Information Technology in the European Countries - Assignment Example

The management issues concerned with the delivery of an online system for the of personal tax returns for a large European country is often comprehensive and complex. An excellent online tax system boasts of efficiency, simplicity and decentralization which is best exemplified by an online tax filing system. Moreover, this online tax system is tasked to help taxpayers prepare and file returns in a simple, fast and secure manner. Several stakeholders will benefit from better access to information and procedures: a) taxpayers: both citizens and corporate, and b) foreign investors. Accountants and managers who intervene between taxpayer and the government will also be guided. Therefore, this system can also contribute to increase compliance with tax laws among the citizens. Information Technology (IT) is a key enabler of delivering online taxation services. The Information Technology system brings about improvements in efficiency and convenience such as minimizing overall users transaction costs, shortening turnaround times, enabling access to critical government services outside office hours and offering a more personalized service. Cost savings for the government is a great benefit. For each citizen who participates in the electronic process, tax and revenue authorities can dramatically decrease the costs associated with printing, distributing, and storing tax forms as well as decrease staff costs related to taxpayer filing services. The payment of a person’s taxable income is a function of the tax rules and regulations of a country. This diagram is an example of an income tax payment system which is implemented in the US.(Refer to Diagram 1: Diagram of US Income Tax Code). Diagram 1: Example of an Income Tax Code Diagram of U.S. Income Tax Code Source: What is Taxed.com website Tax rates vary among the different countries. A comparison of tax rates between developed countries would show that OECD high income countries have a higher tax rate than the developing countries. (See Figure 2.2: Business taxes lowest in Middle East and North Africa. Generally, African countries set high tax rates on profit. Eastern Europe and Central Asia also impose a 45% tax rate. In recent years, many developed and developing countries have established and fully implemented online tax filing systems to save on administrative costs, staff costs and paper costs. The United States, India, UK, Japan and the European Union (EU) member countries have implemented various types of online taxation system to facilitate accuracy and promptness in tax collection efforts. There are ten risks faced by government policymakers in shifting to the online taxation system. The first serious risk is the inability to attain a rationalized tax system for the European Union. This diplomatic and technical risk refer to the hampered capability of the European country under study to quickly overcome technical, administrative and policy issues related to taxation matters. The main challenge of this risk is the need for international harmonization, complementation and integration schemes for taxation within the European Union (EU). European politicians are dismayed when their taxpayers shift their money to low-tax jurisdictions like Switzerland and the United States. To minimize this, they established the European Union Saving Tax Directive that would allow the EU countries to impose burdensome tax rates on income earned in the US. (Veronique de Rugy, 2002). There are highly reliable solutions to this first risk. There is an effective approach in designing an efficient trans-border online personal income tax system for the European Union. The solution also entails combining the EU-wide tax operations by utilizing an agreed common base as the reference variable, and then assigning this total tax base by using close indicators of activity in each particular tax jurisdiction. The apportionment formula should respect requisites of neutrality between productive factors and forms of personal income. (Stefano Micossi1, Paola Parascandolo and Barbara Triberti, 2003). Finally, the mutually agreed upon tax formula can then be translated into the language of information technology. The government can pursue an information campaign on the Importance of tax . Generally, the tax burden in the European Union (EU) area is much higher than in most other OECD countries. Defined as the tax-to-GDP ratio, it stood at 40 per cent since 1998, some 11 and 12 percentage points higher than in the United States and Japan, respectively. The tax mix is also different. Most EU countries rely heavily on social security contributions, consumption and environmentally related taxes. (Economy Watch, 2008). Online tax filing is a one of the forms of e-government. The goal of e-government for public administrations is to create a more efficient and effective channel to provide services to users. Irma Graafland-Essers and Emile Ettedgui (2003) stated that the attainment of e-government depends on two complementary factors. First, the vision of e-government sets the kinds of services that must be available online and the level of sophistication they should attain. Second, the adoption of e-government by its intended users requires careful preparation. The development is based on a clear grasp of how users perceive e-government, how well they can complete a set of identified transactions, and how they tackle