## CHAPTER 1.

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### Systems Approach to Organizational Design: Key Terms and Definitions
- Systems approach: All parts of an organization are interrelated and interdependent; OD must focus on interactions across parts rather than changes in isolation. When one change is made, impacts on other parts of the wider tax system must be evaluated and adjustments made.
- Organization: The way people and functions are organized, commonly shown as a static organizational chart/diagram/structure that groups people to deliver mission and goals.
- OD: A step-by-step methodology to align key components of the organization to ensure best fit for delivering the organization’s mission while considering external and internal factors. Organizational design/redesign may involve a single process or changes to the entire organizational model.

### Elements of the System
- Core components of OD:
  - (1) the organization’s strategy and strategic goals
  - (2) its structure
  - (3) human resources
  - (4) its culture
- Strategic goals:
  - Outcomes the administration is pursuing to optimize the collection of revenue.
  - Set out in the administration’s strategic plan, which should include mission and vision statements and the initiatives to achieve the strategic goals.
- Structure:
  - How tasks are grouped; high-level diagram of hierarchy, subordination, and structural units; detailed level expressed as jobs or positions within each unit.
- Human resources:
  - Complement of employees, their location, and characteristics influencing performance.
  - Key attributes: skills, knowledge, behaviors, and experiences (competencies).
  - Requires long-term workforce planning and plans to upgrade or redeploy competencies.
- Culture:
  - Organizational culture and country culture; collective mental thinking, beliefs, and behaviors; combination of formal corporate culture and informal culture within social groupings.
- Internal factors to assess:
  - Size of the administration
  - Maturity of the administration
  - Level of automation
  - Availability of data
- External factors to assess:
  - Pressure to undertake a reform program
  - Expectations for greater inter-agency connection, increased compliance, and increased public trust and confidence
- Emphasis:
  - “Organizational design or redesign usually affects all elements of an administration’s organizational arrangements, no matter what the scale of the change is.”

### Foundational Principles of Organizational Design
- Clear accountabilities:
  - Each department, division, section, or unit needs a clear mandate and relevant performance measures; each area requires a leader responsible for the unit’s work.
- Sensitivity of certain functions:
  - Some taxpayer-related information and other data (budget policy changes, salary information, risk tolerance information) are sensitive; OD should consider these when deciding reporting lines and workflows.
- Independence of some key functions:
  - Internal control/assurance: develops ethical conduct standards and conducts internal investigations; should report directly to the head of the organization.
  - Internal audit: assures organizational risk management, governance, and effective internal control processes; should report to the head of the organization or the management board.
- Manageable spans of control:
  - Managerial span depends on nature of work and capabilities; managers handle administrative/people issues and functional guidance/monitoring.
- Size of the organization:
  - Influences grouping of activities and centralization/decentralization decisions.
- Level of automation:
  - Impacts organizational footprint (example: when e-filing is available, fewer employees required for processing returns); affects number of employees needed, competencies required, number of organizational units, and centralization vs. dispersion of resources.
- Separation of HQ and FO:
  - HQ role differs from operational areas; HQ responsibilities include designing the tax administration system, strategies, business processes, administrative policies, performance standards; contributing to policy development; setting program direction; guiding and monitoring program delivery; ensuring consistent application of processes across national operations.
- Caution:
  - “OD is not a quick fix; it takes time to deliver the desired outcomes.”
  - Leaders should assess whether redesign is the best response or if less intrusive approaches would suffice.
  - “There is no perfect tax administration organizational model. An administration’s culture, people, and strategy will shape the OD outcomes.”

### Process of Organizational Design
- Schematic features:
  - Each step builds on the previous one; feedback loop after each step; final step includes evaluation based on objective set in first step.
- Key steps:
  - Objective:
    - Define intended achievements and success criteria; review existing OD and performance; outcome may be that structure need not change and reorganization of work or relationships would suffice.
  - New design:
    - Develop design using systems approach, foundational principles, core components, and external/internal factors; involve senior leaders and employees for buy-in; consult other stakeholders as necessary.
  - Plan:
    - After approval, develop detailed implementation plan specifying how business-as-usual will not be materially impacted; include phases, pilot sites, critical path, oversight and governance, reporting protocols; consider workforce downsizing or recruitment, amending procedural guidelines, information system changes, and communication products.
  - Implement and evaluate:
    - Monitor implementation closely and amend design as required; redesign considered implemented once performance of new design is tested to satisfaction of main stakeholders against defined objective and success criteria; evaluation is integral, especially for phased implementation where success of prior phase is precondition for next phase.
- Postimplementation review (PIR):
  - Performed after implementation; critically examines whether project outcomes were met, how effectively project was run, and lessons for future projects and initiatives.
- Warning:
  - “In many cases, ambitious redesign plans have failed because a systems approach to OD was not taken.”

