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Revenue and fiscal management

Revenue and fiscal management: Tomorrow’s government at work

By Jeremy Andrulis and Bryan Barton

Driven in large part by the onset of the information age and accelerated use of information technology (IT), global commerce and communication are changing rapidly. Companies routinely expand internationally, individuals work and purchase goods across national and regional jurisdictions, small entrepreneurial ventures explode across industries, private-sector companies increasingly provide tax services and community organizations quickly form around specific issues—irrespective of geographic location. These new realities

create complex tax implications for taxpayers and revenue depart-ments. These changes, however, do not alter the core responsibility of revenue departments: to collect revenue to fund government services.


Revenue and fiscal management IBM Institute for Business Value 1

Executive summary

Across the global landscape, citizens and businesses demand faster and more personalized service. They expect transparent, open communications with government officials and realtime decision-making. Integrated service and virtual communications—from anywhere, to any-where—are becoming the norm. These changes warrant integration of processes, data and organizations. Revenue department employees need the information, training, skills and assets to perform in-depth analysis and respond to complex questions. Knowledge now represents an essential asset.

Revenue departments should take advantage of technology, as it enables new transformation opportunities. Shortened economic cycles further complicate this environment as budget surpluses can quickly change to deficits—and consequently, shift priorities for a revenue department. This emerging social, political, technical and economic landscape will affect the level at which taxpayers comply with existing tax laws and practices, and will ultimately affect revenue collection. To encourage compliance and ensure revenue collection in this new environment, tax departments need to address the following four trends:

• Encourage voluntary compliance through knowledge

• Become customer-centric

• Integrate throughout government departments

• Collaborate seamlessly with the private sector.

To address these trends, committed leaders and sponsors within revenue departments must actively redesign business processes, develop a knowledge-based culture and invest in an intelligent technology infrastructure. The following section describes how these emerging trends can shape interactions between revenue departments and citizens, businesses and other government departments.

Contents

2 Future scenarios

5 Future macro trends in compliance

11 Enablers of transformation

16 Approaching the future



Future scenarios

The following three scenarios illustrate how revenue departments might make decisions and deliver services. Overall, revenue departments will shift from owners of tax processes to monitors of tax compliance. This transformation, fostered by private-sector and cross-departmental collaboration, enhances services and reduces operational costs for the

tax department.

In early February, Susan receives an e-mail message from the national revenue department reminding

her to file her personal income taxes. The e-mail contains a link to the national revenue department Web

site where Susan can examine her secure, personalized tax page. She accesses the Web site after typing

her user name and speaking her personal password. She clicks the section entitled “Review personal tax

data,” where she can review her demographic data, taxes withheld (from her employer), interest, mort-

gage and investment information (from her financial institutions), charitable donations (from appropriate

organizations) and deductions and bank transfer information (from previous year’s filing).

Susan realizes that she has a question regarding one of her deductions. She accesses last year’s filing

but fails to find the answer. Susan contacts the national revenue department for help using an instant-

messaging service available on the Web site of the national revenue department. The service representa-

tive instantly pulls up her information and together, they discuss the issue.

After receiving a satisfactory answer, Susan enters new deduction information and some additional chari-

table donation information on her “Personal tax data” page. She uploads the data and reviews the com-

pleted tax information. Susan completes the process by typing her unique tax submission password. Her

taxes are officially submitted. A few moments later, Susan receives an e-mail confirming the successful

filing of her taxes and transfer of her tax refund to her bank within five business days.

In the e-mail, Susan also receives a link to her state tax-processing Web site. She again provides the

necessary security information and accesses a personal tax page. Updates just made on the national rev-

enue department form appear on her state personal tax page. Susan confirms the information again and

files her taxes by typing in a personal password. While on the state tax site, she receives an instant mes-

sage to participate in an online discussion with her state senator about a proposed tax-free business park

in her community. While listening to the discussion, Susan links to environmental, social and community

impact assessments for similar business parks in other counties. Having done her own research, she

writes a message in the “Policy feedback” section to express her approval of the proposed policy.

