This chapter comments on tax administration performance in managing the collection of outstanding taxes, and describes the features of a modern tax debt collection function. It goes on to provide an overview of the collection powers available to tax administrations and their usage. Finally, it showcases examples of approaches applied by administrations to prevent debt being incurred.
Tax Administration 2024
Comparative Information on OECD and other Advanced and Emerging Economies
Tax Administration
Abstract
The collection function involves engaging with, and potentially taking enforcement action, against those who do not file a return on time and/ or do not make a payment when it is due. Even with the growth in pre-filled or no-return approaches over past years (see Chapter 4), the filing of a tax return or declaration is still required in many jurisdictions participating in this publication. Although 2022 on-time filing rates averaged between 76% and 87%, at least 100 million returns were not filed on time that year (see Tables 4.8. as well as A.47, A.51, A.55, and A.60). It is important therefore that administrations continue to focus efforts on improving the timely collection of late and outstanding returns.
Looking at the collection of late payments, all but one administration participating in the survey report that staff resources are being devoted to taking action to secure the payment of overdue tax payments (the Chilean tax administration reported not being responsible for debt collection; see Table A.19). Information provided by administrations attribute on average around 11% of total staff numbers to the collection function (see Chapter 10).
This chapter:
Takes a brief look at the features of a modern tax debt collection function and the elements of a successful tax debt management strategy;
Comments on tax administration performance in managing the collection of outstanding debt;
Looks at debt collection powers and their usage; and
Provides examples of preventive approaches to debt being incurred.
To maintain high levels of voluntary compliance and confidence in the tax system, administrations must ensure that their debt collection approaches are both “fit for purpose” and meet taxpayer’s expectations of how the system will be administered. This means not only taking firm action against taxpayers that knowingly do not comply, but also using more customer service style approaches where taxpayers want to meet their obligations, but for reasons such as short-term cash-flow issues, are not able to do so.
Increasingly, tax administrations are taking an end-to-end or systems view of their processes and researching the reasons why returns may not be filed or payments made. They are also using information about the taxpayer’s previous history, to identify patterns and/or anomalies. Box 7.1. highlights some developments in this area.
Canada – Collections Verification Workload Management System
The Collections Verification Workload Management System (CVWMS) platform marks a major milestone in the Canada Revenue Agency (CRA) transformation.
With work underway, the primary focus is on creating a case management system that empowers collections and compliance programmes to streamline processes and enhance operations. The CVWMS is adopting a horizontal approach to value delivery, in which new system functionality will be developed for many workloads concurrently. Taking a horizontal approach allows the CRA to enhance data management standards, enabling the production of relevant and timely business intelligence.
CVWMS has already yielded significant achievements. It has successfully reduced administrative burdens, increased resilience and agility, and optimised data management and standards. The platform’s integration with other agency systems has facilitated efficient business rules management and led to an increase in quality assurance. Benefits realised from onboarded users include:
A reduction in the amount of time it takes to perform an account summary
A reduction in the time it takes to create and assign accounts to officers
Improved reporting capabilities
Quicker access to information
Quicker recovery of lost revenue
Better service to Canadians
This system has proven to be a robust platform that will continue to deliver tangible results.
Georgia – Tax Debt Management Reform
In 2022, Georgia piloted the Tax Debt Management Reform programme to increase taxpayer compliance. This has been refined with a number of recent improvements to achieve results, for example:
New criteria have been developed to identify taxpayers with outstanding debts. From this group, taxpayers are automatically picked out by the system where action is required, and these are passed to the relevant staff in the Georgian tax administration. Taxpayers with growing or recent debts are prioritised.
New software has been introduced to aid employees in their work, through an electronic case management system.
These changes have had positive results. The proportion of recognised tax debt in relation to total tax revenues is now less than 20%, and there has been an increase in the voluntary payment rate of debts. There has also been growing interest amongst taxpayers in entering into agreements for the deferral of debt payments, with a sizeable number of these agreements being automatically initiated without the need for human intervention.
Sources: Canada (2024) and Georgia (2024).
The 2014 report Working Smarter in Tax Debt Management (OECD, 2014[1]) provided an overview of the modern tax debt collection function, describing the essential features as:
Advanced analytics – that make it possible to use all the information tax administrations have about taxpayers to accurately target debtors with the right intervention at the right time.
Treatment strategies – the collection function needs a range of interventions, from those designed to minimise the risk of people becoming indebted, to support taxpayers to make payments and to take appropriate enforcement measures where appropriate.
