Chapter

6 Information Technology: Strategy of the Spanish Tax Administration

Editor(s):
Richard Bird, and Milka Casanegra de Jantscher
Published Date:
September 1992
Share
  • ShareShare
Show Summary Details
Author(s)
Rafael Moya and José-Damián Santiago 

This paper analyzes the role that information technologies play in the Spanish tax administration and the role that we expect them to play in the future.

In the paper we highlight the impact that electronic data processing (EDP) has had on the Spanish tax administration. Without this technology, it would not have been possible to manage efficiently a generalized tax system such as that of Spain, with 10 million income tax returns to process. It is also one of the pillars on which the Spanish tax administration has based its strategy to offer taxpayers the best possible service.

It cannot be claimed that the EDP system introduced by the Spanish tax administration is the best option available. Before the final selection, several systems were evaluated. But the Spanish authorities believe that the system chosen has yielded positive results. However, there will always be some doubt as to whether a different system might not have achieved better results.

Considerable caution must be exercised when evaluating the transferability of the Spanish system to other administrations. In particular, the existing telecommunications technology and the computer skills of employees have to be taken into account. It is all too easy to succumb to the temptation (and computer applications for tax administration are no exception) of thinking that what is appropriate for one country will apply equally to another. In fact, Spain’s experience can only be valid for other countries to the extent that it can help better evaluate the various options available; the choice has to be the country’s alone, and adapted to its particular circumstances.

I. Overview

The Scope of Tax Administration

Until the new Government Agency for Tax Administration, created under Article 103 of the 1991 Budget Act, becomes operational, the Secretariat General of Finance, an agency of the Ministry of Economy and Finance will continue to be responsible for tax administration. The functions of the Secretariat General are the usual ones of a tax department, including, however, responsibility for both internal taxes and customs duties.

The Government Agency for Tax Administration will have considerable autonomy and a variety of responsibilities. Apart from the functions previously performed by the Secretariat General, the Agency’s responsibilities will include preparation and management of its budget, management of its acquired property, staff recruitment, and centralized accounting for the government taxes administered by it.

Tax Data Processing

Single Unit Responsible

The Spanish tax administration has opted for a single data processing organization, in the form of a separate Directorate General within the Secretariat General of Finance, as opposed to other possibilities, such as each functional directorate having its own data processing. It is not clear which of these two options is preferable. The option Spain selected has led to a certain amount of competition between the user directorates and the EDP Directorate. This tends to keep the systems operating smoothly—since some officials develop them and others use them, there is no advantage to concealing errors. Experience has shown that errors are frequently concealed when it is the same unit that develops and uses a computer application. The option chosen, however, requires considerable cooperation between the users and the teams that develop the technology.

Before the selection was made in 1983, the Secretary of State for Finance was frequently called upon to arbitrate among the various alternatives. Under the option chosen, there is considerable transparency between the users and those in charge of EDP. The advantages of this transparency outweigh the higher cost of the coordination that is required. A good example of this transparency is the DEFENSOR application, which is available to all users from any part of the central and peripheral tax administrations. Through DEFENSOR, users can voice their complaints or offer suggestions on EDP applications. The Directorate General of Tax Data Processing has agreed to respond to queries within a maximum of seven days. The main advantage of DEFENSOR is that, since all issues raised get registered, the senior officials of the organization can find out at any time the degree of satisfaction of users with their EDP systems, as well as any deficiencies. This application is, in fact, an additional user safeguard, offered by those in charge of EDP. This type of transparency is possible only when there is clear separation between those who use the applications and those who develop them.

Processing and storage capacity is available at the central office and at the 56 provincial centers. The other offices have peripherals, terminals, and printers, which provide access to the central processing units. Development and maintenance of software is centralized at the main office of the Directorate General of Tax Data Processing, from where the software is distributed to the 56 provincial processing centers.

Resources

The emphasis that the Spanish tax administration has placed in recent years on information technologies is self-evident. Between 1983 and 1991, processing speed rose from 36 MIPS to 291 MIPS, central memory from 67 MB to 2,110 MB, and the number of terminals from 663 to 9,600.

All the hardware available is compatible, which means it is not dependent on any one manufacturer or supplier. The hardware is acquired from the supplier that makes the best offer, and no purchase from any single supplier is allowed to exceed 25 percent of the EDP Directorate’s budget.

The basic software used is the most standardized one on the market and for which products and compatible packages are available from other manufacturers. This means that there are a broad range of options from which to choose. The data base software is of the “relational” type, as this is best suited to our needs. Increasingly, we are using more powerful languages and “CASE” tools. Even though these require more resources, it is justified because they enhance our productivity.

The Data Network

The EDP system is a single, integrated system linked by a private teleprocessing network. This makes all applications and all data bases accessible from any tax office. The data network is the most valuable part of the system. It helps us to overcome time and space constraints in our operations with regard to the data available.

Even though much remains to be done, the technological level of telecommunications in Spain has made the integrated system a viable solution. It is obvious that if this kind of integration had not been feasible, another solution would have had to be envisaged. Telecommunications has enabled us to make better and more intensive use of the hardware and software capabilities we have. As Table 1 shows, the data network has 370 point-to-point lines, radiating from the main office to the provincial centers and from these to the administrations and customs.

Table 1.Spain: Data Network
198319881991
Number of teleprocessing lines
Management centers0920
Provincial centers115656
Administrations0201204
Customs0062
Other0928
Total11275370
Network traffic (Millions of characters a day)
Electronic mail040
National data base60300
Files0100
Provincial data bases1,3802,800
Total1,4403,240

Applications Software The software systems used and their main functions are as follows:

  • New tax management procedure (NPGT), for management.

  • National data base (BDN), for inspection.

  • National collection system (SIRENA), for collections.

  • Mechanized customs management (GEMA), for customs.

  • Regional administrative economic tribunals (TEAR), for the appeals function.

NPGT

The NPGT is the basic component of Spanish tax data processing, which brought about a new era in tax administration. It is a decentralized system, that is, it resides in the 56 provincial centers. The four most important parts of the NPGT are (1) the tax register; (2) self-assessments; (3) annual returns; and (4) notices.

The purpose of the tax register is to identify taxpayers by their fiscal identification number (NIF). The register also shows the tax due by each taxpayer, according to his self-assessed return. At present, there are 722,580 registered taxpayers with the obligation to withhold income taxes on wages and salaries, 2,418,811 enterprises required to make estimated (advance) income tax payments, and 1,831,515 VAT taxpayers.

The purpose of the self-assessment part is to register payments made by taxpayers, usually quarter by quarter. The aim is to control fully these operations, as well as to have participating financial entities collaborate in the process. Taxpayers must submit their returns to a participating financial entity and the entity, in turn, must record the following four data: (1) the NIF, verifiable with a check digit, through which the taxpayer is identified; (2) the number of the return form, verifiable through a control character, through which the item under which the payment is made is identified; (3) the date, which identifies the payment period; and (4) the amount being paid, checkable against the corresponding amount declared. The corresponding magnetic files are processed by the provincial centers. In 1990, 39,109,165 self-assessments were processed.

The main purpose of the annual returns is to process the summary returns submitted by taxpayers once a year, which include the data from self-assessments filed during the year, together with any withholding to which the taxpayer has been subjected. The envelope used to file the annual form should also contain a copy of all self-assessment returns submitted during the year, kept until that time by the taxpayer himself.