Citizen-to-revenue department



Business-to-revenue

department

A few months after filing her taxes, Susan considers opening a bicycle repair shop. She compares the

administrative burden of opening a shop in neighboring jurisdictions by assessing similar businesses

and imposed regulations. Before making a decision, she uses the “Starting a Business” portal provided

by her state to perform a market and industry assessment. Susan provides her zip code and obtains spe-

cific information on bicycles sold, public transportation reliability and recreational areas available. Next,

she links to a section that explains the tax rules for her proposed small business. Susan checks on trade-

marks for her proposed company name online. She searches for property available in a tax-free zone

business park. With space unavailable, she checks for property liens on a new store location and submits a

query to investigate historical tax information. For the proposed property, information exists for current prop-

erty taxes as well as tax liabilities for similar stores in the vicinity.

From the same page, Susan registers for a business license. She submits her company name, address,

and contact information with a trademark diagram. She pays the license fee electronically from her per-

sonal bank account. After payment is made, Susan receives an instant message asking if she wants to

set up a business account with the same financial institution. With the transaction verified, she receives a

tax identification number and inquires about applying for a loan online. The assignment of the tax ID

notifies a revenue department employee to work with Susan. This individual works with the bank for

accurate reporting of Susan’s transactions at the bank, facilitates the loan process and ensures that she

accrues interest. Susan’s state government has found that assigning revenue agents not only improves

customer service, it also decreases the cost of auditing taxpayers in the long run.

Two months later, Susan’s store is almost ready to open. She hires six employees, including Matt as her

store manager, establishes benefits for them and receives online training about labor relations policies.

Susan completes the Safety and Health organization’s accident prevention class online and receives a tax

break for incorporating the recommended accident-reduction process. Online, she completes the pro-

cesses for tax filing, business inspections and labor relations. With the same “Starting a Business” Web

site, Susan searches for third-party payroll, benefits and tax administrators. Her revenue department

contact facilitates the information exchange with the third-party vendors.

After being in business for a few months, Susan accesses an online summary of the sales tax figures

accrued to date. Susan matches the amount with her sales figures and sends the information to her

accountant. Susan also checks the owed tax liability for the number of employees she manages. She

confirms the liability that she will owe if the number of employees remains the same for the rest of the

year. Because Susan adopts business rules approved by the revenue department for filing taxes, she is

tagged as a compliant customer. This designation decreases her chance of an audit.



After nine months of success, Susan considers expanding her business to a neighboring state. Susan

receives information from the new state’s economic development department and additional links that

portray the economic conditions for her industry. After working with the economic development department

to develop a business case, a service not available when she opened her first store, she chooses to expand.

Because a reciprocal agreement exists between states, Susan’s information is automatically replicated to

the new location. Susan receives confirmation through e-mail that her company name, copyrights, tax

status and labor relations practices comply. Her revenue department adviser in her home state contacts a

colleague in the new state. However, the new state outsources this advisory function to the wealth man-

agement division of a financial institution. This private-sector adviser helps Susan understand the tax

obligations, locate prospective employees and find an appropriate property. She disqualifies the first

property after reviewing an Environmental Protection Agency online video describing hazardous chemi-

cals imbedded in the earth from the previous dry cleaning establishment. Her adviser concludes their

discussion by describing available federal grants for recreational businesses for this jurisdiction. She

applies for the grants online.

Expansion requires Susan to investigate new suppliers. She sends an e-mail to a global community of

bicycle repair vendors asking for reliable suppliers of bicycle parts. With a list of vendors, she accesses

her Chamber of Commerce to review the business practices of these global suppliers. She chooses a

vendor in Nice, France to supply bicycle chains and a supplier in Kuala Lumpur, Malay Peninsula to pro-

vide tires. She contacts her tax adviser at the financial institution to understand the tax process for using

these suppliers.

Unfortunately, three months after the grand opening, Susan realizes that she cannot duplicate her previ-

ous success. She accesses the revenue department portal in the new state and obtains specific informa-

tion on how to close the business. With the closing, Susan pays her final tax liability online and focuses

her energy on the original site.