Outbound call centres – which make it possible to efficiently pursue a large number of debts.
Organisation – debt collection is a specialist function and is usually organised as such. The right performance measures and a continuous improvement approach help drive desired outcomes.
Cross border debts – the proper and timely use of international assistance is crucial, particularly the “Assistance in Collection Articles” in agreements between jurisdictions.
The 2019 report Successful Tax Debt Management: Measuring Maturity and Supporting Change (OECD, 2019[2]) provides further insights into the elements of a successful tax debt management strategy, setting out four strategic principles that tax administrations may wish to consider when setting their strategy for tax debt management. These principles focus on the timing of interventions in the tax debt cycle, from consideration of measures to prevent tax debt arising in the first place, via early and continuous engagement with taxpayers before enforcement measures, to effective and proportionate enforcement and realistic write-off strategies. The underlying premise for these principles is that focusing on tackling debt early, and ideally before it has arisen, is the best means to minimise outstanding tax debt. The report also contains a compendium of successful tax debt management initiatives and an overview of a Tax Debt Management Maturity Model which was subsequently published as a self-standing document (OECD, 2019[3]).
The total amount of outstanding arrears at fiscal year-end remains very large, in the region of EUR 2.7 trillion. For survey and comparative analysis purposes, “total arrears at year-end” is defined as the total amount of tax debt and debt on other revenue for which the tax administration is responsible that is overdue for payment at the end of the fiscal year. This includes any interest and penalties. The term also includes arrears whose collection has been deferred (for example, as a result of payment arrangements).
The total amount of “collectable arrears” at fiscal year-end was around EUR 810 billion. Collectable arrears is defined as the total arrears figure less (i) any disputed amounts for which collection action has been suspended pending the outcome, (ii) amounts that are not legally recoverable, and (iii) arrears which are unable to be collected, for example, where the debtor has no funds or other assets.
As a result, and despite efforts to make data comparable, care needs to be taken when comparing specific data points as the administration of taxation systems and administrative practices differ between jurisdictions.
In 2022, the average ratio for total year-end arrears to net revenue collected was 29% (see Table D.41). As in past years, it remains heavily influenced by the very large ratios of a small number of jurisdictions that show ratios above 50%. If these jurisdictions are removed, the average reduces to around 13% of net revenue (see Figure 7.1. and Figure 7.2. as well as Table D.41). (Note: The percentages mentioned in this paragraph are different from those in Table 7.1. as the table shows average arrears ratios only for those jurisdictions that were able to provide the information for the years 2018 to 2022.)
Note: The table shows average arrears ratios for those jurisdictions that were able to provide the information for the years 2018 to 2022. The number of jurisdictions for which data was available is shown in parentheses. Data for Bulgaria was excluded from the calculation of the average for the ‘total year-end arrears as a percentage of net revenue collected’ as its data for the years is not comparable (see Table A.74).
Source: CIAT, IOTA, IMF, OECD, International Survey on Revenue Administration, Table D.41 Arrears ratios: Closing stock and collectable arrears, https://data.rafit.org/regular.aspx?key=74180902 (accessed on 10 September 2024).
When looking at the data over the five-year period from 2018 to 2022, a decrease in the average ratio of total year-end arrears to net revenue collected is visible for the last two years. This follows the significant increase of the ratio during 2020 – the first year of the pandemic – where the ratio increased on average by more than 20% at a time where many governments took action to support individuals and businesses as part of the pandemic by extending payment terms, or suspending collection of outstanding debt (CIAT/IOTA/OECD, 2020[4]). Following the latest available data, the average ratio of total year-end arrears to net revenue collected is now back to pre-pandemic levels. (See Table 7.1.)
The change in the average ratio, is also generally reflected in the jurisdiction level data: Between 2019 and 2020 the “total arrears to net revenue collected” ratio increased in 86% of jurisdictions, whereas between 2020 and 2022 the ratio decreased in 77% of jurisdictions (see Table D.41).
Source: CIAT, IOTA, IMF, OECD, International Survey on Revenue Administration, Table D.41 Arrears ratios: Closing stock and collectable arrears, https://data.rafit.org/regular.aspx?key=74180902 (accessed on 10 September 2024).
Source: CIAT, IOTA, IMF, OECD, International Survey on Revenue Administration, Table D.41 Arrears ratios: Closing stock and collectable arrears, https://data.rafit.org/regular.aspx?key=74180902 (accessed on 10 September 2024).
