## _cr15112

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---

### Preface — mission purpose and composition
- Mission: Fiscal Affairs Department (FAD) technical assistance mission, Warsaw, November 12–25, 2014.
- Team: Mr. Juan Toro (Assistant Director, FAD) led; Messrs. Allan Jensen, Michael Thackray (FAD), Barrie Russell, and Ms. Maureen Kidd (FAD external experts).
- Request from: Mr. Jacek Kapica, Undersecretary of State, Ministry of Finance (MOF).
- Main purpose: broad diagnostic of the tax administration and recommendations to improve efficiency and effectiveness.
- Focus areas assessed:
  - (1) governance and organizational structures;
  - (2) compliance management approach;
  - (3) business processes and operational targets/measurement;
  - (4) development, management and implementation of modernization strategy.
- Meetings and visits: MOF officials, Tax Office of Mokotow District, First Mazowiecki Large Taxpayer Office, Fiscal Control Office (Warsaw), private sector and accounting firms.
- Report: final aide‑mémoire submitted November 2014, reviewed by IMF HQ and authorities.
- Structure: Executive Summary and five sections: (I) Tax Collection and Compliance Trends; (II) Current Modernization Initiatives; (III) Institutional Reform for Tax Administration; (IV) Managing Core Tax Operations; (V) Managing Compliance Risks.

### Executive Summary — key findings and strategic imperative
- Collection performance:
  - Combined PIT, CIT, VAT: around 16 points of GDP in 2008; 14 points of GDP in 2009; 13.1 in 2013; projection for 2014: 13.5 points of GDP.
  - VAT evasion (EC study): 18 percent of potential VAT collections in 2010; 25 percent in 2012.
- Recent MOF initiatives: strengthened reporting of local tax offices to tax chambers; consolidated administrative support; increased taxpayer service focus; specialized competence centers; enhanced management/accountability and IT; strengthened risk-based approaches.
- Main assessment:
  - Initiatives are generally positive but lack a cohesive overarching modernization strategy and do not address structural weaknesses.
  - Draft tax administration act maintains split responsibilities across MOF departments and will not deliver a single HQ or unified national tax administration; sixteen tax chambers retain separate organizational status.
- Strategic imperative:
  - Formulate and systematically implement a cohesive modernization strategy with a 5–10 year vision.
  - Key component: establishment of a single, unified, national tax administration.
- Interim and priority actions pending unification:
  - Appoint an empowered modernization leader supported by a high level reform committee and dedicated reform team.
  - Strengthen central HQ and core business functions; benchmark: at least 5 percent of total staff resources at HQ — Poland’s HQ staffing falls well short.
  - Address declining VAT and CIT via coordinated compliance projects for high risk industries; develop strategy for informal economy; consolidate VAT risk analysis using national and external data; undertake coordinated CIT audits of genuinely large taxpayers selected centrally.
  - Consolidate audits and investigations into a single MOF department reporting to the Undersecretary for revenue administration; regroup field audit resources into provincial teams and remove geographic jurisdictional restrictions.
  - Establish a genuine Large Taxpayer Office (LTO) for the largest 1,000 taxpayers (they account for around 50 percent of tax revenues).
  - Consolidate taxpayer service functions under a single manager and develop a comprehensive taxpayer service strategy.
  - Transition to a comprehensive HQ-driven compliance risk management (CRM) model in the medium term.

### Box 1 — selected key recommendations (high level)
- Build new vision for tax administration—complete in early 2015; goal: unified National Tax Administration (headquarters and operational levels) reporting to MOF.
- Appoint modernization leader (possible future head of Tax Administration Service (TAS)) and high‑level reform committee.
- Immediately articulate roles across MOF to create a ‘notional’ single HQ; increase HQ staff to not less than 5 percent of total tax administration staff in medium term.
- Strengthen governance via management committees; review legal impediments by mid 2015.
- Consolidate tax audit and investigation responsibilities into one department during 2015; increase audit workforce to achieve 25 percent of total staff by end 2015.
- Urgent VAT actions: industry-based compliance projects; strategy against grey economy; create single/specialized LTO for top 1,000 taxpayers (national taxes only); HQ-driven customized compliance strategies by taxpayer segment.

### Tax collection and compliance trends — highlighted figures
- Combined PIT, CIT, VAT collections:
  - around 16 points of GDP in 2008;
  - 14 points of GDP in 2009;
  - 13.1 in 2013;
  - projection for 2014: 13.5 points of GDP.
- VAT evasion (EC study): 18 percent in 2010; 25 percent in 2012.
- Excise collections: 3.7 percent of GDP (2012).
- Social security contributions: 13.0 percent of GDP (2012).
- Institutional note: sixteen tax chambers retain separate organizational status under current arrangements and draft legislation.

### VAT efficiency, VAT gap and sectoral fraud evidence
- C-efficiency definition: ratio of VAT receipts to final consumption and government investment, all divided by main VAT rate; Poland’s observed c-efficiency is lower than peers due to noncompliance and a relatively high policy gap (reduced/zero rates and exemptions).
- VAT receipt trends (2006–13):
  - Net VAT receipts declined significantly since 2007 despite a VAT rate increase in 2011.
  - Poland’s VAT receipts are 1.2 percentage points of GDP lower than their 2007 peak (equivalent to 15 percent of VAT revenues).
- CIT developments:
  - CIT revenues as percent of GDP declined since 2008; percentage decline larger than VAT at 33 percent, equivalent to 0.9 percent of GDP since 2007.
- VAT gap studies:
  - EC-CASE study: VAT gap grew from 9 percent of potential liabilities in 2005 to 24 percent in 2012.
  - PwC report: VAT compliance gap grew from PLN 7.1–23.7 billion (0.6–2 percent of GDP) in 2007 to PLN 36.4–58.5 billion (2.3–3.7 percent of GDP) in 2012.
- Nature of VAT fraud and affected sectors: carousel refund fraud prevalent in scrap metal, construction steel, fuels, electronics (mobile phones, computer parts), agricultural goods (oils, sugar), wood industry.
- Refunds and arrears indicators:
  - VAT refunds rose by 37 percent from 2010 to 2013.
  - Gross VAT payments grew by 16 percent from 2010 to 2013.
  - Impact represents loss of some PLN 12 billion, equivalent to around 11 percent of net VAT collections 2010.
  - Number of VAT refunds increased from 1.6 million in 2011 to 1.8 million in 2013 (16 percent increase).
  - VAT arrears and refund growth together indicate strong risk of missing trader fraud.

