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Risk-Based Tax Audits
What matters, therefore, is not just how much revenue is collected or how much it costs to collect it, but also how it is collected, because revenue administration is one of the major interfaces between the state and its citizens. In other words, good revenue administration is a vital source of good government. It provides the government with a sustainable supply of revenue and citizens with services that help them to contribute voluntarily to nation building. Promoting voluntary compliance requires developing modern approaches based on risk management to provide the most cost-effective outcome. Voluntary compliance is achieved through a self-assessment system, where taxpayers comply with their tax obligations without intervention from tax officials, based on information they receive about these obligations. The taxpayer voluntarily completes a tax declaration to identify all tax liabilities accurately and submits this declaration with payment.1 When this does not occur, the tax office takes the appropriate enforcement action. The segmentation of the tax base into groups of taxpayers sharing common characteristics—typically large, medium-size, and small taxpayers—is a critical first step in developing risk management and designing targeted programs that address the compliance risks and service needs of each group of taxpayers. Taxpayer segmentation applies a basic marketing concept (market segmentation) to identify the unique features of different groups of clients and design a strategy that takes into account these features.
Risk Management: A Key Element in a Modern Revenue Administration Strategy Central to the strategy for developing a modern system of revenue administration is the establishment of business-like corporate governance practices that include (a) establishment of self-assessment systems, (b) promotion of voluntary compliance, (c) employment of risk management, (d) organizational structure based not on geographic focus but on functional focus, (e) promotion of equity and fairness, (f) focus on specialization, and (g) service and functions based on client segmentation that cater to the needs of different categories of taxpayers (see figure 0.1). Developing holistic approaches to taxpayer services (for example, educating taxpayers on all tax obligations) and responding to taxpayer behaviors (for example, enforcement and audit programs for noncompliant taxpayers) in an integrated manner are critical for the success of