Looking at collectable tax arrears, the 2022 data shows that on average around half of the total arrears are considered collectable. That is an increase of 4% compared to 2018. (See Table 7.1.) However, Figure 7.3. illustrates well the differences between jurisdictions: in some jurisdictions almost all arrears are considered collectable, while in others almost all arrears are considered not collectable.
Source: CIAT, IOTA, IMF, OECD, International Survey on Revenue Administration, Table D.41 Arrears ratios: Closing stock and collectable arrears, https://data.rafit.org/regular.aspx?key=74180902 (accessed on 10 September 2024).
Figure 7.4. shows the change of total year-end arrears between 2021 and 2022. In absolute numbers, the total year-end arrears increased in 34 out of 53 jurisdictions that were able to provide the information. (Note: This does not contradict the above observation that arrears ratios are decreasing. While in absolute numbers, arrears are going up in many jurisdictions, the ‘total arrears to net revenue collected’ ratio is decreasing as total revenue collections have increased even more.)
In looking at the amount of arrears for the main tax types (see Table 7.2.), it seems that individuals are more likely to pay on time than businesses. In 2022, the average ratio of corporate income tax (CIT) arrears to CIT net revenue collected and the ratio for value added taxes (VAT) are around 20% and 24%, respectively. At the same time, the ratio for personal income tax (PIT) is much lower at 15%.
The data also confirms the difficulties that businesses encountered at the beginning of the pandemic. The average ratios for CIT and for VAT increased significantly between 2019 and 2020 but are now back to pre-pandemic levels.
At around 6%, the ratio is the lowest for employer withholding taxes (WHT). However, this is expected, as employers are responsible for forwarding those taxes to the administration on behalf of their employees and have no right over the amounts.
Source: CIAT, IOTA, IMF, OECD, International Survey on Revenue Administration, Table D.42 Arrears ratios: Year-on-year change, https://data.rafit.org/regular.aspx?key=74180902 (accessed on 10 September 2024).
Note: The table shows the average ratios for jurisdictions that were able to provide the information for the years 2018 to 2022. The number of jurisdictions for which data was available is shown in parentheses. Data for Bulgaria was excluded from the calculation of the average for the total year-end arrears as a percentage of net revenue collected as its data for the years was not comparable (see Table A.74). Further, because they would distort the averages, data for Brazil and Greece was excluded in the calculation of the average for CIT and data for Malta was excluded in the calculation of the average for VAT.
Source: CIAT, IOTA, IMF, OECD, International Survey on Revenue Administration, Tables D.44 Arrears in relation to collection by tax type: CIT and PIT, and D.45 Arrears in relation to collection by tax type: PAYE and VAT, https://data.rafit.org/regular.aspx?key=74180902 (accessed on 10 September 2024).
The legislative framework includes provisions that enable tax officials to undertake certain actions in relation to the management of debt, the collection of amounts overdue and the enforcement of actions that can be taken against delinquent debtors. Figures 7.5. to 7.7. summarise this information for all 58 jurisdictions in the series, looking at:
Powers administrations can use to assist taxpayers paying their debt;
Powers administrations have to collect outstanding amounts; and
Powers administrations have to enforce debt payment by triggering certain pressure points.
Powers to assist taxpayers paying their debt
As shown in Figure 7.5., most administrations report the frequent use of powers that allow them to formulate payment arrangements, and around half report frequently granting extensions of time to pay tax arrears. (See Box 7.2. for two examples on how administrations assist taxpayers with making payment arrangements.)
As regards the power to remit interest and penalties, slightly more than 40% of administrations frequently use this power, while an equal number of administrations only uses it infrequently despite having this option available. While jurisdictions are evenly divided on policies that would allow their tax administration to offer reduced penalties and interest to taxpayers, around half of those with these powers report that they do not use them or use them only infrequently. (See Figure 7.5.)
Percentage of jurisdictions
Source: CIAT, IOTA, IMF, OECD, International Survey on Revenue Administration, Tables B.31 Tax arrears: Collection powers and their usage - Part 1, B.32 Tax arrears collection powers and their usage - Part 2, B.33 Tax arrears collection powers and their usage - Part 3, and B.34 Tax arrears collection powers and their usage - Part 4, https://data.rafit.org/regular.aspx?key=74180917 (accessed on 10 September 2024).