The number of annual returns submitted in 1990 was 10 million for individual income tax; 900,000 for net wealth tax; 350,000 for companies; 720,000 reports by income tax withholders; 950,000 for third party transactions; and almost 2 million for VAT.

The constitutional requirement that the individual income tax be progressive and that it also take due account of numerous personal circumstances means that all income earners, above a given amount, have to file a return, even though their income, whether from work or from capital, is subject to prior withholding. It cannot be claimed that the Spanish option is the best compared with other possible options, such as where wage or salary earners do not have to file a return. But the solution adopted in Spain arises out of this constitutional requirement.

The final part of the NPGT is notices, the purpose of which is to get in touch with any taxpayer failing to meet an obligation. The notices cover such items as incomplete returns, requests for further information, full notices (in which all self-assessments that have not been submitted for any tax and for any period are demanded), and notices for annual returns, sent out when the taxpayer declares self-assessments or has been submitted to withholding but fails to submit a return.

BDN

The BDN is used mainly, although not solely, for audit purposes. It is a centralized system accessible on-line from any point in the network. The three original parts of the BDN are (1) identification; (2) information; and (3) preselection of taxpayers.

The purpose of the identification part is to identify the taxpayer, so that he can be matched with information about his activities. The system is very powerful and can identify a taxpayer even from incomplete or erroneous data. So far, about 21 million individuals and 1.5 million legal entities have been identified.

The purpose of the information part is to consolidate all the data received by the tax administration, both from returns filed by taxpayers and from third parties. The total amount of data stored in the BDN is 1.25 billion. These data are used to support the auditing services in their dealings with taxpayers.

Taxpayer preselection assists auditors in selecting taxpayers to be audited. The best results have been achieved through information matching, which makes it possible to compare what taxpayers report with third party information. The most recent step taken in this area is to align the cross-references with the data bases and with the continuous updating of data in the CLASE system, which is discussed later.

SIRENA and GEMA

SIRENA and GEMA are the systems used for managing collections and customs, respectively. These are two decentralized systems located in the provincial centers. At present, their full integration into the NPGT data base is under way.

SIRENA has a very broad range, mainly covering assessments made by the tax authority, payments of settlements by taxpayers, compulsory payments, injunctions, compensations, and deferments. So far, 2,861,078 assessments have been incorporated into SIRENA, not all related to taxes administered by the Secretariat General of Finance, since this organization also collects arrears for some other agencies and certain nontax assessments.

GEMA annually handles more than 65 million import and export declarations. Foreign trade transactions are highly concentrated in a few enterprises and a few customs points. For large enterprises, factory customs clearances are permitted. These enterprises submit their returns once a month on magnetic tape.

TEAR

The TEAR system is independent of the rest because it deals with appeals. Of the four phases of administrative economic tribunals, TEAR deals with three: initiation; preparation of the proceedings file; and enforcement of the decision. It also helps in the decision phase. In this last phase, judgments are automatically generated for cases in which identical appeals are submitted, which has led to a considerable increase in the productivity of the tribunals. There are currently 177,684 outstanding appeals in the system.

Monitoring of Large Enterprises

The data processing system of the Spanish tax administration is common to all taxes and to all taxpayers. However, for the largest enterprises, there is an additional application, known as ONI. Because of their tax significance (in 1990, 4.28 percent of self-assessments generated 87.25 percent of tax collections), these enterprises are subject to more immediate and detailed monitoring, in addition to being subject to the same data processing procedures as other taxpayers.

The additional monitoring of large enterprises consists of having their monthly (for other taxpayers, quarterly) self-assessments processed with all the details of the assessment month to month. For other taxpayers, only the four items that the participating financial entities record for all self-assessments, as previously discussed, are processed.

It is not that there are two separate systems, one for large enterprises and the other for the rest, but that for the former the common system is used with the addition of continuous detailed verification. The two systems are complementary—the system for large enterprises acts as an effective barometer for the whole economy, thereby ensuring some guarantee of collections, whereas the general process applies to the entire system and prevents any given sector of taxpayers from transferring the tax burden to the rest.

II. Information Technologies and Management of Tax Administration

Position of Management

Over the past nine years, the Spanish tax administration’s management has had a clear and unwavering position in favor of the use of information technologies, a position that has not only been reflected in the budgetary appropriations for investment in EDP and communications but also in the decision to use them intensively. Management has also consistently borne in mind the difference between building and maintaining a basic information structure, on the one hand, and ephemeral and sometimes showy computer applications, on the other.

If management had not adopted this position, the present configuration of hardware and software would not have been possible, because, when short-term considerations prevail over medium-term and long-term considerations, one has to start anew continually without producing any practical results.

The support of management in the use of information technologies in the Spanish tax administration has not been purely passive. Its active support was critical when the systems were being established, which is when users tend to be most negative, because the cost to them is greatest, often more than the cost of continuing to use the old ways. It is obvious that during this phase, which is when applications have the most teething problems, the support of management is crucial.

At present, management’s support is still necessary because, while it is less difficult to break the inertia, expectations are also higher. This is what is called “the paradox of success,” in that the more successful you are, the higher are the targets set for you.

The use of information technologies in management has varied in parallel with the development of new applications. Their use by various managers has also differed, since all managers are not uniformly enthusiastic about computerization. Appropriate action needs to be taken to promote the use of these technologies. This is one of the challenges currently facing tax data processing, and there is little sign of any major successes on the immediate horizon.

Among the various applications available to the tax administration management, we will mention here INFO, PANINFO, and the monitoring of collection targets. Later, we will comment on other data processing support that are also available.

INFO

INFO (information for management) was established in the NPGT environment as a basis for decision taking and has been extended to all other areas. At present all applications, from their first phase, are included in INFO.

INFO records and makes available to users on-line statistics on data processing applications and the results of such use. This statistical information is very valuable for management decisions and tax data processing itself, since it is, among other things, an authentic measure of the acceptance or rejection of the applications.

The data derived from INFO are tantamount to a constantly updated balance sheet of the tax administration. INFO provides detailed information of the type desired, such as functional (collection, audit, and so on), geographical (such as provincial and administration), or the kind of tax (income, VAT, companies, and so on).

When the INFO application was started within the NPGT, the statistics were updated monthly, and gradually replaced the manual reports that lower-level units send to management centers. At present, updating is daily, in many cases even instantaneous; when an operation takes place, it is “posted.” The information from decentralized INFOs is incorporated into the national INFO both to facilitate comparison between the various territorial entities and to have aggregate magnitudes available.

INFO has been widely accepted, but there is still some reluctance. In some cases there is overlapping with the manual operations that still remain, mainly because of the considerable inertia that exists in such a vast organization as the Spanish tax administration.

Apart from original data, INFO also offers derived data, that is, information appropriately analyzed so as to make it more useful. One example of the type of statistics that INFO provides is the taxpayer census, which gives details at the national, regional, provincial, and administration levels on the taxpayers registered, their tax obligations, their description, their distribution by economic sector, and their VAT regimes.

PANINFO

The volume of data collected by INFO from the NPGT is such that even the smallest details of the activity of the tax administration can be analyzed. However, at times, this vast amount of data makes it difficult to see the overall picture. In other words, there is a surfeit of data in INFO, so that for analytical purposes it becomes necessary to complement it with PANINFO.

