The so-called expert committee chaired by Merete Eldrup, which was tasked with drafting a proposal for a multi-year agreement for the tax administration, has just presented its recommendations.
The major administrative and control problems within the tax administration have given rise to a number of political initiatives since 2015. On the one hand, significant new appropriations have been allocated, and on the other hand, a number of legislative and organisational initiatives have been implemented, primarily aimed at improving tax control. The tax administration’s total appropriations have thus increased by around 40 per cent, and the total number of employees will soon be roughly double the number of employees in 2014, when the number of employees was at its lowest.
These changes have not been implemented according to an overall master plan, but have been implemented in a piecemeal manner, either in connection with additional appropriations for ongoing IT modernisation projects or in connection with specific initiatives to strengthen tax and duty control. The establishment of the expert committee should probably be seen in this light, as the intention has been partly to establish a framework that ensures calm around the tax administration’s finances, and partly to provide budget security for the state and thus reintegrate the tax administration into the usual budgeting system.
The Committee of Experts identifies the problems still outstanding for the tax administration. Broadly speaking, these consist in the fact that three very large IT systems in particular take up a large proportion of the total resources – both financial and human – so that other urgent tasks are still outstanding.
The tax administration currently spends about 75 per cent of its total IT expenditure on development, and thus only 25 per cent on operation. The three major projects, the debt collection system, the property valuation and taxation system and the new customs system, take up the vast majority of the total development costs, despite the fact that they only support a very small part of the total tax revenue. The majority of the total IT expenditure is spent on functions arising from new legislative initiatives, while only a small proportion is spent on ongoing modernisation of the systems or on improvements that can make the tax administration’s actual task performance more efficient.
A comparison with a small selection of other countries’ tax administrations shows that SKAT’s IT organisation is twice as large as the second largest of the reference organisations, that Danish development activities far exceed those of the other countries, and that the large Danish IT projects are clearly larger than the projects being worked on in the countries being compared.
As reasons for these circumstances, the expert committee states, among other things, that there is often a very short time between the launch of a political project and the determination of the implementation consequences of the new initiatives, and that in many cases the tax authorities have chosen an overly ambitious approach to how IT support should be organised. Finally, new complex tax legislation has created problems in integrating new systems and customisations into an already complex system landscape.
In addition to a steady increase in total appropriations, these factors have meant that there is no room for continuous improvements in relation to day-to-day operations and thus that the actual performance of tasks has not been taken into account to the necessary extent. In addition, the large resources spent on the three systems mentioned above mean that the tax administration has not been able to begin the replacement of a very large number of old IT systems, which form the backbone of tax calculation and collection and which are the prerequisite for the collection of about 90 per cent of tax revenue. The maintenance and upkeep of these legacy systems is in itself a major resource drain: it adds to the complexity of the overall system and often represents an inappropriate constraint on the implementation of new legislation.
Against this background, the Committee of Experts proposes, firstly, that a fixed framework be set for the size of IT development and operational initiatives that can be undertaken in the coming years. The three major projects should be finalised, while at the same time restraint should be shown in starting new projects.
In continuation of this, the Committee proposes that permanent processes be established in relation to the political level in connection with new projects in order to limit the complexity of new political initiatives. The tax administration should have the opportunity to return to the political contracting parties if it turns out that the implementation of a new initiative is running out of steam.
The development resources thus released should be allocated to replacing the numerous obsolete but essential systems and to improving the systems that support day-to-day operations.
In order to create the necessary scope for solving SKAT’s tasks, the committee also proposes re-prioritisation in the areas of debt collection, dividends and new EU legislation. More specifically, it is proposed that the part of the debt to the public sector that represents the lowest real value and which would be the most costly to recover should be cancelled. In addition, simplifications are proposed in the now highly developed control of withholding tax refunds. Finally, it is proposed that certain limits be placed on the amount of resources that can be spent annually on system support for new EU initiatives.
There is little doubt that the Committee’s recommendations may in practice be difficult to accept politically. Debt collection and control of withholding tax are highly prioritised areas, and the reason why, in the opinion of the expert group, SKAT spends a disproportionate amount of resources on these tasks is precisely because principles of legal awareness and justice have trumped considerations of rational and efficient operation. It is also hard to imagine that, for example, an EU initiative on a common corporate tax and on combating tax havens or a proposal for an undoubtedly complicated CO2 tax should be put on hold for administrative or IT reasons.
The expert group is probably saying directly that SKAT’s current problems cannot be solved with more resources, or only to a limited extent. The previous relatively easy – but expensive – solution of increased appropriations must therefore be replaced by politically more controversial solutions, which imply that political considerations must give way to administrative considerations. This is not entirely out of the question. After all, there is a first time for everything.