Letter from the Director of the OECD to
the Chairman of HM Revenue and Customs on the review of HMRC's
online services
It has been brought to our attention that there
is a review underway of HMR's online services. As this is an area
that has been the subject of recent study by the OECD Committee
on Fiscal Affairs Forum on Tax Administration (FTA), we thought
it useful to bring the findings of this (and some related) work
to your attention, and to provide some additional observations
based on Richard Highfield's experience in this area with the
Australian Taxation Office. This is all set out in the attached
brief note prepared by Richard who can be contacted if you or
your officials require additional information or clarification.
TRENDS IN
TAXPAYER SERVICES
USING NEW
TECHNOLOGIES
In early 2005, the OECD released a report prepared
by the FTA entitled "Survey of Trends in Taxpayer Services
Using New Technologies". The report—electronic
version attached— describes in some detail the findings
of an OECD-wide survey to gauge the level of progress of national
revenue authorities in member countries in their use of modern
online services to assist taxpayers met their tax obligations.
It provides benchmark data on the take up rates being achieved
for electronic filing of tax returns for the major taxes and describes
the strategies being employed to improve success in this area.
The report also covers progress with other aspects
of a modern online service for tax purposes (eg, electronic payments
and refunds, email, use of the internet for information provision),
and makes reference to some major process redesign initiatives
in a number of countries as part of their enhanced taxpayer service
arrangements (eg systems of pre-populated tax returns used by
Nordic countries, Australia's "business activity statements"—an
integrated means for business to report all of their periodic
tax obligations as a single information stream).
TAX ADMINISTRATION
IN OECD COUNTRIES:
COMPARATIVE INFORMATION
SERIES
The OECD also released a report in late 2004
entitled "Tax Administration in OECD Countries: Comparative
Information Series" (2004). This report, the first in
what is intended to be a regular series, describes selected features
of the tax administration arrangements in OECD member countries.
The series was established to fill a void in the availability
of such information, and thereby facilitate and encourage dialogue
on important tax administration matters. An electronic version
is attached.
Among other things, the report describes tax
return filing and payment obligations for the major taxes—refer
pages 14 et seq and Tables 7 and 8—and from the
country data it will be seen that the UK has the most generous
return filing dates (for self-calculating personal taxpayers and
the corporation tax) of any OECD country. Among other things,
this severely limits in my view the scope to use extended return
filing arrangements to encourage electronic filing, as other countries
have done, and unnecessarily lags the collection of tax revenues.
More is said on this later.
THE AUSTRALIAN
EXPERIENCE
Electronic filing of tax returns commenced in
Australia in 1990, following a successful pilot test in two states.
I was in charge of the operational division in the Australian
Taxation Office (ATO) responsible for the systems administration.
The initial focus of the system was personal tax returns which
in Australia must be filed annually by all taxpayers. Given the
level of tax system complexity, the majority of these returns
were, and still are, prepared by tax professionals. (The costs
of tax return preparation are tax deductible.) In its first two
to three years of operation, the system achieved considerable
success which I attribute to three factors:
(i) the forging of strong working relationships
with software producers and the tax profession;
(ii) streamlining tax return information
requirements to make the system as user-friendly as possible;
and
(iii) establishing an attractive regime of
incentives to encourage wide use of the system.
Concerning (i), it is axiomatic that as significant
players in the building and operation of electronic filing arrangements,
software producers and tax professionals need to be given a central
role in their planning and development. In the Australian context,
considerable emphasis was placed on achieving this outcome in
a variety of ways (eg systems design, early advice of changes,
testing and certification procedures).
At the time of its implementation, Australia
had recently moved from a regime of assessment of tax returns,
involving scrutiny of all returns and accompanying information
by technical staff, to one based on self-assessment principles.
As such, there remained within the design of tax returns some
fairly detailed information requirements which imposed onerous
reporting obligations on some taxpayers. With the development
of electronic filing, steps were taken to rationalize tax return
information requirements so as to simplify use of the system by
tax return preparers. This was particularly relevant when contemplating
the extension of electronic filing to business returns (including
corporation tax) in the ensuing years. Today, Australia's corporation
return is akin to a data input schedule of summary information,
which has led to a very high take-up rate being achieved (ie over
90%).
From the outset of the system, it was recognised
that taxpayers and tax professionals would need to be given strong
incentives to use the new arrangements. In the case of personal
tax returns, two major incentives were established:
(i) accelerated refunds of overpaid taxes;
and
(ii) extended periods of time for tax professionals
to file returns that are to be submitted electronically.
So far as (i) is concerned, refunds of overpaid
tax, which are very common for employee taxpayers, typically took
some six to 10 weeks to process when filed on paper returns in
peak periods. To encourage electronic filing, a corporate objective
of 10 working days (for 80% of electronically-filed returns) in
the form of a public commitment was established and widely promoted.
Over-achievement of the objective in the first two years of operation
encouraged greater take-up in the ensuing years. For tax professionals,
an extended filing period of one month was provided over and above
the then existing arrangements that require tax professionals
to file returns on a staggered basis for a period of up nine months.
Typically, all returns are required to be filed within four months
after the end of the fiscal year. Special arrangements exist for
tax professionals. Today, over 80 percent of all personal tax
returns are filed electronically.
SUGGESTIONS IN
THE UK CONTEXT
The report referred to at the outset provides
a range of ideas to encourage use of online services. As you would
be aware, a number of countries have established mandatory reporting
and filing obligations, if not for the bulk of their taxpayers
then certainly for the largest ones. Given a possible reluctance
to contemplate mandatory requirements for the bulk of UK taxpayers,
one is left to contemplate incentives that might be crafted to
encourage taxpayers into the electronic filing net.
As mentioned earlier, return filing dates for
UK self-calculating taxpayers are excessively generous by OECD
country standards. It has occurred to me that a revision of these
dates might be undertaken so as to require paper returns much
earlier (eg, within four months of the close of the fiscal year
as in many other countries), but with provision made to give longer
periods, perhaps on a staggered basis, for electronic filers.
This, in conjunction with any streamlining of return information
requirements that may be feasible, could be attractive to return
preparers.
So far as business taxpayers are concerned,
I recommend that you examine the idea of integrating the regular
tax payment and reporting obligations that businesses are confronted
with as a medium/longer term proposition. With the increasing
trend of revenue bodies to organize and design their processes
around taxpayers', as opposed to a "tax by tax type"
approach, I believe that integration of businesses' regular reporting
and payment obligations is the future direction for tax administration.
Such an approach is already being pursued to varying degrees by
a number of Nordic region countries and as mentioned earlier,
a more complete model, known as `business activity statements'
has recently (2000) been introduced in Australia.
Jeffrey Owens
Director, OECD
2 September 2005
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