The PANINFO application provides for the present and past fiscal years (for the future, the time series will be expanded) aggregated and analyzed INFO data. This facilitates an overall picture of the action of the tax administration, as a prior step to detailed analysis via INFO. PANINFO groups this information in three major segments: (1) statistics on taxpayers, self-assessments, and annual returns; (2) statistics on the effects of tax notices, proceedings, and injunctions for returns; and (3) statistics on the use of information tools.

The PANINFO application has its decentralized as well as its centralized version, incorporating day-to-day data by teleprocessing from the provincial centers to the central office of the Directorate General of Tax Data Processing.

Collection Targets

The purpose of this application is to monitor compliance with collection targets throughout the budget year, according to the selected breakdown. That is, this application makes it possible to establish the targets, adjust them as and when needed, and supply detailed on-line information.

The decentralized application has four subsystems: the establishment of targets, adjustment, confirmation, and consultation.

Targets can be established for the current year and for the following year. Collections for any of the two preceding years can be used as the basis. To establish a target, the reference year first has to be selected and the total figure given for that year. The application allows one to carry out the distribution by budget item automatically, on the basis of the distribution for the reference year, or to do it separately. If the automatic option is chosen, the budget target is distributed according to the distribution of collections for the reference year by item, for the various models of returns, and by month. The data for the established target are presented together with the information on effective collections for the two preceding years, the index of change between them, and the index of change in the target from the reference year. If the nonautomatic option is chosen, the distribution of budget targets can be done in one of three ways: indicating the corresponding amounts item by item; indicating the percentage weight of each item within the total target; or indicating the coefficient of change under each item from the reference year.

Once the target has been set, it can be adjusted as desired. The application makes it possible to do this item by item or month by month. The system enables the user to select any of three options: to change the total amount of the target in keeping with performance; to keep to the previous target, automatically redistributing the difference between the rest of the items in keeping with their weight within the total; or to keep to the target, redistributing the difference between selected items. The function for making the adjustment by months is similar to the one just described.

With the combination of options for setting targets and adjusting them, any simulations considered necessary can be performed, not just at the start of the fiscal year but throughout. The possibility of having up to three targets defined produces more detailed monitoring.

At headquarters, targets can also be set and adjusted using the same methodology as at the provincial centers. Distributions and adjustments can, be performed by territorial level, an option that makes it possible not only to monitor collection targets as the sum of peripheral targets but also as a national target distributed among the territorial entities.

III. Information Technologies and the Administrative Strategy

Public Service and Effectiveness

The ultimate objective of the Spanish tax administration is to implement the tax system effectively, to fulfill the constitutional requirement that all citizens bear the burden of public expenditure according to their economic ability.

Within this general framework, the Spanish tax administration’s strategy is based on the notions of public service and effective implementation of the tax system. This involves a series of actions aimed at reducing tax evasion to a minimum, taking into account the following considerations:

  • Respect for the privacy of taxpayers, in terms of both confidentiality of the information the administration obtains from them and in the procedures employed.

  • The point of reference in the daily work of the tax administration should be the taxpayer and not the organization itself, especially regarding the amount of time the taxpayer spends in his dealings with the Secretariat General of Finance, which should be kept to a minimum.

  • Relations between taxpayers and the administration should be as incident-free as possible.

  • The reliability of these relations should be increased by ensuring that the taxpayer gets the same answer from the tax administration, regardless of the place or the official dealing with his affairs.

  • Reduction of the administrative burden, especially for those taxpayers who produce correct returns, by an efficient selection of taxpayers to be audited.

  • Rigor and effectiveness vis-a-vis tax evaders.

Confidentiality of Information and Proceedings

To fulfill its mandate, the tax administration needs resources, of which information on taxpayers is one of the most important. The Spanish legal system regulates what information the tax administration can have and also stipulates that it can only be used in the administration of taxes.

Tax data processing guarantees what is stated in the law through its security systems for data storage and access thereto. Thus, for example, for on-line access, security is extensive. First, the system has to recognize the terminal from which access is being sought, that is, it has to be identified in advance. Second, the user has to be identified. And, third, the user has to use a code word, which only he knows and can change when he wishes. Only after these steps can the user gain access to the level of information he is authorized to access, which guarantees that the information will only be reached by the rightful user.

Apart from these ex ante controls, there are also ex post controls. The system records all accessing, who enters the system, where from, when, whom he consults, as well as the reason or justification for doing so. The system permits on-line checking of access to information, in terms of both a particular user, to check which taxpayers he is accessing, and a taxpayer, to check all the users who have accessed his data.

The ex post control system even records accesses to the controls, which guarantees that the control takes place, and that there is no exception or discrimination. All users are included in the system, from the highest officials of the tax administration to the lowest, as are all taxpayers.

The computerization of the tax administration’s procedures also guarantees nondiscrimination among taxpayers, as the system makes it necessary to apply each procedure in the same way to all taxpayers, guaranteeing that any decision taken regarding them be taken exclusively by the officials responsible and authorized to do so. Identical treatment meted out only by authorized persons cannot be guaranteed under traditional procedures.

This security system is required for all procedures, from the simplest, such as sending a certificate that the taxpayer has sent in his returns, to the most important, such as the decision to attach the property of a delinquent taxpayer.

Taxpayers’ Time as a Measure of Efficiency

In the private sector, strategic decisions on the use of information technologies, like many other decisions, are based on competition among enterprises to gain and maintain a share of the market. There are many examples in which it is precisely the timely and appropriate use of computers and communications that marks the difference between enterprises.

This competitive market does not exist for tax administration; there is no other administration to compete with it, so the motivation has to be other than competitiveness. Spain’s experience shows that management and control of the tax administration through concrete targets, measurable in clear and precise terms, can substitute for the incentive that competition provides for private enterprise, and is, therefore, a way of introducing and of getting information technology accepted and used.

The choice of one way or another of measuring targets is in many cases not neutral. The world looks different, depending on which yardstick we use, and this is true for data processing in the tax administration. The manner of using it will not be the same when it is a question of minimizing the time officials spend on a task, as when the objective is to minimize the time that taxpayers spend on meeting their tax obligations.

The EXPRESS application makes it possible to set targets in terms of taxpayers’ time, which is obviously a good criterion for evaluating a public service and can also promote competition among provincial centers and officials to achieve that target. There are three parts to the EXPRESS application: (1) defining the procedure; (2) monitoring files; and (3) statistics or control.

Defining Procedures

The EXPRESS application allows the user to determine his procedures; it is an open tool, which he can adapt according to his own requirements and not the other way around.

A procedure may contain one to four phases and in each phase up to three processes can be distinguished. A responsible user must be assigned to each phase and users can also be assigned to processes. In each process, tasks that do not change can be standardized, for instance, certain written communications between the tax administration and the taxpayers or between different units of the administration.

The freedom of the provincial centers to establish their own procedures is criticized by those who feel that procedures should be identical for all provincial centers. This criticism is leveled when the focus is on procedures, whereas what is important is the result—the public service that is provided. The ability of the provincial centers to incorporate their own experience, knowledge, and skills is what makes it possible to improve performance by adapting procedures to their capabilities, which will obviously differ from provincial center to provincial center. This approach also makes it possible for the more successful experiments to be transferred from one provincial center to another.

Of course, if management believes and decides to ensure that some procedures will be identical for all provincial centers, that can be accommodated under the EXPRESS application.

The definition of procedures is also open over time; at any time new procedures can be defined or old ones redefined differently.

Processing Files

The EXPRESS application allows files to be processed according to the procedures previously defined. The data processing function is very simple and briefly consists of the following.