### Tax administration performance indicators
- Registered taxpayers: over 20 million; majority are PIT taxpayers required to register and file.
- Late filing rates (2010–2013):
  - PIT and CIT returns: between 25–30 percent.
  - VAT returns: around 15 percent.
- Nonfiling rate (PIT, CIT, VAT): around 5 percent.
- Arrears (2011–2013):
  - Overall arrears: 9.2 percent of collection in 2011 → 13.8 percent in 2013.
  - VAT arrears: 14.0 percent → 22.4 percent (major source of arrears growth).
- Write-offs of uncollectable arrears: less than 1 percent of collections overall.
- Audit activity (2011–2013):
  - Audits: 123,000 in 2011 → 93,000 in 2013.
  - Additional taxes identified: PLN 1.1 billion → PLN 2.2 billion (most increase in 2013).
  - Majority of increased additional taxes from audits of taxpayers not controlled by current LTOs.
- Appeals:
  - Total appeals around 15,000 in both 2012 and 2013.
  - Around 40 percent of appeals successful; about half of those at court level.
  - Total amount appealed increased by about 20 percent from 2012 to 2013.

### Data, monitoring and analytical capability gaps
- Analysis and Reporting unit compiles quarterly performance indicators from aggregate uploads; lacks direct access to micro taxpayer data except arrears cases.
- VAT refund aggregates also received by Fiscal Control Department from separate data warehouse — fragmented reporting.
- Need for single unit responsible for reporting collections and fiscal risks and direct access to micro-level returns/payments data.
- Tax Administration Department plans to consolidate 400 individual databases into a single national database in June 2015 (starting with inheritance and gift tax, tax on civil law transactions and flat-rate “Tax Card”); consolidation must deliver relational database usable for data mining and risk analysis.
- Recommendation: create national micro-level taxpayer database (especially VAT) for centralized data mining, risk analysis and revenue/gap analysis.

### Institutional reform — unified Tax Administration Service (TAS) proposal
- Key recommendation: establish unified National Tax Administration (TAS) as single entity with HQ and operational levels.
- Pending TAS creation:
  - Create a ‘notional’ single HQ by clarifying roles across MOF departments; increase HQ staffing to at least 5 percent of total tax administration staff.
  - Strengthen governance via management committees and remove legal impediments by mid 2015.
- Features of proposed TAS (selected):
  - Single TAS chief responsible for all tax administration aspects with authority for strategic and daily operational management; TAS belongs to MOF and is accountable through Undersecretary for revenue administration.
  - All tax field/operational offices under TAS management; all tax-related audit functions and risk management transferred into TAS.
  - TAS should manage its own IT and HR; be responsible for national taxes only; phased implementation possible.
- Immediate implementation steps:
  - Appoint single head of TAS (interim option: director of Tax Administration Department).
  - Develop modernization strategy with 5–10 year vision.
  - Appoint modernization leader, high-level reform committee and dedicated full-time reform team.
  - Build HQ to function as business owner of core processes; consider increasing HQ staff from current roughly 200 to around 800 to 1,000 people over the next twelve months (international practice: at least 5 percent of staff at HQ; base: over 40,000 current staff).
  - Small legal team to review legal framework with a report to management within three months.
  - Streamline field network and rationalize local offices.

### Governance, HQ role and performance management
- Effective HQ tasks (Box 8): strategic direction, annual national work plan, resource allocation, specific performance measures, structured monitoring, variance analysis and corrective actions, standardized business processes, IT ownership, training oversight, advice to field units.
- Current shortcomings:
  - MOF departments under-resourced for full HQ role; HQ-like functions staffed by less than 1 percent of overall resources.
  - Need to clarify roles, accountabilities and reporting lines; fast-track standardized business processes; out-post dedicated HQ teams to tax chambers.
  - Develop standardized performance measurement and national business plans aligned with corporate priorities.

### Tax audit — structure, weaknesses, and reorganization recommendations
- Current split:
  - Customs Control, Tax Inspection and Gambling Control Department: risk analysis and audit program for registered taxpayers; auditors operate in 400 local tax offices with geographic jurisdiction.
  - Fiscal Control Department: focused on informal economy, investigations, provincial field staff (national jurisdiction organized in sixteen provinces).
- Issues:
  - Fragmentation, overlapping powers, no single complete picture of tax risk, audit skewed toward micro/small taxpayers.
  - Tax audit workforce: 4,200 staff (~10 percent of total staff) vs modern benchmark of 25–30 percent.
  - Case selection occurs at local tax office level using IT risk engine; Heads of local tax offices approve final selections — results: focus on micro/small taxpayers.
- Recommendations:
  - Consolidate all tax-related audits under a single Tax Audit Control Department reporting to same Undersecretary as Tax Administration Department and subsumed into TAS when established.
  - Consolidate field audit teams at provincial level; extend auditor jurisdiction to provincial or national level.
  - Strengthen risk analysis, centralize case selection, use market segmentation, secure third party data, build analytics skills.
  - Reallocate resources to build audit workforce to at least 25 percent of total staff over time.

### Taxpayer service, registrations, filing, collections and dispute resolution
- Taxpayer service:
  - Transition underway: e-filing, customer service centers, information campaigns, seminars, National Information Center, tax portal, binding rulings.
  - Fragmented responsibilities; lack of overarching taxpayer services strategy.
  - Recommendation: consolidate taxpayer assistance under dedicated Taxpayer Services manager; develop differentiated services by taxpayer segment.
- Registrations:
  - Identifiers: PESEL (individuals), NIP (ten digit for businesses), Court Registration Number (legal entities); registration processes split across MOE, MOJ, MOF.
  - Central taxpayer register near completion (e-registration project); misalignment across registers remains.
  - Registration risk management weak; tax administration lacks power to refuse registration when pre-registration checks warranted.
  - Recommendation: robust pre/post-registration checks, require securities in high risk cases, keep VAT register free of inactive taxpayers.
- Filing enforcement:
  - E-filing voluntary; around 30 percent file electronically.
  - Returns not pre-filled; 8–10 percent of VAT returns filed late each period; 5–6 percent not filed.
  - Processes not fully automated; high-volume problem (around 70,000 VAT nonfilers per month).
  - Recommendations: set clear performance standards, automate identification/follow-up of nonfilers, require “nil” returns, review penalties, consider power for default assessments.
- Collection enforcement:
  - No standardized procedures; split between Administrative Enforcement (soft measures) and Collection Enforcement (seizure/garnishee).
  - Competence centers exist but function in tax chambers.
  - Recommendation: consolidate collection enforcement for national taxes at provincial level; form project team to clear largest debts starting with largest 200 cases.
- Dispute resolution:
  - Current process: first instance local tax office review; second instance tax chamber reviews whole case; judicial appeals follow.
  - Issues: procedural delays, jurisdictional boundaries cause returns to local office for inquiries, around half of second instance appeals decided for taxpayers relate to procedural errors.
  - Recommendations: streamline appeals to focus on disputed issues, give tax chambers power to conduct necessary enquiries, structured feedback loops between tax chambers and local offices.

