Tax administration responses to COVID-19: Assisting wider government

In response to the COVID-19 crisis, many tax administrations have taken on new roles to assist in the provision of wider government support. In many cases these have entailed responsibilities not normally provided by tax administrations, such as making support payments to citizens or providing new forms of analytical assistance to other parts of government. The speed with which such measures have to be implemented presents a number of challenges but also offers opportunities for learning lessons and for improving processes going forward, including as regards resilience and agility as well as closer working with other government agencies.

This document captures some of the new responsibilities taken on by tax administrations and suggests some considerations that administrations may wish to take into account. These new roles are described in the following categories:

• Financial assistance, providing support to citizens and businesses, whether closely targeted or on a more blanket basis;

• Providing services, using tax administration staff or services to support wider government COVID‑19 responses; and

• Information assistance, supporting government by sharing information or using the administration’s data analytics capabilities.

Following the description of the challenges and potential mitigation strategies, the document also briefly describes the opportunities that may arise from taking on these new responsibilities including the use of swift development and implementation processes. Finally, an overview of some of the new responsibilities introduced by Forum on Tax member administrations is contained in Annex A. These examples are not intended to be comprehensive but rather to assist administrations in their domestic considerations, including where discussions with peers might be helpful.

In taking on these new roles, there are a number of common issues that tax administrations are likely to face, including the:

• Rapid development of IT solutions. The need to provide large-scale support quickly in a time of crisis will often require an equally rapid development of new IT tools. Compared to previous IT development, this may also require more agile forms of decision-making in the development phase. Such agile methodologies are generally based on co-creation between business and IT departments with joint decision making, adaptation and testing to a tight timetable. The main downside is that the compressed timescales may limit consultation and evaluation prior to launch with potential implications for functionality. Compressed timetables may also reduce the time available for testing during the different phases of implementation, carrying risks for stability. It will be important to understand and document the risks involved and to maintain focus on the “must-haves”.

• Fraud risks. It is likely that a trade-off will need to be made as regards the speed with which support is to be provided to large numbers of people and the risks of fraud. Outside of system vulnerabilities (e.g. to hacking or internal fraud), this essentially depends on two factors: what level of verification of entitlement is required prior to payment and what information is available to allow for cost-effective post-payment compliance checks. These issues need to be considered together in both the design and implementation of the policy.

  As regards verification, there are two ends of the spectrum. At one end is verification which can be done based on robust information already held by the tax administration (or other government agency) for processes which are already subject to high levels of verification, such as payments of certain benefits and refunds as well as regulatory processes. At the other end, is a process with a high degree of self-verification and limited ability for the administration to perform cross-checks prior to making payments. The more that self-verification is used, the more administrations may wish to focus on risk assessment prior to payment as well as the development of a post-payment compliance strategy. A post-payment compliance strategy might, for example, require the provision of qualifying evidence after the event, the provision of robust identity and contact details of the person or business, the use of electronic and traceable payments, etc. In any event, the risks of fraud and the acceptance of risk levels should be well documented and signed off at appropriate levels of seniority.

• Data protection. Providing support at speed may require the use of data held by the administration, provided by other government departments or received from third parties, for reasons other than those for which the data was originally provided. This can create data and privacy protection risks and administrations would be well advised to carry out a data protection impact assessment and to consult with the relevant data protection authorities. In some cases, it may require some changes to the legal framework or the assumption of some degree of legal risk. In some circumstances, it may be possible to obtain advanced consent for the use of data from recipients of support. For example, there might be a requirement for consent by the applicant to use specified data for verification purposes as a condition of being able to receive the support.

• Cooperation on policy design and implementation. Decisions by policymakers on some forms of fiscal support through the tax administration may also fall short of desired outcomes unless administrability issues, effective targeting and fraud risks are fully taken into account. It may, therefore, be sensible for tax administrations to be involved in the design of policy from as early a stage as possible, including advising on possible alternative approaches. Ideally policy design and implementation discussions should involve other agencies that have responsibility for making large scale payments to citizens, such as social security and pension benefits, since they will have extensive experience on application processes, evidence requirements and fraud risks. Co-design will also allow policy makers to be involved in decisions about the risks involved, including those related to the delivery of projects to time and to budget, as well as operational risks and fraud risks. Additionally, it will allow administrations and policy makers to agree on requirements for monitoring and evaluation purposes.

• Capturing decisions and lessons learnt. Given the scale and scope of the support programmes, it will be important that there is an effective audit trail for decisions taken, risk identification, mitigation strategies and risk acceptance. In addition, it may be useful to begin capturing lessons learnt while everything remains relatively fresh and relevant personnel are still in place. This may be useful for the future resilience and agility of tax administrations both in general and for future crisis management (including the possibility of future waves of the virus). Administrations may wish to develop a common template looking at learnings in the policy design phase, the implementation phase, the launch and post-launch phase, possibly commissioning a small group of experts to undertake this work. This could cover descriptions of the process and an initial evaluation of the effectiveness of, among other things: different governance arrangements; the operation of project teams; systems resilience and adaptability issues; legal issues; budgets; testing; monitoring and evaluation; etc.

