CLUSTERING TAX ADMINISTRATIONS IN EUROPEAN UNION MEMBER STATES.
Tax administration (TA) is the public institution with the most important role in collecting tax revenue. The tax policy of a country is applied through the TA which is the main interface between state and taxpayers. Nowadays, TA is required to use adequate tools and to apply modern methods for tax planning, tax collection, in such a way that tax revenue collection and compliance of taxpayers with their tax obligations should be as high as possible.
In-depth research on the specific problems of the TA, from the performance perspective that it must achieve, is an important topic in the current economic and social context.
On the one hand, the citizens' demands in relation to the services provided by the state institutions have increased considerably, and therefore the TA must improve especially the activities through which it gets in direct contact with taxpayers. On the other hand, current neo-liberal policies have generated a reduction in tax pressure and require the state to use public money much more rationally and efficiently. Within this context, the pressure exercised on the TA to achieve a tax revenue collection, as high as possible, grows. The above-mentioned aspects can also be seen in the policies and strategies promoted by the International Monetary Fund, the World Bank, the Organization for Economic Co-operation and Development (OECD), etc.
This research aims at grouping the TAs of the 28 European Union Member States (EU MS) by cluster analysis, using data provided by the OECD (Tax Administration 2019 Comparative Information on the OECD and Other Advanced and Emerging Economies) in order to highlight if a certain pattern of organization and functioning of TAs can be associated with the high TA performance. The fact that TAs in the EU MS are performing differently is revealed by the differences of the values from indicators calculated and published by the World Bank, OECD and European Commission (for example, cost of collection ratios, the size of the tax gap, time to prepare and pay taxes, etc.). One problem in solving the research question was that TAs in the EU MS are not yet ranked after a composite index to reflect their performance. An evaluation report of TA based on the new assessment tool developed for TAs (The Tax Administration Diagnostic Assessment Tool--TADAT) is not available for EU MS.
The main research question is whether we can identify organization and functioning models of TAs in the EU MS that can be associated with a certain level of performance of the activity carried out.
The information regarding the organizational characteristics of TAs in the EU MS and their performances were based on the OECD's Tax Administration Comparative Information Series--a database developed on the basis of information provided by MS through questionnaires and on data published in the 'Paying Taxes' Report, a part of the World Bank's Doing Business project, and in Study and Reports on the VAT Gap in the European Union--28 Member States (Davoine, 2019).
The first part of the paper includes an analysis of how the assessment of TA performance is reflected in the specialty literature, as well as a number of relevant information on certain aspects related to the activity of TAs in the EU MS. In the following parts the research methodology is described and the results, discussions and conclusions are thus presented.
This research is a first attempt, in the specialty literature, to link the characteristics of a TA (from the perspective of the structure-function) to its efficiency. A number of output indicators have been presented, based on which the TAs in the EU MS can be ranked.
The study has shown that the efficiency of TAs in the EU MS is related to the way they are organized and operated.
Considerations regarding the organization and functioning of the tax administrations
There are various models of organization and functioning of TAs around the world, the differences between them being generated both by legislative elements (for example, the way taxes are collected: at national or sub-national level), as well as by cultural, historical or political elements (OECD, 2019, p. 106). A study carried out by OECD shows that, generally, TAs in the EU MS are organized as unified semi-autonomous bodies with main responsibilities in administrating direct and indirect taxes, but they also carryout other activities such as payment of welfare/ benefits and customs administration or the collection of social security contributions (OECD, 2011).
The organizational structures of TAs that can be identified in the EU MS (organization by type of taxes collected, organization by functions performed and organization by type of taxpayer, combinations of two or more types of organizational structures) were analyzed in the specialty literature (OECD, 2009; Kidd, 2010; Murdoch et al., 2012; Jacobs et al., 2013) in terms of the advantages and disadvantages generated in use. The analysis of the specialty literature showed the use tendency of the functional structures in more and more TAs.
The way of organizing and functioning of the TAs influences their degree of autonomy, materialized in the freedom to elaborate and implement adequate procedures for achieving the fiscal policy objectives. Numerous studies highlight the tendency to increase the autonomy degree of TAs (Murdoch et al., 2012; Jacobs et al., 2013; Crawford, 2013; OECD, 2019), with the aim of reducing the risk of political intervention in tax collection and improving the effectiveness of the TAs in the conditions of increasing the taxpayer's respect for the tax authority. In this context, there have been situations of outsourcing the activities of TAs to the private sector or other public institutions. Activities related to information technology, tax compliance activities, tax returns and the processing of tax payments are frequently outsourced. The authors who studied the effects of these trends point out that the outsourcing of some activities by TAs should not seek to reduce costs, as the only objective, but to represent a complex process to simultaneously increase the efficiency and the quality of services provided to taxpayers (Hartrath, 2015; Lemgruber et al., 2015; Davies et al., 2018). Sassi et al. (2018) and Walker and Tizard (2018) showed that outsourcing can be considered useful, to the extent that it generated savings for TAs, but the outsourcing impact on the quality of services provided to taxpayers is difficult to evaluate, so that this exploitation tendency must be done with caution. However, maintaining control over the basic functions of the TAs is essential.
Mainly, the TAs in the EU MS want to be modern, characterized, according to D'Ascenzo (2015), by transparency and adaptability, in order to reduce international tax risks and to promote a positive investment climate and thus to reduce the causes of non-compliance.
The efficiency evaluation of tax administration
Because of the way TAs carry out their activity, which has an important impact on the total amount of public money, there is a high interest from the side of all factors involved in public finance that the activity of public administration is a performing one. The indicator of performance evaluation of the TA with generalized acknowledgment is maximizing the tax revenue collection, among which Serra (2005, p. 20) found the following: minimization of compliance costs and simpler performance measures, staff motivation and satisfaction of excise staff and taxpayers (James et al., 2006, p. 93), maximizing visibility and results in wider acceptance of the tax system, minimizing the administrative burden and minimizing service delivery transaction times (Yoon et al., 2014, p. 38).
Developing tools for the performance evaluation of TA has been an important concern for the specialists, international organizations and the European Commission.
A first initiative for creating a tool that would have allowed the TAs from the EU to identify its strengths and weaknesses dates from 2007, and took the shape of a fiscal blueprints set, that included the concept of measurement via a scoring system. The set of fiscal blueprints covers the following aspects: the overall framework of the TA, structure and organization, tax legislation, human and behavioral issues, ethics, human resources, revenue collection and enforcement, tax audit, administrative cooperation and mutual assistance, fraud and tax avoidance, taxpayer services, taxpayer rights and obligations, systems for taxpayers' management, voluntary compliance, information technology and communications (European Commission, 2007, pp. 13-56).
Collecting the necessary data to achieve the scoring profiles must be done through a questionnaire. In 2008, the European Organization of Supreme Audit Institutions proposed a series of performance indicators considered as being measurable, time-related and comparable that could be used internationally in benchmarking the performance of TA. The suggested indicators are: tax gap, collection gap, timely filling, completeness and accuracy of taxpayers' tax returns, take up of electronic services, efficiency and productivity, total expense-to-revenue ratio of administration of taxes to revenue...
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