### Organizational Fit and Design Parameters
- Objective: Design an organization able to execute business strategies within its operating environment.
- Design parameters:
  - Structure:
    - Main organizational building blocks; degree of centralization/decentralization; key drivers for structuring the business to achieve objectives; definition of support areas.
  - People aspects:
    - Required skills, capabilities, and competencies; selection, recruitment, training, and reward approaches; leadership style; internal communication; desired corporate culture.
  - Integration:
    - How coordination within and between units occurs; key business decisions, participants, and decision implementation.

### Box 1.1 — Key Areas of Consideration for the OD of a Tax Administration (summary)
- Pre-implementation diagnostics:
  - Understand issues to be fixed; issues may be addressable without changing structure (e.g., information flows, governance, accountabilities).
- Pace, planning, resourcing, and governance:
  - Implementation requires careful planning, proper resourcing, effective change management, and sound governance; OD is not a quick fix.
- Process rework and scope of OD:
  - Consider whether major tax and support processes need reworking; OD focuses on how, where, and when work is done, not just the organizational chart.
- Caution on “minor changes”:
  - Minor changes (e.g., changing a reporting line) can have major implications; assess underlying principles of current OD before changing.
- Systems view and external constraints:
  - Apply holistic systems view whether changes are internally initiated or externally imposed.
- Human resources framework:
  - Understand HR framework and limitations to determine feasibility and support needs.

*Source: BOX 1.1. Key Areas of Consideration for the OD of a Tax Administration.*

### Box 2.1 — Key Features of a Modern Tax Administration (summary)
- Key features:
  - A single tax administration for all national taxes and core functions
  - Strong internal and external governance arrangements
  - An organizational structure that is function or function/segment based (hybrid)
  - Separation of HQ and FO
  - A strong performance management system
  - Taxpayer segmentation based on risk and characteristics
  - Fully automated, well-designed, and efficient business processes
  - Well-designed and delivered programs including risk-based compliance and enforcement programs
  - A “one-stop” taxpayer service window (usually through call centers)
  - An integrated information technology system
  - Strong engagement that facilitates coordination across relevant government agencies
  - Skilled and professional employees who model fairness, honesty, and transparency
- Comparative summary of organizational models:
  - Accountability, management, resourcing differ by model: On tax type; On function; On segment; On function or segment
  - Strengths and limitations summarized for Tax-type, Function, Segment, and Hybrid models
  - Use:
    - Tax-type model: Rare—mainly used in start-up or project mode
    - Function model: Common—principal basis for most tax organizational structures
    - Segment model: Rare—full segmentation is rare, but many models use some segmentation
    - Hybrid model: Common—combines features of other models
- HQ role and critical functions:
  - Sets long-term goals and operational policy; develops annual work program; establishes, monitors, and reports on national performance; guides FO; described as “the brain of the organization.”
  - Critical roles include planning; managing compliance and other risks; monitoring and managing performance; developing programs, policies, and procedures; ensuring transparency, integrity, and accountability; managing reform; maintaining central control over field operations; providing support services; analyzing tax revenues; managing stakeholder relationships.
  - Common inhibitors to HQ effectiveness: inadequate/unstable resourcing; siloed activity; HQ staff doing FO work; fragmented central authority; duplication from isolated structural changes.
- FO role and design considerations:
  - Provide taxpayer services and compliance interventions; administer tax law, collect revenue, deliver frontline services, perform audits, enforce filing, collect tax debts per national policies and standards set by HQ; provide feedback to HQ.
  - Structural notes: regional offices used where networks are extensive; FO should not design national programs or policy.
  - Technology-driven changes: rationalization of office networks; centralization of work; centers of excellence; differentiated office functions; data-driven proactive activities; all-of-government shared services.
  - Access and equity considerations: maintain/improve access when withdrawing presence; address digital divide; consider visibility and proximity effects on compliance.
  - Design principle: FO most effective when tailored to taxpayers’ characteristics and needs, guided by work programs and supported by strong HQ.
- Internal support services and governance functions (HQ-based):
  - Human resources (HR)
  - Finance and budgeting
  - IT/ICT
  - Strategy and planning
  - Internal governance functions (e.g., reform project management)
  - Internal audit and internal affairs
  - Enterprise risk management
  - Policy and legislation
  - International cooperation

*Source: BOX 2.1 and CHAPTER 3, VIRTUAL TRAINING TO ADVANCE REVENUE ADMINISTRATION: Reference Guide.*