barriers that prevent successful adoption. The knowledge gained by studying both sides of e-government consists of vision, acceptance and adoption which provides a necessary step for its successful attainment. The two sets of indicators are necessary to measure the successful attainment of e-government. Indicators that measure acceptance and adoption of e-government by its intended users constitute a novel set of indicators. The explanation for these indicators depend on one’s capability to understand the needs of the end-users. (Graafland-Essers and Ettedgui, 2003). They explained that the existing users of e-government are the citizens, businesses, and government. The resistance to the adoption of e-government varies with the users. Indicators measure the adoption to e-government by comparing the use of and attitudes of taxpayers toward traditional and electronic channels to communicate with government. Assessment, usage and availability are the major features of public acceptability. Assessment refers to decisions made by users about whether or not to access e-government. Usage measures pertain to actual interaction with e-government. Availability looks at the actual accessible sites.Asessment provides a measure of how the user perceives e-government. The user may look at alternatives to e-government and decide on the preferred access method. (Graafland-Essers and Ettedgui, 2003). A few barriers may exist that will prevent the user from making full advantage of e-government services such as the online tax filing system. Usage is easy to determine. Usage consists of determining how much time a user was online and how much of that was related to e-government. Availability measures the level of interaction the user seeks to attain. Both will tend to vary with the level of Internet talents and advanced knowlege of the user. The end-user can face several barriers to online tax filing. Online transactions are seen to be more expensive than the traditional transaction, the assumed know-how of the user for online transaction is not present and business clients are unwilling to communicate with government online. Citizens who are interested in some aspects of e-government tend to exhibit an unmistakable preference for e-government services over their traditional counterparts. The study showed that services which do not require users to reveal a great deal of personal information about themselves, such as searching references are popular while those that call for a great deal of personal information, such as reporting a crime to the police, are less likely to elicit a positive response. The response of citizens toward e-government refers to convenience in terms of time and location as factors that favor e-government over traditional government. Citizens believe that e-government is faster than traditional government. The survey of taxpayers revealed that longer online usage, which is defined as the time span since respondents began using any online service, is closely linked with greater preference for e-government. The level of usage of Internet facilities during a typical week tends is also linked with the clear preference for e-government. In contrast to individual taxpayers, businesses are not keen on e-government. (Graafland-Essers and Emile Ettedgui 2003). The second risk is the government’s lack of modern technological expertise and support systems to bring about a simple and easy to understand online taxation system. This risk revolves around the weak everyday functioning of the online tax system due to a lack of specialized software for taxation. The main strategy to address this risk is to undertake a large government bidding and invite the top and reputable, local and foreign information technology companies to offer an efficient and effective online taxation service. The government can hire foreign taxation specialists and consultants to design, manage, implement, evaluate and supervise the overall online taxation project. The third risk is the unavailability of competent information technology manpower that will be responsible for monitoring the whole tax filing process. The tax department can offer several job specific substantive trainings over a five year period in which the key employees will be trained and retrained in the specific tax laws and tax compliance programs that relate to their particular job functions. The main challenge to address this risk is to provide foreign training and in-house upgrading of the information technology knowledge of government in the field of tax collection. The information technology department must have a research and development area which will identify ways to make strong links between the way people do business electronically and their interactions with the online tax system. There must be a seamless transition between preparation, filing and payment of tax returns. On the technical side, the government can hire and retain foreign IT experts who will introduce the necessary reconfigurations of the taxation information system to ensure the smooth operations of the entire system. In addition, the management training will include an general profile of governing rules and regulations including taxation setting. Training can also focus on taxation cost and administrative forms. There is a need for a more thorough study of the institutional processes, encompassing roles and responsibilities, form and content of a tax application, financial and program