Canada – Payment Arrangement Calculator
Taxpayers who cannot pay their debt immediately now have the ability to enter into payment agreements without speaking to the Canada Revenue Agency (CRA).
First introduced to the public on the website Canada.ca in June 2017, the Payment Arrangement Calculator (PAC) functioned as a standalone tool guiding taxpayers in calculating a frequency of payments for their outstanding CRA debt. Taxpayers would log into the secure portals (My Account or My Business account) and manually input the information provided by the PAC into the Pre-Authorized Debits (PAD) payment option to enter into an agreement to pay their debt over time.
In February 2023, PAC functionalities were integrated within the PAD payment process as an enhancement to payments options within My Account and My Business Account. This initiative allows taxpayers to:
Modify the amount to be paid;
View the current prescribed interest rate;
Select the start date, frequency and number of payments;
Include interest in their calculated payments.
This allows for less traffic on CRA general enquiry lines for payment arrangements, and also meets the demands of many Canadians who prefer the fast and efficient option of making online payments.
United Kingdom – Self-Serve Time to Pay
The United Kingdom’s HM Revenue & Customs’ (HMRC’s) vision for the future of tax administrations is designed to improve its resilience, effectiveness, and support for taxpayers, ensuring it is as easy as possible for customers experiencing financial difficulties to pay any tax that may be owed.
In line with this, HMRC has introduced a new service for customers – Self-Serve Time to Pay (SSTTP), which works by providing eligible customers with the ability to make payments up front and set up a payment plan via direct debit. A Manual Affordability Assessment has been added to this, which allows a customer to input their income and expenditure information to receive a payment plan which is affordable to them. If taxpayers cannot set up a payment plan through the online portal, they can get assistance via webchat.
This aims to reduce reliance on telephone services and increase the digitalisation of tax services. Since going live, over 22 500 repayment plans have been set up with a cumulative value of over GBP 190 million.
Sources: Canada (2024) and United Kingdom (2024).
Powers to collect outstanding amounts
Administrations report extensive use of offsetting tax arrears against other tax overpayments, using garnishee orders over salaries and property, and collecting via third parties, such as banks and employers. As regards the use of powers to collect disputed taxes while a case is under judicial or administrative review and powers to collect through agreements with other tax administrations, approximately half of administrations that have those powers report non-use or infrequent use. (See Figure 7.6.)
Box 7.3. contains an example of cross-national collaboration to improve debt collection.
A common challenge faced by the Belgian and Dutch tax administrations is how to deal with tax debtors living in the other country. This means that the Belgian and Dutch tax administrations are limited in their national collection and recovery options when confronted with debtors living or registered abroad. Normally, they would have to request mutual assistance to recover the tax, which is costly and time intensive.
In order to overcome this situation in a more cost-effective way, a cross-national project involving both tax administrations was implemented in 2023, called Project BENE. This project targets taxpayers living in the Netherlands and owing debts to the Belgian tax administration; and, reciprocally, taxpayers living in Belgium owing debts to the Dutch tax administration.
The aim is to both increase payment compliance and decrease the need to formally request mutual recovery assistance, using reminder letters. A first reminder letter is sent by the administration where the debt is due. If after 30 days no payment or response is received, a second reminder letter is sent by the administration where the debtor resides. Only if both letters remain unanswered is mutual assistance requested.
Source: Belgium (2024).
Percentage of jurisdictions
Source: CIAT, IOTA, IMF, OECD, International Survey on Revenue Administration, Tables B.31 Tax arrears: Collection powers and their usage - Part 1, B.32 Tax arrears collection powers and their usage - Part 2, B.33 Tax arrears collection powers and their usage - Part 3, and B.34 Tax arrears collection powers and their usage - Part 4, https://data.rafit.org/regular.aspx?key=74180917 (accessed on 10 September 2024).
Powers to enforce debt payment
Given that the powers in Figure 7.7. can have severe consequences (for example, temporarily closing a business, publishing names of debtor taxpayers, restricting travel, etc.) it is not surprising that in the majority of jurisdictions the administration does not have many of those powers, or does not use them or uses them only infrequently. The exception is the requirement of having a tax clearance certificate when bidding for government contracts, which is less severe in its nature but very effective, and therefore used frequently by more than 75% of administrations.
