Chilean Tax System Online

Abstract

Chile has moved from a cumbersome and costly manual system for filing tax returns to a new system that allows taxpayers to file returns online and receive an assessment in 12 hours instead of several days, as was necessary under the earlier manual system. The site has won several awards including the "Technology Innovation Award" from the Chilean IT Association and a Government Management Innovation Award. Readers of the national newspaper El Diaro also awarded the Internal Taxation Service (SII) first prize for the best public institution Web site in the country.

Application Context

Chile's Internal Taxation Service (SII) is responsible for collecting both individual and corporate taxes in Chile. Until recently, the SII used a traditional paper-based collection and administration process; but the government was quick to realize the potential that internet-based technology could play in improving this service. Under the former system a mountain of paperwork was created, printed and dispatched by post to keep taxpayers and their advisers aware of latest regulations. Individuals had to visit their local tax office to see inspectors. The process culminated in a declaration presented on a piece of paper which then had to be keyed, calculated, verified and paid.

A New Approach

In 1998, the SII embarked on a journey to craft an online taxation package. The goals were: 1) to reduce the cost and increase the accuracy of tax collection; 2) to equip Chile's tax authority with the resources it needed for the foreseeable future; and 3) to offer taxpayers throughout the country a higher standard of service along with swift, easy access to vital tax information.

The new online tax service (http://www.ssi.cl) was conceived and implemented using Oracle's internet-based technology. The first phase was simply to place taxpayer information online. This knowledge base included help-yourself data on the tax structure, corporate topics, guidelines and procedures. It was a small beginning, but straightaway taxpayers got used to the idea of finding information online rather than visiting their nearest office or phoning for a printed document. Foreign investors are also encouraged to use the SII Web site as a source of information.

In the next phase, the SSI website was made interactive. Individuals were then able to check their tax status online. Less than a year later, electronic tax filing was added to the SSI service. In filing their taxes online, taxpayers key-in and validate data themselves, thereby reducing queries and input errors. The SII saves money on printing, distribution and processing time. Moreover, the SII's national network of offices can be re-assigned or streamlined.

In its first year of operation, 23,081 personal access codes were requested and 38,748 online returns were received. Naturally, there were fewer queries about assessments, too. Data entry errors were virtually eliminated because the taxpayers themselves entered the details. Nevertheless, to rectify any potential mistakes, the new system enabled individuals to amend their tax return online.

In the second year of operation, the number of tax status inquiries increased from 10,000 to 150,000. Word spread that the SII website was the fastest way to learn about tax regulations, make returns, and check assessments. Just three years from the start of SII's interactive services, the online taxation system has racked up some impressive statistics. Over 400,000 taxpayers have checked their assessments online. 183,548 sworn returns and 89,355 income tax returns have been received. And the Chilean exchequer has collected $1.943 billion through the electronic system. Managers at SII are now preparing the online system for a potential 1.8 million tax returns per annum, plus 950,000 VAT returns every month.

Implementation Challenges

One of the biggest challenges for the SII was creating a technological platform that would streamline the tax-filing and information process while maintaining absolute reliability. Moving from a traditional mainframe-computing model, the SII chose a three-tier internet architecture capable of handling large numbers of concurrent users (over 500 in any 15 minute period) and huge volumes of data. The architecture allows a radical reduction in processing time, and the information supplied can be quickly interrogated at every level. Security and reliability were major considerations, as was the ability to expand the system painlessly to meet projected growth.

In order to extend the mutual benefits of online tax processing to more individuals and small businesses, an agreement was reached with a private sector company, CTC-Internet, to offer very low-cost Internet access across the country. Called "Republic 2000," the service is aimed at people who have had little or no experience with the Internet.

Benefits and Costs

The SII saves money on printing, distribution and processing time. And online customers find the system easier, faster, and more accurate than traditional paper-based services. Whereas processing a tax return had previously taken 25 working days (still a healthy performance for a paper-based tax system) the new online package was delivering online assessments in just 12 hours.

From the government's point of view, the costs of collecting tax are being driven down and accuracy has gone up. Resources have now been secured for the future. Moreoever, human resources have been released from mundane, repetitive tasks to carry out more investigative and innovative tasks such as reducing tax evasion.

From the taxpayer's point of view, the SII package has streamlined the inevitable process of paying taxes, reducing the time involved and improving accuracy. Online taxpayers have an extra 10 days in which to declare their taxes -- a feature much appreciated by accountants and other professionals who are submitting large volumes of returns on behalf of clients. When claiming a refund, online taxpayers also benefit from the speed of the new system, with funds released at least a month before paper-based claimants.

Key Lessons

E-Governement applications often require changes in the legal code in order to fully utilize their potential. In Chile, the popularity of the SII spurred citizens' demands for a legal changes to facilitate the transfer of information between the SII and taxpayers. The government responded by speeding this legislation through parliament. The amendment to Article 30 of the tax code authorized taxpayers to present their annual reports & accounts and tax returns on media other than paper.

Well-designed and implemented E-Government applications can be catalysts for change in a number of areas. With the success of SII, the capabilities of the system are also being extended to other service areas, such as motor vehicle taxation.

Acknowledgement: This is an edited version of the case carried on the Oracle Corporation's web site.