management as well as auditing and reporting requirements by all employees. Follow-up trainings will be conducted among the tax employees to raise their awareness and understanding of the Information Communication Technologies (ICTs) and of ICT-related change. The fourth risk is the failure to develop the system for data interchange with other European Union countries. The main challenge here is to distinguish specific clusters of tax services. The first part is the finance and privacy cluster that includes government services requiring confidential or personal information. The identified services under this cluster cover the payment of social contribution for employees, corporation tax declaration and VAT declaration. The second part is the data and information cluster that includes government services related to data and information exchange at a general level. The identified services under this cluster are the submission of data to statistical offices, obtaining environment related permits and generating public invitation to offer bids for government tender. Higher use is projected for the cluster requiring confidential and private information than for the cluster requiring more general information. (Irma Graafland-Essers and Emile Ettedgui, 2003). An option to address this risk is to establish a modern web application to provide up-to-date reports to various end users of the system. Moreover, so as to generate an increased level of taxpayer interest in the online tax filing service, the government can also present strategic economic, weather and business information e-services that are highly relevant to them. The government can transform the online tax system into a one-stop portal which will organize government statistics in a user-friendly way. The website can include a customer satisfaction surveys as a means to generate feedback from taxpayers who have accessed the service. Moreover, the employees of the information technology department which monitors the private IT firm tasked to provide these services may also lack technical expertise. This lack of organizational effectiveness as well as technical expertise of the supervisors and support staff of the EU country’s information technology department can be addressed by regular training and study sessions in other countries. The designated government consultants can help several Internal Section of the IT Sector, the Section for Maintenance and Development, the Section for External Support. The fifth risk is the threat of email phishing schemes. The email phishing scheme is a situation in which a person poses as a tax department representative or as a trusted Web site but gets to ask for the taxpayer’s Social Security number or credit-card or bank-card information. Then that person gets to use those information for fraudulent transactions. Identity theft can happen through phishing schemes. People whose identities have been stolen can devote many months and a lot of money cleaning up the mess the thieves have made of a good name and credit record. In the process of clearing up one’s name, the victims of identity theft are subject to losing job opportunities, being denied in their loan applications for car, education, housing, and can even get arrested for crimes they have no knowledge of. As the victims move to rescue their identity, they experience anger, helplessness and frustration. (US Federal Tax Commission, 2005). The main strategy of the EU Tax Department to address this serious risk is to inform all EU individual and corporate taxpayers that it will never ask sensitive information such as Social Security numbers and bank information over the Internet or by phone. The Tax Department can advise taxpayers to secure advanced online software services that can eliminate phishing schemes present in the internet. The sixth risk is the initial strong resistance to the new online filing system by the taxpayers. This possible negative perception against the new system is simply the taxpayers’ inability to access and make use of the new online tax system. These disparate experiences of online taxpayers are mainly due to different user interface (UI) elements such as validation technologies, and authentication technologies that the taxpayer is unfamiliar with. The main task to address this risk is to establish an excellent technology platform. The technology platform must provide an interface between the tax authorities and tax payers, thus facilitating an easier, faster and a more convenient tax preparation and filing process. There must be an excellent information technology platform that will be established. The online tax website must be simple, easy to understand and use for all types of users. It should offer a step by step guidance in the process of filing the tax form. It should provide a section for careful tax calculation of the additional tax liabilities, partial payments and added penalty and interest. The website should be able to handle and accept the option of E- filing and physical filing of return. The website can feature tax optimization and planning services. The website should feature tax alerts which are beneficial to personal income tax filers. The website can also offer an online professional support system from European Union tax experts. Moreover, the Tax Department can also publish the names of businesses having unresolved tax liabilities so as to encourage them to pay and settle their accounts voluntarily. In