The initial point is always the registration of the file as it reaches the administration, which consists of recording the identification data of the taxpayer and allocating a number that is printed on a self-adhesive label and given to the taxpayer so he can identify the file in the future. Registration can be performed at any terminal in the network, which makes it possible to have what we call the “single window.”

After the files have been registered, they must be assigned to the appropriate procedure. This is done by the person in charge. When he sees the unprocessed files appear on his screen, he examines them and assigns them to the appropriate procedure.

The data processing functions carried out by those in charge of each phase and of those who process the files are similar to what has already been described. Their terminals indicate the work remaining and as they do it they pass it on to the next phase or process until its conclusion, which is registered in the outgoing register.

The status of a file can be retrieved from any point in the network by anyone authorized to do so. To look at a case, it is not necessary to refer to the point at which the file originated or is being dealt with: from any point and at any time, the location of the file, who is responsible for the task being performed, how long it has been in the system, what decisions have been taken, what remains to be done, and so on, can all be ascertained.

The EXPRESS application allows specialized units to be set up to deal with specific problem areas, with the consequent external savings. It also makes file processing more flexible, the benefit of which is felt by the taxpayer.

Control of Procedures and Files

The EXPRESS application supplies on-line statistics that are immediately updated as the procedures and files go through the system, which allows those in charge of the organization to monitor the situation.

These statistics supply information on the procedures defined, their phases and their processing, the incoming and outgoing registrations, and the number of files in the system. The incoming and outgoing registrations supply data for that day, the current month, and overall data measured by the month. For files in the system, there are data on those finalized and pending, by phase and by month, showing the average time for their resolution and the distribution of the overall time taken to deal with them by phase.

The EXPRESS statistics are a basis for taking decisions on a file or on a batch of files, on the way in which a procedure has been defined, as well as for evaluating staff assigned to a given task. Perhaps the most striking aspect of the EXPRESS application is that it can define targets in the work of the tax administration as a function of the time it takes to resolve taxpayers’ questions. EXPRESS also makes it possible to make comparisons between the statistics of different provincial centers.

The INSPECTOR procedure application is derived from the EXPRESS application. Its purpose is to guarantee nondiscriminatory treatment of taxpayers during auditing and to ensure that audit is carried out only by those so authorized. This application is not as flexible nor is it used as broadly as EXPRESS, but it has the advantage of being fully integrated with the rest of the audit support systems, from the preselection of taxpayers for audit to bringing legal action at the conclusion of the audit procedure.

INSPECTOR works in the following manner. The Directorate General of Audit prepares an annual national audit plan, grouped in several concrete plans, and establishes the procedures to be followed and the phases and the tasks for each of them. Once the plans and the procedures are in place, the INSPECTOR application allows the audit units to include the selected taxpayers in the system and to follow up on them. The INSPECTOR application also makes audit work easier by making it possible to perform some tasks, such as summonses and reports, automatically.

Reducing Inconsistencies—The Prior Verification of Returns

The classical processing of returns starts with the recording of the data, after which the identity of the taxpayers and consistency of the data in the returns are checked. In case of discrepancies, the taxpayer has to be contacted to resolve them, with the resulting cost both to the taxpayer and to the tax administration.

To minimize these inconsistencies and to reduce the need to contact taxpayers repeatedly, a number of steps have been taken that have had very positive results.

The identification labels and the fiscal identification number (NIF) are used to facilitate the identification of taxpayers. To help taxpayers check both the arithmetical and the legal consistency of their returns, they are supplied with programs to help them prepare their returns or to check them, such as the PADRE program for income tax returns and other programs for returns on magnetic tape containing reports from payers of wages and salaries, dividends, interest on bank deposits, and other reports on third-party transactions.

Since the NPGT was introduced, the tax administration has been providing self-adhesive labels giving the taxpayer’s identification, adding a check digit to the number on the national identity document. With these labels affixed to the tax forms, any possibility of misidentifying taxpayers is eliminated. This procedure has made it possible for participating financial entities to take part in the NPGT in the way that they do, by recording a figure to identify the taxpayers (9 digits maximum), rather than all the data with an average of 80 characters, which would have involved an unsustainable cost. Thus, by establishing the compulsory use of the NIF in tax-related operations, and by giving taxpayers a card with the number on it, the application and therefore the advantages of the check digit have been extended.

The PADRE program helps taxpayers to complete their income tax returns and, in the case of family units, it finds the most advantageous option for them. Taxpayers can go to their provincial center or administration to have them fill in their returns or they can obtain the PADRE program on a diskette so that they can do it themselves. The PADRE program includes an analysis of consistency, which means that returns completed in this way will not contain internal discrepancies.

In 1991, 1,313,004 taxpayers had their returns completed after directly asking for this service, which is the equivalent of 10 percent of all returns. Twenty thousand copies of the program diskette were also distributed, most often to tax consultants.

The programs used to check other annual tax returns work the same way. Taxpayers and consultants are given the same programs used by the administration in its processing. This simple action has saved a significant amount of effort on both sides.

A Single Response to Taxpayers—The INFORMA Application

The Spanish tax administration encourages queries from taxpayers, as tax regulations are not simple and they change frequently. In the 1991 income tax operation we have started using, through the INFORMA application, some basic software developed by the Directorate General of Tax Data Processing to standardize replies to questions raised by taxpayers and to facilitate training of staff responsible for answering them.

The basic software of the INFORMA application makes it possible to perform the following tasks:

  • Create data bases of information incorporating the experience of the organization.

  • Find the answers to taxpayers’ questions. The function is very simple and it is not necessary for the official taking care of the information service to be a tax expert, which is unavoidable without the INFORMA system. The main advantage of the application is that all taxpayers get the same answer to the same question no matter where they are and no matter which official answers the question. Furthermore, by registering and sorting the questions, the system can determine which parts of the tax regulations the taxpayers find most troublesome.

  • Ask those managing the system the questions for which no answer has been found in the system. The managers answer these questions on an individual basis and, if they think it worthwhile, incorporate them into the system.

At present, a software package is being developed that will enable answers to these new questions to be generated automatically, which would give us an expert system, not only because we would have learning bases but also because we would have the capacity to learn without the need to incorporate more inputs from administrators.

The basic software for the INFORMA application can also be used to simplify staff training and above all to ensure that the training is identical for all and is permanently being kept up to date. One application of this type is the so-called procedures manuals.

The documentary data bases held by the Directorate General of Tax Data Processing fit in with these systems. At present, apart from having JURI (from tax jurisprudence), which is run by the Central Administrative Economic Tribunal, we also have the Official Government Journal. These bases are accessible from any terminal on the network.

With the same intention of providing more exact information, in the latest campaign undertaken by the tax administration to send letters to taxpayers who do not submit returns, a new kind of relationship was initiated. It consists of introducing an on-line application by means of which the taxpayer can be told to ask for the reason or the reasons for the letter. This means switching from generic answers, which were provided before this application was introduced, to specific answers.

Minimization of the Compliance Burden—The CLASE System

One important objective of the tax administration is to have efficient systems for selecting taxpayers to be audited, so as to concentrate on suspected tax evaders and not on those who meet their obligations.

The Spanish tax administration has used information technologies intensively in this selection process, and the CLASE system is the most powerful and up to date. It was the first data base the Spanish tax administration acquired, and it was also the first step toward expert systems. Compared with the applications available until then, it represented a very significant increase in the efficiency of the administration in fighting tax evasion.

