is not easy
It’s a change initiative that will be challenged
But.. You will reap the rewards!

31. So where to from here … two options?

32. Thanks.