addition, the tax department can conduct a comprehensive information education and communication sessions with all companies and universities to provide short training for taxpayers who find it difficult to adopt to electronic processes. Clearly, the government must invest in support systems such as computer units and twenty-four hours wi-fi services in areas with huge pedestrian traffic. The government can provide convenient access to computing facilities including online public services, about 10,000 computers with Internet access can be installed in around 1,000 locations for free public use. The government housing authority can make available computer facilities at all the government housing villages and assign internet service provider companies to provide free Wi-Fi services to their tenants under a government corporate account. The seventh risk is the disparate customer experiences from the information technology system due to a lack of familiarity with the online taxation system. As a strategy to address this risk, the tax department must offer a prolonged and intensive information and education communication training on online tax filing in public buildings, universities, schools and company sites. The Tax Department can also offer online tax return filing training for the walk-in visitors to the department. The department can emphasize its commitment to honesty and integrity in its business dealings with the taxpayers. The eighth risk is the tax formula calculation which highlights the complications of EU-wide consolidation relying on a common-base definition. Menendez (2005) argued that the tax should be uniform since the present constitution was intended to affect individuals, and not states with a few exceptions. The Value Added Tax system in the revenue side turned all European residents into European taxpayers. The main difficulty of a concept of applying a broad personal income tax base which admits of no exemptions or deductions leads to the establishment of low statutory rates. A strategic approach to address this risk is by entering into several diplomatic negotiations with other EU member countries so as to set a uniform personal income tax base and rate which is easier to monitor by the tax department. The tax in the EU area concentrates heavily on the labor markets. Labor income is heavily taxed in Austria, Belgium, France, Italy and the Nordic countries while the United Kingdom, Ireland, and Portugal stand out for taxing labor income at an average effective rate approximately equal to that of the United States and Japan. (Economy Watch). In general, tax rates influence the equity market because they have an effect on the expected after-tax return to taxable investors, which is included in equity calculations. The after-tax returns depend directly on the corporate tax rate and both the dividend and capital gains rates. The tax returns also depend on the individual tax rate because employees have to be paid more if their personal tax rates go up. (David Malpass, 2008). The ninth risk is the lack of government finances or budget for this online tax system. This risk is best managed by explaining and relating with the Members of the Parliament regarding the importance of generating a substantial level of taxes and enjoying an improved tax collection that this online tax system guarantees. The Members of Parliament can then be requested to allot the desired budget for proper appropriations. The tax employees can also carry out an information campaign to all the individual taxpayers on the added convenience of doing the returns quickly. Then the online tax project coordinators can discuss and meet with top government policymakers and officials and make them realize the benefit of getting a larger tax collection from a working online tax system. The tenth risk is the constant security threat posed by internet hackers which can affect the system and the possibility of the occurrence of a security breach. An internet hacker could gain full control of the online tax network because of inadequate security controls over routers and switchers. The online tax system relies on thousands of routers and switches that insure data is routed and managed effectively internally. The system uses specific security applications that require account names and passwords. Some tax department employees and private contractors can access the routers and switches and change security configurations by reconfiguring these so as to disrupt computer operations and steal taxpayer information in various designs. The sensitive personal information can then be diverted to unauthorized systems or computer systems for these to be sold outside. The tax departments of developed countries also experience computer security flaws. Frank Barbetta (1996:26) stated that the US Internal Revenue Service (IRS) have experienced major computer-security flaws that could result in an unauthorized access to tax returns. Based on the inspections carried out in five IRS facilities, the results had revealed significant security vulnerabilities. Approximately 14 percent of all the user accounts had remained active an average of 139 days after IRS employees left the organization with two suspicious accesses done through one account. In addition, two-thirds of the 12 system administrators interviewed did not maintain or document, configuration baselines for systems they controlled and therefore, they had no way to detect unauthorized