Percentage of jurisdictions
Source: CIAT, IOTA, IMF, OECD, International Survey on Revenue Administration, Tables B.31 Tax arrears: Collection powers and their usage - Part 1, B.32 Tax arrears collection powers and their usage - Part 2, B.33 Tax arrears collection powers and their usage - Part 3, and B.34 Tax arrears collection powers and their usage - Part 4, https://data.rafit.org/regular.aspx?key=74180917 (accessed on 10 September 2024).
The range of actions undertaken by tax administrations to prevent debt from arising and to collect outstanding arrears continues to evolve. Box 7.4. illustrates the approaches taken by some administrations. Advances in predictive modelling and experimental techniques as reported in the OECD report Advanced Analytics for Better Tax Administration (OECD, 2016[5]) and in the compendium of successful tax debt management practices contained in the OECD report Successful Tax Debt Management: Measuring Maturity and Supporting Change (OECD, 2019[2]) are helping many administrations better match interventions with taxpayer specific risk. The approaches used fall into one of the following categories:
Predictive analytics, which tries to understand the likelihood of certain outcomes and, as regards debt collection, includes modelling the risk that an individual or company will fail to pay as well as models that attempt to assess the likelihood of insolvency or other payment problems; and
Prescriptive analytics, which is about predicting the likely impact of actions on taxpayer behaviour, so that tax administrations can select the right course of action for any chosen taxpayer or group of taxpayers. (OECD, 2016[5])
Many administrations are blending both practices and have trialled a variety of approaches aimed at changing “taxpayer behaviour”. As noted in Chapter 6, around half of the administrations report employing behavioural researchers, and the use of behavioural insight practices has the potential to transform the approach to tax debt as administrations move away from the ‘one-size-fits-all’ approaches (where it is cost-effective to do so) and instead try to identify:
Which cases should be subject to an intervention;
When to intervene (for example, even before a return or payment might be due); and
Which type of action would achieve the best cost-benefit outcome.
Lithuania – Debtor risk
During the Covid-19 pandemic, the State Tax Inspectorate (STI) launched the debt risk management module, integrating it into the Tax Accounting Information System (TAIS) of the STI. The module's primary aim is to pinpoint taxpayers at a higher risk of not paying their debts.
This debt risk rating significantly streamlines various debt recovery processes in the STI’s operations. The module is continuously refined, incorporating new risk criteria over time. For example, the STI is currently developing a new criterion that can identify taxpayers with a heightened risk of insolvency. The primary criteria that the STI uses for assessing this new risk is derived from the financial reporting documents of legal entities. Under the Lithuanian Law on Insolvency of Legal Persons, a legal entity is deemed insolvent when its liabilities surpass the value of its assets. The STI’s goal is to automatically identify taxpayers meeting this criterion. Incorporating the acquired results into the overall debt risk assessment will enable the STI to implement a targeted approach to its debtors, to comprehensively determine the most effective tactics for debt recovery.
Spain – Preventive approaches in compliance
Spain has introduced preventive actions to guard against the risk of not being able to recover tax due. Three initiatives have been introduced:
Using data analysis techniques to better identify and measure recovery risks. To better understand the recovery risks, numerous indicators are examined such as asset stripping, recovery history and activity history in terms of filing tax returns etc.
Improving cooperation between control and recovery units, such as through facilitating the exchange of analysis information between teams.
Improving IT tools to facilitate preventive recovery.
The aim of these interventions is to provide a thorough, automatic and analytical evaluation of the risk that a taxable person will not pay their debt, and be able to act promptly on these risks if necessary.
Sources: Lithuania (2024) and Spain (2024).
References
[4] CIAT/IOTA/OECD (2020), “Tax administration responses to COVID-19: Measures taken to support taxpayers”, OECD Policy Responses to Coronavirus (COVID-19), OECD Publishing, Paris, https://doi.org/10.1787/adc84188-en.
[2] OECD (2019), Successful Tax Debt Management: Measuring Maturity and Supporting Change, OECD Publishing, Paris, https://doi.org/10.1787/e8fdb816-en.
[3] OECD (2019), Tax Debt Management Maturity Model, OECD, Paris, https://www.oecd.org/en/topics/sub-issues/comparative-analysis-of-tax-administrations/tax-maturity-models.html (accessed on 10 September 2024).
[5] OECD (2016), Advanced Analytics for Better Tax Administration: Putting Data to Work, OECD Publishing, Paris, https://doi.org/10.1787/9789264256453-en.
[1] OECD (2014), Working Smarter in Tax Debt Management, OECD Publishing, Paris, https://doi.org/10.1787/9789264223257-en.