Risk Management in
Revenue Administration
Stan Shrosbree
Fiscal Affairs Department (PFTAC)
Revenue Administration
April 21, 2016
Outline
• Introduction
• Compliance Risk Management Model
– Identifying risks
– Assessing and prioritizing risks
– Analyzing compliance behavior
– Developing treatment strategies
– Evaluating results
What are the benefits of Compliance
Risk Management?
• A structured basis for Strategic Planning
• Balanced and customized approach to
improve compliance
• Method for reserving the harsher compliance
tools for the more non-compliance taxpayers
• Allocation of resources to identified risk levels
• Evaluation of projects/approaches
• This is what we achieved!
Creating the Ripple Effect
• We need to create
ripple effects that
impact compliance.
Ways to make our
presence felt so that
we can influence the
compliance behaviors
of taxpayers across
our country. Risk
management is key in
this process.
Starting to look familiar?
Operating
Operating Context
Context
Identify
Identifyrisks
risks
Monitor
Monitor
performance
performance
against
againstplan
plan
Assess
prioritise
Assessand
andprioritize
prioritiserisks
risks
Analyze
Analyse
Analysecompliance
compliancebehaviour
behaviour
(causes,
(causes,options
optionsfor
fortreatment)
treatment)
Determine
Determinetreatment
treatmentstrategies
strategies
Plan
Planand
andimplement
implementstrategies
strategies
Evaluate
Evaluate
compliance
compliance
outcomes
outcomes
• • Registration
Registration
• • Filing
Filing
• • Reporting
Reporting
• • Payment
Payment
Compliance Risk - Approaches
• Macro Level
• Socio-economic indicators
• Trends in public attitudes to registering, filing, reporting and
remitting
• Tax gap
• Systems based
• Non-registration and fraud
• Non-filing
• Underreporting revenues, taxable incomes, and taxes owing
• Market segmentation
•
•
•
•
Used to create groupings that allow for easier detection of risk
By size (e.g., Large, Medium, Small, and Micro)
By tax type (income tax, VAT etc.)
By sector (farming, professions, industries)
Possible Risks?
• Growth in the service sector
– Small cash-based businesses
– Limited cash flow
• Who are the risky taxpayers?
– Younger males?
– High-net-wealth individuals?
• Risky sectors
– Construction, taxis, bars and restaurants
• Potential high revenue loss
– Large taxpayer tax-avoidance strategies
• Cash economy?
Risk Profiling
“ The study therefore recommend that tax
authorities should switch their approach to
tax administration from a one size fits-all
enforcement model to a model that builds on
the lessons of tax morale that matches the
tax authority’s response to that of the
regulated individuals (taxpayers), for
example tougher sanctions or special tax
education for low educated, young,
unmarried and male self-employed”.
•
Tax Compliance Among Self-Employed in Ghana: Do demographic
Characteristics Matter? August 2011
Risk Assessment and Prioritization
• A realization that we cannot reach all
taxpayers in the system …
Therefore the goal is to
answer two questions:
 Is the risk serious?
 Should we do anything about it?
Risk Assessment and Prioritization
• Should we do anything about it?
• Some questions:
– Have we got capability to address this?
– How will we treat the risk – what will be most
effective?
– Is it a top risk or number 10 on the list?
– What will the Return on Investment be?
– If there a risk of infection (other taxpayers
jump on the bandwagon?)
– Public perception
Risk Assessment and Prioritization
• Is the risk serious?
• A few things to consider:
– Risk to revenue
– Risk to public confidence in the tax system
(taxpayer perceptions)
– Impact of achieving organizational goals both
now and in the future
– High level Budgetary Implications – the
effect?
Your Perceptions … Taxpayer Perceptions?
• Global firms such as Starbucks, Google and
Amazon have come under fire for avoiding
paying tax on their British sales. There
seems to be a growing culture of naming and
shaming companies.
– Starbucks, for example, had sales of £400m in the UK
last year, but paid no corporation tax.
– Amazon, which had sales in the UK of £3.35bn in
2011, only reported a "tax expense" of £1.8m.
– Google's UK unit paid just £6m to the Treasury in
2011 on UK turnover of £395m.