### Large Taxpayer Administration — diagnosis and recommended refocus
- Current LTO network: twenty full-functional offices (presence in every province); responsible for around 87,000 taxpayers; LTOs operate like local tax offices with high autonomy.
- Box 9 large taxpayer inclusion criteria: capital groups; banks; insurance; investment and retirement funds; branches of foreign enterprises; legal entities with gross sales ≥ €5 million p.a., hold/control foreign companies, managed by nonresidents.
- Table 2 (2013) key statistics:
  - Overall: Number of taxpayers: 1,690,792; Total turnover (sales): 4,718 (PLN billion); Total VAT paid: 178 (PLN billion); Number of Audits: 63,946.
  - Large (Above 200 million): Number of taxpayers: 2,463 (0.15%); turnover: 2,504 (PLN billion) (53.07% of total turnover); Total VAT paid: 84 (PLN billion) (47.4% of total VAT); Number of Audits: 1,214 (1.92% of all audits).
  - Medium (40 million - 200 million): Number of taxpayers: 9,578 (0.57%); turnover: 777 (16.46%); Total VAT paid: 29 (16.55%); Audits: 3,287 (5.14%).
  - Small (8.5 million - 40 million): Number of taxpayers: 34,876 (2.06%); turnover: 612 (12.96%); Total VAT paid: 25 (13.91%); Audits: 9,349 (14.6%).
  - Micro (0 - 8.5 million): Number of taxpayers: 1,643,875 (97.23%); turnover: 826 (17.51%); Total VAT paid: 39 (22.14%); Audits: 50,096 (78.34%).
- Issues:
  - LTOs captured more than 80,000 taxpayers including many small/micro; ~80 percent of effort expended on small and medium taxpayers.
  - Large taxpayers require individual risk profiles and specialist industry sector teams.
- Recommendation:
  - Establish new LTO responsible only for top 1,000 taxpayers (they account for around 50 percent of total tax revenue), located in Warsaw with national jurisdiction focused on national taxes (CIT, PIT, VAT); recruit best qualified auditors.

### Managing compliance risks — VAT and short‑term priorities
- VAT is highest priority: accounts for 50 percent of total tax revenues administered and VAT gap sharply increased.
- Immediate VAT and compliance actions:
  - Undertake industry-based compliance improvement projects for high risk industries identified in National Action Plan (NAP).
  - Adopt overarching strategy against grey economy; appoint senior VAT risk owner.
  - Establish specialist investigation capability and anti-fraud units within tax administration; cooperate with customs, international cooperation office and judiciary.
  - Strengthen registration compliance: pre-registration visits, post-registration monitoring, fast-track refusal/cancellation and require securities where appropriate, keep VAT register free of inactive taxpayers.
  - Broaden liability powers to hold bona fide traders jointly and severally liable where they should have known of VAT fraud.
  - Increase criminal prosecutions for VAT offences and publicize them; secure high priority from state prosecution authority.
  - Develop stronger revenue and quantitative risk analysis; create simple analytical database to consolidate 400 databases more quickly; integrate VAT records with customs declarations, company formation agents, financial disclosures from banks, administrative co-operation and law enforcement data.

### Industry-based compliance improvement project (Box 11) — process summary
- Steps: engage industry associations; publicize verification program; alert tax practitioners; conduct sample audits to quantify tax at risk; provide remedial advice; request voluntary self-corrections with lenient penalties; offer seminars/advisory visits; ensure enquiries and collections staff apply graduated incentives and sanctions; follow-up audits and prosecutions; publicize results; measure effectiveness (voluntary disclosures, change in tax paid, survey evidence).
- Use of graduated incentives: lenient penalties/payment flexibility for voluntary self-correction; full penalties and prosecution for non-correction.
- Performance metrics and publicized outcomes strengthen deterrence and demonstrate new detection techniques.

### Committees and operational management (Committee structure)
- Three management committees proposed: Operations, Reform, Compliance.
- Purposes:
  - Operations: manage annual business planning and monitor operational performance (weekly meetings).
  - Reform: set strategic direction and oversee reform implementation (monthly).
  - Compliance: manage CRM and integrated compliance strategies (monthly).
- Responsibilities: planning, resourcing, monitoring, prioritizing risks, ensuring integrated response strategies and adequate resourcing.
- Membership examples: Head of tax administration (chair Operations); Directors/Deputy Directors; LTO head; Reform unit; Risk management unit.

### Appendix highlights — CRM and mitigating informality
- CRM features:
  - Market segmentation and corporate prioritization of compliance risks; integrated mix of responses (education, assistance, simplified procedures, audit, enforcement, marketing); annual compliance plan for headline risks.
  - Organizational capabilities: sophisticated risk identification/analysis; effective strategy development; efficient core business operations.
  - Compliance Council (steering committee) chaired by Director General/Deputy Director General with RMU support.
  - RMU functions: Risk identification & analysis team (strategic, tactical, operational levels) and Compliance strategy team (develop integrated responses, secretariat for Compliance Council).
  - RMU staff: statisticians, economists, data analysts and experienced tax administration staff; RMU + data warehouse = “brain” of modern tax administration.
- Mitigating informality (Appendix 8):
  - Informal economy behaviors: unregistered businesses, cash sales, business-to-consumer VAT exclusion, moonlighting, claiming private expenses as business expenses.
  - Strategic responses: reduce community tolerance via communication campaigns; targeted taxpayer services for small businesses and new businesses; manage new businesses as discrete group with early monitoring; incentives for voluntary compliance (remission guidelines, simplified reporting, online self-help, pre-filling returns); promote self-regulation via liaison with tax agents, banks, industry associations; visible and credible enforcement (intelligence, risk identification, case selection, skilled enforcement workforce).

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15112.pdf*

### Preface.................................................................................................................

### _cr15112 - Preface.................................................................................................................

