Tax administration involves collecting taxes, ensuring they are filed correctly, and paying any outstanding amounts. This is a challenging role that can be rewarding when done correctly.
The tax administration model can affect a country’s tax system’s functioning by influencing how audits are performed, penalties assessed, and appeals reviewed. Different models also have technical implications. Call J. Gregory PEO for professional assistance.
Taxpayer service is the ability of a tax administration to provide quality assistance to individuals and businesses that need help complying with and fulfilling their tax obligations. It includes the provision of accurate and understandable information, the facilitation of tax payments, and addressing complaints and grievances. The taxpayer service also helps taxpayers avoid unnecessary delays and provides a smooth path to meeting their tax obligations.
The Federation of Tax Administrators (FTA) was established in 1937, and is a non-profit organisation which promotes the professional development of tax administrators and fosters the exchange of ideas and leading practices between them. Its members include state and local government officials responsible for administering motor fuel, tobacco, cannabis, and alcohol taxes, as well as the federal agencies that collect these taxes. The FTA also works with international bodies to support capacity development and analytical activities on tax and customs administration.
FTA has recently been involved in the development of a series of OECD publications to support its work with member tax administrations. These publications examine best practices for tax administration, and are intended to help countries to develop effective policies that will improve the efficiency of their systems.
Providing top-quality customer service is essential for any tax administration. In the United States, the IRS has been working hard to do just that. The agency is making significant strides in improving the taxpayer experience, such as implementing an automated callback feature to reduce wait times during the 2020 filing season. This service saved more than 486,000 hours of taxpayers’ time, and the IRS has a goal of expanding the callback option to all of its phone lines by 2024.
Audit
As an essential part of implementing tax systems, the audit function examines taxpayers’ compliance and ensures that taxes are collected properly. It is often the most challenging aspect of a tax administration, because it involves dealing with citizens and businesses and collecting an uncertain quantity of complex transactions. This is made more difficult by economic complexity, changing relationships with taxpayers and the rapid evolution of digitalisation and data and technology.
Typically, the tax administration conducts an annual audit on all taxpayers. While countries differ in the way they organize the audit, most have some form of risk assessment to identify potentially high-risk taxpayers for review. This may involve a risk-based approach, or it may be based on factors such as turnover or balance sheet size. Some countries use a comprehensive approach to auditing all taxpayers by conducting full field audits and extensive desk audits, while others take a mixed approach that includes both full coverage and limited desk or records examinations.
In some cases, effective auditing is compromised by skewed incentives in the tax system that distort the behaviour of staff. For example, in some countries, there are incentives for audit officers to increase audit adjustments and penalties as a percentage of total revenue collected, which can lead to aggressive or unfair practices that undermine tax compliance.
Another common problem is the lack of clarity and consistency in the rules governing administrative functions. For example, there are often large discrepancies between the physical volumes and prices established by resource accounting procedures and those recorded in companies’ tax returns, which can affect the amount of tax owed. In addition, in some countries, there are no established procedures for companies to make direct tax repayments. These problems can be difficult to overcome, but a few simple changes can have a major impact on the quality of auditing and other administrative functions.
Collection
A tax administration that collects the right amount of taxes is critical for economic stability. However, the collection of taxes can be challenging, especially in developing countries. Tax administrations need to be highly-efficient in order to meet this challenge. A number of approaches can help them improve performance, including the use of quick wins. These quick-win measures can include tackling problems identified by senior tax officials and closing sector-specific tax loopholes. These measures can also be used to identify areas where reforms are needed in the long run.
Centralizing tax administration can significantly reduce collection and enforcement costs. However, it is important to design structures that allow lower levels of government some control over base and rate structures. This option allows subnational authorities to manage local taxpayers without loss of macroeconomic control, and it also can reduce administrative costs through scale economies.
Another way to improve collection is to increase the size of the formal economy and discourage informal businesses from operating out of the system. This can be done by requiring government workers to check a registry of taxpayers before permitting them to send money abroad, sponsor work visas or apply for public contracts. It is also helpful to implement registration systems that can provide feedback on whether the register is up-to-date.
The tax administration can also collaborate with private debt collection agencies to work on delinquent cases. These agencies can often find more creative ways to settle the debt, which can be beneficial to the taxpayer’s financial status. The IRS is allowed to assign a case to these agencies only after it has informed the taxpayer of the assignment in writing. In addition, the agency must provide a notice of any future debt collection action.
Enforcement
The revenue service is a government agency responsible for collecting taxes and other government revenue and investigating tax fraud or evasion. The revenue service may also be charged with providing services to taxpayers, such as educating them on their tax filing and payment obligations and conducting audits.
In the United States, local offices of the IRS oversee collection of state and local taxes. The office is responsible for educating taxpayers, processing tax returns, resolving taxpayer issues and providing quality customer service. The office must maintain an accurate inventory of cases and submit aging reports to management on a weekly or monthly basis. It is also responsible for a variety of other administrative duties, including dealing with taxpayer appeals and acting as the supervisory arm of the department.
Tax administration is a key element in the overall success of economic policies and the effectiveness of governments. This is why it is important to identify the health of an administration through an objective and independent assessment. This is possible through various EU tools, such as the Tax Administration Diagnostic Assessment Tool.
It is important to note that increasing enforcement without structural reforms is akin to putting a bandage on a leaking ship, as it will only result in more innocent people being caught up in the net and the potential for more privacy breaches (see NTU and NTUF’s commentary). The Treasury’s brief pays lip service to improving taxpayer service through increased funding but this would be difficult given that the IRS is working with outdated IT infrastructure—its Individual Master File and Business Master File contain hundreds of millions of records, are coded using low-level assembly language from the 1950s and were recently exposed as part of the COVID-19 pandemic response.
Compliance
A country’s citizens must comply with the laws that govern taxation. If they do not, the government will have a hard time providing essential services. For example, Medicare and Social Security may cease to exist and city infrastructure could become dilapidated and unsafe.
In order for citizens to comply with tax laws, the institutions that enforce them must be seen as legitimate by the people. This can be achieved by showing that the government is spending its tax revenues wisely. This can be accomplished by ensuring that taxes are used for top-notch infrastructure, quality health care and education.
Another factor that influences compliance is how much a citizen has to pay in taxes. In the United States, for example, the federal income tax is the main source of revenue, but state and local governments also impose a variety of other taxes.
Tax regulations are frequently revised to reflect changes in the economy and business operations. These changes can be challenging for businesses to keep up with, which is why it is important for them to engage in comprehensive tax planning throughout the year. This practice helps them anticipate changes to tax regulations, which will allow them to remain compliant.
The IRS aims to make it easier for taxpayers to meet their regulatory obligations by publishing guidance in plain language on its website. This guidance is available for free and provides an overview of common tax topics. The IRS also offers a variety of publications that provide more detailed guidance on specific topics.
There are many ways to stay informed about the latest developments in tax legislation. Attending industry-leading conferences and seminars is one way to do so. Subscribing to newsletters and blogs from professional associations is another. And finally, digital accounting services can review various scenarios and tax estimates for a company and help develop a strategy that meets its needs.