During one year of operations, Susan paid her store manager, Matt, a salary of US$25,000. Matt files his

income tax and does not declare any other income sources. Two months after filing his income tax, Matt

purchases a US$50,000 automobile that he registers with the Department of Motor Vehicles. A week

after the car was registered, Matt receives a call from the Department of Revenue notifying him that he

has been tagged for an audit. Before purchasing the automobile, Matt had not been selected for an audit.

Government-to-revenue

department



Future macro trends in compliance

The previous scenarios illustrate how tax departments can no longer serve as the hub for all tax interactions with customers. Increasingly, tax departments can act as a clearinghouse for ensuring that customers meet their tax obligations. Key intake, tax-processing and audit func-tions may not always flow through tax departments, but increasingly through intermediaries and other government departments. These entities can perform revenue department activities at a lower cost to the government. However, tax departments can monitor these activities to ensure that customers comply with tax obligations. As customers interact, tax departments can add value by enhancing economic development, facilitating effective decision-making and redefining community interactions. This transformation, enabled through Internet technology, can occur by focusing on improving voluntary compliance through access to information, becoming customer-centric, integrating throughout government departments and collaborating

seamlessly with the private sector.

Encourage voluntary compliance through knowledge

The emerging environment warrants expanding voluntary compliance efforts. With more complex tax transactions, revenue departments need to ease tax-filing processes, provide tax-compliance education and establish filing standards to assist customers. Simply, better taxpayer service means higher taxpayer compliance, which increases revenue collected. Stuart Hamilton, of the Organization for Economic Cooperation and Development (OECD), asserts that cooperative or voluntary compliance makes financial sense for revenue depart-ments. Enforcement and audit processes are more expensive to conduct, so revenue departments have an incentive to increase voluntary compliance to help minimize costs.

While technology will reduce costs and enhance services, revenue departments need to recognize that compliance efforts can increasingly occur in a transparent environment. Virtual communication methods raise citizen and business expectations for an open decision-making environment. The Internet makes government processes more transparent. Tax administration entities must reflect these realities. Making the right information available when, where and how customers want is essential. Voluntary compliance rests on promoting easy access to taxrules, standard tax forms and quick responses to questions. This requires knowledge of taxpayers, the business environment and technological innovations.

Amanda Green, principal for IBM Public Sector Industry, states that the Australian Taxation Office tailors its enforcement responses to different taxpayer groups based on their compliance risk levels and histories. Their typical responses range from support and assistance to targeted enforcement. Some government tax agencies’ efforts couple client service with enforcement activities. This approach emphasizes ways to make enforcement more customer-friendly and to reach agreement on realtime audits with taxpayers.

33% 11%

Simply, better taxpayer

service means higher taxpayer

compliance, which increases

revenue collected



Central to overall compliance is developing a knowledge-based culture. Information, or rather the knowledge it provides, is the foundation for performing audits, identifying those who are noncompliant and improving process efficiencies. Organizations must cultivate knowledge through tools, incentives and integrated processes. Providing the tools and predictive models for auditors to forecast, find, assess and learn from noncompliance will enhance overall compliance figures. Investments in tools that understand the context of the search, not just the key words, can eliminate wasted search efforts. Capitalizing on deep computing and pervasive and mobile technology may improve compliance through auditing of processes instead of strictly examining results.

The revenue department that strives to lead in voluntary compliance must ask itself several key questions. How do we efficiently channel and share taxpayer information to improve compliance? How do we improve our interaction with third parties and other government agencies to collect more information? How do we shift resources from collection to compli-ance? What information do taxpayers need to comply? Are we providing that information? Are we making information accessible; if not, how do we improve? How do we use information

gathered at each customer interaction?