### Preface — mission purpose and composition
- A Fiscal Affairs Department (FAD) technical assistance mission visited Warsaw during the period November 12–25, 2014.
- The mission was led by Mr. Juan Toro (Assistant Director, FAD) and comprised Messrs. Allan Jensen, Michael Thackray (both FAD), Barrie Russell, and Ms. Maureen Kidd (both FAD external experts).
- The mission responded to a request from Mr. Jacek Kapica, Undersecretary of State at the Ministry of Finance (MOF).
- Main purpose: undertake a broad diagnostic of the tax administration and provide recommendations to improve its efficiency and effectiveness.
- Focus areas assessed:
  - (1) appropriate governance and organizational structures;
  - (2) an effective compliance management approach;
  - (3) strong business processes and effective methods to establish operational targets and measure the delivery of these targets;
  - (4) an adequate approach to develop, manage, and implement the tax administration’s modernization strategy.
- Meetings and visits:
  - Meetings with Messrs. Jacek Kapica, Janusz Janowski (Director of the Tax Administration Department at the MOF), deputy directors and senior officials from the Tax Administration Department, and key department directors at the MOF.
  - Visits to the Tax Office of the Mokotow District, the First Mazowiecki Large Taxpayer Office, and the Fiscal Control Office (all in Warsaw).
  - Meetings with representatives from the private sector, accounting firms and private sector associations.
- This report represents the final version of the aide-mémoire submitted to the authorities in November 2014 and was reviewed by IMF headquarters and incorporates comments from the authorities.
- Report structure: Executive Summary and five sections: (I) Tax Collection and Compliance Trends; (II) Current Modernization Initiatives; (III) Institutional Reform for Tax Administration; (IV) Managing Core Tax Operations; (V) Managing Compliance Risks.

### Executive Summary — key findings on performance and strategy
- Collection performance:
  - Combined collection of personal income tax (PIT), corporate income tax (CIT), and value-added tax (VAT) yielded around 16 points of GDP in 2008 and fell to 14 points in 2009.
  - Collections declined to 13.1 in 2013; the projection for 2014 is 13.5 points of GDP.
  - According to a European Commission (EC) study, VAT evasion increased from 18 percent of potential VAT collections in 2010 to 25 percent in 2012.
- Recent MOF initiatives:
  - Strengthened direct reporting of local tax offices to tax chambers (provincial level).
  - Consolidated administrative support into tax chambers.
  - Increased focus on taxpayer service and developed competencies in specialized centers.
  - Enhanced management and accountability frameworks and revamped information technology (IT) systems.
  - Strengthened risk-based approaches, planning and monitoring, standardized core operations, and enhanced IT support tools for taxpayer compliance management.
- Main assessment:
  - Most initiatives go in the right direction but are not part of a cohesive and overarching modernization strategy and do not address structural weaknesses.
  - The draft tax administration act under development maintains split responsibilities across several MOF departments and will not deliver a single headquarters (HQ) to act as the tax administration business owner across the country.
  - Fragmentation will be maintained at operational level with the sixteen tax chambers retaining separate organizational status.
  - Deeper institutional reform is needed.
- Strategic imperative:
  - Formulate and systematically implement a cohesive modernization strategy setting a vision for 5–10 years and prioritizing initiatives that can achieve breakthrough performance improvements.
  - Establishment of a single, unified, national tax administration should be the key component of the modernization strategy to address the most significant structural weakness: lack of a unified national tax administration.
- Interim and priority actions pending unification:
  - Appoint an empowered leader of the modernization program supported by a high level reform committee and a dedicated reform program team.
  - Strengthen central HQ and core business functions; benchmark: successful tax administrations allocate at least 5 percent of total staff resources to HQ functions — staffing of the HQ in Poland falls well short of this benchmark.
  - Address declining tax revenues, especially VAT and CIT, via coordinated compliance projects for high risk industries identified in the National Action Plan; develop an overarching strategy for addressing the informal economy; consolidate VAT risk analysis using national databases and broader external data; undertake coordinated CIT audits of genuinely large taxpayers selected centrally and based on risk.
  - Improve compliance risk management by consolidating responsibility for all tax related audits and investigations into a single MOF department reporting to the Undersecretary responsible for revenue administration—tax and customs; regroup field audit resources into provincial level teams and remove geographic jurisdictional restrictions.
  - Establish a genuine Large Taxpayer Office (LTO) responsible for managing compliance of the largest 1,000 taxpayers (they account for around 50 percent of tax revenues).
  - Consolidate all taxpayer service functions under a single manager and develop a comprehensive taxpayer service strategy.
  - Transition to a comprehensive approach to managing compliance risks in the medium term.

### Box 1 — Summary of key recommendations (selected items)
- Build a new vision for tax administration in Poland—complete in early 2015.
  - Formulate a comprehensive modernization strategy with a key goal: establishment of a unified National Tax Administration as a single entity (headquarters and operational levels) reporting to the MOF and in charge of all matters related to tax administration in Poland.
  - Appoint a modernization leader (and support team) with full powers to develop and implement the strategy; this leader could become the head of the Tax Administration Service (TAS) when created.
  - Appoint a high-level government reform committee to support strategy implementation.
- Enhance initiatives to progress the modernization agenda and support a unified tax administration:
  - Immediately articulate roles across MOF departments to create a ‘notional’ single HQ.
  - Increase staff dedicated to HQ functions, aiming to achieve not less than 5 percent of total staff in tax administration in the medium term.
  - Strengthen governance by creating management committees across key areas.
  - Undertake a review to remove legal impediments to more efficient and effective tax administration by mid 2015.
  - Initiate a program to further consolidate functions from tax offices to a regional level and consider rationalizing the large number of tax offices in the medium term.
- Improve management of core tax operations:
  - Immediately articulate roles, accountabilities and reporting lines for core tax functions and implement standard performance measurement across all departments.
  - Consolidate during 2015 tax audit and investigation responsibilities into one department.
  - Initiate the increase of the audit workforce to achieve 25 percent of total staff by end 2015.
- Strengthen taxpayer compliance management:
  - Urgent action to close the VAT gap by developing (1) industry-based compliance projects; and (2) a strategy against the grey economy, supported by improved revenue and risk analysis.
  - Create promptly a single/specialized LTO for the 1,000 largest taxpayers, focus only on national taxes.
  - Develop HQ-driven customized strategies for managing compliance risks posed by different taxpayer segments.

### Tax collection and compliance trends — highlighted figures and comparisons
- Combined PIT, CIT, and VAT collections:
  - around 16 points of GDP in 2008;
  - 14 points of GDP in 2009;
  - 13.1 in 2013;
  - projection for 2014: 13.5 points of GDP.
- VAT evasion (EC study):
  - 18 percent of potential VAT collections in 2010;
  - 25 percent of potential VAT collections in 2012.
- Excise collections in Poland: 3.7 percent of GDP (2012).
- Social security contributions (SSC) in Poland: 13.0 percent of GDP (2012).
- Institutional configuration note:
  - Sixteen tax chambers at provincial level retain separate organizational status under current arrangements and draft legislation.