The basic software of the CLASE system categorizes various elements of a data base and combines them based on their characteristics.

The way in which the user selects taxpayers is very simple. From any terminal in the network and on-line, he can choose the geographical and time frame he wishes and the system offers him a decision matrix through which the user can “talk” interactively with the system until he finds the subset of taxpayers he is looking for. Once the system provides the results he needed to obtain the list of the taxpayers in the set thus formed, he merely presses a key and the screen shows the corresponding listing. From this listing, those making the selection can include taxpayers in the different audit plans.

One further step in the computer applications for selecting taxpayers is the class generator, which makes it possible to share information and experience among all those responsible for selecting taxpayers for audit. It allows the work of the members of the organization to be available for use by all the others.

Decentralized Operations, Centralized Management, and the Basic Framework of a Central Accounting Office

Senior central and local responsible officials of the tax administration determine the targets, and there is an interactive process among them until the targets are actually set. The targets must be uniform throughout the country, although they must be specified separately for each regional and local center. Actions to meet the targets are of an eminently territorial, decentralized character, and take place near where the taxpayers are located, which is a reversal of the centralized process of establishing the targets.

A case to illustrate this is the Central Accounting Office, which is currently being established in the Government Agency for Tax Administration, and which will perform the accounting for the agency and for the Government’s tax revenue. The accounting system followed by the Central Accounting Office will be different from the current system: it will be a single accounting process for the entire country, although details will vary at the territorial level. Under the present system, there is a different accounting procedure for each provincial center, although they are subsequently grouped together.

The new centralized system will be possible because of the computer resources available today and because of the teleprocessing network already in place, which permits on-line updating of the single accounting system, with the elimination of a number of intermediate steps that information technologies make unnecessary.

The accounting plan has to be approved by the Office of the Auditor General of Government Administration. The Directorate General for Tax Data Processing will be responsible for the equipment for the central accounting system. The Economic Financial Department will be in charge of the Central Accounting Office.

The data processing management systems—NPGT, GEMA, and SIRENA—will generate necessary summary accounts data. These summary accounts will be transmitted by teleprocessing, and the accounting automatically will follow the plan approved by the Auditor General.

The Central Accounting Office will provide details on everything from each individual account to all the accounting statements required, updated daily, which will be the basic data source for management.

Maximizing the Efficiency of Administrative Work—Office Automation Applications

Two striking characteristics of the administration’s work are the vast amount of information that has to be processed and the number of administrative tasks. To a large extent, the latter consists of dealing with case files.

These two characteristics make the use of EDP in tax administration so appropriate. A substantial portion of the tax data processing applications already described include what is called office automation. A number of additional office automation tools have also been introduced for the convenience of users.

In the data processing system of the Spanish tax administration, office automation tools were chosen over personal computers (PCs) for two main reasons. First, to avoid the duplication of information and tasks that occurs when PCs are used in a large organization as a basis for the system, with the high cost of maintaining consistency of data or of suffering from their inconsistency. Second, to avoid the creation of closed, self-justifying environments working out their own modest programs and using systems without the required transparency. Obviously, this does not mean that the tax EDP equipment does not include any PCs. They exist and will continue to do so as a part of the system, like any other network terminal with access to the whole system, but with an additional independent processing capacity (albeit with corporate software and tools). In an inspection of software loaded on the tax administration’s PCs that are not part of the tax EDP system, a fairly large number of games and pirated programs were found, a circumstance not peculiar to our organization and indeed mentioned as typical in EDP manuals. The risk that this use involves is very large, and the work time lost very costly.

The office automation system in use provides access from any terminal on the network to a group of very powerful corporate applications. It also gives access to a second group of tools which, in practice, provides all the 9,600 terminals in the network with the capabilities of a PC.

In the first group we have electronic mail, the appointments calendar, and applications for the issuance of reports and certificates and for the design and capture of audit cards and the file (ARCHIVO) application. In the second group we have text processing, calculation sheet, calculator, and the tools for calculating interest on arrears, for calculating income taxes, and for calculating withholdings.

Electronic mail is the office automation application most widely accepted and used in the organization, although its full potential is a long way from being realized. The ARCHIVO application enables one to call up a taxpayer’s file from any terminal on the network, record its formation and the withdrawal of the documentation from the file, its return, and recognize the documents in it. It also allows issuance of documents needed to manage the files, such as the receipts that have to be signed by those retrieving documentation, and reports and requests to those who are late in returning the files to do so.

Recruitment of Computer Staff

The most critical factor in information technologies is the human factor, the need for professionals to design, develop, and maintain applications. This is even more critical in the public sector than in the private sector because remuneration paid by the government is not competitive, which leads to a continual brain drain from the public sector to the private sector.

The annual turnover rate in the tax administration computer staff is 30 percent and the average time taken to fill a vacancy is 18 months. Much effort has gone into resolving this problem, especially in the area of recruitment.

The 1990 Budget Act created a computer corps with three levels of staff—higher, medium, and administrative—because there was no category of civil servants specifically composed of computer technicians. The 1991 Budget Act created the tax specialty for these three categories, together with the Government Agency for Tax Administration to which they were attached.

With the autonomy granted to the agency, many of the problems connected with the scarcity of computer staff can be resolved, by creating a more transparent, broader, and more dynamic labor market that is flexible enough to cover the vacancies that occur. It will also be necessary to structure an administrative career for computer staff so that they have medium- and long-term prospects within the administration and not, as today, the goal of leaving it.

IV. Information Technology Strategy

The Right Time and Place

The Spanish tax administration uses information technologies to achieve its targets. With the new hardware, software, and communications now available, the Directorate General for Tax Data Processing is exploring how it can help to provide taxpayers with the most effective public service.

From a functional viewpoint, the present strategy in information technologies can be summed up as an attempt to overcome time and space constraints, in the sense of having the necessary information and the processing capacity at any time and from any place.

To have information available means not just moving from numerical or graphical data to information, but using it for better decision making. It also implies moving from information to the image and the voice, so that understanding can be immediate without the need for prior training or explanation. From the technical point of view, this means using various resources jointly. The use of multiple media will be decisive in the overall consolidation of information technologies at managerial levels and, as in our case, for a closer relationship with taxpayers.

To have the software available at the right time and in the right place means for the users to have open systems that they can adapt to their problems, needs, and capacities. This “customization” means, on the one hand, enhancing the software by meeting the users’ needs and, on the other hand, that users not only accept it sooner and more willingly but also adopt it as their own.

To have the processing capacity means that from any terminal in the network the user can set in motion processes for which he is authorized. To do this, it is not sufficient to have adequate hardware and software; adequate communications facilities are also needed, and this, together with the staff resources, is the most critical factor in quite a few data processing organizations. The Spanish tax data processing system has a substantial and powerful teleprocessing network, but there is an imbalance between hardware and software, on the one hand, and available communications, on the other. From 1993, we expect to be able to make full use of communications satellites, which will mean a major qualitative change and a better balance between communications and the hardware and software currently available.

An Administration Closer to Taxpayers

The data bases, the public information systems, and the technologies of security and protection of access to EDP systems have been used to advantage by the Spanish tax data processing system to help the taxpayer in his dealings with the administration, thereby saving him time and avoiding the need for visiting a tax office.

For example, this year, the PADRE program was introduced in the videotex network, which means that anyone who can access this program can use it to complete his income tax returns. In Spain, in recent years, the number of videotex users has risen considerably, not only in enterprises, but also among individuals, who are installing it at home.

