In emerging markets, tax administrations must strive to be as effective as possible in rolling out new initiatives, creating the proper infrastructure for their future tax collection efforts. Here are a few examples of how administrations may begin to keep up with a rapidly growing economy.
1. Shift Resources Toward Improvement of Auditing, Processing, and ToolsThis is an excellent first step for tax administrations in emerging markets. Many businesses behave poorly in emerging markets, assuming that the government cannot keep up with a runaway economy; reports of tax evasion and noncompliance tend to run rampant. Auditing allows an administration to keep these businesses in line. Government must prioritize tax resources in the direction of auditing, construct a team of tax examiners, and develop tools to simplify the audit process. This is the simplest way to start out, because it will ensure that no businesses are falling through the cracks.
2. Target Collections with Large DebtsIdentify which businesses owe the most money in back taxes, and target them first. Because most emerging markets do not have a centralized tax collection system, it makes it difficult to know who owes how much. Simple segmentation can help to organize businesses according to size, sector, and past behavior. Then, create a means to seek out the largest debtors and negotiate immediate payments of their debts. Also, by targeting the largest debtors, administrations minimize their opportunities to accrue more outstanding debt and create an immediate influx of revenue for the annual budget.
3. Embrace the Simplicity of Electronic PaymentsEven in emerging economies, the prevalence of internet and mobile access is relatively high. Many businesses can be reached easily through electronic channels, offering them mobile payment options, internet portals, and virtual ATMs. Giving taxpayers more ways to pay will reduce the length of queues found in most tax offices. By using these channels for simple taxpayer transactions, governments allow citizens to take the path of least resistance – resulting in a greater number of voluntary payments.
4. Update the Tax Registry and Simplify the Tax System
This initiative works both ways – make the system easier for citizens to understand and they are more likely to register correctly. Maintain the tax registry by requiring taxpayers to update their information frequently. Aggressively target businesses that do not comply with tax laws: this will encourage other businesses to fall in line. Next, governments should create a formal tax system that is easy for the taxpayer to understand. This promotes voluntary compliance, allowing an administration to shift resources to more important tasks of tax collection.
These four steps can get a tax management department well on its way to a healthy, high-functioning tax collection process. They must focus on implementing technological initiatives that simplify the tax collection process, and produce the most revenue in the least amount of time. By creating an effective infrastructure that promotes compliance, government should see an excellent return on time invested in tax administration.