Options for Evaluating
the Performance of a Tax
Administration Agency
Presented by
Denise Edwards-Dowe
Inland Revenue
Dominica
Reasons for Evaluating Performance
Private and Public Sector organizations require
information on performance:
For decision making
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For development of strategic plans
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To improve the efficiency and effectiveness of their
organization
Regional Tax Administration Agencies
and Performance Evaluation
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With support from the ministries of finance, most tax
administration agencies within the region have attempted to
reform and modernize their agencies
The aim of the modernization, from the point of view of the
ministries of finance has been:- to maximize collection of
revenue
For the most part, the attempts at modernization has taken
place through the development of information technology
systems and restructuring the tax agency along functional
lines
Ministries of finance throughout the region use the annual
revenue collections to measure the performance of their tax
administration agency
Regional Tax Administration Agencies
and Performance Evaluation

For tax administrators in the region, the main
focus is on performance in auditing, processing
of returns, compliance and taxpayer education in
order to satisfy the expectations of the ministries
of finance – maximum revenue collection
Options used to Evaluating the Performance
of Tax Administration Agencies
Three options used by modern tax administration
agencies to measure performance
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Performance measurement system
Benchmarking
Performance standards
Performance Measurement System
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Measuring is the act of assigning numbers to
properties and characteristics
The purpose of a measurement system is to:
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provide information / feedback relative to the goals
of the organization and its programs
enable the organization to identify areas requiring
attention
to perform better in the future
Performance Measurement System
A good performance measurement system has the
following characteristics:
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a plan identifying a set of objectives to be achieved
the activities and resources needed to accomplish those
objectives
a process (IT) for capturing, identifying, collecting and
analyzing information on how well the plan’s objectives
are being met
a process for making decisions concerning activities
undertaken in pursuit of the stated objectives
the corresponding allocation of resources
Performance Measurement System
The performance process:
Step 1:
Define the tax administration agency’s objectives, and the strategies
and resources to be employed to meet those objectives. That key
step includes a determination of what should be measured.
Step 2:
Identify measurable indicators of the agency’s activities, output, and
outcomes. In some instances, measures are more direct than
others.
For example, a tax administration agency that may want to improve
its collections of arrears by 5% can measure its performance
directly. However, that tax administration agency would find it
difficult to measure improvements in the quality of audits. The
agency may be better off measuring its efforts at improving the
quality of the audits. It is important therefore, that measurement
be as direct as possible
Performance Measurement System
The performance process:
Step 3:
Define exactly how to collect and verify the data for the
indicator - it is imperative that everyone understands
the process.
Step 4:
Analyze the data
Step 5:
Forward data to management. Data is to be used to adjust
strategies and reallocate resources
Performance Measurement System
Examples of performance measurement used by
tax administration agencies
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Percent of data entry errors
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Length of time to process a filed return
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Length of time to process a VAT refund
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Percent of complaints about client service
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Length of time to process a VAT registration application
Benchmarking
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Benchmarking is the process of determining who is
the very best, who sets the standard, and what that
standard is.
To benchmark, one first has to determine what has
to be benchmarked and how to measure it.
Most importantly, the object is to figure out how the
winner got to be the best and determine what has to
be done to become a winner as well.
Benchmarking in Tax Administration
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Benchmarking in tax administration involves
learning, sharing information and adopting best
practices to bring about changes in performance.
It allows an agency to improve on its
performance by learning from others.
Benchmarking in Tax Administration
Benchmarking encompasses:
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Regularly comparing aspects of performance with best
practices and regional and national standards;
Identifying gaps in performance;
Seeking fresh approaches to bring about improvements
in performance;
Following through with implementing improvements;
and
Following up by monitoring progress and reviewing the
benefits.
Benchmarking in Tax Administration
Some of the international benchmarks used
in tax administration:
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VAT rate: The international benchmark is for a single
rate of VAT at about 16%
Structure of a tax administration: The international
norm is to have tax administrations organized based on
functions as opposed to tax types.
Auditors as percent of administrative staff: The
international benchmark indicated that about 30% of
professional, administrative staff of the tax
administration should be dedicated to audit.
Performance Standards
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Generally, performance standards indicate
what an organization should do and how the
work of the organization is to be carried out.
These standards are based on the strategies
contained within the organization’s annual
plan and will measure different aspects of
the organization’s operations.
Developing Performance Standards
for Tax Administration Agencies
In developing performance standards, administrators should
ensure that:
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The performance standard is uniformly applied across the
whole organization. Every section should be required to meet
the same basic standard.
The standards should be developed in such a way that the
impact of extraneous factors such as change in the tax roll
will not result their modification.
The performance data should be collected as part of the day to
day activities of the organization, with information recorded
and generated by computers. This will assist the organization
in keep its time and cost of collecting performance data at a
minimum.
Developing Performance Standards
for Tax Administration Agencies
In developing performance standards,
administrators should ensure that:
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Performance standards set in one part of the tax
administration should not conflict with those set in
another part of the administration.
The frequency and timeliness of performance information
should be linked to management information
requirements.
When performance standards are being developed,
managers and staff should be consulted.
Developing Performance Standards
for Tax Administration Agencies
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For tax administrations, the number one priority is the
collection of revenue. To meet this objective, standards
are set to increase voluntary compliance by taxpayers,
increase productivity in the audit and collection
sections, and improve quality of client service.
The functional sections within the tax administration
should be assigned the responsibility of setting and
monitoring these performance standards.
The role of management is to approve of those
standards.
Examples of Performance Standards for
a Modern Tax Administration Agency
Taxpayer registration
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All taxpayer numbers to be issued with three days of
receipt of applications for registration.
Collections
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Revenue targets, by month, tax type and age of arrears.
Return processing
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Percentage of filed income tax returns to be processed
within a month of receipt
Examples of Performance Standards for
a Modern Tax Administration Agency
Non-filers
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All non-filers for VAT to be contacted within five days of
monthly return filing date.
Arrears Collection
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All PAYE taxpayers should be contacted within 10 days of
the monthly payment date to collect outstanding payments
Examples of Performance Standards for
a Modern Tax Administration Agency
Auditing
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Number of audits completed per person year, dollars re-assessed per
case, hours per file.
Client Service
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Number of tax inquiries handled per person years by telephone,
office interview and letter.
Thank you