changes. The main cause for the poor level of US Internal Revenue Service computer security is attributed to widespread confusion about security procedures by designated system administrators who are charged with the operations of systems and the security specialists who are tasked with reviewing audit trails. (Peter Piazza, 2004:48). The US Federal Tax Commission reported that the incidence of fraudulent tax returns in which someone steals a workers identity, files a return and collects the overpaid taxes has risen at a steady rate of 8% for 2007 alone. (US Federal Tax Commission). Identity theft continues unabated as consumers transact online. The website of a UK firm, TJX, was accessed scale by a hacker who got more than 40 million credit cards information. The hackers were able to crack TJX’s data encryption system, and grabbed unencrypted data corresponding to retail payment. Hackers have planted unauthorized software on TJXs computer network which resulted in the stealing of at least 100 files containing personal data on millions of accounts from systems in Framingham, USand Watford in the UK.(Antony Savvas, 2007). In order to minimize identity theft, the government’s tax department can take steps to improve monitoring of routers and switches and protecting taxpayer data. The Tax Department can hire the services of an expert IT firm to improve the security capabilities of the government’s main technology assets and implement several extensive intrusion-monitoring capabilities to detect and signal potential security breaches. The special service fees for this IT company can be charged to the annual operating budget of the online tax system. The IT company can also schedule the annual business tax calendar and responsibility. Moreover, the tax department can pinpoint employees who will have responsibility for maintaining Windows workstations and servers and those who enjoy system administrator rights with a high level of access to the tax system. Other strategies can also include the development of a fixed and reliable methodology to evaluate the monthly performance of the system administrators and security specialists assigned to monitor the system. Another strategy to address the risk is to identify and assess the knowledge, skills, and abilities of these tax personnel. Filing income tax returns has always been an unsettling task for most citizens which may result in nervousness, anxiety attacks, erroneous filing and in sad cases, the non-filing of returns. For a regular citizen, filing an income tax return can be quite confusing and it can even put a strain on a taxpayer’s time and resources. Hence, the possibility of making tax return filing easier by applying information technology is considered as innovative, convenient and a time saving service. This new system can also help taxpayers pay their taxes with greater accuracy and regularity. However, this online tax system presents ten corresponding risks which require an able and effective approach so as to prevent the system’s breakdown. This system also minimizes opportunities for public officials to demand corrupt payments in return for government information. Finally, an online and user-friendly platform for tax payers will enable them to meet their tax obligations and manage taxes in an easy and cost-effective manner. References Barbetta, Frank.( August 8, 1996) Will Taxation Stifle Internet Commerce?. Business Communications Review. Volume: 26. Issue: 1 Page Number: 16. De Rugy, Veronique. (2002). “European Union Tax Cartel Is Bad for U.S. Economy.” The Cato Institute. Graafland-Essers, Irma and Emile Ettedgui. (2003). Benchmarking E-Government in Europe and the U.S.. Santa Monica, CA. : RAND. Menendez, Agustin, Jose. (2003). “Taxing Europe: Two cases for a European power to tax.” ARENA Working Paper No 3/03. Piazza, Peter. (April 2004) Security Issues Tax IRS System Administrators. Security Management. Volume: 48. Issue: 4. Page Number: 38 Micossi1, Stefano Paola Parascandolo and Barbara Triberti.(2003).”Efficient Taxation of Multinational Enterprises in the European Union. BEEP briefing. Online references EU Tax Systems. Economy watch. Available from: http://www.economywatch.com/business-and-economy/eu-tax-system.html. Accessed on 8 August 2008. US Federal Tax Commission (February 2005). “Take Charge: Fighting Back Against Identity Theft.” Available from: http://www.ftc.gov/bcp/edu/pubs/consumer/idtheft/idt04.shtm. Accessed on August 14, 2008. Malpass, David. (July 11, 2008) “Fiscal Update: Tax Risk in 2009 Still Hard To Price.” Washington Commentary. Encima Global. Available from: http://encimaglobal.com/upload/fiscalupdate.pdf. Accessed on August 14, 2008.. Murphy, Richard. Business “Taxes are lowest in Middle East and Africa.” Available from: http://www.taxresearch.org.uk/Blog/2007/11/30/pwcs-total-tax-the-fundamental-accounting-flaw/. Accessed on August 15, 2008. Savvas, Antony. (April 2, 2007) “TJX hack the biggest in history.” Available from: http://www.computerweekly.com/Articles/2007/04/02/222827/tjx-hack-the-biggest-in-history.htm. Accessed on August 14, 2008. What is Taxed.com. Available from: http://www.google.com.ph/imgres?imgurl=http://www.whatistaxed.com/images/diagram_income_tax.gif&imgrefurl=http://www.whatistaxed.com/diagram.htm&h=408&w=695&sz=24&tbnid=CpdmG-EBaIEJ::&tbnh=82&tbnw=139&prev=/images%3Fq%3DOnline%2Btax%2BDiagram&hl=en&sa=X&oi=image_result&resnum=1&ct=image&cd=1. Accessed on August 15, 2008. Read More