The COVID-19 pandemic poses an unprecedented challenge to the economy and the lives of many people around the globe, leading to increased unemployment, significant drops in income and heightened risks of business failures. Governments worldwide have swiftly taken multifaceted actions to support their citizens and businesses in this difficult period in order to mitigate the impact of these sudden and deep shocks on individual households, businesses and the wider economy.

Among these actions are direct government financial assistance programmes, usually targeted at those facing the most difficulties. These include:

• Financial support for citizens, for example, providing new unemployment benefits, income support, one-off grants as well as other forms of financial support. Recipients might include: all households with income below certain thresholds; individuals who have lost their jobs; students and recent graduates unable to find work; and self-employed individuals who may have suffered significant reductions in income from containment measures or from significantly reduced demand.

• Employer subsidies, where payments are paid to employers to encourage them to keep on staff (including through furlough schemes), to re-hire workers laid off as a result of COVID-19, or to help prevent further job losses; and

• Company subsidies, for example, providing payments to companies which are facing demonstrable hardship in order to alleviate cash-flow concerns which may have impacts on their ability to retain staff, pay suppliers or meet loan payments and other costs.

Recognising the close connections that tax administrations have with citizens and businesses and their ability to operate at scale, many governments have asked their tax administrations to oversee the implementation and ongoing operation of some of these financial assistance programmes.

There appear to be a number of explicit or implicit objectives as to how these financial assistance programmes are delivered, namely

• That the payments are made quickly given the urgent need for support;

• That application processes are clear and relatively simple for applicants to complete;

• That as many as possible of those who are entitled to the support actually receive it; and

• That opportunities for fraud are minimised without damaging the achievement of the first three objectives.

In meeting these objectives, administrations have to overcome a number of challenges that arise, for example, from short implementation timelines, systems constraints, lack of full information and the additional burdens on an already stretched workforce. Some considerations that tax administrations may wish to take account of to help meet these objectives are:

• Digital delivery at scale. Given the very large numbers of potential applicants and the need to make payments as quickly as possible, it will be important to develop online forms and digital services to expedite processing where it is not possible to use or repurpose existing solutions (for example, by using systems to report and pay wage taxes in “reverse gear” to process and pay-out a wage subsidy). This will often mean using an “agile methodology” to quickly build an IT solution, something that not all tax administrations will have experience of using. This will require rapid familiarisation with agile techniques, the risks involved, effective governance arrangements and sufficient budget.

  While digital may be the default application process, mandating the use of digital channels and instruments to apply for financial assistance can exclude significant numbers, particularly among the elderly population and those without sufficient resources. Administrations will want to consider how best to provide assistance in those cases, for example allowing applications by phone or mail, and appropriate communication channels to ensure that these populations are reached, including working with relevant stakeholders. In addition, in designing digital solutions administrations may wish to make provision for authorised persons to make applications on behalf of those unable to do so themselves. In this case, close attention will be needed to minimise opportunities for fraud (such as clear identification of the person, the nature of the authorisation and follow-up actions, such as letters of confirmation to the underlying applicant and risk based compliance activity).

• Avoiding excessive burdens. Since the objective is to make payments as quickly and simply as possible while minimising fraud, administrations may wish to document their risk appetite as to the extent of pre-validation required of claims. This will depend heavily on the design of the policy and the difficulties that applicants might face. In this regard, early engagement with policy makers will be important to explore design options and residual risks.

  Depending on the design of the policy, it may be possible to undertake validation without seeking additional information from the claimant. This may be the case where some of the information is already held within the tax administration, such as contact details or information on previous income. In some cases, there may already be payments being made to some applicants by another government body, for example those that provide child benefits, healthcare benefits, income subsidies, etc.

  Administrations may also wish to explore whether there are additional data-based validation options, such as through exchange of appropriate information or through direct confirmation of eligibility (for example, from universities or student loan bodies as regards payments to students). In summary, it could be very helpful to identify all of the available data sources relating to the population covered by the financial assistance, some of which may require new legislation to access.

  Where it is not possible, cost-effective or sufficiently timely to automate validation checks based on information accessible to the tax administration, then consideration needs to be given as to what is reasonable, in the circumstances, to ask of applicants by way of supporting information. Where evidence requirements may cause difficulties for large numbers of applicants, then decisions may need to be taken on what degree of self-attestation is sufficient, possibly with supporting evidence sought at a later date (agreement to which could also be a condition for payment). In this case, having highly robust identity information from applicants will be critical and enhanced identity checks, using for example anti-money laundering evidence requirements, may be appropriate.

