3 9 January 2001
Enhancing productivity at the Inland Revenue Department
Meanwhile, some 30,000 taxpayers were found to have under-declared on their income, abuses ranging from just a few liri to thousands. The Department is now investigating such cases and 835 individuals have been asked to voluntarily adjust their declarations.
Lm150.2 million were collected in tax between August 1999 and July 2000. Social Security contributions for the same period amounted to Lm153.5 million. The Department also paid out Lm5.6 million in refunds to almost 25,000 tax payers in 1999 and a further Lm4.65 million to 4,630 taxpayers from previous years. The IRD carried out 7,205 inspections, from which it initiated 1,577 court cases. Of the 604 cases tried between August 1999 and last July, 381 individuals were convicted and 233 acquitted.
However, in spite of such a heavy workload, the Department spends 1c9 out of every Lm1 collected, an expense margin recognised as a good efficiency rate.
Mr Chetcuti explained the Inland Revenue Department is the governments major revenue earner. It is responsible for the collection of over Lm340 million in income tax and social security contributions, accounting for 52% of government's ordinary annual revenue.
"This requires an IRD that is capable of performing and achieving the expected standards of work output, timeliness, quality and customer satisfaction", Mr Chetcuti explained, stressing that these factors were at the heart of the re-engineering exercise launched in November 1995. This exercise included the re-structuring of the Department's organisational set-up, the introduction of new work processes and systems designed for improved efficiency and facility of operation, enhanced IT Systems and legislative changes.
"The IRD reform will allow the Department to deploy its human resources toward more fruitful work such as tax audits, investigations and better enforcement procedures," Mr Chetcuti stressed.
The radical changes implemented in 1999 and 2000 are considered to be the most significant reform of local income tax legislation affecting the business processes of the Department.
After operating a revenue-assessed system for 50 years, the introduction of a mandatory self-assessment system was considered essential. The new system is simpler to operate and more efficient, Mr Chetcuti explains, adding that it has enhanced taxpayer satisfaction, leading to a marked improvement in compliance by the taxpaying public of its social and fiscal obligations.
In the first two years of operation, the system received remarkable results. The compliance rate for the filing of income tax returns by taxpayers has risen from 25 to 90 per cent, while over 93 per cent of taxes due are being paid on time.
The Department has been able to process all returns (over 220,000 for each respective year) within a few weeks after the filing date deadline and has sent all taxpayers an account statement of their tax position. This resulted in tax refunds due by the Department having been paid within six months of submission of return.
The end result on revenue collected from income tax in 1999, as a result of the self-assessment system, was an increase of Lm16 million (14.5 per cent) over 1998s figure.
The Department is now authorised to pay tax refunds out of its annual revenue and is no longer restricted by the specific allocation of the usual Lm3 million made available in the General Estimates. Last year the Department paid a total of Lm13.7 million in refunds to 39,898 taxpayers.
In 1999 the Department also introduced the simple declaration for the majority of pensioners and employees, relieving some 50 per cent of registered taxpayers from completing a full income tax return.
Important developments are also taking place in the Departments information systems and computerised modules in use at the Inland Revenue Department. In close collaboration with MITTS, the development team responsible for IRD, the Department embarked on revamping its core computer systems, modules and procedures, in order to better control and monitor its performance.
The Department is in the process of developing a tax audit programme that will assist in maintaining and increasing taxpayers' compliance with the tax legislation, thus preventing tax avoidance and tax evasion. The software module will identify irregularities stated by taxpayers in their income declarations and will highlight possible defaulters for further investigations.
The Department intends to voluntary encourage compliance from taxpayers, which is preferred to imposing the punitive measures envisaged in the legislation. Following an exercise carried out by the Department to identify shortcomings in tax declarations during 1998, 2,778 taxpayers came forward voluntarily to adjust their income by declaring an additional income of approximately Lm2.5 million with a total tax liability of Lm5l1,853. The Department will utilise its resources to ensure that, through the tax audit programme, every taxpayer pays their due share of taxation, while discouraging tax evasion.
The IRD continued with the reform last year, with the introduction of new rules governing the payment of provisional tax by companies and self-employed individuals. These regulations reaped the desired results as most taxpayers affected complied by paying the tax due by the prescribed time. This resulted in an increase in revenue from provisional tax payments of Lm17 million (76.3 per cent) 1999s figure.
The activities of the IRD generate a substantial volume of paper work resulting from daily enquiries and personal visits by taxpayers. This volume of work is in an unstructured form and is not easily tracked and controlled by management. This often gives rise to complaints from taxpayers for not receiving replies to their letters sent to the Department. In line with its commitment in improving customer service, the Department is developing a computerised workflow management system, which is expected to be implemented in 2001.
Concurrent with the new initiatives and measures taken during 1999 and 2000, the Department is working hard to eliminate the backlog of thousands of assessments and objections under the old system that are still outstanding. This phasing out of the old system will be stepped-up next year.
This year the Department will be closely monitoring the enforcement of income taxation on fringe benefits by employers. Employers are being given up to the end of March to have their payroll software in place. However, tax on benefits in kind will have retrospective effect as of 1 January 2001. Meanwhile, Enforcement of Social Security Contributions payable by employers and self-employed persons will be enhanced through the development of new computerised software.
The Department will be making good use of the Internet through the development of an IRD web site that will eventually serve as a two-way channel between the IRD and the taxpayer. The project will be implemented in stages and the near future should see a significant number of taxpayers interacting with the Department through the web site. This site will give taxpayers the possibility to make requests for personal tax information, the facility of downloading IRD forms, the electronic lodgement of returns - besides many other elements. These initiatives and measures should lead to an eventual implementation of a Quality Service Charter by the Department.