Taxing time for e-government

Can governments use the Internet to offer more effective services to their citizens and, more importantly, can people be persuaded to use them? Chile's tax experience suggests that the answer is a resounding "yes". 

The Internet was still in its infancy in 1994 when the head of Chile’s tax service, Javier Etcheberry, saw an important role for it: a tool to help his department provide an efficient, high-quality service to the community. Perhaps an expected task for any modern democratic government, but it was a brave and inspired move at the time. And it is one that has been thoroughly vindicated; this year more than half the tax information filed by employers and a quarter of the country’s income tax returns were filed online.

The Chilean tax administration, Servicio de Impuestos Internos (SII), gave top priority to online development as soon as the strategic decision was made to use the Internet for tax purposes. The SII was so far ahead in this field that it has become the main Internet technological model in Chile and the undisputed leader in the modernisation process in the public sector, as well as acting as a role model for many other public institutions.

The Internet has been a boon all round. It has enabled the Chilean government to streamline the troublesome and bureaucratic filing process for taxpayers, while at the same time reducing the potential for tax evasion by having more correct information in its data bases. Costs have been reduced for both government and citizens. The cost of processing information is lower as there are fewer third parties involved, no physical movement of printed information, and less administrative work. The government saves on the cost of providing information for the public in the form of paper, copies of forms, transcriptions, and so on. It also saves on the cost of amending any errors, not to mention on staff time in local and central offices.

For taxpayers the use of the Internet can spare time-consuming visits and phone calls to the tax office, and has made the whole tax assessment and tax collection process much more transparent. There is also better access for the taxpayer to more detailed and timely information concerning tax issues. As a result, it has become easier for the taxpayer to meet his tax obligations.

The SII web site performs two key functions. One is the interactive function that enables taxpayers to communicate with the administration and carry out procedures from one computer to another. The other function is as an information provider. The taxpayer has access to information about tax laws and changes to regulations, and also to information about themselves given to the administration by third parties such as bank managers and employers. Access to such sensitive information is protected by a personal code, and allows the taxpayer to check immediately for any erroneous information on file. Business taxpayers can file their value-added tax returns on a monthly basis online to the SII, and individuals can file their yearly income tax returns in the same way. Both types of taxpayer can also use the interactive SII site to modify or rectify their returns. Agents who withhold tax at source for the government, such as banks, can also file their annual declarations electronically.

Privacy and security are key issues in persuading people to confide their personal financial details to a computer screen. Chile has sought to build confidence through a system of several layers of protection. A taxpayer wanting to consult his/her tax returns would have to put in a personal tax identification number (each Chilean taxpayer has such a number), plus a secret code, plus the number of the filed tax return. A further assigned code is needed to change or update information in a taxpayer’s file.

One advantage of preparing a tax return online is that an automatic programme checks the tax return for logic and arithmetic errors, as well as any missing information, before it is accepted. And after the income tax return has been filed, the taxpayer can keep track of its progress through the system by looking it up on the Internet. This consultation is available to all taxpayers, even to those who preferred to file their returns on paper. And with formal notification of inconsistencies a feature of the online file, it allows the taxpayer to point out any immediate problems that require further action. The taxpayer can also rectify or modify the return electronically, thereby resolving any problem without having to go to his or her local SII office.

The SII is constantly expanding the facilities it offers online, and in 2000, for the first time, taxpayers were able to access the information about them sent to the tax authorities by employers and other withholding agents, again with the possibility of detecting inaccuracies or errors. So rather than taxpayers receiving bills and then complaining afterwards, mistakes can be rectified early on.

It has not all been plain sailing however. There have been one or two systemic snags, particularly where old systems meet new. Take the banks for instance. Taxpayers should have been able to file their income tax return online and if they owed the government money, arrange for electronic payment by their bank. But for that they had to obtain an “Automatic Pay Agreement”, a service that many banks were just not ready to provide in March 2000, the end of the last fiscal year. As a result, many taxpayers had to file their payments on paper. But these problems are being ironed out, and the banks should be more prepared for March 2001.

The success of Chile’s online tax endeavour is perhaps best measured by the growing number of people using the Internet in their dealings with the SII. According to a 2000 study, some 860,000 people had Internet access in Chile. And 85% of that number, some 734,000 of the country’s almost 2 million corporate and individual taxpayers, are using it for their tax business, making the SII website one of the biggest in the country. Employers, banks and others filing information on wages, interest, and dividend payments to third parties accounted for 57.5% of the 713,282 files received in 2000, compared with just 4.2% in 1998. In terms of the volume of information received, 94.9% of total information required came from the electronically filed statements, compared with 40.5% in 1998. The take-up level by individual taxpayers was somewhat slower, with some 25.7% of income tax returns filed online in 2000. Still, this was a massive 523% increase from 1999. And a relatively small proportion of Chileans file individual income tax returns as tax is deducted at source from their pay cheques.

And the process does not stop here. The Chilean tax administration is already studying various possibilities of further promoting new technology. Next year, the SII will offer income tax returns that are ready-filled out, electronically incorporating income reported to the administration by third parties. When the completed return is filed, reception will be acknowledged with digital certificates and electronic signatures. The challenge is to use the technology to continue promoting tax compliance, while ensuring that the tax administration becomes even more efficient and transparent.

©OECD Observer No 224, January 2001 

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