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Chapter 6

Operational performance of revenue bodies

This chapter provides performance-related data for important areas of tax administration that were reported by revenue bodies or obtained from other sources.

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Key points and observations

Tax revenue collections

Overall, the unweighted measure “average tax/GDP” in fiscal year 2010 in OECD countries was in line with 2009 but some 0.7% below the level in 2008 (before the full impacts of the global financial crisis) reflecting ongoing depressed economic conditions in some countries.

Refunds of taxes

The incidence of aggregate tax refunds varies markedly between countries, reflecting a range of tax system design and other factors, with significant implications for respective revenue body workloads.

In overall terms, there is an increasing trend in the proportion of tax being refunded to taxpayers, with implications for revenue body workloads and the risk of tax fraud, although this trend appears to have been influenced, in part, by reduced tax revenues in some countries arising in the aftermath of the global financial crisis

Delivery of services to taxpayers

The volume data reported, when presented in a relative and comparative context, suggest that many revenue bodies have considerable potential to eliminate and/or shift service demand to more cost efficient service channels (e.g. the Internet)

Many revenue bodies appear to not have sufficient data (and knowledge) of the service demands for some of their more costly service channels (e.g. in-person inquiries and phone calls)

The practice of applying standards for key areas of service delivery and monitoring the performance achieved remains a relatively immature practice among revenue bodies.

For some areas of service delivery, the standards applied (and levels of service achieved) vary significantly across revenue bodies (e.g. processing VAT refunds); however, it is possible to identify many examples of “responsive standards” and “high standards of performance”.

Tax verification activities

The aggregate value of verification results (as a share of annual net revenue collections) varies significantly but for just one half of revenue bodies represents less than 4% of annual net revenue collections; 17 revenue bodies reported results less than 2%, 14 reported an amount in the range 2-4%, while 12 revenue bodies reported results over 4% (including three exceeding 8%).

Viewed over a five year period, around half of surveyed bodies reported significant increases (+20%) in the aggregate value of their verification outputs.

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Key points and observations (continued)

Collection of tax debts

Average debt levels in OECD countries continued to ease in 2011 following their peak in 2009 (i.e. the year following the global financial crisis) but remain in excess of 20% of the average level indicated for 2007;

The incidence of unpaid taxes, as reflected in the relative value size of debt inventories, varies enormously across surveyed revenue bodies, suggesting that there are also enormous variations in the overall level of taxpayers’ payment compliance.

There are 15 revenue bodies that consistently display a end-year tax debt/net revenue collections ratio of less than 8% for most/all years over the seven year period reviewed (indicating sustained high levels of payment compliance/collection effectiveness)- Argentina, Australia, Austria, Denmark, Finland, France, Germany, Ireland, Japan, Korea, Netherlands, Norway, Sweden, Singapore, and the United Kingdom.

In the aftermath of the global economic crisis there has been upwards growth in the overall incidence of tax debts written off as uncollectible; applying the ratio “tax debts written off/value of year-beginning tax debt outstanding”, the average ratio across OECD countries rose from around 19% in 2007 to just over 25% in 2009, and eased only marginally in 2010 and 2011 (NB: There are insufficient data to comment on this aspect as it concerns non-OECD countries.)

This chapter provides an overview of operational data obtained in respect of the performance of revenue bodies. The subject areas included are: 1) revenue collections; 2) refunds of overpaid taxes; 3) taxpayer services; 4) verification activities; 5) dispute resolution; and 6) collection of unpaid taxes.

Given the “comparative” nature of this series, every effort has been made to ensure that a common understanding has been applied by revenue bodies in interpreting the various terms used (e.g. “verification”, “tax disputes”, and “tax arrears”). For the reasons outlined in this chapter and elsewhere in this series, considerable care should be taken when interpreting this information and in drawing any conclusions as to the relative efficiency and effectiveness of the individual revenue bodies identified. In particular, reference should be made to other parts of the series (e.g. data related to the scope of taxes collected, institutional and organisational arrangements, and resource allocations) to identify factors that may explain what appear to be “unusual outcomes” reported in this chapter.

