Modernizing Tax Administration in Singapore

Abstract

In 1992, the Inland Revenue Authority of Singapore (IRAS) introduced an imaging system to electronically process the paper-based returns filed by citizens. Gradually, the interface with the citizen was changed, permitting filing by phone, and later through the Internet. A Voice Response System was installed to respond to queries and an Electronic Payment Systems (NETS Kiosk, GIRO, VPost) was added to facilitate payment of taxes. The long-run goal is to link the information in various government agencies related to earnings, eligible deductions, etc., so that the need for most taxpayers to file any kind of return can be eliminated all together.

Application Context

When Singapore became an independent republic in 1965 the country's revenue structure and administration were similar to those of many other former British colonies. In 1992, a new statutory revenue authority, the Inland Revenue Authority of Singapore (IRAS), was created and made responsible for administering income and property taxes, as well as a new value-added tax called the GST (Goods and Services Tax). Over the next eight years, a completely new administrative system was introduced in a carefully-phased, step-by-step fashion.

Prior to the creation of IRAS, the tax administration was a classically hierarchical bureaucracy, with extensive "front-end" revision of returns, followed by an extensive series of intermediate steps before the issuance of an assessment, and then a separate payment and enforcement process.

A New Approach

One of the first changes implemented by IRAS was to convert from a hard copy filing system to a paperless imaging system, which permitted documents to be retrieved instantly from networked terminals. This improved the efficiency of the administrative process, facilitated "back end" auditing, and freed staff time from unproductive paper-shuffling. But taxpayers still had to file paper originals.

In 1995, electronic filing by telephone was introduced for individuals. Legal changes were needed to accept the computer output from an image system as a valid document. Most taxpayers continued to file paper returns. In 1998, Singapore introduced direct electronic filing for individual taxpayers with employment income. Though the system was simple, and many incentives were offered, only 10% of the taxpayers opted for the system in its first year. By 2000, however, some 30% of all taxpayers (364,000) filed electronically (and a further 119,000 filed through the telephone). E-filing was then extended to individual taxpayers with business income.

Filers see the entire tax form (including any corrections made for consistency) before it is submitted. If the taxpayer's employer supplies IRAS with filing information directly, all the taxpayer need do is to click the appropriate box to submit the form. IRAS increasingly obtains data directly from employers in electronic form. In addition, data on dividends paid by Singapore-listed companies is obtained from the Central Depository. Some tax information is also reported electronically from such sources as the Ministry of Defense.

Considerable efforts have been made to keep the system secure. For example, a PIN (personal identification number) is mailed to each taxpayer, and only raw data is accepted by the system (thus preventing virus contagion). Within IRAS, access to information is on a need-to-know basis and is carefully tracked. This feature also facilitates a detailed evaluation of officials' performance. An improved process of data mining is utilized to identify cases for audit and investigation.

Taxpayers can use electronic fund transfers (GIRO) to pay their taxes via automatic deductions from their accounts. Adjustments in tax liabilities lead to automatic adjustments in payments. Alternatively, taxpayers can pay in a lump sum using the phone, internet banking services or, finally, by debit card at payment kiosks or taxpayer service centers. About 60% of individual taxpayers use one of these systems.

Most recently, IRAS has introduced what it calls "E-stamping." This makes it possible to pay the stamp duties levied on such documents as mortgages and stock transfers automatically. The system generates a Certificate of Stamp Duty, which takes the place of the legally-required stamp and can be printed immediately.

Implementation Challenges

Tax administration was reorganized and provided with considerable resources to carry out these major tasks. At peak, for example, 200 people (including consultants) worked full-time on the development and implementation of the computer system to support the new tax administration.

Implementation of the new systems was carefully-phased and monitored, taking into account client feedback in each stage before proceeding to the next. Both (1) the administrative structure and the related process of organizational control, and (2) all internal procedures for processing taxpayer information were completely reengineered. Substantial and sustained effort was required to plan all these changes, to train staff, to manage the process of change, and to monitor it.

The project champion identified two key areas. First, focus on building a team driven by overall organizational interest and not division interest. (This was achieved by restructuring units, as structure shapes incentives.) Second, to keep detailed track of schedules, Gantt Charts were used in regular meetings.

Benefits and Costs

Up to 80% of tax assessments in Singapore are now made automatically for simple cases; and the time needed to issue assessments has fallen from 12-18 months to 3-5 months.

Although staff size has been constant throughout the period, staff turnover has been reduced, tax arrears have fallen, property valuations have kept current, and the audit function has been strengthened. Moreover, public satisfaction with the tax service has improved markedly. In a recent survey, 95% of individual taxpayers, 83% of corporate taxpayers, and 93% of GST taxpayers said they were generally satisfied with IRAS services.

The Economist (June 24, 2000, "Government and the Internet Survey") recently quoted an American official as saying, "Singapore's eCitizen center is the most developed example of integrated service delivery in the world."

Key Lessons

For a number of reasons Singapore is unlike any other developing country. (In fact, Singapore today has a high per capita income level and a technologically sophisticated population and infrastructure.) Still, many aspects of the Singapore experience do not depend on its particular characteristics. Strong support from political leaders, dedicated and skilled managers, the development and implementation of a strategic business plan, the creation of a semi-independent Revenue Authority, automating and restructuring control systems, strengthening the audit function, and simplifying and reducing paper handling through adroit and appropriate use of IT are all steps that are potentially available to other countries.It is important to remember, however, that Singapore's successes in tax administration were not achieved overnight. The IRAS system took 8 years to build, step by step.

Case study author: Subash Bhatnagar
Information used to develop the case: Internet article by Richard Bird & Oliver Oldman, an article by Siew Kien Sia and Boon Sinong Neo, published in JMIS, v. 14, 1997, and a presentation by Goh Khee Kuan at the World Bank, Washington, D.C., November 2000.
Date submitted: December 19, 2000