### CHAPTER 4 — Specialized Functions and Critical Business Processes
- Specialized functions:
  - OD should consider whether some functions require special placement (proximity or separation depending on task).
- Critical crosscutting processes (examples and placement guidance):
  - Compliance risk management (CRM):
    - CRM is crosscutting; HQ coordination and management are essential.
    - Success factors: dedicated unit with skilled personnel, well-designed CRM process, access to high-quality data.
  - Tax disputes:
    - Requires fair, independent, accessible, and effective dispute resolution.
    - Maintain physical and operational separation from audit and verification functions.
    - Design influenced by tax and judicial legislation; independence fosters taxpayer trust and confidence.
  - Revenue forecasting and analysis:
    - Data gathering for revenue performance, refund tracking, stock of carried forward tax losses; may assist ministry in assessing revenue impact of tax changes and tax expenditures.
    - Placement: either a finance unit focused on revenue reporting or an operations policy and research unit.
    - Footnote 10: Examples of tax expenditures include deductions, exemptions, concessional rates, and deferral of tax liabilities.
  - Tax and crime:
    - Jurisdictions vary on whether tax administrations conduct criminal investigations or refer to other agencies.
    - Placement requires careful consideration of secrecy, due process, and employee safety.
    - Good practice: active reporting line to an executive leader when tax and crime activities are part of the administration.
  - Data analytics and research:
    - Widespread use across administrations; risk of fragmented analytics across units.
    - Generally best positioned as an HQ function due to scope and complexity.
- Placement considerations and related issues:
  - Many corporate functions have obvious homes; some critical functions offer multiple placement options and require careful consideration.
  - Taxpayer register:
    - High-integrity taxpayer register is pivotal; without it, automatic actions for returns, payment management, services, audit, or arrears cannot occur.
    - Ownership may be unclear; tax administration must appoint a gatekeeper responsible for policies and processes to support, maintain, and enhance register integrity and use.
    - Business owner (senior operational employee) preferred over IT as gatekeeper because of register’s importance to managing compliance.

### Implementation Steps, PIR, Toolbox, and Models
- Implementation considerations (Step 3):
  - Decide single-phase vs multiple-phase implementation:
    - Single phase: OD solution implemented in one go followed by the PIR.
    - Multiple phases: used for larger-scale changes; build feedback loops and approval procedures before next phase; plan for “unplanned events” (e.g., changes to management, COVID-19).
  - Ensure involvement of “key players” (HR, Communication/PR, Finance/Infrastructure, IT); consider when to involve internal audit and integrity specialists; plan ongoing internal and external communication.
  - Integrate OD plan into general planning and reporting cycle; ensure resource coordinators/managers contribute and budget approval/funding secured; ensure planning and reporting templates are in place.
  - Prepare a risk management plan: organize periodic reporting of milestones and risks; define communications responsibilities; assess resource change impacts on timetable and outcomes.
  - Document processes and outcomes to build institutional knowledge and lessons learned.
- Conducting PIR (Step 4):
  - PIR evaluates whether OD objectives were met, project effectiveness, lessons for the future, and actions to maximize benefits; tailored to project type; tied to success indicators and benchmarks agreed at project start; documents weaknesses in processes, procedures, and competencies; compiles learnings for future OD projects.
- Toolbox (Appendix 2) — selected tools and purposes:
  - Root Cause Analysis (RCA): problem-solving to identify root causes.
  - Force Field Analysis: preliminary sketching after RCA; stakeholder analysis.
  - Functional Review: maps organization to identify overlaps, conflicts, and obsolete activities.
  - Process/Workflow Mapping and Business Process Reengineering: project management discipline and tools for process redesign.
  - RACI Matrix: clarifies roles—responsible, accountable, consulted, informed.
  - Focus Group (FG): collect qualitative data through interactive discussions.
  - PIR guidance links and resources listed.
- Models and frameworks (examples):
  - McKinsey’s 7S Design Model
  - Transformation Model by the Center of Organizational Design
  - Strategy&’s DNA Approach
  - BCG’s Smart Design Approach
- Document identifiers:
  - ISBN: 9798400269066
  - Document identifier: 2690667984009

*Source: vitara004ea - VIRTUAL TRAINING TO ADVANCE REVENUE ADMINISTRATION: Reference Guide.*

### CHAPTER 1.

### CHAPTER 1.

### Systems Approach to Organizational Design: Key Terms and Definitions
- Systems approach: As all parts of an organization are interrelated and interdependent, it is essential for an OD process to focus on how each part interacts with each other rather than looking at a specific part in isolation. When one change is made, the impacts on other parts of the wider tax system must be evaluated and adjustments made. This is known as taking a systems approach.
- Organization: Refers to the way people and functions are organized. It is commonly presented as a static organizational chart/diagram/structure that shows how people are grouped to deliver the mission and goals of the organization.
- OD: Is a step-by-step methodology to align the key components of the organization to ensure the best fit for the delivery of the organization’s mission while considering relevant external and internal factors. Organizational design/redesign may involve a single process or involve changes to the entire organizational model.