Problems - Causes
• Identify patterns
– Which sectors are the worst?
• Systematic or organized evasion
– Are fraudsters exploiting legislative or
administrative weaknesses?
• Can we identify the causes
– Which ones are possible to influence?
• Trends
– Is the problem growing or decreasing?
When prioritizing .. be realistic
• The goal is to choose which risks will
be treated with available staff and
capabilities
– High revenue impact
– What is the return on investment (cost to
benefit ratio)
– Impact of taxpayers perceptions
– Focus on outcomes … not outputs
Data, information and IT systems
• Risk identification and assessment depend
on accurate data
• Build capacity over time .. this will not
happen overnight
• Start with a pilot project
• Get information from your peers who have
started the journey – we can all learn from
each other
• PFTAC can provide assistance
Putting the building blocks in place
Third Party Data
RA Risk
Analysis
system/Team
Have
decided not
to comply
(internal data)
Do not want to
comply
Try too, but do not
always succeed
Willing to do the right thing
Taxpayer Profile
Compliance Strategy
Different Treatments
encouraging compliance
16
Evaluation
• Once started the process will improve
year by year..
• Some key questions looking back:
–
–
–
–
Were the right risks identified?
Were they analyzed correctly?
Was the right treatment selected?
Was the risk reduced?
• Important ..
– Are Tax Policy and legal changes needed?
– Do we need additional resources?
– Can donor’s assist us?
Understanding Risk is Important!
Evaluation
• Look beyond the outputs to outcomes
– did we change taxpayer behavior?
• Are the trends moving the right way
over time?
– Taxpayer surveys (taxpayer satisfaction)
– Filing and paying rates
– Correct reporting
– Registration rates
– Reducing the tax gap?
Building Institutional Capability
• Risk management and designing a
Compliance Plan are new areas for PICs
• It will take time to implement – accept that
but make a start – start small
• Applying a Risk Management approach
has implications for your organizational
structure – changes will be needed to get
a maximum return on investment
What are these changes?
• FAD/PFTAC recommends creating a new
unit – a Risk Management Unit (RMU)
• Try and find your best suited staff or
recruit new staff for the role
• This team (can be small) is vital to you
succeeding in your strategy – it is worth
the investment
• The team should be structured on the
following lines – see next slide
These linkages are very important!
EUR 300 million VAT fraud
• Today, a coordinated action by law enforcement and
prosecution authorities from Germany, the Netherlands,
the UK, Belgium, Spain, Poland, the Czech Republic and
Switzerland, supported by Europol and Eurojust, took
down the masterminds behind a criminal network
responsible for defrauding EU citizens of approximately
EUR 300 million in tax revenues via a sophisticated
carousel fraud scheme. The action led to the arrest of
14 individuals. More than 40 searches were conducted.
(Source Europol – Article 14 July, 2015)
• To what extent is VAT fraud happening in the Pacific?
Risk – An everyday issue
• Strategic planners, project managers, and
business executives all do some level of
risk management every day. All of us do.
Risk management is simply trying to
maximize potential gains while minimizing
potential losses. It is what we do when we
explore opportunities and assess threats,
while counting the costs to defeat the
threats and take advantage of the
opportunities.
PICs can do it – PFTAC can help you!
A risk story……
Concluding comments
• There are big compliance gaps across PICs - we
are all aware of that
• We all understand that we need to address
these issues
• The question is “How do we do it”
• Ministries, Treasuries and Revenue
Administrations can make great gains by
working together to gain a common
understanding of the issues and steps to
improve compliance that holds benefits for all.
No reason to reinvent the wheel
• Some PICs have started developing
Compliance Improvement Strategies
– Talk to them
• Learn from their experiences
• Share information
– What worked for them?
• Get support for launching your strategy
– Ministry and Treasury
• Possible staffing needs
• Can PFTAC help you?
• Thanks…
and
manage
your risks
carefully!
Group 1
Group 2
Group 3
Group4
Fiji
Fiji
Samoa
Samoa
Kiribati
Cooks Islands
Kiribati
Cook Islands
Tuvalu
Tuvalu
Solomon Islands
FSM
FSM
Vanuatu
Vanuatu
Tonga
Tonga
Tonga