Tax revenue collections

The end-product of the work of national revenue bodies is the net amount of revenue collected (after refunds are paid) which can be credited to Government revenue accounts. This section provides information on the aggregate net tax revenues of surveyed countries for all levels of Government, often expressed in terms of a country’s “tax burden”. A major proportion of these revenues, with the exception of social contributions in some countries (see Chapter 1, Table 1), is collected by surveyed revenue bodies.

The OECD generally seeks to publish internationally comparable data on the tax revenues of OECD countries for all levels of government. The term “taxes” is confined to compulsory, unrequited payments to government. Taxes are unrequited in the sense

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that benefits provided by government to taxpayers are not normally in proportion to their payments. It is important to recognise that the tax ratios published by the OECD depend just as much on the denominator (GDP) as the numerator (tax revenue), and that the denominator is subject to revision for a variety of reasons. Readers are directed to the OECD publication Revenue Statistics 1965-2011, 2012 edition for more information concerning the impact of GDP revisions on reported tax ratios in member countries.

Note: The OECD maintains an extensive tax database and publishes a large array of comparative reports on the design and performance of tax systems. Readers interested in finding out more on these particular aspects are directed to the following sources:

Tax revenue performance

Rates of taxes, thresholds etc. www.oecd.org/ctp/taxpolicyanalysis/oecdtaxdatabase.htm#A_RevenueStatistics

Trends and developments concerning consumption taxes www.oecd.org/ctp/consumptiontax/oecdconsumptiontaxtrendspublications.htm

Aggregate Tables A1 to A3 located in the Annex A of this series set out aggregates over a seven year period (2005 to 2011) of total gross revenue collections, tax refunds and net tax revenues reported by revenue bodies for this and prior series.

Table 6.1 provides official OECD aggregate country tax revenues (for each major tax type and in total covering all levels of government) as a percentage of gross domestic products (GDP) for fiscal year 2010, along with aggregate tax/GDP data for the prior two years. These ratios are calculated by expressing total tax revenues as a percentage of GDP at market prices. The source of data presented is described at the foot of the table. Table 6.2 (columns 2 and 3) aims to provide a measure of the proportion of aggregate gross PIT and SSC revenue collected by withholding mechanisms in 2010 and 2011, given the general superiority of withholding mechanisms in collecting income taxes. (However, for some countries the ratios computed appear either abnormally large (i.e. over 95%) or abnormally low (less than 70%) raising questions over their accuracy. Also displayed in Table 6.2 are data reflecting the incidence of tax refunds over an extended period, acknowledging that workloads associated with refunding overpaid taxes are significant for many revenue bodies.

The key points concerning revenue collections from the information in Tables 6.1 and

6.2are:

Tax burden ratios vary enormously between surveyed countries, and with in and across OECD and non-OECD categories; for fiscal year 2010, eight countries in the European region – Austria, Belgium, Denmark, Finland, France, Italy, Norway and Sweden – had tax/GDP ratios exceeding 40%. In contrast, total tax revenue in six other surveyed countries / regions (i.e. Chile, China, Hong Kong, India, Indonesia, Malaysia, Saudi Arabia and Singapore) was less than 20% of GDP; just over half of surveyed countries had an aggregate tax burden equivalent to between 30-40% of GDP.

Overall, the unweighted measure “average tax/GDP” in fiscal year 2010 in OECD countries was in line with 2009 but some 0.7% below the level in 2008 before the full impacts of the global financial crisis.

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Table 6.1. Aggregate tax collections (by major tax type) for 2010 and prior years

* Aggregates exclude government revenues from oil and/or gas.

For notes indicated by “/ (number)”, see Notes to Tables section at the end of the chapter, p. 228.

Sources: OECD countries-Revenue Statistics (OECD, 2012), Revenue Statistics in Latin America (OECD, 2012); Non-OECD EU Countries-Taxation Trends in The European Union (2012); South Africa-SARS 2011/12 Annual Report; and Other CountriesIMF Article IV Consultations: Staff Reports.

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Table 6.2. Revenue collections and refunds (relative shares)

Sources: Country survey responses.

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