### Elements of the System
- Core components of OD:
  - (1) the organization’s strategy and strategic goals
  - (2) its structure
  - (3) human resources
  - (4) its culture
- Strategic goals:
  - Defined as the outcomes that the administration is pursuing to optimize the collection of revenue.
  - Set out in the administration’s strategic plan, which should include mission and vision statements and the initiatives to achieve the strategic goals.
- Structure:
  - How tasks are grouped within the organization.
  - At the general level, a diagram showing hierarchical levels, subordination, and structural units.
  - At a detailed level, expressed as jobs or positions within each organizational unit.
- Human resources:
  - The complement of employees, their location, and characteristics influencing organizational performance.
  - Key attributes: skills, knowledge, behaviors, and experiences (competencies).
  - Requires long-term workforce planning and plans to upgrade or redeploy competencies.
- Culture:
  - Includes organizational culture and the culture of a country.
  - Represents collective mental thinking, beliefs, and behaviors; combination of formal corporate culture and informal culture within social groupings.
- Internal factors to assess:
  - Size of the administration
  - Maturity of the administration
  - Level of automation
  - Availability of data
- External factors to assess:
  - Pressure to undertake a reform program
  - Expectations for greater inter-agency connection, increased compliance, and increased public trust and confidence
- Emphasis:
  - “Organizational design or redesign usually affects all elements of an administration’s organizational arrangements, no matter what the scale of the change is.”

### Foundational Principles of Organizational Design
- Clear accountabilities:
  - Each department, division, section, or unit needs a clear mandate and relevant performance measures.
  - Each area requires a leader responsible for completion of the work of the unit, section, division, or department.
- Sensitivity of certain functions:
  - Some taxpayer-related information and other data (budget policy changes, salary information, risk tolerance information) are sensitive.
  - OD process should consider these matters when deciding reporting lines and workflows.
- Independence of some key functions:
  - Internal control/assurance:
    - Responsible for developing ethical conduct standards and conducting internal investigations.
    - Should report directly to the head of the organization.
  - Internal audit:
    - Responsible for assuring organizational risk management, governance, and effective internal control processes.
    - Should report to the head of the organization or the management board.
- Manageable spans of control:
  - A manager can effectively manage only a certain number of people and functions; optimal number depends on nature of work and capabilities.
  - Managers have dual dimensions:
    - Administrative and people issues: depend on established work routines and corporate support functions.
    - Functional guidance and monitoring: depends on complexity of work, technical delegation, operational business processes, and automation of workflows.
- Size of the organization:
  - Influences grouping of activities and centralization/decentralization decisions.
- Level of automation:
  - Impacts organizational footprint.
  - Example: When e-filing is available, fewer employees will be required for processing returns.
  - Affects number of employees needed, competencies required, number of organizational units, and centralization vs. dispersion of resources.
- Separation of headquarters (HQ) and field offices:
  - HQ role is significantly different from operational areas.
  - HQ responsibilities: designing the tax administration system, strategies, business processes, administrative policies, performance standards; contributing to policy development; setting program direction; guiding and monitoring program delivery; ensuring consistent application of processes across national operations.
- Caution:
  - “OD is not a quick fix; it takes time to deliver the desired outcomes.”
  - Leaders should assess whether redesign is the best response or whether less intrusive approaches (e.g., establishing a project team for a fixed period) are preferable.
  - “There is no perfect tax administration organizational model. An administration’s culture, people, and strategy will shape the OD outcomes.”

### Process of Organizational Design
- Schematic features (Figure 1.2):
  - Each step is built on the previous one.
  - Feedback loop after each step to check and adjust as required.
  - Final step includes an evaluation based on the objective set out in the first step.
- Key steps described:
  - Objective:
    - Define what the redesign is intended to achieve and the success criteria.
    - Review existing OD and performance against the objective to determine critical areas for examination.
    - Outcome may be that structure does not need change and reorganization of work or relationships would suffice.
  - New design:
    - Develop a new design using a systems approach, applying foundational principles, reviewing core components, and considering external and internal factors.
    - Involving senior leaders and employees increases buy-in and ownership.
    - Consultation with other stakeholders may be necessary.
  - Plan:
    - After approval, develop a detailed implementation plan.
    - Plan should detail how business-as-usual activity will not be materially impacted.
    - Include phases of implementation, pilot sites, critical path of activities, oversight and governance arrangements, reporting protocols.
    - Consider workforce downsizing or recruitment, amending procedural guidelines, information system changes, and communication products.
  - Implement and evaluate:
    - Monitor implementation closely and amend design as required.
    - Redesign is considered implemented once performance of the new design is tested to the satisfaction of main stakeholders against defined objective and success criteria.
    - Evaluation is integral, especially for phased implementation where success of prior phase is precondition for next phase.
- Postimplementation review (PIR):
  - Performed after implementation.
  - Critically examines:
    - Whether the project outcomes were met
    - How effectively the project was run
    - Lessons for future projects and initiatives
- Warning:
  - “In many cases, ambitious redesign plans have failed because a systems approach to OD was not taken.”