The INFORMA application is currently being installed in the videotex system, so that both professionals and individuals can access it from home, and at any time of day through its 24-hour service. Consideration is currently being given to the possibility of opening a mailbox in this system through which taxpayers can contact the tax office easily.

The technologies for the protection and security of EDP systems are being used in a pilot experiment with tax consultants involving the retrieval of taxpayers’ identification labels. By using this facility, an authorized consultant can access the data base of a provincial center from a PC via the public telephone system and ask for the identification labels. The system offers him the possibility of issuing them on-line from his office or via the provincial center, which will send them to him. This service may be expanded if the pilot experiment is successful. The service eliminates the need to visit a tax office and removes the limitations of opening hours.

In the future, consultants too will be able to access the INFORMA application, and we are sure that a new form of relationship with the tax administration will open up.

Optical Reading and Storage

The full integration of image technologies into the world of data processing and communications is one of the main strategies of information technology. The advantages this would bring to tax administration are considerable, as they open up many possibilities.

Work is currently developing in various directions: on the automation of the processes for classifying and counting envelopes containing annual returns, simplifying and, in some cases, substituting the classical ways of inputting documents and replacing traditional paper files by image files.

The classification and counting of annual returns envelopes is carried out manually, with a high cost in human and space resources and many repercussions arising from the frequent errors committed. The process consists of classifying the envelopes received through the mail from the participating financial entities according to different categories. Thus, in the case of income tax returns, it is according to whether they are the ordinary or simplified model, whether the taxpayer is claiming a refund or making a payment, and whether the refund is to be by transfer or by check. This prior classification is justified by the subsequent order of processing, which is designed so that refunds can be dealt with as quickly as possible. The returns are then grouped in batches of about 100, counted, and passed on to the next stage at which the envelopes are opened, their contents formally checked and, if they are complete, they are accepted and the copy separated for registering and then passed on to the appropriate service. The rest of the contents of the envelope is filed.

The alternative on which we are working in a joint project with a supplier of hardware, software, and robotization components is mainly based on the optical recognition of characters. An ad hoc prototype is being designed for the Spanish tax administration that consists of equipment with a feeder for the annual return envelopes, which optically reads the identity of the taxpayer from the identification label on the envelope. To do this, the labels are already being printed with characters that can be read by this technology. It will also read optically what kind of return it is by reading the bar coding of the envelope. By reading the check marks made by the taxpayer on the envelope, the system will indicate whether a refund or a payment is due, and if a refund, whether it is requested to be made by check or transfer. The system will prepare batches of envelopes automatically, having opened them by mechanical means.

This will not only make the classification more reliable, with a considerable saving in cost and time, but also the identity of all the taxpayers concerned will be immediately available. At the moment, it is necessary to wait for such information until the end of the data entry period, which in the case of the income tax is estimated to occur 100 days after the start of the process. It is expected that by 1992, this type of equipment will be installed in some of the provincial centers that have the greatest work load.

Regarding the replacement of classical entering of information by optical reading, there will shortly be a real-life experiment in the Barcelona Customs, based on the technology and design that are already being used in Germany in the Cobra Project, called the unified customs document (DUAS), which can be used for import and export declarations. The tests already conducted have proved satisfactory and confirm the possibilities of this technology for the tasks of converting information on paper to a digitalized format.

The equipment that is to be installed in Barcelona performs in one hour twice the work that a data entry operator can do in a whole day, as its productivity is 14 times greater and it can work around the clock because the down time required for maintenance is negligible. In economic terms, the equipment will be fully amortized four months after installation.

The optical filing of documents will start with the EXPRESS application in Madrid and Barcelona to evaluate its possibilities and yield. The need for the tax administration to find some alternative to the present filing system is urgent, as a lot of money is being spent on space and people while the users are not very happy with the service being provided. There are two main disadvantages to this technology. One is psychological—associated with the culture of the organization—how to get image-based information accepted, even if it may seem identical to the original document when printed out. This may seem like an insignificant problem but, in fact, is a major difficulty. The other problem is the limitation we currently have on remote image transmission, which requires lines with capacities that the Spanish tax administration currently does not possess. However, the advantages and the savings are so great that they far outweigh all of these difficulties.

Comments

Fernando Luis

Acuña Ramírez

The paper presented by Rafael Moya and José-Damián Santiago provides an excellent description of the technology currently applied by the Spanish tax authority, its development over the past decades, and, in some ways, the sophistication of the data bases used in information processing.

Moreover, the paper vividly relates the authors’ personal experiences regarding changes in the Spanish tax authority’s computer system, not only through technological advances introduced into the system, but also through the “in-house plan” they designed to meet the administration’s needs.

I have had the opportunity to assess at close range the dramatic changes in the Spanish tax administration during the past decade, and to exchange ideas with José-Damián regarding his project since 1983. I have also had the privilege of closely following the development of computerization in Spain up to the present time, when there is a special autonomous directorate for electronic data processing (EDP) with a separate budget, as reflected in a sophisticated computer system serving the Spanish tax administration.

In the past decade the Spanish tax administration has increased the speed of computer processing from 36 MIPS to 291 MIPS; the system’s central memory has been expanded from 67 MB to 2,110 MB; its disk storage capacity has grown from 56 GB to 893 GB; the number of terminals has increased from 663 to 9,600; in 1983 there were only 83 printers, whereas now there are 4,493; and the number of teleprocessing lines has grown from 11 to 370, including those in the internal revenue and customs authorities.

Budgetary support for computerization has certainly been of great help to the computer specialists’ work, and there seems to be a clear commitment to continue to allocate a substantial share of fiscal resources to the tax administration for information processing.

Moreover, since the EDP Directorate provides support in collection, audit, and recovery of delinquent taxes, new software packages have been designed to meet the basic needs of the tax administration, such as NPGT (new tax management procedure), BDN (data bases for audit), SIRENA (national collection system), GEMA (automated customs management), and TEAR (programs for regional administrative economic tribunals). In addition, such statistical applications as INFO and PANINFO make it possible to follow up on the administration’s actions, and ONI facilitates control of large enterprises.

All these resources, fourth-generation tools and relevant data bases, together with the expertise of highly specialized officials, have enabled the EDP Directorate to meet the challenge of administering the Spanish tax system effectively.

However, I should like to comment on three aspects of system efficiency.

Greater Effort to Streamline Procedures

Some legislative changes with a view to streamlining procedures could increase efficiency. For example, enactment of legislation establishing that salaried workers’ income tax (up to a certain level of income) is equal to the amount withheld by their employers would make it unnecessary for taxpayers in that category to file returns. By doing so, the EDP Directorate could well spare itself the work of processing 30 percent or 40 percent of the 10 million returns it currently receives, without any loss in revenue.

Elimination of annual returns (returns summarizing assessments that are submitted during the year) would make it possible to release additional substantial resources. To this end, the assessments submitted by taxpayers during the year should be considered final returns. This would not only increase the administration’s efficiency but would also reduce taxpayers’ compliance costs.

Currently there is duplication of work, as stated by the authors: “The envelope used to file the annual form should also contain a copy of all self-assessment returns submitted during the year, kept until that time by the taxpayer himself.”