Become customer-centric

Customer centricity represents more than online filing. It requires investments in technology and the creation of business processes and organizational structures designed around customer needs. Leading practices in the private sector now shape citizens’ expectations for a revenue department’s service-delivery environment. While the use of brick-and-mortar office buildings will continue, they should serve as one option for service delivery, not the only option. Self-service options for citizens should exist for major interactions. In Spain, self-service options are already a reality. For example, the Spanish Ministry of Finance developed the capability for downloadable tax information and forms, electronic filing, and electronic payment of taxes over the Internet. In fact, Spain mandated “e-filing” of taxes beginning in 1999. 1

The goal is simple: make decisions and deliver services based on a detailed understanding of customer needs. As the “E-government Blueprint,” published by the California Franchise Tax Board (FTB) highlights that “e-government is customer-centric, putting the customer first by designing business solutions and services that are tailored, accessible, and preserve public trust.”2 In the last ten years, the FTB has transformed their vision into reality by implement-ing paperless returns, electronic payments and refunds, and around-the-clock access to tax information for taxpayers.

“A customer-centric approach

is what the compliance

initiative is all about.”

Designing services that

facilitate tax filing will

encourage taxpayers to

comply with tax laws.



Taxpayers are more likely to comply with tax laws if they have access to quality information, develop an understanding of their responsibilities, and can file taxes easily. Tom Hart, Senior Consultant at IBM and former staff member of the Joint Committee on Taxation in Congress says, “A customer-centric approach is what the compliance initiative is all about.” Designing services that facilitate tax filing will encourage taxpayers to comply with tax laws.

In the near future, revenue departments can provide consistent, value-added experiences through a single, long-running dialog. Revenue departments need to recall and reference all previous interactions, accommodate each customer’s needs and preferences and offer superior customer service through every touch point. Information must be collected once, and lever-aged across multiple channels (for example, telephone, kiosks, e-mail and brick-and-mortar offices). Personalized products and services, based on a detailed knowledge of customers, can help attract businesses and increase revenue. Customers want instant feedback in the form they prefer. An e-mail question deserves an e-mail response. Accordingly, in 1998, the U.S. Congress mandated that the Internal Revenue Service (IRS) implement an extensive modernization initiative to make the agency and its services more customer-friendly.3 Today, the IRS uses the Internet and voice-response systems to facilitate information dissemination and tax filings.

One technique for becoming a customer-centric environment involves tax departments adopting a “life-cycle” approach. By categorizing services from an end-to-end perspective, governments will begin to view services from a customer’s perspective. The following descriptions identify the revenue interactions of citizens and businesses across their life cycles:

• Preadult—Learn about civic responsibility to pay taxes as an adult, pay taxes on summer- employment earnings

• Professional development—Claim education tax credits, finance education, withhold appropriate taxes from wages

• Civic responsibilities—File taxes, make charitable donations

• Daily needs—Pay sales and use taxes when purchasing goods and materials; request, access or file general information about tax responsibilities; and seek rules and regulations

• Special needs—Receive healthcare services; pay fines and penalties; register a death; buy property; pay property taxes; and maintain a vehicle with registration and licensing

• Earned benefits—Receive veterans assistance, receive income or pension.

Revenue and Fiscal Management

Revenue and Fiscal Management IBM Institute for Business Value 8

Leading revenue departments recognize this evolution and organize their processes around the key business life-cycle events:

• Start a business—Acquire business registration, licenses, permits, and property liens; estab-lish tax status and tax rules, investigate trademarks, patents or intellectual property rights; research industry or government rules, market, competitive, or industry assessment; and hire resources and establish benefits, utilities, procurement

• Grow a business—Expand globally with appropriate tax implications; enhance employee skills using tax breaks for training; establish employee performance guidelines; initiate electronic data interchange, electronic workflow with suppliers

• Close a business—Company liquidation or bankruptcy filing, close loans, tax liability, creditor finalization or promissory notes, final invoices.

To understand the transformation challenges, revenue departments must address some key questions:

How are you increasing your understanding of customer needs?

Do you enable your organization to respond to customers’ needs through training, education and performance incentives?

How do you solicit customer input on tax issues?

Would you design service-delivery processes around a taxpayer’s life cycle?