### Organizational Fit and Design Parameters
- Objective: Design an organization able to execute business strategies within its operating environment.
- Design parameters (Figure 1.3):
  - Structure:
    - What are the main organizational building blocks?
    - What degree of centralization/decentralization is required?
    - What are the key drivers around which the business should be structured in order for it to achieve its objectives?
    - How are the support areas defined?
  - People aspects:
    - What kind of skills, capabilities, and competencies do employees need?
    - How should people be selected, recruited, trained, and rewarded?
    - What leadership style should be displayed?
    - How do we communicate with our people?
    - What should be the corporate culture?
  - Integration:
    - How does coordination within and between units take place?
    - What are the key business decisions, who needs to participate in them, and how are the decisions made and implemented?
- Box 1.1:
  - Summarizes the key areas to consider when undertaking an OD of a tax administration (referenced in the chapter).

*Source: vitara004ea - CHAPTER 1.*

### BOX  1.1.  Key Areas of Consideration for the OD of a Tax Administration

### BOX  1.1.  Key Areas of Consideration for the OD of a Tax Administration

### Overview
- The box outlines practical points to consider before and during organizational redesign (OD) of a tax administration.
- Note: OD = organizational design.

### Pre-implementation diagnostics
- Before implementing organizational redesign, ensure there is a clear understanding of the issues to be fixed.
- It may be the case that identified issues can be addressed without changing the organizational structure. For example, information flows could be reviewed and adjusted, governance arrangements enhanced, or accountabilities strengthened.

### Pace, planning, resourcing, and governance
- Take your time. Implementation requires careful planning, proper resourcing, effective change management, and sound governance.
- Organizational redesign is not a quick fix; it takes time to implement and to deliver the desired outcomes.

### Process rework and scope of OD
- Consider if major tax and support processes need to be reworked.
- OD is not about changing the organizational chart but about redesigning how, where, and when work is done.

### Caution on “minor changes”
- Be cautious not to underestimate the impact of “minor changes.”
- Frequently, what seem like minor issues, for example, changing a reporting line, may have major implications and undo key aspects of the OD.
- Consider the principles that underpin the current OD to understand whether or not the current design remains valid against the merits of the proposed changes.

### Systems view and external constraints
- Take a holistic or systems view of any changes.
- Whether it is something initiated by the administration, or imposed by an external source (e.g., ministerial request), the systems approach should be taken.
- This will ensure any design change is considered in the context of the entire operation and does not create new problems elsewhere.

### Human resources framework
- Understand the human resources (HR) framework and know its limitations.
- This will help determine what is possible and where other assistance and support may be needed.

*Source: BOX  1.1. Key Areas of Consideration for the OD of a Tax Administration.*

### BOX 2.1.  Key Features of a Modern Tax Administration

### BOX 2.1.  Key Features of a Modern Tax Administration

### Key features
- A single tax administration for all national taxes and core functions
- Strong internal and external governance arrangements
- An organizational structure that is function or function/segment based (hybrid)
- Separation of HQ and FO
- A strong performance management system
- Taxpayer segmentation based on risk and characteristics
- Fully automated, well-designed, and efficient business processes
- Well-designed and delivered programs including risk-based compliance and enforcement programs
- A “one-stop” taxpayer service window (usually through call centers)
- An integrated information technology system
- Strong engagement that facilitates coordination across relevant government agencies
- Skilled and professional employees who model fairness, honesty, and transparency

Note: FO = field operations; HQ = headquarters.

### Comparing tax administration organizational models — summary of features, strengths, limitations, and use
- Accountability: On tax type; On function; On segment; On function or segment
- Management: On tax type; On function; On segment; On function or segment
- Resourcing: Functions with tax types; Functions within segments; Specific to units and functions
- Strengths:
  - Tax-type model: Tax-type focus; Establishing new business line; Standardization; Excellence centers
  - Function model: Whole-of-taxpayer view; Improved compliance over tax-type model; Better resource management; Systematic taxpayer view allows adaptive work practices; Excellence centers
  - Segment model: Improved compliance; Better resource management; Compliance burden reduced; Improved end-to-end thinking and design; Allows the tax administration to rethink what its role is in the tax system; Lower government cost of operations; Excellence centers
  - Hybrid model: Draws together features of other models and emerging approaches
- Limitations:
  - Tax-type model: Duplication of activity; Lack of internal synergy; No whole-of-taxpayer view; Can increase compliance burden
  - Function model: Inhibits end-to-end thinking; Taxpayer not treated holistically; Increased compliance burden; Introduces matrix management; Higher cost of operation
  - Segment model: Duplication; Less internal synergy; Major reliance on data, analytics, and reporting; Requires matrix management; Requires new nontax competencies; Lifts management complexity
  - Hybrid model: Major reliance on data, analytics, and reporting; Requires matrix management
- Use:
  - Tax-type model: Rare—mainly now used in start-up or project mode in implementing new tax types
  - Function model: Common—principal basis for most tax organizational structures
  - Segment model: Rare—full segmentation is rare, but most models use some segmentation
  - Hybrid model: Common—draws together features of other models and emerging approaches