Wouldn’t it be possible to do away with all these attachments and mailings of information? Doesn’t the administration already have a copy of the assessments made during the year for which the taxpayer must send another copy at the end of the year? Wouldn’t the EDP Directorate reduce its work load in processing files if by law the assessments made during the year were deemed to be tax returns or if tax returns were filed bimonthly or quarterly?

Priorities and Amount of Computerized Information

My feeling is that the Spanish tax administration system contains too much computerized information, which makes sorting it out difficult. In fact, for tax inspectors, the difference between having all taxpayer information in the computer or in traditional files may be marginal if the information is not classified according to pre-established priorities and provided to them selectively.

The EDP Directorate is endeavoring to sort information, as the authors state when referring to PANINFO. The volume of data collected by INFO from the NPGT is such that it enables the smallest details of the tax administration’s activity to be analyzed. However, at times, the amount of data makes it difficult to see the overall picture. In other words, there is a surfeit of data in INFO that does not invalidate it but makes if necessary to complement it with PANINFO.

Microcomputer or Minicomputer Systems Versus Mainframe Computer Equipment

The decision concerning computer equipment poses serious dilemmas for most tax authorities. They must first decide whether to rent or buy the equipment and then whether to purchase large, costly equipment (mainframe computers) with greater potential for processing information or to use average, less costly equipment, and divide the pool of taxpayers to be administered.

Specialists usually recommend renting if the equipment consists of mainframe computers and buying in the case of microcomputers, as mainframe computers are becoming obsolete because of ongoing technological innovations, and microcomputers or minicomputers can now perform nearly the same applications, with greater versatility in the case of obsolescence, notwithstanding the somewhat more limited capacity of the smaller computers.

In Spain, the tax authority has large, powerful mainframe computer equipment. In fact, the system is designed to centralize information, while providing for decentralized access to it. Teleprocessing lines make it possible to consult and update information on-line, that is, in a more timely manner than with batch processing. The information is processed with data base systems. BDN is loaded with approximately 1.25 billion data.

Contrary to the aforementioned example, many tax authorities have separated taxpayers into different groups and have even set up separate services, as in the case of the so-called large taxpayers, in order to facilitate management of a reduced group of taxpayers.

In the case of large taxpayers, transactions can be processed efficiently with microcomputers. This option is considerably more economical than the use of an on-line centralized system, and data can be consulted and updated almost as speedily.

In most countries, a small group of taxpayers contributes a substantial share of tax revenue, a fact that considerably facilitates separate processing of transactions. For example, in Spain itself 4 percent of the enterprises contributes 87 percent of tax revenue.

In Mexico, where the largest taxpayers also contribute a large share of total revenues, a new strategy of data processing is being developed, based on using microcomputers and minicomputers to process the files of different groups of taxpayers. Colombia, too, is developing a large proportion of its software applications for microcomputers. The advantage is that this software is transferable and can easily be tested in one regional tax office and applied in the others within a very short period of time. Moreover, it is easy to alter these software programs to reflect legislative changes.

The essential point in this case is to design a centralized information storage system and uniform software in all the regional tax offices so as to prevent information anarchy.

The alternative of dividing the pool of taxpayers into groups and using microcomputer and minicomputer networks is at the very least innovative. Thanks to technological progress, the tax authorities can easily implement it, within budgetary limits, to achieve very good results in the administration of the tax system.

Malcolm G. Lane

In countries around the world, computerization can be a stumbling block that deters the success of new tax administration or proposed policy reform. If not done correctly, computerization can become a negative rather than a positive element. Certainly, if a computerized system does not provide obvious benefits to tax administrators, it serves no purpose.

In one recent experience, a tax commissioner was asked, “Where would you go to get information about receipts or other information about return filings for a particular period?” He responded that he would go to a paper cash book and manual cards and that he could not trust the information in the computer system. In this case, the computer was viewed as a “big black hole” into which data were keyed and from which nothing of value was returned for use by the commissioner or department staff.

Often times, this situation arises because too much is attempted too soon. Computerization is not a trivial task. It cannot be viewed as an afterthought to tax policy or administration reform. Experience shows that even computer professionals find it difficult to estimate the amount of time it will take to implement a particular application. Some feel that even if one were to double the estimates, it often is only half the amount of time required to implement the computerized application fully. The reason for this in most cases is that requirements are ambiguous and incomplete.

Approaches to computerization used in Spain, the United Kingdom, the United States, and other developed countries cannot simply be “transported” to a country in which application of computer technology is in its infancy. In many cases, tax administrators barely know what a computer is, much less how to operate one. There are many instances in such countries where a computer system is installed in a tax administrator’s office, but is never turned on, is covered with dust, and really is for show rather than actual use.

Experiences in Spain

There is much that can be learned from the experiences of computerization of tax administration in Spain, presented in the paper. The paper states that the Spanish system provides many capabilities. Among them are the following:

  • the determination of who should file tax returns;

  • the determination of who did not file;

  • the identification of incorrect submissions;

  • the identification of those who did not pay their full liability (no payment or short payment); and

  • assistance in tracking and resolution of disputes.

The above are certainly capabilities of a computerized system that are desirable in all countries. And, of course, implied in all of the above is the capability of a taxpayer accounting system that tracks liability and payments by tax period. Just how they are delivered via a particular computerized system will differ. Other functions mentioned, such as budget preparation and internal auditing, are not likely to be priority computerization tasks until tax administration has been computerized.

Spain chose a single electronic data processing (EDP) organization in an independent directorate general to provide computerization for all tax administration. This is a common organization for developing countries where personnel resources are scarce. In many cases, computer personnel have been assigned to specific tax departments and are directed by the appropriate tax commissioner and senior staff, even though they are a part of the centralized computer organization. This provides the benefits of centralized coordination and standards, while delivering specific systems designed for and controlled by user departments.

Mainframe Technology

Mainframe computer technology has been successful in Spain and other large developed countries. The capacity and volume of equipment used in Spain is far greater than that required in most developing countries. The application of mainframe technologies has been attempted in many of these countries. It is very costly and the training and retention of technical support staff for such installations is extremely difficult, if not impossible, in most developing countries. In one instance, there was a mainframe computer stored in a “back room” near an open window. This computer had been in this room for over a year (estimated purchase cost for this computer was at the time about $2 million) and it had never been used!

Many mainframe computer installations indeed do not work or operate very poorly. Often they serve as large filing cabinets in which data are stored, but seldom, if ever, read or analyzed. Furthermore, with hardware and system software maintenance costs often in the hundreds of thousands of dollars, mainframes consume vast and scarce financial resources with unsatisfactory results. Mainframe technology is certainly not the future technology for tax administration in developing countries.

Compatibility and Data Base Environments

Spain has adopted vendor independence with compatible equipment. The EDP Directorate relies on relational data base software and powerful languages and CASE tools for software implementation. These are important in all countries and are highly recommended even in microcomputer environment that is extremely attractive in developing countries.

Distributed Environment

The “new tax handling procedure” in Spain is distributed, that is, decentralized to 56 provincial centers and includes four aspects:

  • Census (the tax register).

  • Self-assessments.

  • Annual tax returns.

  • Notices.

A decentralized environment places data entry and collection at the source of data, which is always desirable. However, early stages of computerization in developing countries must go through stages of using centralized, regional, and finally district computers. This is because it is impossible to provide the training and implement the procedural changes and site modifications in all district offices.

The large data network used in Spain is perhaps ideal for the timely movement of data in a distributed environment, but at present it is not realistic in most developing countries because of poor or nonexistent communications facilities. In planning computerized applications, network capabilities should be included to ensure that they can be used when available.

