83% of corporate filings now electronic

Commitment to drive more and more of the Inland Revenue Department's services online is evident at the highest levels within the department. Speaking to The Sunday Times during a hands-on demonstration of the system, Inland Revenue Department (IRD) Commissioner Adrian Chetcuti said this drive, that has now been going on for some four years, has three main objectives:

• to improve the service the IRD offers to the public;

• to improve internal efficiency and reduce costs; and

• lessen the cost of compliance.

The IRD has been working with the Malta Information Technology and Training Services Ltd (MITTS) on this long-term project, which is continually being upgraded and enhanced. A team of eight people from MITTS worked on the project, headed by project manager Pierre Vella.

Mr Chetcuti, who took a personal interest, is supported by the IRD's director of operations, Mario R. Borg; Karl Falzon in the department's IT section for support to the practitioners; and Tarcisio Scicluna, the director of administration, who overseas the preparation of brochures and PR.

The first step was to target tax practitioners: qualified accountants and auditors, with the initial meetings being held with the Malta Institute of Accountants in July, 2001. "The service was rolled out in 2002 with tax practitioners," Mr Chetcuti explained.

"We started with a small group of professionals, which was more manageable. They were largely computer-literate and knowledgeable enough to give the department feedback.

"We decided to give priority to those who are tasked with collecting information and payments on behalf of the department. We investigated what they were doing and held discussions to solve outstanding issues."

MITTS and the IRD did not just put online what was done manually - their aim was to obliterate what was unnecessary rather than automate what was previously manual without further investigation of whether improvements could be made. The system was designed to help and guide those filling in the various forms not to make a mistake, rather than to try to catch them out.

"We tried to re-engineer the process to make it simpler for both ends," Mr Vella explained.

Major audit and accountancy firms called in clients and MITTS made presentations and hands-on demonstrations to interested practitioners.

A demonstration was conducted on the Inland Revenue Department Website: www.ird.gov.mt The first step is for the auditor/audit firm to register as a tax practitioner. Secondly, the auditor/audit firm registers its users (each employee is tied to a specific computer terminal/laptop by the use of a digital certificate). Thirdly, clients inform the IRD that the auditor/audit firm can act on its behalf.

A company can refuse to give auditors access to certain services, so the directors still remain responsible. This, however, is rarely done. The auditor has full flexibility and responsibility to manage users.

The IRD Website contains information on the department's set-up, the laws it has to administer and to serve as an information board to reach out to the public. It contains calculators to work the FSS and personal tax, and downloadable forms.

Among the online services is the company tax return filing. The return is a set of complex forms supporting the self-assessment regime that was introduced in 1999. "We wanted information to be as complete as possible," Mr Chetcuti observed.

Apart from calculating the tax due, the filing includes audited financial statements and can accommodate large quantities of data. Financial statements integrate through the Tax Index of Financial Data (TIFD). The TIFD was researched aptly to structure the accounting terms of financial statements, such as the profit and loss and balance sheet.

Auditors have the facility to import data automatically from their own computers. "Electronic filing enabled us to create a standard way to report the income statement and balance sheet of companies," Mr Chetcuti explained.

The advantage to the practitioner is the large number of validations in the system. It does not allow inputs that are not allowed by law and also renders itself as an educational tool. Inputting by auditors has also been minimised since the attachment automatically feeds the relative field in the tax return proper.

"Very importantly, the data are in spreadsheet form." Seven fields of the company accounts have to be filled in manually: four in the balance sheet and three in the income statement. This is to make sure that the auditor has validated this information before inputting it.

Mr Borg pointed out that the return has remained visually static, despite the large changes in legislation over the past five years. Certain basic information was being updated (some could not be changed), and it is hard for an auditor to input data of one company instead of another by mistake.

Security is always a key concern. "The IRD was the first department to issue a Legal Notice on on-line filing: LN 232 of 2002 - Electronic Communication (Income Tax) Regulations," Mr Chetcuti recalled. All had solutions.

The take-up by the practitioners has been satisfactory, and last October 83% of all company filings were done electronically. This even compares well with other tax administrations.

Mr Vella said that this was the result of a package designed for the IRD that enabled the practitioners to:

• manage clients;

• file returns;

• see tax statements; and

• check tax return status.

"One thousand company returns were filed in a single day last October," Mr Borg said. Yet, Mr Vella said that "before 95% of these filings are made online, I would not be satisfied".

Improvements and enhancements are ongoing and, last year alone, the MIA came up with three pages of requests for enhancements to the system. Mr Falzon, who mans the Help Desk for e-filings, receives many communications by e-mail, which he will either reply to or pick up over the phone.

To improve services for practitioners last month the MFSA launched a collection of company registry information online, which can be accessed through the digital certificate of the Inland Revenue Department.

The next target was the employers, who file FSS forms of their employees with the department. This service was launched in 2003. Demonstrations were held at the IRD. The benefit is that the system includes immediate checks of all inputs, and corrections made by the employers are verified instantly by the system.

"This was a very important segment to us," Mr Chetcuti said. "A large amount of information has to be correct. Frequently, manual returns are either incomplete and the correction process is long, causing setbacks to the deadline for the employees, the employers and the department.

"The new system is of great convenience to employers. The take-up was good. A very high percentage of employers who employ more than nine employees are now filing online.

"Some 200,000 errors in the filling of the FSS forms per year have been eliminated." Through the previous manual systems, data capture by the department could lead to errors in the employees' tax statements with the subsequent objections.

The third layer is individual taxpayers. Access depends on the e-ID. Not only can individuals file their income tax returns, but they can also check their status with the department, view tax statements and make payments.

Another service offered online is payment of tax and social security contributions. This service was launched in August 2004 using an electronic payment gateway through which credit and debit cards may be used to effect payment.

In April 2005 the service was extended to Internet banking. Initially, the service was aimed at taxpayers, but now is also available for employers to pay FSS tax and social security contributions withheld from their employees' salaries. Receipts are issued online and also mailed in standard paper format.

A new project to be introduced in the first quarter of this year aims to create a single interface for employers to inform both the IRD and the Employment and Training Corporation of engagements and terminations of employment. This single form will replace two forms that are currently being used.

The IRD has started a pilot project and obtained feedback, conducted some testing and then will launch online.

The changes this year include the first stage of filings, which can also be sent electronically. The IRD intends to set up a call centre to improve telephone handling, with IT involvement.

"We want to encourage taxpayers to apply for the e-ID and to file their tax returns electronically," Mr Chetcuti said. "I very much believe in IT. It is in the department's interest. There is scope for improvement. The aim is to minimise the number of people needing to come and queue at the office."

"They are guided in filling up the form and there is immediate confirmation. They make fewer mistakes and there will be less unnecessary penalties".

There are also plans later this year to launch a similar service for notaries, whose legal responsibility it is to collect duty on documents on behalf of the department. The two bodies will be working together to introduce the new system in the shortest time possible, first with the innovators and then with the early adopters.

Mr Vella said MITTS was trying to create one interface as a single point of contact. It has designed a spreadsheet with details of the transaction, the transfer, transferees, what is being transferred, details to compute the capital gains tax and the duty on documents.

Initially there will be a system of application and communication between the notary and the IRD (both head office for Capital Gains Tax and Valletta for the Duty on Documents). There will also be a system of 'controlled', secure e-mail messaging between the IRD and the notary.