Are customer service initiatives linked to compliance goals?

Integration throughout government departments

Sharing data and streamlining services among government departments and levels enables customers to comply with tax obligations more efficiently. One technique for simplifying taxpayer services requires government standardization and integration across local, regional, central and international jurisdictions. Breaking down traditional department silos will require strong, active executive leadership. Departments must also use common rules, technology standards, integrated service channels and pervasive information sharing processes. Integrated government teams, that draw resources from different functional areas, respond to all cus-tomer needs. The Streamlined Sales Tax Project (SSTP) in the U. S. is one example ofsuccessful cross-jurisdiction coordination. This voluntary 38-state effort to unify filing proce-dures for sales and use taxes aims to ease the administrative burden on U.S. business taxpayers.4 On an international level, the U.S. government has successfully negotiated agree-ments with the government of the Cayman Islands and other countries to phase out tax havens, which will facilitate collection for the United States Internal Revenue Service (IRS).5



Integration and coordination requires sharing knowledge. The next-generation revenue department uses knowledge to form holistic views of a taxpayer within the department and across the government. Revenue departments know taxpayer needs, habits and tendencies. They use that information to improve compliance and aid other department goals. Leading nations have begun to share information with motor vehicle agencies to cross-check financial data of taxpayers. They can then use the information to tag audits and perform other compliance initiatives.

Revenue departments collect much of the same information (for example, name, address, income and employment status) required by other departments. Today, ownership of data equals power. Governments must develop a culture where pervasive information sharing exists and address information needs from an enterprise perspective. Integrating information from other departments will allow revenue departments to perform more robust data analysis and validation, leading to more efficient and effective services and compliance.

Government integration can produce significant compliance and operational processing efficiencies. Revenue departments need to understand how interoperable their processes, organizations and technology architectures are with other departments. Do business and technical resources jointly develop and implement strategic plans? Does an intranet or common drive exist to share information across government departments? Are common performance measures established? Do standard data definitions, rules, templates and terms exist across departments? Are common citizen and business data stored in a

central location?

Collaborate seamlessly with the private sector

The private sector offers skills and assets desired by governments. Facing increased budget pressures, loss of skilled resources, limited time to implement solutions and increased strategic focus on core activities, revenue departments need to examine how private-sector companies can help administer and manage processes and assets. Third-party service-delivery models and outsourcing noncore activities allows revenue departments to reallocate resources to other value-added activities such as improving customer relationships, increasing audit staff, developing knowledge and increasing service efficiency.

Governments must develop

a culture where pervasive

information sharing

exists and address

information needs from an

enterprise perspective.



Increasingly, revenue departments collaborate with intermediaries to help ease front-end and back-end tax processing. On the front end, the IRS set a goal for 80 percent of filing to be done electronically by 2007.6 Private-sector tax preparers will help meet this goal through e-filing programs that leverage economies of scale when converting manual processes to electronic processes. On the back end, intermediaries enable tax payments to the government. Per Rod Quiney of the Canada Tax Agency, in Canada, more than 50 percent of the dollar value of tax payments, but about 40 percent of the volume, are made through financial institutions. While this provides for better management of the float, the Canada Revenue and Customs Agency also benefits from the ability of the financial institutions to transmit large volumes of financial transactions efficiently. For example, the Canadian revenue agency obtains data from a variety of internal and external sources in order to assess risk and profile files for compliance actions.

Traditional intermediaries, previously viewed as simply tax preparers and payment entities, are changing. Financial institutions routinely promote wealth-management programs that provide advice and counsel on tax preparations. These institutions seek to maximize individual wealth; revenue departments need to ensure that these organizations comply with tax laws. Effective means to this end include intermediary education programs and increased informal communication programs with financial institutions on compliance processes. Proactively providing knowledge to taxpayers can reduce misreporting errors and limit fraud.