### Headquarters (HQ) — role and critical functions
- Primary responsibilities:
  - Sets long-term goals and operational policy
  - Develops an annual work program
  - Establishes, monitors, and reports on national performance
  - Guides field operational units
- HQ responsibilities described as “the brain of the organization,” including ensuring the organization is well positioned to take advantage of new technologies, changes in the wider tax ecosystem, and pursuing new opportunities.
- Critical roles performed by Headquarters (Box 3.1):
  - Planning: sets medium-term strategic direction and corporate priorities, prepares national work plans, and allocates resources in line with the organization’s goals.
  - Managing compliance and other risks: identifies and assesses compliance risks and enterprise risks and develops strategies to mitigate those risks.
  - Monitoring and managing performance: routinely measures and evaluates the organization’s performance to ascertain the extent goals and objectives are being achieved.
  - Developing programs, policies, and procedures: designs taxpayer service and enforcement programs and core business processes and prepares administrative policies and procedures for national application.
  - Ensuring transparency, integrity, and accountability: establishes and maintains the governance framework of transparency and accountability.
  - Managing reform: develops and manages the organization’s reform agenda.
  - Maintaining central control over field operations: directs, advises, and monitors field offices to ensure national operational plans and performance standards are met and programs and policies are delivered uniformly.
  - Providing support services: includes IT, HR, finance, and specialist tax technical services (mostly legal) to the entire organization.
  - Analyzing tax revenues: provides input to government tax revenue estimating and forecasting processes and supports tax administration planning and compliance risk management.
  - Managing relationships with stakeholders: maintains effective working relationships with stakeholders who can affect or be affected by the tax administration’s actions, processes, and policies.
- HQ should decide work priorities, identify volumes, performance standards, and funding allocations for work, and prioritize work tasks for FO. Business rules may determine case selection and automated actions through IT systems.
- Common factors that inhibit HQ effectiveness:
  - Inadequate and/or unstable resourcing of the HQ function
  - Siloed function or segment activity
  - HQ employees engaged in operational work that is more appropriate for FO
  - Fragmented authority and functions at the central level
  - Duplication of effort due to isolated structural changes

### Field Operations (FO) — role, changing nature, and design considerations
- Typical responsibilities:
  - Provide taxpayer services and compliance interventions through branch, district, or local offices
  - Administer the tax law, collect revenue, and provide services to taxpayers
  - Deliver frontline services, perform audits, enforce filing, and collect tax debts in line with national policies, procedures, and performance standards set by HQ
  - Provide feedback on the effectiveness and efficiency of HQ processes, procedures, guidelines, and policies
- Structural notes:
  - Where networks are extensive, regional offices are often used to ensure spans of control and to coordinate between HQ and operational offices; regional offices often focus on management and administrative issues.
  - FO should not have responsibility for national program design, planning, and policymaking.
- Technology-driven changes:
  - Use and locations of FO: many administrations have rationalized office networks, often associated with wider reforms.
  - Different office structures and work arrangements: centralization of work, establishment of centers of excellence, and differentiation of office functions (e.g., audit in one office but not another).
  - More service-orientated approaches: using data to undertake proactive activities to address tax compliance risks, register taxpayers, and follow up outstanding declarations and debt.
  - More all-of-government activity: working with other government bodies to deliver shared services and taxpayer-centered business processes (e.g., integrated business registration processes).
- Access and equity considerations:
  - Access: when presence or services are withdrawn, administrations must consider how to maintain and improve taxpayer access and compliance.
  - Digital divide: administrations must support taxpayers who want to comply but have limited access to ICT.
  - Visibility and proximity: reduced local presence can affect perceived activity and compliance, with implications across cultural diversity, size, and geographic location.
- Design principle: FO are most effective when tailored to taxpayers’ characteristics and needs, guided by well-designed work programs and supported by a strong HQ function.

### Internal (corporate) support services and governance functions
- Major HQ support functions:
  - Human resources (HR): staffing and recruitment, remuneration, employee relations, employee training and upskilling, and performance management.
  - Finance and budgeting: management and oversight of the annual budget allocated by government, allocation to business units, internal and external reporting, accounting procedures, systems, and policies; often manages procurement activity.
  - IT/ICT: managing technical environment and software, software and hardware enhancements, and storage and security of taxpayer electronic information.
  - Strategy and planning: annual planning process, delivery of corporate planning documents including the strategic plan, oversight of operational plans, monitoring and reporting on achievement against plans.
  - Internal governance functions: HQ-based functions (e.g., reform project management) reporting to the head of the tax administration or an executive committee.
  - Internal audit and internal affairs: development of an annual risk-based internal audit plan; undertaking internal audits of key business systems, processes, and programs; conducting internal investigations within delegated powers.
  - Enterprise risk management: often situated with other core corporate functions such as internal audit, HR, and finance.
  - Policy and legislation: interpretation of tax laws, legal advice and guidance to FO, taxpayer rulings, guidance notes and brochures, central role in tax disputes and litigation, review of administrative decisions.
  - International cooperation: facilitates cooperation with international agencies for capacity development, exchange of information services, and other international enforcement authorities.