• Compliance strategy. There will always be those who seek to defraud such financial assistance programmes, and this may be compounded by the significant amounts being paid out quickly. Tax administrations will wish to consider the balance between pre-payment and post-payment compliance measures. In both cases, compliance activities will be driven by risk assessment given the large populations involved. Risk factors can be established around the degree of confidence that the information provided by applicants is correct, with different confidence levels triggering additional pre-payment checks and post-payment compliance activity. Risk factors might include:

  • Previous tax non-compliance by the applicant;

  • Lack of previous contact with the tax administration or other government agency;

  • Recent establishment of a business;

  • Significant increase in the number of previously reported employees;

  • Recent change of details (such as address or bank account);

  • Old identification documents;

  • The use of the same IP or physical address for multiple applications.

  Consultation with other agencies making significant amounts of payments, such as social security agencies, could be of high value in this respect given their long experience in risk identification and prevention. In developing post-payment compliance strategies administrations will wish to take account of the further information that may become available over time, for example in future tax returns or third party data. In addition, administrations may wish to supplement their information sources through the promotion and efficient follow-up of whistle-blowing mechanisms.

• Communication. Ensuring that as many as possible of those who are entitled to payments know how and when to apply for financial assistance requires a multifaceted communication strategy, with particular consideration given as to how to reach those who may be more digitally challenged, such as the elderly. Consultation with other agencies responsible for making payments to citizens could be highly valuable both for general communication purposes and for possible inclusion in their own targeted communications. Additional multipliers might be government agencies who have interactions with small businesses, such as local authorities, and trade associations. Tax administrations may also wish to consider setting up dedicated help lines for different taxpayer segments and the development of guidance for commonly occurring issues. This could be supported by redeploying staff, such as those currently not engaged in their regular pre-crisis work, with appropriate training and support.

  In addition to communication strategies to support applications, administrations may wish to make clear both the penalties for supplying false information as well as more general messaging around the harm that fraud causes to wider society at a time of crisis. There may be useful lessons here from other government agencies which make payments to citizens.

Tax administrations are large organisations that employ skilled and specialised staff that interact with citizens on a daily basis. Taking account of that, a number of governments have asked their tax administration to assist other agencies or the government in general in manoeuvring through the crisis by providing emergency hotline services or by redeploying staff to provide other forms of assistance (either from within the tax administration or through temporary transfers).

Access to data and information is extremely important for governments to understand the COVID-19 crisis and address it effectively and efficiently. Analysing and monitoring data is critical, for example, when trying to understand which parts of the economy are affected the most, which support measures might be most effective in supporting citizens and businesses, and to forecast how the virus may impact the economy going forward. Tax administrations can play a key role in this as they are data rich organisations that have significant analytical resources and extensive experience in both handling and sharing data sets.

The challenges faced by tax administrations during the COVID-19 crisis and their responses offer opportunities for reconsideration of both operational resilience for possible future crises (including possible further waves of COVID-19) and for more efficient day-to-day operation of the tax administration, including reduction of administrative burdens. The experience with providing assistance to, or on behalf of the wider government may provide opportunities in a number of areas, including:

• Digitalisation. In implementing the various new responsibilities, some tax administrations have undertaken rapid development of new digital services and tools. This provides an opportunity for administrations to review how they approach digital development in general and whether different and more agile methods could be applied more widely than may have previously been the case. In addition, it would be sensible to reflect the lessons of the crisis in future development of e-administration systems, in particular whether they are sufficiently robust to support both business operations and swift changes in government policy, including provision of financial and other support. A core consideration here is the resilience of the e-administration systems themselves to cyber-security attacks and system failures.

• The legislative framework in a crisis. In order to make changes at speed, it may sometimes be the case that legislative changes are needed (and some options may not be pursued as a result given timing considerations). The tax administration may wish to reflect on where legislative issues led to less good outcomes during the crisis or the assumption of a high degree of legal risk, and what additional flexibilities might have been helpful in the crisis. This could feed into wider consideration of how the balance between proper Parliamentary scrutiny and oversight can be maintained while allowing for more rapid temporary legal changes to be made, including, for example, delegation of some policy decision-making to tax administrations which currently appears to vary significantly between jurisdictions.

• Co-ordination and co-operation across government. Taking on new functions very rapidly is a very different environment from implementing tax policy changes in the ordinary course of events. In the latter case, there is often considerable consultation with stakeholders on significant changes to tax law requirements which have major impacts on how tax is administered (as opposed to changes in rates). This is not possible in a crisis and administrations may, therefore, wish to consider how such consultation can be conducted in a compressed timescale to surface issues of administrability at speed and to allow consideration of possible alternative implementation options. In addition, tax administrations may wish to review their existing processes for engagement with other government agencies and how they can best work together to improve services for citizens as well as to improve resilience and agility.