Revenue departments receive a massive amount of data from multiple sources. Every business and citizen must submit information. Providing a security-rich “lockbox” for each entity’s data provides one method of streamlining tax processing. With the proper security restrictions, businesses and financial institutions can submit employee and customer data directly to each citizen’s security-rich lockbox. Employers can provide tax-withheld information. Sales taxes would automatically link to government databases at the point of sale. Revenue departments would then have a consolidated view of a customer’s tax profile. This would enable customers to receive tax bills, instead of preparing tax returns. By reducing the processing time for taxes, more resources become available to focus on compliance.

Successful private-sector collaboration depends on a strategic fit with the private-sector company. The two entities must create linked processes, business rules, adaptive cultures and interoperable infrastructures. With the necessary filters, security and workflow, automatic data capture and updates are possible.

Knowing that the private sector can assist with revenue department goals, are you willing to partner with intermediaries to manage tax administration? How can third parties and

Providing a security-rich

“lockbox” for each entity’s

data provides one method of

streamlining tax processing.



revenue departments share information within the framework of the law? How can revenue departments initiate partnerships with private sector firms to improve intake processes? Will you collaborate with the private sector to promote compliance? Will you include citizens, businesses and communities in tax decision-making processes?

Enablers of transformation

To address these emerging trends, revenue departments face social, economic and operational challenges. Revenue departments cannot choose their customers; they must ensure that every taxpayer has access, regardless of whether or not they use the latest technology. Revenue departments need to address the existing “digital divide” that separates those with Internet access from those without access. Departments need to ensure that they are not perceived as controlling too much information. Discussions of integrated and shared databases must correspond with policies that show tax departments do not unlawfully use consolidated information against citizens. Imbedded in this discussion is the overall role of data privacy, security and ownership. Revenue departments also must determine how they will reduce cost structures—outsourcing functions and partnering with other governments will continue.

Revenue departments need four catalysts to address this emerging environment: committed leadership, transformed processes, a knowledge-based organization and an intelligent

infrastructure. These are the critical success factors for transformation.

Leadership commitment and sponsorship

Leadership and sponsorship are the most-critical factors for transformation. Frank Lanza, of the California Franchise Tax Board, contends that strong leadership throughout the organiza-tion is necessary to modernize and transform revenue departments in the next decade.7 Leaders must develop a vision for the organization, understand technology, tax policy and administration, and affect change within the organization. An integrated strategy, that spells out the key organization objectives and is supported by a detailed business case, provides the foundation for transformation.



Leaders should not underestimate the cultural shift required to address the emerging trends. They must actively garner the support of key stakeholders by developing change-readiness plans and keep stakeholders apprised of progress by adhering to a communication program. New management systems with specific performance incentives will gauge real progress.

Leaders must place a strategic focus on the acquisition and reuse of information by investing in tools that integrate processes for managing, analyzing and using data. Citizens will also play a leadership role in modernizing revenue departments. As public expectations and computer pervasiveness increases, government leaders should integrate those expectations into everyday operations and the future vision. The most-effective government leaders should stay abreast of technological and business process trends to accommodate the evolving needs of their constituents.

Transform business processes

The success of new service-delivery and compliance models rests on the transformation of business processes. Automation of existing processes with technology will not provide ongoing convenience, efficiency and personalization benefits. To become a more functionally customer-centric organization, tax departments need to redesign their processes based on in-depth customer needs assessments and standard business rules.

Complex public issues require collective input and joint decision-making from citizens, businesses, communities and each level of government. In response, revenue departments need to allow stakeholders—whether centralized or local—to come together to address a particular issue. Hierarchical decision-making approaches will not survive in an environment where everyone has access and the skills to apply information. To achieve desired speed and integration, revenue departments can adopt flexible processes and trust employees to act on decisions quickly. Revenue departments can phase out strict step-by-step processes and rules-based enforcement practices.

To achieve desired speed

and integration, revenue

departments can adopt

flexible processes and

trust employees to act

on decisions quickly.



Governments face intense competition for scarce resources. Minimizing the burden of government interactions and improving processing can attract businesses and improve overall citizen processing. Revenue departments can aid this process by increasingly investigating outsourcing noncore activities.

