A taxing task

A taxing task

IRD’s Colin MacDonald looks five years into the future — and beyond …

Certain things happen as a consequence of being in business, right? The greater part of your transactions occur, naturally, over your computer system. Since you are connected, it’s no trouble to embed your tax processes within your systems and connect them direct to the taxman.

Aaah, wouldn’t it be luvverly? Or maybe not, depending on your point of view.

Don’t worry, no one from the Inland Revenue Department is trying to get into your business. But it’s a scenario that could happen several years down the line.

In the meantime, Colin MacDonald, general manager of business development and systems at the IRD, is working on a five-year plan designed to open new channels of contact for small business. Implementation of an automated tax take as described above is nowhere near the event horizon envisioned for the next five years. But it has been talked about with tax authorities overseas. “Clearly, to get to that point we would have to embed the tax processes into the day-to-day business processes,” he says. “That would take a lot of discussion and negotiation and consultation with businesses and individuals. It would evolve not just with technology but with its acceptance and development of the way it could be employed.”

Enter reality. MacDonald’s five-year business plan is about incremental changes that will open new channels for taxpayers. Some of the basic tools and information they need for doing tax over the internet is already available but the new online applications in the pipeline will be open, and open to all. “Our main thrusts really are to simplify tax processes and to make it easier for taxpayers to comply with their obligations,” says MacDonald.

A large part of the Kiwi initiative owes its origins to a compliance model developed in Australia. This model is centred around determining an appropriate response based on a taxpayer’s compliance history. At the same time, it aims to ensure that taxpayers aren’t treated in a one-size-fits-all manner.

“The compliance model was developed by a group of academics and has now been taken up by the Australian Taxation Office,” says MacDonald. “It aims to understand the broader environment within which taxpayers operate, the psychological pressures, the business pressures, the economic pressures and the degree to which they drive particular compliance responses.”

MacDonald explains what he means by psychological pressures. “A common example would be New Zealanders’ willingness to accept cash jobs. Let’s say a roofer comes to your house and offers to fix your roof. He gives you one price for cash and another for an invoiced job. How society views such offers will have some influence on how willing you are to accept — or not accept — the cash offer. One of the other psychological pressures is determined by the way the tax authority treats individuals and how easy we make it for taxpayers to comply with their obligations. If, for example, you are a taxpayer and you find it difficult to meet your obligations, that situation will create a negative pressure on compliance. That’s one of the reasons why we are establishing more electronic channels — to remove some of the barriers to compliance.”

User choice

MacDonald emphasises that taxpayers will not be forced to use the new internet tax payment channels. He recognises that only 37% of New Zealand households currently have access to the internet and that many people will prefer to deal with government agencies through the traditional channels. “We have done qualitative rather than quantitative research to try to establish the need for the internet channel. There is a reasonably strong desire to see this kind of service provided for small business. But, because we don’t have an active strategy to move people to the internet channel, we haven’t tried to predict numbers. However, we expect people to move naturally to the online offerings because in some cases the services will be an improvement on what they receive today.”

Yet another advantage of the online offering is that the IRD will be able to target its processes more effectively than at present. For instance, if a small business is late with its first filing of GST returns, the IRD could send a note to the individual involved before the event. That way it could be seen to be offering a positive relationship with the customer, rather than coming in after the transgression. “Any modern tax authority today is concerned at raising levels of voluntary compliance,” says MacDonald. “The higher the level of compliance the more straightforward the tax system and the less spent on audit-type activities or investigative activities.”

In fact, says MacDonald, every one of the 52 online initiatives planned over the next five years is linked to at least one activity in the IRD’s overall business plan. MacDonald says that the online ideas are not just about technology — they are technology responses to business requirements. “And, importantly, they support the e-government thrust that’s currently getting a lot of focus.”

Priority for the online business is focusing on filing and paying taxes online, access to taxpayer information, providing electronic forms, calculator tools and reminder systems, and letting customers interact through the internet so that they can access personal information or corporate information, given the right levels of security.

MacDonald emphasises that the online initiatives are not starting from scratch. Tax agents have been able to file income tax returns via the e-File service since 1992. Also, the details of about 1.4 million employees are filed electronically every month. Customers of Westpac and the ANZ bank are able to pay their tax bills over the internet now, and MacDonald is hoping that other banks will do likewise before too long. Kiwi Bank has already made a commitment to offer a similar service.

“You can complete registration for GST and PAYE online, you can request an advisory visit from a business adviser, you can access the majority of our regularly used forms, brochures and tax calculators on the website. You can subscribe to newsletters. And if you are a child support recipient you can fill out change of circumstances details. So we already offer a reasonable number of services. And bear in mind that over the past few years we have been moving away from requiring salary and wage earners to fill out forms.”

Currently on trial is a GST filing service. This trial started in June and involves 250 taxpayers, including small and medium-to-large businesses, around New Zealand. MacDonald says the feedback so far has been very positive. Assuming the trial continues to go well, it will be progressively rolled out starting next January. After that, the focus will shift to electronic filing of income tax and fringe benefit tax returns.

“In our view, these items are going to be particularly beneficial to small businesses. Many small businesses want help with GST, fringe benefit taxes and income tax.”

MacDonald says the aim with the new services is to make things as simple and straightforward as possible. The GST pilot, for example, has omitted some of the information required in paper forms because they don’t translate well to the electronic medium.

On the revenue side, the IRD is looking at the possibility of introducing new options such as credit card payments. In particular, says MacDonald, the IRD is considering whether it is appropriate to allow credit card payments for overseas student loans, particularly where borrowers have moved overseas.