*Source: BOX 2.1 and CHAPTER 3, VIRTUAL TRAINING TO ADVANCE REVENUE ADMINISTRATION: Reference Guide.*

### CHAPTER 4.

### CHAPTER 4.

### Specialized Functions
- An organizational design or redesign of a tax administration should consider if some functions require special attention.
- Some functions are more efficient and effective when placed in close proximity (e.g., compliance risk management and strategic planning) or physically distanced (e.g., audit and the disputes resolution unit).
- This chapter discusses specialized functions and their placement within a tax administration.

### Critical Business Processes
- Tax administrations have a range of critical activities or processes that require careful consideration about where they are placed in the organization.
- Many critical areas are crosscutting and cut across the normal vertical lines of authority, requiring an understanding of how accountabilities are managed across the organization.
- Examples of crosscutting critical business processes include:

  - Compliance risk management (CRM):
    - The crosscutting nature of CRM means care needs to be exercised in the placement of management responsibility for developing compliance improvement plans and for overseeing delivery of those plans.
    - HQ coordination and management of the CRM process is essential.
    - A dedicated unit with skilled personnel, a well-designed CRM process, and access to high-quality data are critical success factors for effective CRM.

  - Tax disputes:
    - A fair, independent, accessible, and effective disputes resolution process is an essential element of an effective tax system.
    - Separation, both physically and operationally, from audit and verification function should be maintained.
    - The precise design of the function will be strongly influenced by tax and judicial legislation and processes in each jurisdiction.
    - The independence and fairness demonstrated by this function plays a critical role in building taxpayers’ trust and confidence in the tax administration.

  - Revenue forecasting and analysis:
    - Data gathering plays an important role in revenue performance, monitoring, and reporting tax revenue outcomes, tracking refunds, and the stock of carried forward tax losses.
    - This work often includes analyzing tax collection trends, revenue yields from audits, and other compliance management-related activities and payment behavior across tax types and taxpayer segments.
    - In some countries, it includes assisting the relevant ministry in:
      - (1) assessing the impact on revenues of new taxes (or changes to existing ones) being considered by government;
      - (2) identifying the revenue effects of tax expenditures (i.e., the value of revenue foregone by government because of concessions10); and
      - (3) calculating the amount of past years’ tax losses yet to be recovered.
    - Placement of this function is in either a finance unit that has a focus on revenue reporting or an operations policy and research unit.
    - Footnote 10: For example, deductions, exemptions, concessional rates, and deferral of tax liabilities

  - Tax and crime:
    - Jurisdiction of tax administrations varies widely; some can perform criminal (tax fraud) investigations, while others must hand over investigation responsibility to other agencies or departments.
    - Placement of, and responsibility for, such work requires careful consideration to ensure secrecy, due process, and safety of employees are fully addressed.
    - Where tax and crime activities are part of the tax administration, it is good practice to have an active reporting line to an executive leader.
    - The independence and fairness demonstrated by this function are critical to public and judicial confidence in the activities of the tax administration.

  - Data analytics and research:
    - The use of data analytics is now widespread across tax administrations.
    - There is a risk that individual units will establish their own analytics and research activities.
    - Because of the scope and complexity of a contemporary analytics function, it is generally accepted that it is best positioned as an HQ function.

### Placement considerations and related issues
- Many corporate functions (planning and budgeting, reporting and monitoring, performance management) have obvious “homes”; several critical functions present multiple location options and require careful consideration.
- Taxpayer register:
  - Maintenance of a high-integrity taxpayer register is pivotal to effective tax administration.
  - Without the register, automatic actions for returns and payment management, services, audit, or tax arrears cannot occur.
  - In many organizations, ownership of the taxpayer register is not clear.
  - The tax administration must have an appointed gatekeeper who is responsible for overseeing the policies and processes to support, maintain, and enhance the integrity and use of the taxpayer register.
  - Although there may be a tendency to think IT is an appropriate gatekeeper, because the register is so important to managing compliance, a business owner (a senior employee from an operational area of the administration) would be better placed to maintain the register and ensure the accuracy and completeness of taxpayer information.