Process design needs to focus on functions that enable the management, analysis and usage of information across discrete activities. Knowledge is created by ensuring that the right data is reaching the right people, who are supported by robust tools and technologies. Once created, this knowledge must be integrated into the service and compliance programs, and be

supported by performance-measurement processes to establish and track objectives.

Knowledge-based culture

With the arrival of the Internet era, information is quickly emerging as the lifeblood of organizations. People rely on instant exchange of information to perform all aspects of work. This transformation can increasingly shift an organization’s strength from physical assets to experiences and insights—in other words, knowledge. Accordingly, revenue departments need to establish knowledge-based organizations that educate and provide incentives for employees to analyze, share and use information. To do this, they need a culture where controlling information does not equal power, where command and control structures are less common, and where shared information becomes commonplace.

Revenue departments can facilitate a knowledge culture by making key tactical changes. They can create a management system that reduces structural barriers, promotes new roles and responsibilities, encourages behavioral modification, provides rewards based on perfor-mance and gauges real progress. Revenue departments also need to actively recruit, develop and retain skilled employees. Marketing tax departments as a challenging workplace is key to this effort. Departments need to develop and manage education programs. Training must focus on developing analytical skills and link to long-term career-development programs. Change-management programs must exist throughout the transformation. Managers must effectively tell employees what the change means to them.



One tactical initiative that revenue departments can employ is to create communities of interest around common issues. Because customers do not view government as a separate set of individual departments, departments also must not possess this view. Communities of interest will integrate individual departments by collaborating to address common issues. For example, communities of interest for revenue departments might form around:

• Intake processes—Many departments (for example, health, education, postal and utilities) collect demographic data of citizens. Tax departments need to create common platforms and link processes to share their information and ensure that it is accurate.

• Compliance service—Regulation of policies occur across government departments (such as social services, driver and motor vehicles, education and loans). Departments need to regularly communicate on best practices for compliance and characteristics of noncompliance.

• Education or outreach service—Tax departments can collaborate with other agencies (for example, labor relations, benefits and health care services) that regularly provide information

and education.

Intelligent infrastructure

To enable the future scenarios, governments must actively create a flexible, reliable and scalable intelligent technology infrastructure, which seamlessly links servers, software and storage systems, letting data flow across it all. It permits—can even encourage—communica-tion, operational efficiency and growth among government departments and private sector organizations. An integrated, intelligent infrastructure can break down information silos, enable existing systems to work together, allow rapid deployment of component solutions, establish a platform that can handle succeeding waves of technology, provide a more-uniform and security-rich technical environment, and enable synergy among old and new applications and data.

The design and construction of a reliable infrastructure is no longer solely an IT issue—it is a vital management issue. Senior elected officials, department leaders as well as CIOs must support the transformational changes for the IT changes to be effective. The performance of the infrastructure will receive unprecedented visibility. If IT fails, tranformation efforts fail, too.



The increased reliance on sharing information requires an IT strategy that begins with an assessment of business and IT capability requirements. This strategy identifies key initiatives and establishes the implementation schedule and it can define a security-rich, scalable, reliable and flexible technology architecture. Key elements of this strategy can include decisions about systems management, security, storage, data and transaction services, and enabling legacy applications for the Web.

The building blocks for this infrastructure include language standards, such as eXtensible Markup Language (XML), and open source platforms. An open, scalable and flexible platform allows customers to access discrete data (rules, demographics, industries, and economic condi-tions), suppliers to understand emerging needs and partners to seamlessly link into processes. For example, standards for financial data representation, such as Financial eXtensible Markup Language(FXML), allow private-sector entities to provide tax information to the government in a standard format. After the information is shared with the government, electronic data interchange (EDI) based transmissions between financial institutions and departments trans-mit the necessary funds. Additionally, customized templates, such as Taxable eXtensible Markup Language (TaXML) can extract financial data to the appropriate fields on a tax form to simplify data entry.