### Institutional reform, operations, and compliance management — prioritized actions
- Institutional reform:
  - Key recommendation: establish a unified National Tax Administration (TAS) as a single entity with HQ and operational levels.
  - Pending TAS creation, create a ‘notional’ single HQ by clarifying roles across MOF departments and increase HQ staffing to at least 5 percent of total tax administration staff.
  - Strengthen governance via management committees and remove legal impediments by mid 2015.
- Core operations:
  - Consolidate tax audit and investigation responsibilities into one department during 2015.
  - Increase audit workforce to 25 percent of total staff by end 2015.
  - Consolidate taxpayer service functions and implement standard performance measurement across all departments.
- Compliance risk management:
  - Urgent VAT actions: industry-based compliance projects; strategy against grey economy; consolidate VAT risk analysis using national and external data.
  - Large taxpayer focus: create a single/specialized LTO for the top 1,000 taxpayers (accounting for around 50 percent of tax revenues).
  - Medium-term: adopt a comprehensive HQ-driven compliance risk management model.

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15112.pdf*

### 3.      The efficiency of the VAT in Poland is lower than neighboring countries that

### 3.      The efficiency of the VAT in Poland is lower than neighboring countries that

### VAT efficiency and C-efficiency
- C-efficiency is defined as the ratio of VAT receipts to final consumption and government investment, all divided by the main VAT rate.
- Observed c-efficiency suggests Poland is collecting less of potential VAT than other countries in Europe.
- Observed c-efficiency is affected by:
  - Losses from noncompliance.
  - Coverage of reduced and zero rates and exemptions (the “policy gap”).
- In Poland the policy gap is relatively high and contributes to relatively low observed c-efficiency; higher policy gaps also create a more complex compliance environment for tax administrations.

### Comparative tax revenue shares (as presented in source table)
- Bulgaria: 3.1 2.0 9.2 14.3
- Czech Republic: 3.8 3.6 7.3 14.7 4.0 15.6 1.2 35.5
- France: 8.2 2.5 7.0 17.7 3.5 17.0 7.1 45.3
- Germany: 9.6 1.8 7.3 18.7 3.0 14.4 1.5 37.6
- Hungary: 5.3 1.3 9.7 16.3 4.9 12.7 5.0 38.9
- Italy: 12.1 2.9 6.1 21.1 3.9 13.5 5.9 44.4
- Romania: 5.9 2.2 8.2 16.3
- Slovak Republic: 2.7 2.5 6.0 11.2 3.0 12.4 1.9 28.5
- Spain: 7.4 2.2 5.4 15.0 2.7 11.8 3.4 32.9
- United Kingdom: 9.7 2.9 7.4 20.0 3.7 6.8 4.7 35.2
- Poland: 4.5 2.1 7.1 13.7 3.7 13.0 2.6 33.0

### Trends in VAT and CIT receipts in Poland (2006–13)
- Despite a VAT rate increase in 2011, net VAT receipts declined significantly in Poland since 2007.
- Poland’s VAT receipts are now 1.2 percentage points of GDP lower than their peak in 2007, equivalent to 15 percent of VAT revenues.
- VAT in Poland grew strongly around 2004, dipped in 2008/2009 financial crisis; whereas neighboring countries’ VAT recovered after 2009, Poland’s VAT receipts declined further.
- The 2011 one percentage point VAT rate increase did not prevent a decline in tax collected as a proportion of the VAT tax base.

### CIT developments
- CIT revenues as a percent of GDP have also declined in Poland since 2008.
- The percentage decline in CIT collections is larger than the decline in VAT: 33 percent, equivalent to 0.9 percent of GDP since 2007.
- CIT revenues are more volatile than VAT revenues; the observed decline is also seen in other European countries but remains substantial and could indicate growth in compliance risks.

### VAT gap evidence and studies
- EC-commissioned independent study (CASE for TAXUD) found the VAT gap in Poland grew from 9 percent of potential liabilities in 2005 to 24 percent in 2012.
- PwC report for Poland found the VAT compliance gap grew from PLN 7.1–23.7 billion (0.6–2 percent of GDP) in 2007 to PLN 36.4–58.5 billion (2.3–3.7 percent of GDP) in 2012.
- Both studies’ findings are consistent with falling VAT revenues.

### Nature of VAT fraud and affected sectors
- PwC identified VAT fraud as the key element in the growing VAT gap, with evidence including recurring indictments and EC reports of endemic refund fraud across the EU.
- Carousel refund fraud (a variant of Missing Trader Intra-Community fraud) had a significant presence in sectors including:
  - scrap metal
  - construction steel
  - fuels
  - electronics (mobile phones, computer parts)
  - agricultural goods (oils, sugar)
  - wood industry

### Refunds, arrears, and indicators of missing trader fraud
- VAT refunds in Poland rose by 37 percent from 2010 to 2013.
- Gross VAT payments grew by 16 percent from 2010 to 2013.
- The impact represents a loss of some PLN 12 billion, equivalent to around 11 percent of net VAT collections 2010.
- Number of VAT refunds increased from 1.6 million in 2011 to 1.8 million in 2013, an increase of 16 percent.
- Simultaneous strong growth in refunds and arrears indicates a risk of strong growth in missing trader frauds.
- Most variants of missing trader fraud produce growth in refunds claimed and arrears outstanding, as fraudulent operators claim input tax credits and associated taxpayers go missing before payment, generating arrears.

### Tax administration performance indicators and compliance behavior
- Over 20 million registered taxpayers in Poland; the vast majority are PIT taxpayers who are required to register and file returns.
- Late filing rates (2010–2013):
  - PIT and CIT returns: between 25–30 percent (high, fairly steady).
  - VAT returns: around 15 percent (lower; but many VAT returns claim refunds which are rarely claimed late).
- Nonfiling rate for PIT, CIT, VAT: around 5 percent.
- Arrears of unpaid tax (2011–2013):
  - Overall arrears grew from 9.2 percent of collection in 2011 to 13.8 percent in 2013.
  - VAT arrears grew from 14.0 percent to 22.4 percent (major source of arrears growth).
  - Growth in excise arrears was relatively low.
- Write-offs of uncollectable arrears are low: less than 1 percent of collections overall for all taxes.
- Audit activity and assessments (2011–2013):
  - Number of audits fell from 123,000 in 2011 to 93,000 in 2013.
  - Total additional taxes identified rose from PLN 1.1 billion to PLN 2.2 billion, with most increase in 2013.
  - The majority of increased additional taxes identified come from audits of taxpayers not controlled by Large Taxpayers Offices (LTOs).
  - The sharp rise in additional tax identified in 2013 likely came from a relatively low number of very large cases.
- Appeals:
  - Total appeals around 15,000 in both 2012 and 2013.
  - Around 40 percent of appeals were successful, about half of those at the court level.
  - Total amount appealed increased by about 20 percent from 2012 to 2013.

