Mobilizing Revenue: Emerging Approaches to Managing and Collecting Tax Debt to Improve Tax Payment Compliance

MobilizingRevenue EmergingApproachestoManagingandCollectingTaxDebttoImproveTaxPaymentCompliance byAnnetteChooi1 Thisbriefisintendedforusebyrevenuebodiesseekingtoimproveeffectivenessinmanagingtaxdebtsforstrongerrevenuecollection.Itexploresgoodpracticesinthemanagementoftaxdebtandwaysinwhichrevenuebodiesareusingadvancesintechnologyandbehavioralinsightsresearchtoimproverevenueperformancebyincreasingtaxpaymentcompliance.Thenotethenprovidesguidanceforrevenuebodiesonstrengtheningtheirownapproachestotaxdebtmanagementandcollection. ThebriefwassponsoredbytheDomesticResourceMobilizationTrustFundoftheAsianDevelopmentBank. Introduction Revenuebodiesstrivetomaximizetaxpayercomplianceacrossallcorecomplianceobligationsbecausetheyrecognizethatthesebasicobligationsmustoperateeffectivelytogethertobuildtaxpayercomplianceandtheintegrityofthewholetaxsystem.Thefocusofthisguidancenoteisonimprovingpaymentcompliance,butitisimportanttokeeptheinterconnectivitybetweeneachofthesecoreobligationsinmind(Figure1).Paymentcompliancedoesnotoperateinisolationandmaybeundermined,forexample,bylatefiling,incorrectreporting,andgapsinregistration. Revenuebodiesaroundtheworldhavereportedincreasinglevelsofdebtandarrears,andtheAsiaandPacificregionisnoexception.Thisishardlysurprisingsincemostgovernmentsprovidedbothfilingandpaymentreliefduringthecoronavirusdisease(COVID-19)pandemic,solevelsofdebtwereexpectedtoescalateduringthisperiod.2However,highdebtinventoriesandanupwarddebttrendwerealreadyapparentinseveraljurisdictionsbeforethepandemic.Thus,theremaybemorefundamentalunderlyingweaknessesintaxdebtmanagementinsomejurisdictions.3 ISSUE49•2023 TheGovernanceBrief 1AnnetteChooiisaconsultantontax,workingfortheAsianDevelopmentBank(ADB)andotherinternationalbodies.ShealsoworkedforseveralyearsasaseniorexecutiveintheAustralianTaxationOffice. 2OrganisationforEconomicCo-operationandDevelopment(OECD).2020.TaxandFiscalPolicyinResponsetotheCoronavirusCrisis:StrengtheningConfidenceandResilience.Paris:OECD. 3Theterm“taxdebt”isusedinthisguidancenotetodescribeallamountsowedtotherevenueadministration,whetherdueforpaymentornot.Theterm“arrears”isusedtorefertoamountsthatremainunpaidaftertheduedateforpayment. Figure1:TheCoreTaxpayerComplianceObligations Registration Correctregistrationforallrelevantobligations Payment On-timepaymentofallobligations Voluntary Compliance Filing On-timefilingofallrequiredreturnsand/orreports Source:Author. Reporting Correctandcompletereportingofallinformation Improvingtaxcollectionsislikelytobeapriorityforrevenuebodiesduringthisrecoveryperiod,focusingbothonreducingbaselinedebtlevelsaswellasarrestingtheupwardtrendindebtinventories.However,cautionwillberequired,first,tomanagestakeholderexpectationsabout potentialrevenue;andsecond,toensurethatviablebusinessesandvulnerablegroupsstrugglingtorecoverfromthepandemic-inducedsetbacksarenotpushedovertheedge. Likewise,effectivelymanagingtaxdebtisacriticalelementinstrengtheningrevenue mobilization:ifdebtsarenotpaidontime,thenrevenueclearlysuffers. Tothisend,thisguidancenoteexploresarangeofopportunitiesforstrengtheningtaxdebtmanagementperformance,focusingfirstonusinginternationaladviceongoodfundamentals,andthenexaminingsomeinnovativeregionalapproaches.Thenotethenexploreswaystoexploitadvancesindataandbehavioralsciencesindevelopingnewsupportive,preventative,andcorrectiveapproaches.4 RegionalDebtTrends TaxArrearsRatios IntheInternationalSurveyonRevenueAdministration(ISORA)2021,whichisthefirsttogatherpost-COVID-19data,around60%ofeconomiesintheAsiaandPacificregionreportedincreasesinaggregatetaxdebtlevels.5Figure2providestrendsintaxarrearsratiosforasubsetof reportingeconomieswhereatimeseriesofthreeormoreyearsisavailable.6 Figure2showsthefollowing: •Over40%ofrevenuebodieswerereportingincreasingtaxarrearsratiospriortothepandemic,withmostshowingapronounceduptickin2020. •Almost45%ofrevenuebodieswerereportingdecliningtaxarrearsratiospriortothepandemic,withallbutoneoftheseeconomiesreportingareversalofthedownwardtrend in2020. •Therewasawidevarianceinreportedtaxarrearsratios,rangingfromlessthan5%toover200%. 4Thisguidancenotedrawsonarangeofpublications,research,andrevenuebodyinformationprovidedaspartoftheInternationalSurveyonRevenueAdministration(ISORA).Italsodirectsreaderstoadviceoncapacitybuildingfrominternationalagencies. 5Reporteddataareforthefiscalyearendinganytimeduringcalendaryear2020.Thefiscalyear-enddatevariesacrosseconomiesandforsomemayonlyincludelimiteddatafortheperiodpost-COVID-19onset. 6Thetaxarrearsratioisthetotalyear-endtaxarrearsasashareofannualnettaxcollections(%).Adecliningtrendgenerallyindicatesimprovedpaymentcomplianceand/ordebtcollectioneffectiveness.Anincreasingtrendmayindicatereducingpaymentcomplianceand/orineffectivedebtcollection.Theratiocanalsobeaffectedbyeconomicconditions. Figure2:TaxArrearsRatiosforAsiaandthePacific,2017–2020 (%) 120100 80 60 40 20 0 2017201820192020 Korea,Rep.of=RepublicofKorea;KyrgyzRep.=KyrgyzRepublic;LaoPDR=LaoPeople’sDemocraticRepublic. Notes:Maldivesreportedtaxarr