An intelligent architecture helps enable tax departments to incorporate next-generation technologies. Deep computing allows revenue departments to create pattern recognition and predictive algorithms to detect and prevent fraud. Departments can then identify data that fall outside defined parameters (for example, if income rises 100 percent in one year). The same advances could generate and distribute tax ID numbers using a machine-learning algorithm to analyze, categorize and route e-mail requests. Wireless platforms will enable access anywhere. Business intelligence (BI) tools can match an entrepreneur with a lender after analyzing necessary criteria. Content and document management will streamline information processing.

An intelligent architecture

helps enable tax departments

to incorporate next-generation

technologies.



Approaching the future

The revenue department of the future will continue to ensure tax compliance. It will meet compliance goals by enhancing voluntary compliance with knowledge, becoming customer-centric, collaborating with the private sector and integrating across government. However, revenue departments have many options in how they transform core processes, organizations and technology to address these trends.

To understand the transformational challenges, revenue departments need to address some difficult questions:

• Who actually owns the tax data: the citizen, the revenue department or another department that uses these data?

• What policies are needed for data encryption and user authentication?

• How can a security-rich environment be maintained without infringing on civil liberties?

• How does a company in the private sector ensure the privacy of data, faced with increased pressure to integrate services?

• How can customer needs be continuously tracked?

• What investments should be made in building a scalable, integrated information infrastruc-ture when faced with near-term budget challenges and service-delivery needs?

• What communities of interest will emerge concerning tax issues?

• How will private-sector organizations integrate to ease the burden on administering tax services?

• How can access channels and processes be integrated with companies in the private sector?

• What sort of organization and people are needed to support a knowledge culture?

• What steps have to be taken to ease the burden of paying taxes to attract businesses?

For some revenue departments, the answers to these questions are clear. For others, the answers and the transformation path is not so obvious. Based on our work with tax departments throughout the world, we have developed the industry insights and capabilities to help you transform your business. We would welcome the opportunity to help you assess your current situation and develop a strategy based on your organization’s unique needs. Contact us at [email protected]. If you’d like to explore how we might put our experience and creativity to work for you, visit our Web site at ibm.com/services/strategy



About the authors

Jeremy Andrulis is a management consultant with the IBM Institute for Business Value. He helps governments at all levels identify innovative strategies for successfully managing change. You can reach Jeremy through e-mail at [email protected].

Bryan Barton is the Director, Global Government Finance Solutions with the IBM Global Services Business Innovation Services practice. You can reach Bryan through e-mail at [email protected].

The IBM Institute for Business Value develops fact-based strategic insights for senior business executives around critical industry-specific and cross-industry issues. Clients in the Institute’s member programs—the IBM Business Value Alliance and the IBM Institute for Knowledge-Based Organizations—benefit from access to in-depth consulting studies, a community of peers, and dialogue with IBM strategic advisors. These programs help executives realize business value in an environment of rapid, technology-enabled competitive change. You may contact the author or send an e-mail to [email protected] for more information on these programs.

Contributors

• Daniel Collins, Principal, Business Innovation Services, Americas

• Amanda Green, Principal, BIS, Asia Pacific

• Hanny Boon, Client Executive, Public Sector, EMEA

• Julie Anderson, Consultant, BIS, Americas

• Isabel Dewey, Associate Consultant, BIS, Americas

References1 IBM Solutions for Government Revenue Management Segment. IBM

Redbooks. 2001.

2 “E-Government Blueprint.” California Franchise Tax Board. 2000.

3 The IRS Restructuring and Reform Act of 1998 (RRA ‘98).

4 Streamlined Sales Tax System for the 21st Century. Retrieved from the World Wide Web, March 11, 2002. http://www.geocities.com/streamlined2000/.

5 Internal Revenue Service. The Digital Daily. Retrieved from the World Wide Web, March 11, 2002.http://www.irs.gov/formspubs/display/0,,il%3D50%26genericId%3D10377,00.html.

6 The IRS Restructuring and Reform Act of 1998 (RRA ‘98).

7 “E-Government Blueprint.” California Franchise Tax Board. 2000.

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