Building Blocks for an Efficient Tax Agency
02 October 2015 | Source: Taxand Malaysia
By Dr Veerinderjeet Singh

This article was first published in the NST in two tranches on 28 July and 11 August 2015.

All organisations have their own charters, business plans, mission statements and the like. However, it is clear that there are certain critical organisational building blocks that are needed before an organisation can succeed. This is equally applicable to the revenue/tax agencies in Malaysia-the Inland Revenue Board (IRB) and the Royal Customs Department.

These organisational building blocks can be categorised as follows :

• Adaptable Systems
• Balance in Approach
• Client Knowledge
• Determined Attitude
• Ethical Behaviour
• Flexibility in Thinking
• Gratifying Place to Work

Adaptable Systems

Malaysia is a small economy operating in a global marketplace. To continue to be effective into the future, the country must be adaptable and have a future focus. Further, the systems that are administered by Government agencies must lend themselves to change and must be easily adaptable. We cannot afford to lose time or waste valuable resources in a rapidly changing world. We cannot afford to wait and see - a sense of urgency is needed.

The IRB/Customs agencies must have adaptable systems and must employ personnel and methods that easily evolve with a changing environment. In fact, they must welcome change and they must be at the leading edge in the use of technology.

We must have a tax system which makes doing business in Malaysia easy. Furthermore, we need to increasingly have a tax system, which is low cost and which is valued by the community. There is a need for the revenue/tax agencies to develop a holistic approach towards the utilisation of technology rather than doing bits and pieces without having a broad technological framework in place. The whole agency must be wired and its personnel must have a service-oriented mindset.

Balance in Approach

The revenue/tax agencies need to strike the right balance in approach between efficiency and effectiveness, and the treatment of taxpayers. They need to operate very efficient processes so that, in most cases, a transaction occurs automatically and preferably in a fully automated way. However, if there is a compliance problem, the agencies should be able to treat the taxpayer involved with respect and handle the problem quickly and must consider the individual circumstances of the taxpayer. No one approach suits all individuals or persons.

Our laws and procedures need to support this balanced approach. The personnel of the agencies need to be able to make sound judgements and in responding to any issues or concerns relating to compliance or payment, they will need to take into account the individual taxpayer's history. The same applies to the handling of a dispute or providing advice.

Client Knowledge

Client knowledge is critical to the success of a revenue agency. Such an agency must understand the trends and patterns in a particular industry or part of the economy. It must know what causes and drives certain types of behaviour. Adequate research must be done rather than reacting to specific information provided or made available through certain sources.

Where an industry is generally doing well, one would expect to see high levels of compliance among the players in that industry. When an industry is not performing well and is facing various difficulties, the tax agencies should not unnecessarily add to their burden. In fact, they should be as accommodating as is possible or allowed within the relevant law. The more the agency understands the business community and its role in the economy, the better able it would be to fulfill the very important role of assisting the Government by way of providing advice or suggestions on the policy framework for our tax system.

Determined Attitude

The revenue agencies must also be determined to tackle the tough issues, in particular, tax evasion. The community expects nothing less. This must be done without fear or favour! Where necessary, the agencies must use the full extent of the powers vested under the law. Just as compliant behaviour attracts the reward of less involvement with the relevant agency, deliberate non-compliant behaviour should attract the agency's complete attention including the application of appropriate penalties.

However, at all times, and especially when, for example, the IRB is conducting a scrutiny of taxpayer affairs or when it is engaged in debt collection activity, it must be done in a professional and competent way. The agency must fully explain the reasons for making an adjustment. The tax officers or auditors must clearly show that they have listened to the taxpayer and any penalties imposed must be fair and seen to be fair. Tax audits should not be seen by taxpayers as being similar to attempts at ‘extortion'. Where there are clear technical arguments or basis, these must be put on the table with a clear conscience. Otherwise, the benefit of doubt should be given to the taxpayer.

Ethical Behaviour

High standards of ethical behaviour are essential. The community has the right to expect that the revenue agency will fully meet the fundamental obligations of any tax administration. These would include respecting the privacy and confidentiality of the information, consistency of treatment, equity and accountability. Public funds need to be spent wisely and one must be prepared to fully explain the reasons for decisions. What we need now is to have a clear process in place so that taxpayers can be certain that their complaints will be handled professionally. A clear process on how a person can report unprofessional or questionable behaviour of officers from the IRB/Customs must be in place which will have the trust of the public ... at the moment, there is none as complainants fear that they instead will be ‘investigated'.

Flexibility in Thinking

There is a need for personnel of tax agencies to be flexible in their thinking and be able to quickly shift focus to deal with any unplanned but important issues as they arise. It goes without saying that the agencies need efficient planning, priority setting and risk management processes. They need to make very good decisions and use their resources carefully.

Of course, there will also be a need to be able to respond quickly to unplanned events and learn from them. When necessary, the tax agency personnel need to move quickly to assist other units/divisions to ensure that the agency is able to achieve its organisational objectives. Working in ‘silos' i.e. in one's own closed environment does not help anyone. Everyone must contribute towards meeting the goals of the agency.

Gratifying Place to Work

The last and most important building block is that relating to the personnel of the tax agency. The personnel must have a high level of pride and enthusiasm in carrying out their duties. More importantly, they must have the proper mindset of assisting taxpayers in complying with their obligations under the relevant law.

Learning, growing and developing should be what everyone must strive for. Through strong recognition of individual performance and a collective understanding of the desired outcome, the tax agency may be able to attract and retain the best people. It should strive to be recognised as an employer who cares about its people and who provides clear opportunities for personal growth and development where there is a strong and unending desire to achieve. Recognition must be based on merit and achievements.

To summarise, the agencies must develop and implement progressive approaches to provide an environment where the personnel are skilled and committed to involving themselves in creating and operating a more efficient client focused agency.

Conclusion

If these are the fundamental organisational building blocks for success, what holds them together? The answer is leadership. Effective leadership will bind the fundamental organisational building blocks into a solid and cohesive whole.

So, do our revenue/tax agencies have all the above blocks in place? We hope there will be continued improvement in our agencies. We need to ensure that tax enforcement is in line with the business aspirations of the nation and the business community. I am sure readers do look forward to our tax agencies being more efficient and effective but the rights of taxpayers must be upheld at all times.

 

* Dr Veerinderjeet is Chairman of Taxand Malaysia Sdn Bhd which is a member of the TAXAND Global Organisation, the first global organisation of independent tax advisers with a presence in nearly 50 countries. He is a member of the Global Board of TAXAND. He is also a Past President of the Chartered Tax Institute of Malaysia and a Council Member of the MICPA and the MIA. He can be contacted at vs@taxand.com.my. The views expressed are the personal views of the writer.

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