Corporate Culture of Tax Administrations

Tax Authorities Around the World Have a Similar Culture

Many years of experience working with tax administrations in various parts of the world led to an interesting idea that even though people and countries are different, all tax administrations are “one and the same”. Neither history, nor religion, culture, the specifics of their mentality and types of power in the country influence upon their structure. Tax Administration brings together employees throughout the country, and their number can reach thousands and hundreds of thousands. Its structure may include its own universities and training courses for employees, which leads to the formation of a special corporate culture.

Despite the obvious differences in the culture and lifestyle of different states, the corporate culture of tax authorities has common features. As once said by the one Tax Commissioner: “Why do tax officials love themselves and their service so much? Because no one else loves them”.

Tax Administrations invent their own world and describe it with a Tax Code that uses a special language that is completely incomprehensible to ordinary people and businesses. To understand the provisions of the tax code, they must use the services of “interpreters” or professional assistants, which complicates and raises the cost of living for taxpayers.

We might use the debate over the name of a tax mobile application as an illustration of the chasm between tax officials’ and the public’s perspectives. According to the survey results, taxpayers better perceived the option called “My Income”. But the tax authority insisted on the name “My Tax”, denying the existence of a negative attitude towards the word “tax” among citizens of the country.

A proven fact is that the tax code in any country develops according to the method of complication, not simplification. This is because the emergence of any new business environment or the identification of an exception requires the introduction of new provisions into the Code. Since the business lobby in any country is strong and political arguments are always above the voice of logic and reason, this leads to the layering of various changes on other provisions of the Code and, consequently, to its significant complication.

The regular introduction of superficially elaborated revisions at some point makes impossible to put things in order. Taxpayers have already invested enormous costs adapting their activities to the demands of this “monster”. Any attempt to make fundamental changes, even if they are logical and aimed at simplifying the interaction between the tax administration and taxpayers, will cause tangible resistance from medium and large businesses and an unwillingness to break what has worked successfully and try to build everything anew.

Might Goes Before Right

The corporate culture of Tax Administrations, unfortunately, rarely takes a rational and fair approach to resolving any disputable situations. Most often, inspectors implement the “Might Goes Before Right” approach.

Employees of tax authorities, by default, consider themselves smarter than taxpayers, do not find it necessary to listen to their point of view and receive feedback to improve the quality of their work. Professional deformation in this situation looks like inspectors see a potential offender who seeks to evade paying taxes in every taxpayer, which creates a barrier of trust between the tax administration and taxpayers.

The consumer attitude of tax inspectorates towards taxpayers leads to the fact that Tax Administrations do not know how to think about the expenses and needs of the taxpayer.

Take, for example, tax returns. Their forms are constantly changing and becoming more complex to fit as much information as possible on a “just in case” basis. This, in turn, forces taxpayers to spend more money on consultations with third-party specialists when filling out returns. Questions like “what for?” and “why is this being done?”—always irritate officials and they leave them unanswered. Considering that there are millions of taxpayers in the country, adding at least one new field to the tax return form creates significant unproductive costs for the entire country.

Why is This Happening?

Most often, employees in tax authorities are former lawyers and accountants, so a tax inspector often thinks about risk minimization rather than customer service and cooperation with taxpayers. Therefore, all procedures changing reporting forms, or the tax code, become so complicated that the taxpayer cannot understand how to use the results of such changes and what to do with them so as not to violate other rules and procedures.

A vivid example that shows the logic of tax inspectors is the story of an attempt to introduce preventive communication with taxpayers regarding identifying illegal activities that they may conduct in social media. This approach caused rejection among tax inspectors since this method does not entail the imposition of fines. In the view of tax officials, if there is a violation, then there should be a fine.

To warn without punishing is beyond their understanding, since a warning increases the risk that someone may accuse a tax officer of inaction or, God forbid, corruption.

Focus on the Small Details Instead of the Big Picture

The modern tax administration culture focuses on a specific taxpayer, with the set of actions to run audits, identify violations, and impose fines and additional charges. It does not stimulate systematic assessment of taxpayers’ environment, studying the behavior of taxpayers, identifying the sources of the tax gaps, and best practices of their elimination.

It is difficult to say why this happens, but systematic work with large data flows requires special training and expensive specialists. They are in high demand in any sector of the economy and do not take root in the bureaucratic clumsy mechanisms of tax authorities.

In addition, Tax Administrations understand the fight against the tax gap is a key task that the State Government expects from them. Therefore, reporting on individual cases is more profitable than voicing larger problems that require more effort, professionalism, and flexibility. This once again proves that the tax administrations’ corporate culture is not ready for changes without forcing from the top.

Corporate Culture of Tax Authorities and Success of Digital Transformation of Tax Administration

It is impossible to implement successful digital tax transformation projects without changing the corporate culture of tax authorities.

Automation of illogical contradictory provisions of the tax code and current processes will bring even more confusion and mothball all modernization efforts. To start automation, first we need to modernize the corporate culture, and inspire other values and attitudes in tax officials. In this case, they will be ready for digital transformation, and it will be much easier to conduct smooth transition.

In the next article we will outline methods for modernizing the corporate culture of national tax administrations.