### Monitoring, data, and organizational issues within MOF
- The Analysis and Reporting unit of the Tax Administration Department compiles quarterly performance indicators from aggregate data uploaded from local tax offices and tax chambers to a central data warehouse.
- That unit does not have direct access to micro taxpayer data, except for arrears cases.
- VAT refund aggregates are also received by the Fiscal Control Department from their own data warehouse.
- Monitoring and reporting of high-level revenue indicators within the MOF is fragmented: different departments report to different undersecretaries, creating risk of conflicting analyses and gaps in high-level reporting.
- There is a need for a more strategic overview of collections and fiscal risks within the MOF; a single unit should be responsible for reporting collections and analyzing progress against forecasts and should work closely with operational units.

### Data access and analytical capability recommendations
- Revenue analysts need direct access to returns and payments data for individual taxpayers in analytical databases; current central data warehouse contains mainly aggregate taxpayer data with micro-level arrears only.
- The Tax Administration Department plans to consolidate 400 individual databases into a single, national database in June 2015—starting with inheritance and gift tax, tax on civil law transactions and flat-rate income tax in the form of “Tax Card”.
- Consolidation must deliver a relational database usable for data mining and systematic risk analysis techniques.

### Operational and strategic recommendations (from report)
- Bring together the revenue analysis, currently reported separately, in a single report for tax administration.
- Create a national database of micro level taxpayer returns and payment (especially VAT) for centralized data mining, risk analysis, and revenue and gap analysis.
- Take immediate steps to address the compliance problems in main taxes—following sections discuss and recommend concrete measures.
- Develop a cohesive modernization strategy for tax administration, with a suggested horizon to 2020, describing current state and end state, and identifying opportunities, constraints and risks.

### Current modernization initiatives (summarized from Box 2)
- Institutional strengthening initiatives:
  - Implementing a transformation strategy—heavily focused on IT.
  - Strengthening the reporting relationship of tax offices to tax chambers.
  - Consolidating administrative support.
  - Increasing a service focus.
  - Developing specialized competence centers.
  - Enhancing management and accountability.
- Compliance management enhancement initiatives:
  - Strengthening risk-based approaches.
  - Improving planning and monitoring.
  - Standardizing core operations.
  - Enhancing IT support to operate and manage compliance.
- The initiatives are well-targeted but are not part of any strategic, overarching modernization approach; developing a modernization strategy is recommended as an immediate priority.

*Prepared by the mission based on IMF, EC-CASE study, PwC, Ministry of Finance, and Eurostat data as cited in source.*

### 26.      This report in many ways provides a road map for reform. The advice provided

### _cr15112 - 26.      This report in many ways provides a road map for reform. The advice provided

### Institutional reform: purpose and scope
- The report provides a roadmap for reform focused on institutional reform, core business processes and compliance management as a basis for a modernization strategy.
- Section III analyzes institutional changes in tax administration and addresses:
  - (i) organization;
  - (ii) governance, management and accountability; and
  - (iii) the recommended way forward.
- Context-setting includes discussion of features of modern organization and governance arrangements for tax administration.

### Organization and governance features of modern tax administration (Box 3)
- Organization
  - Unified, with all critical functions in a single organization.
  - Strong headquarters that directs and supervises operations.
  - Streamlined network of field offices; limited number of offices reflecting modern processes and intensive use of technology.
  - Organized around major tax administration functions (e.g., services, returns, audit, and collections) instead of by tax type.
  - Taxpayer management segmented (large, medium, small, and micro).
- Governance
  - Single empowered head of tax administration with ability to delegate powers.
  - Clear chain of command from headquarters to regional offices to local offices.
  - Stable legal framework for proper administration and enforcement.
  - Accountability for operations with regular performance assessment.
  - Use of modern management techniques: strategic management approach, clear mission/vision/values, structured senior management committees.
  - Structures and processes to identify and manage compliance risks.
  - Sufficient HR autonomy to meet tax administration needs.
  - Adequately resourced.
  - Management control over their own IT—full control of all aspects of IT support to tax administration.

### Current organization of tax administration in Poland (findings)
- Central structure and staffing
  - Several units at the MOF (central level), tax chambers and tax offices form the current organization.
  - Many key tax administration functions are the responsibility of one Undersecretariat in the MOF that covers tax and customs—and also gambling.
  - There are over 40,000 employees involved in tax administration, with close to 99 percent in operational offices.
  - The Undersecretary manages close to 60 direct reports, including responsibilities for customs, excise and gambling regulation and various other non-revenue functions.
- Customs
  - Customs responsibilities include 16 customs chambers and 46 customs offices and departments for customs duty, customs service and excise duty.
- Additional non-revenue responsibilities
  - The Undersecretary also has responsibilities for computerization for the entire public service and for management of the education center for the MOF.
- Central units and specialized offices (Box 4)
  - One Tax Administration Department that coordinates but does not manage or oversee tax administration and enforcement.
  - One Customs Control, Tax Inspection and Gambling Control Department that coordinates risk analysis and tax audit activities.
  - Sixteen tax chambers and 380 tax offices that report through the tax chambers but have distinct separate organization status and are deemed separate employers managing their own HR.
  - Twenty specialist offices described as LTOs but which also administer small and medium taxpayers.
  - Five tax information centers handling interpretations and rulings.
  - Three competence centers (collections, administrative enforcement and risk analysis) affiliated with a tax chamber for resourcing but reporting directly to the undersecretary; not responsible for standardization or consistency in operations.
  - One information exchange office for international tax information exchange, including verifying trade transactions with other EU member states.