“As you push more and more of your services online, in a sense you start to break down some of the barriers between your organisation and the outside world,” says MacDonald. “We expect a number of our services to straddle both arenas. For example, we currently provide our call centres with an application called Knowledge Base, which helps them answer taxpayer queries over the phone. Now that is just the sort of service we want to make available online. Further development of Knowledge Base will be designed for use by both internal staff and online taxpayers.”

E-government model

Central to the new systems is a requirement that they fit the e-government model for online offerings. Most important, they must be designed in such a way that users on slower, older technology will not be disadvantaged. That means the content will probably not look as graphically exciting as offerings from the private sector. Much of the content will be text-based. Says MacDonald: “That might give an impression that they are a little uninteresting but, unfortunately, that’s a necessary tradeoff to ensure reasonably fast download times and the widest possible accessibility.”

MacDonald doesn’t expect the new services to have an immediate or drastic effect on traditional channels. Over the next few years, though, he expects the IRD could well focus much more on its electronic services than on continually enhancing its traditional channels. “We have an interesting challenge here because, unlike some commercial organisations, we really don’t have too many choices about our customer base. We have to provide services to all New Zealanders. As long as there is a small percentage of New Zealanders without telephones, the options will be limited.”

Inland Revenue commissioner David Butler is keen to enhance the IRD’s online services, and MacDonald says all the business units are very supportive. All units have worked closely with key business people to come up with initiatives and to ensure they fitted in with business plan objectives.

MacDonald’s own background includes 20 years in the private sector — he has been with the IRD only since last November. He has worked in the oil industry, in the financial sector, in the legal profession and in the retail sector. At the ANZ bank he was the chief operating officer, and he has a degree in computer science from Glasgow University. “In my view there is fundamentally no difference between the way one organises a large government department and the way one organises and runs a private business,” he says. “If anything, the public sector has much more published information about its goals.”

In any typical year the IRD would spend something in the order of $24 million on IT-related projects or projects with a significant technology component. The aim, as in private business, is to deliver business outcomes. The new online initiatives will have to meet the same business-focused requirements. “They will go through our cost benefit process as they come up to initiation,” says MacDonald. “If we find we need additional funding, that’s something we will have to discuss with government. As we get the initiatives started, we are seeking to fund the projects from within the existing baseline.”

MacDonald is convinced that the separate initiatives are preferable to a big-bang approach. The incremental approach should avoid the serious challenges that major projects have faced, though MacDonald is quick to defend the highly successful FIRST system implemented in the early 90s. Today, though, projects are handled differently, he says. “The technology state is different and the requirements around time to market are different. We need to get our services out much more quickly.”

He also regards the internet market as generally immature. “People are still learning about putting web services online. That’s another good reason for us to take a small-step iterative kind of approach.”

Kiwi standing

MacDonald is unsure whether New Zealand is ahead or behind the rest of the world when it comes to online services. Depending on the analysis, New Zealand’s online standing varies. An Accenture study, for instance, puts New Zealand at 14th against the rest of the world. A United Nations study, on the other hand, puts New Zealand third. The United States is usually placed near the top.

In fact, New Zealand’s standing does not worry MacDonald a lot. “We accept that as a revenue service we are not as far advanced with electronic channels and services as some other leading revenue authorities. From an e-government perspective, though, many overseas governments have been led by their revenue authorities. We see we have got an important role to play in really helping to get behind the e-government thrust. These new initiatives are partly aimed at helping us address that situation.”

Initially, internal IT staff within the IRD are expected to handle most of the new development required. Clearly, though, some skill changes will be required as people are moved away from the traditional Cobol environment to the web. MacDonald is unsure whether the IRD will look at hiring staff or forming strategic alliances if extra manpower is required.

The big issue for customers using the IRD portal will be security. MacDonald says the organisation has been working closely with the State Services Commission’s e-government unit to have an appropriate security and authorisation framework put in place. “We believe our requirements are high compared with that required for many other government departments,” he says. “We’ve also talked to other tax authorities, particularly in the UK, Canada and at the Australian Taxation Office. We want to learn from their experiences, to find out what they are doing, how successful they have been and what issues they have faced.”

The real challenge, apart from public confidence, is to strike a level between having an appropriate level of security in place and having the right level of usability. MacDonald says it is possible to have an extremely secure environment that is unusable as far as the general public are concerned. “We have to find a way of striking an appropriate balance. If you take the UK example, you will find that they have provided user and password-based security and they have also provided digital certificates. Very, very few people have taken up the digital certificates option. The vast majority are comfortable with user ID and password. It is mainly the bigger businesses that take up digital certificates.”

MacDonald says the IRD hasn’t yet made up its mind about what security to offer. He expects, though, that it will be looking to offer a couple of levels for users to choose.

1000 new PCs

As part of its upskilling process, the IRD has recently rolled out an additional 1000 PCs. All staff now have access to a PC.

As MacDonald points out, organisations that have been successful at getting their services online have spent a significant amount of time with their own people, making sure they are familiar with internet/intranet environments. While the IRD is already using an intranet for staff matters, MacDonald says the plan is to extend services — to have all employee services on the intranet, all internal forms. Training and education of staff are also on the schedule.

MacDonald says later details for the online initiatives are not cast in concrete. They will undoubtedly evolve as the internet and its usage evolves. For the man in charge, it’s a great opportunity to help Kiwi business.

“We are seen as having one of the most integrated tax administration systems amongst the other authorities we looked at. So, in terms of integration, we are probably in the best situation. Now the challenge is to go out to the world.”

In the IRD’s brave new online world it won’t matter what computing device you have on your desktop. Browser-based internet services have provided a defacto standard for future services. Third-party software designed for specific operating systems are already being shifted to the web.

The man responsible for delivering the new-look IRD online is Colin MacDonald.

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