A Policy Aimed Toward Raising the Regional Tax Collection Rate: Electronic Applications and Integrated Tax Systems

ABSTRACT

Financial administration continues to be a significant problem in the local governments. Though solutions such as restraining annual expenditure and streamlining administrative processes have been proposed, the most important measure now being considered is that of securing the resources for expenditure or, in other words, increasing regional tax revenue. Regional tax revenue can be increased by 1) increasing national tax allocations to the regional level, 2) using regional tax autonomy to adopt a new tax, or 3) raise the collection rate of regional taxes. Among the three, raising the tax collection rate is the measure that regional governments can take up individually and with the least trouble; though it is also the measure that will require the most independent effort.

Meanwhile, amidst the recent proliferation of IT, the government has announced the e-Japan Priority Policy Program (March 2001), which promises the implementation of the electronic government by fiscal year 2003 and the electronic regional government by fiscal year 2005. One of the pioneering projects that are a part of this implementation is electronic filing. Besides easing the burden of the taxpayer, electronic filing will raise the collection rate and simplify the administrative process. As for the efforts being made toward adopting this technology, the Ministry of Internal Affairs and Communications (MIC) has begun research and development on electronic filing systems in regional tax administration and the National Tax Agency has run some electronic filing experiments.

Electronic tax filing has already been adopted in several other countries. Though the US, the UK, and Canada have each introduced unique systems for electronic tax filing, Australia has perhaps adopted the simplest system. The system of taxpayer identification numbers is a large factor in the success of electronic tax filing in foreign countries.

The US government, in an effort to not only streamline the administrative process but to also increase government revenue, improve citizen services, and lighten the load of taxpayers, has developed the Integrated Tax System, which includes electronic tax filing. As Japan focuses on the goals of increased government revenue and the securing of tax collection, the adoption of such an integrated system is worth considering. Wisconsin State was a pioneer in this project and is a model to be emulated. Wisconsin State setup clear goals in adopting the ITS and, after determining a strategy, adopted a balanced score card system as a way to evaluate the performance of that strategy. Though other initiatives had neglected to analyze the costs for adopting such a system, Wisconsin State made system investment evaluations that included analysis of cost-benefit performance and capital recovery periods. What is most important to note here is the high level of self-management that the project has exhibited.

In the face of financial administration difficulties and reductions in the national tax allocations to regional governments, Japan will benefit greatly from the adoption of an ITS and electronic filing. It will lead to simpler and more efficient administrative procedures, higher collection rates, reductions in the budget, and improved citizen services. From the perspective of the taxpayer, it would alleviate the burden of paperwork involved in filing and paying taxes and would enable faster tax returns and more information services.

The issues that need to be addressed in adopting an ITS and an electronic tax filing system under the e-Japan initiative are 1) the adoption of a taxpayer identification number system, 2) pre- and post- system evaluations for the purpose of self-management, and 3), under the guidance of clearly set goals, scrupulous attention to plan formulation, progress management, and performance evaluations. The incorporation of the management ethos inherent in 2) and 3) will be the key to success.

In the past years, Japan has been making a broad shift from centralized to regional authority, from an expenditure oriented operation to a revenue based management, and, in terms of financial resources, from central government handouts to regional autonomy in taxation. Thus, even as we move toward more effective tax collection, it has become necessary to link the tax system with the various other systems for financial accounting, budget formulation, administration evaluation and personnel management. The internal integration of the tax administration will help make this possible but forging the inter-departmental affiliations will require the adoption of a broader ITS. Such a system will be a large step towards the construction of the electronic local government. For this reason, the concept of the ITS should be the primary focus in setting up an electronic filing system and building a new tax system in the local governments.