### Key issues identified (analysis)
- Fragmentation
  - Tax administration is fragmented: no single unified organization responsible for all tax administration functions.
  - The Tax Administration Department at the MOF coordinates but is not a unified tax service or headquarters; no fewer than 11 different MOF points are involved in tax administration.
  - Audit is partially conducted by a department reporting to another Undersecretary (Fiscal Control Department).
  - Fragmentation is confusing for taxpayers and increases their cost of doing business.
- Span of control and weak headquarters
  - The Undersecretary’s span of control is enormous, diluting senior-level responsibility below the Undersecretary.
  - HQ functions are virtually absent: HQ-like functions (program development, supervision of field implementation, monitoring, resource allocation) are limited, diffused and staffed by less than 1 percent of overall resources.
  - Competence centers provide limited mitigation but are not intended to perform full HQ functions.
- IT fragmentation
  - No single IT organization dedicated to tax administration; IT responsibilities are managed by five different MOF units involving two Undersecretaries and one Director General.
  - Lack of centralized IT control undermines process design, online service delivery, and rapid response to risks.
- Oversized field network and service delivery
  - Field network comprises 400 tax offices overseen by 16 tax chambers—assessed as too large given IT-enabled alternatives.
  - All core business functions are currently delivered in all offices with no consolidation into selected offices for specialized functions.
  - Relative to gross national income, Poland has the highest number of local offices (400) among large EU member states mentioned.
  - The VAT gap in Poland in 2012 was 25 percent, compared to an average for large member states of 17 percent (EC-CASE study reference in footnote).
- LTOs’ focus
  - The 20 LTOs do not focus on the largest taxpayers; they administer a mix that includes small and medium taxpayers.
- Legal and managerial constraints
  - Draft tax administration act will create the legal notion of “tax administration” and the position of head of tax administration, but without creating a unified organization responsible for all aspects of tax administration; tax chambers will retain separate employer status.
  - Expected enactment of the act: early 2016 (authorities’ expectation).
  - Amendment to the act on tax offices and tax chambers (1996) will remove separate legal and employer status held by the tax offices and consolidate these roles at the tax chamber; expected effect: April 2015.
  - Legal requirements for first and second instance (tax office and tax chamber) reviews and geographic constraints on where tax officers can exercise functions limit field network streamlining and national reallocation of functions.
- Management, planning and monitoring
  - Development of planning and monitoring functions is ongoing; goals are set by MOF units for implementation by tax chambers and offices, with annual action plans and monthly monitoring of tax office goals.
  - Goals for 2014 include:
    - (1) ensuring income for the state budget by increased revenue collection and reduction in tax arrears;
    - (2) ensuring taxpayers fulfill their obligations and making it easier to do so;
    - (3) reducing fraud through better controls;
    - (4) developing a taxpayer orientation; and
    - (5) enhancing quality and innovation.
  - Performance tracking involves close to 90 indicators reported to tax chambers, but the utility of such an extensive list is unclear and creates substantial reporting burden.
- Autonomy and accountability
  - No single head of tax administration is in place; the Undersecretary for revenue is the only senior official able to view tax administration as a whole, but daily management should not be vested at this level.
  - The director of the Tax Administration Department’s coordination role is inadequate as a replacement for a single head/CEO with full responsibility.
  - Tax chambers and tax offices have excessive local autonomy with limited direction or supervision from MOF departments; direct lines of communication to various MOF departments are described as coordination/advice rather than direction.

### Ongoing and planned changes (observations)
- Draft tax administration act is under development with provisions on roles of tax chambers and offices, HR provisions (e.g., recruitment), territorial jurisdiction, collaboration with other governments, and focus on service to the taxpayer.
- Amendment to remove tax offices’ separate employer status and consolidate HR and administrative support at tax chambers—movement of 2,228 tax office staff delivering support functions is anticipated, with a staffing freeze in place in anticipation.
- Strengthening of supervisory and coordinating role of tax chambers with respect to tax offices occurred in January 2015; consolidation expected April 2015.

### Policy implications and recommended direction (derived from analysis)
- Move toward a unified tax administration with a single empowered head (CEO) and a clear headquarters performing HQ functions (registration and service, payment and processing, compliance, audit, enforced collections, policy and legislation, appeals).
- Consolidate IT under a single tax-administration-controlled IT organization to ensure full control of software and hardware supporting tax administration, enabling effective online service delivery and rapid risk response.
- Rationalize the field network: reduce number of local offices and consolidate specialized functions to exploit IT-enabled service delivery and reduce costs.
- Reconfigure LTOs to focus on the largest taxpayers and align segmentation (large, medium, small, micro) with taxpayer management strategies.
- Reduce fragmentation of central responsibilities and clarify lines of command, delegations and accountability across MOF units to improve strategic decision-making and reduce reporting burden tied to an excessive number of indicators.
- Ensure legal reforms remove constraints that prevent national deployment of staff and allow operational consolidation where efficient.

*IMF staff report content (section III: Institutional reform for tax administration).*

### 50.      There is no HQ focus on direction and management of chambers/offices,

### _cr15112 - 50.      There is no HQ focus on direction and management of chambers/offices,

### Key governance and organizational weaknesses
- No HQ focus on direction and management of chambers/offices; inconsistency across offices identified by business stakeholders.
- Size of field network: 400 tax offices, which makes standardization "close to an impossible task."
- Excessive autonomy of chambers and tax offices contributes to inconsistent operational delivery.
- Tax Administration Department at the MOF plays a limited role in development of procedures and instructions (recent development).

### Staff resourcing and workforce management
- No systematic alignment of staff resources to functions; example modern principles referenced:
  - Taxpayer service/registration should have 15 to 20 percent of staff resources.
  - Audit should have 25 to 30 percent of staff resources.
- Absence of such an approach in Poland risks inappropriate allocation across work functions.
- HR central unit time consumed by consolidation of support functions to chambers and HR consequences of change.
- Staff resources consume the biggest share of available budget and a comprehensive view of the workforce and HR policies is essential for reform.

### Legal and mandate constraints
- Legal framework restricts operational flexibility:
  - Requirement for a tax administration presence in each region and district/city.
  - Restriction on authority and ability of tax officers to operate anywhere in the country.
  - Requirement for first and second instance review by separate organizational units; this needs review when tax offices lose separate organizational status.
- Draft tax administration act may be a vehicle to address some problems.
- Tax administration currently assigned additional tasks (parking tickets, TV licenses) that absorb staff time from tax-specialist duties.
- Question of whether excise should be managed as a separate tax type should be addressed.
- Expenditure/budget issues are not normally within tax administration purview.

### The Way Forward — Unified Tax Administration (TAS) proposal
- Establishing a unified national tax administration service should be an immediate MOF priority.
- The tax administration act under development for 2016 could provide legislative basis to create the TAS.
- One of first implementation steps: appoint a single head of TAS (interim use of director of the Tax Administration Department suggested).
- TAS head should be granted necessary powers to build new organization.

Box 5 — Features of the Tax Administration Service (selected)
- Single senior official (TAS chief) responsible for all aspects of tax administration.
- TAS an entity belonging to the MOF, accountable through the Undersecretary responsible for revenue administration; TAS chief has authority for strategic and daily operational management.
- All tax field/operational offices come under TAS management.
- TAS would include all tax-related audit functions and risk management related to tax administration (transfer from Customs Control, Tax Inspections, Gambling Control Department, Fiscal Control Department).
- Boundaries between Fiscal Control Department (investigations) and TAS for tax investigations must be clearly delineated.
- All specialist offices (competence centers, large taxpayer offices, national tax information centers) included in TAS.
- TAS should manage its own IT and HR (implies transfer of software and hardware).
- TAS responsible for collection of national taxes only (may need phased implementation).
- TAS should not be assigned MOF-wide management responsibilities (e.g., MOF education center).