Taxpayer Identification

In Spain, a fiscal identification number (NIF) provides unique identification of all taxpayers. The NIF identifies literally millions of taxpayers. While developing countries have far fewer taxpayers, there is the same need for unique identification. In most countries, local file reference numbers identify taxpayers, but these are unique to a district office. If a taxpayer moves, the number changes.

One of the more difficult problems is to define and control a taxpayer numbering system that can be applied in these countries. It is not only an administrative problem but requires legislation to force the use of this number for all taxes in the country. Often the introduction of such a numbering system can take years in a given country. However, it is possible to rely on “local identifying numbers” along with computer-generated internal numbers so that computerization can begin in advance of the availability of a unique taxpayer identification number. The computer “master file” can later be used to assign the new number and prepare notifications that are mailed to the taxpayers to inform them of their number.

Personnel

Even in Spain recruitment and retention of data processing personnel is a problem. It was stated that Spain actually trains experts for the private market because loss of personnel is 30 percent per annum. This is exacerbated even further in developing countries where salary differentials between the government and the private sector can be as high as a factor often. This problem will remain in developing countries for the foreseeable future.

Management Support

Support from the management of an organization in the use of information technology is essential. Even in Spain there is a need to train executives on these matters, and the paper states that there has really been no great success in this area and none is envisaged in the near future.

Many developing countries have a similar problem, but there have been some successes because of early training of management at senior and intermediate levels.

Other Issues in Developing Countries

Manual Procedures

There is a false assumption that many have made in the past—“computerizing any system will solve problems in that system.” Often, problems in tax administration or other applications are caused by poor manual procedures. Unless the procedures are reviewed and corrected, computerization will likely make things worse.

In Spain, tax administration procedures are well organized. However, in developing countries, it is very important to review existing manual procedures, identify weaknesses in these procedures, and, for new taxes, define new procedures. Only after appropriate manual procedures are well defined can a tax administration be successfully computerized.

Requirements Definition1

Defining the requirements of a particular application is difficult enough in developed countries with experienced users. Doing this in a developing country that has little or no experience with computers is even more difficult. In many developing countries, computerized tax administration systems have been developed with absolutely no requirements. This is like building a house without any plans. Few would pay a builder for such a house because they would not know what the end result would be. And it is even possible that it could fall down because of poor architecture or engineering.

Developing a computerized application requires similar definition and design. In particular, there must be user involvement to define the requirements. Yet, how does one involve inexperienced users in the process?

Unless the users and the systems analysts actually begin to feel there is much repetition in the questions asked and the material reviewed, it is likely that the analysis has not been done with the right amount of detail. It is not sufficient to “almost” understand the requirements; the refinement of requirements must continue until there is an exact understanding and presentation of the requirement.

There are many instances where computerized systems were implemented that were simply not what the user required. On the other hand, it is extremely difficult to define accurately what the user requires. Experience has proved that the use of rapid prototyping2 that allows users to “test drive” the proposed computerized system prior to full implementation is the best way to guarantee user involvement and to produce user-defined systems that truly meet the users’ requirements.

“Rightsizing”

Advances in microcomputer technology have made computerization in all countries cost effective and far easier than the mainframes of the past. They can provide multi-user environments for tax administration. The new laptop and notebook computers can provide an easy means of demonstrating the potential computer applications via a prototype right in the offices of the tax administrators. They have been used quite effectively to collect data on-site in tax offices where the movement of ledger cards and “master file” data was impractical or impossible.

Companies and organizations around the world are using what has been called “downsizing” to move applications from expensive mainframe systems to microcomputer systems. A better term is “rightsizing.” The success of rightsizing is being published regularly in computer publications around the world. It is most definitely an approach that is being and will continue to be successful in tax applications around the world.

Realistic Expectations and Scheduling

Computerization in any organization is not simply a matter of purchasing computers and some software, plugging in the system, and beginning operation. There are many stories of failures of computerized applications in developing countries. Many of these failures have resulted from unrealistic expectations and attempting far too much in too short a period of time.

Careful planning and coordination

There are many “players” in the computerization of any application (management, users, contractor(s), and computer staff). Each new application affects other applications within the organization. Total success in computerization requires planning and coordination to avoid incompatibility problems and to provide for realistic phasing of the implementation of application within the organization.

Realistic requirements and expectations

Too many computer projects have failed because of the “too much, too soon” syndrome, that is, there was an attempt to computerize “everything” in too short a period of time. The requirements for the initial computerized systems must be realistic so that the application can be successfully implemented by the delivery dates specified. International organizations must guide developing countries in their computerization efforts so that each step is successful. Everyone must understand what is possible and what is not.

When unrealistic schedules are requested, computer center management and computerization advisors must be willing to inform high-level government officials that what is being requested cannot be accomplished by the stated deadline. It is far better to modify the plans for what will be delivered than to have the delivery date arrive with the computerized system not being ready for use.

Patience

Production software cannot be developed overnight. It must be understood by all concerned that it is far better to wait for a correct, properly tested product than to attempt the use of a product that is not ready for use (for example, incomplete, untested, wrong features), for once a computerized application fails, it is extremely difficult to regain credibility and trust in the computerized system.

Transfer of Technology

Without excellent documentation and training, a computer system cannot be successful. A system exists in its documentation and training. Hence, these are essential components of all successful computerized projects. Education of users before computerization begins, during requirements definition and system installation, and immediately prior to the production use of a computer application is important to the success of computerized applications in developing countries.

The transfer of technology to personnel in the EDP department is mandatory if computerized systems are to continue to be successful and evolve with change within the tax department. Technical personnel should be part of the computerization efforts from the beginning and trained with formal courses and seminars as well.

Simplicity

Simplicity, above all else, is perhaps the best strategy for success. Computerized systems should be delivered as simple components in a phased manner so that when all components of a system are delivered, each has been successful on its own and the collection of components is successful when operating as an integrated system.

Every aspect of computerization must be defined and reviewed with the object of keeping the solutions as simple as possible. It is far better to deliver fewer capabilities in an initial computerized system that indeed work, than to attempt to deliver everything that was ever asked for. The general rule should be to simplify procedures, simplify requirements, and guarantee success. It must be remembered that with one initial failure, computerization could be doomed for years. One country tried computerization in 1968 and failed; it did not attempt it again until 1990.

One important point to remember is that what appears to be a trivial computerized system in a developed country can have high paybacks and be viewed as a great success in a developing country. One example is the creation and maintenance of a master file that can be used to generate labels for mailings to taxpayers. When preparation of labels takes four to six weeks of most personnel handwriting labels, the production of a complete set of mailing labels by the computer in one day can make quite an impression on tax officials!

Conclusion

There is obviously much that can be learned from the experiences of the computerization of tax administration in Spain. Many aspects of the approach in Spain are applicable in developing countries. However, rightsizing (to powerful and inexpensive microcomputers) and the definition of simple systems are two other important keys to successful computerization in these countries. When used along with realistic scheduling of computerization projects, computerization will certainly be successful and tax administration will be very much improved.

Requirements definition is the process of studying an organization’s activities (income tax return processing, collection activities, and so forth) and formally describing which activities are to be computerized and how these activities will be changed as a result of computerization.

Prototyping is a technique in which a scaled-down software “model” is implemented very quickly to illustrate how the computerized system will eventually operate.

    Other Resources Citing This Publication