How to Change the Corporate Culture of Tax Administration

Drivers and Constraints of Change

Previously, we spoke about the specific organizational culture of the tax administrations and the urgent need to change it to improve the efficiency of tax administration. It is difficult to change something that has developed over decades, exists steadily at the expense of state funding, has gained internal and external relations, and is not willing to change. Let us take a closer look at the underlying factors that motivate a tax administration to alter its set of standards and values.

Importance of Leadership and Transformation of the Organizational Structure

One of the most crucial prerequisites for a successful change is a leader, such as the Head of the tax administration, e.g., Tax Commissioner, who recognizes the significance and imminence of impending changes, sets goals and objectives, inspires employees, and devotes a sizable portion of working hours to transformation. The leader of the tax administration needs charisma to inspire tens of thousands of employees through his actions.

Changing the corporate culture is impossible without revising the entire organizational structure of tax administrations. Traditionally, they have the central administration’s office and territorial divisions. Because the state also collects local taxes, they need to have a local presence near to the taxpayers.

Territorial tax authorities live in their own separate world with their own unique culture, the tone of which is set by their leader, who has the authority to establish their own rules in the entrusted territory. Therefore, it is important to bring all regional processes to uniform standards and ensure their centralized management by digitalizing the system and automating data processing. This will reduce the influence of local tax authorities on decision-making in dealing with taxpayers.

The central tax administration office has a standard vertical organizational structure, divided into departments. We can classify departments into functional, methodological, and supporting.

Functional departments	Methodological departments	Auxiliary or Supporting Departments
Represent distinct categories of taxpayers: Large taxpayers, small and medium business, individuals, entrepreneurs. Or core tax functions: Registration and accounting, budget settlements, audit or control, and bankruptcy.	Responsible for the development and optimization of legal framework and instruments in the field of tax administration.	Engaged in the development and implementation of information technologies, finance, human resources, administrative and other business auxiliary functions.

This traditional organizational structure frequently causes the departments to segregate and pursue their own lives. Reforms usually affect all parts of this complex system, but as a result, all initiatives land in some functional departments.

That immediately encounters resistance from other departments because of their unwillingness to engage in non-core activities.

The supporting departments, who should be actively involved in the implementation of the corporate culture modernization project, lack enthusiasm as well. In fact, there is a situation where the very essence of the existing organizational structure of Tax Administrations is an obstacle to transformation.

It is necessary to switch to a more flexible matrix management system, which will make it possible to create a project office for the Tax Administration Head, engage a team of project managers and involve employees of various departments in temporary subordination to project teams to achieve the set goals.

It is also necessary to create a new system of incentives so that within the transformation project it is higher or equal to the existing incentives of heads of departments. The leader of a Tax Administration needs to invent a role of the chief designer and give it to a worthy candidate who will lead the project office, combine all solutions into an integral whole, and promptly make all changes.

Transformation of the Human Resources Function

It is impossible to transform without global changes in the HR office of a Tax Administration, because if the principle of selecting candidates remains the same, then there will be no result. It is necessary to break the old processes and create a new HR office in accordance with the best world practices.

The HR office should make an appealing proposal to attract the most talented candidates to the tax administration. It is necessary to move away from the standard idea of what a tax inspector should be. From the concept “we need a person with an educational background in Economics and Law and with a work experience in the tax office”, it is necessary to look for a person who can learn quickly and think systematically. Thus, the HR office should not seek just knowledge, but the ability to think and quickly acquire new skills.

Tax inspectors should not participate in the selection of candidates, because they will intuitively choose their own kind. The major driving forces for changing the corporate culture should be

• The influx of fresh views.
• The prospects for rapid promotion of employees of territorial tax authorities up to the central office.
• The demonstration of success stories within the tax system, and
• The large-scale PR campaigns in social networks and the media.

Therefore, the second driving force besides the top leader is the head of HR, who should be able to change the HR policy and create tension within the tax administration. Nothing can better change the corporate culture than artificially created unrest within the system, which develops healthy competition and sets the right development vector for employees. Obviously, competitive financial incentive must accompany all these initiatives, and it should look attractive in comparison with other government agencies and the commercial sector.

When Setting Goals, Stay Away from Generalized Slogans.

Reforming the corporate culture of a tax administration should have well-articulated, understandable, and measurable goals. It is important to avoid general slogans. You can develop a mission and policies, but you cannot think that it is enough.

Before introducing changes, it is necessary to develop a detailed program of tax transformation with specific goals, objectives, and expected results. It is important that the leader can overcome the tax authorities’ perennial fear of generating expected results, especially in assessing additional tax collections. A project without a clear goal, expected outcomes, funds and resources rarely would be a success.

Employee Development

Employee training and development is an important part of corporate culture. Changes in learning strategies are necessary to create a new mindset and skills. Today, the leadership of tax administrations decides who, what and how to teach.

Separate divisions create their own mandatory training programs and periodically require all employees to participate in them. In general, they offer little value and effectiveness.

The desire to learn and improve one’s skills is a voluntary matter or requires a simple and understandable motivation. It is impossible to teach a person if they do not want to and do not understand how to apply the gained knowledge in practice. A logical alternative would be to allocate a training budget to project teams and have agreements with professional educational centers. It is also possible to engage a team of mentors who can advise project teams and their leaders in the implementation of projects.

These concepts will undoubtedly raise skepticism among many people who are convinced that it is difficult to change the underlying principles, laws, procedures, and habits of civil servants that have grown over the years.

While some grabs the oars in their hands and obstinately swim towards the goal, others humbly bathe in the murky waters that distance the tax system from the requirements of economic development.

It is impossible to change anything in the archaic corporate culture of a tax administration without active efforts.