*Source: vitara004ea - CHAPTER 4.*

### conclusions. This will help ensure the approach is robust and the design thinking is grounded.

### conclusions. This will help ensure the approach is robust and the design thinking is grounded.

### Step 3: Implementing the new design
- Decide if single-phase or multiple-phase design:
  - Single phase means that the OD solution is implemented in one go followed by the PIR.
  - Multiple phases are normally used for larger-scale changes where the desired outcomes cannot be predicted with certainty for all parts of the system and the system as a whole.
  - Where multiple phases are used, build feedback loops into the action plan together with approval procedures before entering the next phase.
  - Consider what actions to take if the design becomes interrupted by “unplanned events,” such as changes to management or unexpected events, such as the COVID-19 pandemic.
- Ensure all “key players” are involved:
  - What support is needed from HR, Communication/PR, Finance/Infrastructure, and IT?
  - At what stage would it be useful to involve internal audit and internal integrity management specialists to sign off the design from an institutional risk management perspective?
  - Consider ongoing internal and external communication.
- Integrate the OD implementation plan into the general planning and reporting cycle:
  - This is important for awareness, recognition of people who work on it, and resource and outcome planning in general.
  - Ensure all relevant resource coordinators/managers are consulted in a timely manner so that the OD plans are included in the plans for their respective areas (e.g., HR, IT, infrastructure, internal audit, internal control) and that they have a chance to contribute at the right time and not be caught unprepared.
  - Ensure budget approval and obtain funding for the implementation.
  - Are the planning and reporting templates in place? This includes templates for those managing the project as well as for those in oversight or governance roles.
- Prepare a risk management plan:
  - How will the periodic reporting of milestones and risks within the project team be organized?
  - Who is responsible for internal/external communications?
  - How resource changes may impact the delivery timetable and outcomes?
- Document:
  - Documenting processes and outcomes helps build the knowledge base and experience about the administration, the initiatives to redesign it, and the learnings from the processes.

### Step 4: Conducting PIR
- A PIR evaluates whether the OD task objectives were met, how effectively the project was run, lessons for the future, and the actions required to maximize the benefits from the project outputs.
- It is tailored to different types of projects and industries. It should be tied to the essential success indicators and objectives identified and agreed at the beginning of the OD process and can be tied to the benchmarks agreed to in the planning and implementation phases.
- The PIR will also help document weaknesses in processes, procedures, and competencies that may have emerged during the implementation phase. It also provides a comprehensive compendium of learnings and experiences for future OD projects.

### Appendix 2. Toolbox and References
- There are a range of tools available to analyze and visualize the information that may be useful in an OD process. This list is not exhaustive; it is a source of inspiration for further research.
- Tool list (tool — purpose — link):
  - Root Cause Analysis (RCA)
    - RCA is a method of problem solving used for identifying the root causes of faults or problems in various circumstances—processes, IT ops, accidents, incidents, etc.
    - https://www.cms.gov/medicare/provider-enrollment-and-certification/qapi/downloads/fishbonerevised.pdf
  - Force Field Analysis
    - This tool is used for the preliminary sketching after RCA. It provides a good understanding of stakeholder analysis.
    - https://www.mindtools.com/pages/article/newTED_06.htm
  - Functional Review
    - Functional review is a tool for mapping the entire organization identifying overlaps, conflicts of interests, and obsolete activities. It works well provided the “functions” are defined properly. Start by distinguishing between core and support functions, then look at the HQ and FO responsibilities.
    - http://www.globaldeliveryinitiative.org/library/tools/functional-reviews
  - Process/Workflow Mapping and Business Process Reengineering
    - This guide provides further detail into the specific project management discipline and features a range of project management tools.
    - https://creately.com/blog/diagrams/process-mapping-guide/
    - https://en.wikipedia.org/wiki/Business_process_re-engineering
  - RACI Matrix
    - Derived from the four key responsibilities most typically used: responsible, accountable, consulted, and informed. It is used for clarifying and defining roles and responsibilities in cross-functional or departmental projects and processes.
    - https://en.wikipedia.org/wiki/Responsibility_assignment_matrix
  - Focus Group (FG)
    - The idea of FG is to learn about the participants’ reactions and to collect qualitative data through interactive and directed discussions.
    - https://en.wikipedia.org/wiki/Focus_group
  - PIR
    - How to lead a review of the OD process and outcomes and learn how to repeat what worked and discard what didn’t work.
    - https://www.projectmanager.com/blog/post-implementation-review
    - https://yourprojectmanager.com.au/when-what-post-implementation-review-part-2/
- Notes: HQ = headquarters; FO = field operations; OD = organizational design; PIR = postimplementation review.

### Models and Frameworks
- There is a wide variety of frameworks to ensure the systems approach. Below are examples of four of the more commonly used approaches:
  - McKinsey’s 7S Design Model (https://www.mindtools.com/pages/article/newSTR_91.htm)
  - Transformation Model by the Center of Organizational Design (http://www.centerod.com/framework/)
  - Strategy&’s DNA Approach (https://www.strategy-business.com/blog/The-10-Principles-of-Organizational-DNA?gko=dd477)
  - BCG’s Smart Design Approach (https://www.bcg.com/publications/2016/people-organization-new-approach-organization-design)

- ISBN: 9798400269066
- Document identifier: 2690667984009

*VIRTUAL TRAINING TO ADVANCE REVENUE ADMINISTRATION: Reference Guide*

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_Source: https://www.imf.org/-/media/files/publications/manuals-and-guides/2024/english/vitara004ea.pdf_