The primary goal of any revenue authority is to collect the taxes and duties payable in accordance with the law and to do this in a way that will strengthen confidence in the tax system and its administration. To achieve this objective, tax authorities must have key internal capabilities to manage the risks of non-compliance by taxpayers.

While many people pay their taxes as and when due, many others fail to do so. This may be due to ignorance, carelessness, recklessness, deliberate evasion or weaknesses in tax administration. Tax authorities must focus on the capabilities needed to address non-compliance in the tax system, including the organisational culture, the computation and collection processes, information technology and business systems, and staff capabilities.

In an interview with Times of Malta, Tax Commissioner Joseph Caruana delved into the tax administration reforms announced earlier by Finance Minister Clyde Caruana. The headline news in the minister’s communication is that the tax administration system will be upgraded using an IT statistical analysis system.

This system will coordinate information from various registries to assess an individual’s or a business’s liquid and illiquid assets, like property, land, vehicles and boats, and compare them to the declared income of taxpayers.

The fact there are still around €800 million in taxes yet to be collected justifies the urgency of ratcheting up efforts to make tax compliance more effective. However, it is simplistic to conclude that past failure to promote a culture of tax compliance is just a question of failure to dedicate enough resources to the collection process. While the new investment in systems and re-engineering of the computation and collection processes are welcome, policy-makers must acknowledge that past failures were partly due to the lack of political will to address non-compliance.

All revenue authorities have a finite level of resources. They invariably fall short of what is required to ensure full compliance from every taxpayer. Tax authorities must follow a risk-based strategy in the planned reforms to sustain the community’s confidence in the tax authority.

The starting point for re-engineering the tax collection processes must be identifying the significant compliance risks to be addressed, which taxpayers pose the most substantial risk, and how the identified risks should be treated to achieve the best possible outcome.

Tax Commissioner Caruana confirmed that there will not be a knee-jerk reaction to the complex task of improving the tax collection system.

For instance, privacy issues relating to collecting information about individual taxpayers must be addressed with sensitivity. Similarly, small businesses that may not have been fully tax compliant must be given time and reasonable conditions to get their house in order.

The proposed reforms must go beyond making tax collection processes more efficient. The reforms must focus on the underlying drivers (not symptoms) of non-compliance and promote diverse tactics for treating major compliance risks rather than adopt a one-size-fits-all approach.

The IMF and rating agencies have often recommended more effort to improve tax collection processes and ensure taxpayers have a higher degree of compliance. The measure of success of the reformed tax system must include well-defined periodic external scrutiny not just by the National Audit Office but also by other non-government audit organisations.

Taxpayers’ obligations must be spelt out. These obligations include registration of all taxable paid economic activities, the timely filing of lodgement of required taxation information, the reporting of complete and accurate information and the payment of taxation on time.

Ultimately, we must remember that “taxes are what we pay for a civilised society”.