### Immediate and medium-term modernization actions (can begin with or without TAS)
- Develop a modernization strategy with a 5 to10 year vision (organization structure, governance, management, accountabilities, operational reforms).
- Appoint an empowered leader of the modernization strategy supported by a high level reform committee.
- Establish a modernization team of dedicated senior officials with full-time responsibility.
- Build a strong HQ to ensure standard methods and monitoring; HQ as business owner of core processes and focal point for IT, HR, and management support.
- Consider additional staff to strengthen HQ:
  - International practice: effective tax administrations dedicate at least 5 percent of overall staff resources at HQ.
  - Base for calculation noted: over 40 000 current staff.
  - At present roughly 200 people (from the two departments) involved in HQ-like functions.
  - Incremental approach could strengthen HQ staff to around 800 to 1,000 people over the next twelve months.
- Form a small legal team to review legal framework with a goal of submitting a report to management within three months.
- Streamline the field network; consider grouping delivery of some core business functions at the tax chamber and creating offices with specialized competencies.
- Strengthen governance by establishing strategic management committees: executive committee and committees for operations, compliance, HR, IT, and reform.
- Strengthen working relationships with other national government parts (e.g., customs); improve information exchange and cooperation on VAT refunds and largest taxpayers.
- Develop reform sequencing and a detailed roadmap; with elections expected in 2015, a detailed roadmap for establishment of TAS and modernization initiatives is advised.

Box 6 — Indicative scenario actions (selected)
- If Create TAS:
  - Name interim TAS head and task with building new organization and leading modernization.
  - Review options to vest more authority in position of Tax Administration Department director to allow management authority over tax chambers.
- If No immediate decision re TAS:
  - Name a modernization leader.
- In either scenario (actions to pursue):
  - Develop a modernization strategy.
  - Build HQ function.
  - Undertake legal review: identify main issues and time needed to assess.
  - Streamline field network—consider further consolidation.
  - Establish management committees.
  - Create one single LTO for top 1,000 taxpayers.
  - Develop strong working relationships with other parts of national government, e.g., customs.

### Core tax operations weaknesses and IT rollout
- Fundamental weaknesses contributing to low taxpayer compliance include:
  - Decentralized tax administration IT system.
  - Weak and under-resourced headquarters function.
  - Fragmented audit function.
  - Absence of a dedicated Taxpayer Services department.
  - Absence of a true dedicated large taxpayer office.
  - Excessive autonomy at operational level.
  - Absence of effective central monitoring and control over operational work.
- Centralized IT system under development; completion expected in 2018.
- Delivered elements: e-filing for national taxes and a centralized taxpayer register.
- Main taxpayer administration systems and databases remain distributed across servers in the 400 local tax offices with limited capacity for efficient information sharing.
- Core tax administration business functions have low levels of automation (e.g., tax returns filing enforcement and collections enforcement).

Box 7 — Main issues in core tax operations (selected)
- Taxpayer registrations:
  - Risk management framework of registration process needs strengthening.
  - Business registration requirements should be harmonized across tax types.
  - Central taxpayer register not yet complete; not sufficiently aligned with Ministry of Economy (individuals) and Ministry of Justice (entities).
- Filing enforcement:
  - Process not fully automated.
  - E-filing still voluntary, even for large taxpayers.
  - No performance indicators specifically aimed at improving on-time and final filing rates.
- Collection enforcement:
  - Process not fully automated.
  - Fragmented across too many sites; needs consolidation into fewer specialized sites.
  - Reasons for sharp increase in VAT arrears not fully analysed.
  - Clearance of stock of old debt would be facilitated by a centrally managed project approach focused initially on the largest collectible debts.
- Dispute resolution:
  - Second instance (tax chambers) could be streamlined by reviewing only issues in dispute and providing tax chambers jurisdiction to directly conduct enquiries to resolve disputes.
  - Structured feedback between tax chambers and local tax offices needed to reduce procedural errors.

### Headquarters control and performance management (current shortcomings)
- Headquarters control of operational work is weak; many key HQ responsibilities not undertaken centrally.
- Tax law prescribes high level business processes and organizational structure, but design of operational procedures and resource allocation is at local office discretion.
- Core business processes not standardized across or within regions; central administration has limited information on activity across 400 local tax offices.
- National business plans recently commenced but remain high level and provide little more than general guidance.
- No structured performance management system; minimal effective performance monitoring and oversight at central level.
  - Planning remains heavily bottom-up.
  - Existing performance measures generally inadequate.
  - Management information systems underdeveloped.
  - Little consequence for local tax offices for lack of adherence to HQ directions.
- Recent initiatives: chambers tasked to "supervise" local tax offices, chambers developing regional work plans, new units to quality assure local office work (e.g., audit), and two competence centers for arrears management acting as out-posted HQ units.

*Source: _cr15112 - 50. There is no HQ focus on direction and management of chambers/offices,*

### 75.      As noted in Section III, successful tax administrations are anchored by a strong

### 75.      As noted in Section III, successful tax administrations are anchored by a strong

### Headquarters role in managing operational work
- Role: provide a management system that delivers clear organizational direction and leadership to operational staff, translates organizational goals and objectives into annual work plans, and assures the effective implementation of those plans.
- Tasks typically performed by an effective headquarters (Box 8):
  - Contribute to the development of the strategic direction of the tax administration.
  - Prepare an annual national work plan that reflects corporate priorities (for both reform objectives and operational business objectives) and specifies required service and enforcement activities, reform related development tasks, expected work volumes, staffing levels, and expenditure budget requirements.
  - Ensure that available resources (human and financial) are appropriately allocated across activities and locations and aligned with corporate priorities.
  - Develop specific performance measures related to the quantity, quality, and timeliness of the planned activities.
  - Regularly monitor performance against the national work plan and budget by means of a structured performance measurement system.
  - Identify reasons for variances from the plan and develop corrective actions.
  - Report on performance against plans to the Head of the tax administration (and/or the appropriate management committee) explaining variances and remedial actions taken.
  - Develop national policies, and design and maintain standardized business processes and procedures (with supporting guidelines, manuals and instructions).
  - Take “ownership” of the IT business systems related to those business processes and procedures.
  - Identify training needs and oversee the development and delivery of appropriate staff training programs.
  - Provide advice and guidance to field operational units as required.

### Current resourcing and short-term headquarters actions
- Finding: MOF departments responsible for tax administration are clearly under-resourced for a full headquarters role.
  - Current resourcing: departments are resourced in line with more policy oriented departments at the MOF, not recognizing extensive operational management responsibilities.
- Interim requirements pending establishment of a unified tax administration service:
  - Clarify and widely communicate the respective roles, accountabilities and reporting lines for all MOF departments responsible for tax administration, and for tax chambers and local offices.
  - MOF departments playing a headquarters role should take a far stronger role in developing annual business plans and a standardized performance measurement system to facilitate more effective monitoring and control over operational work.
    - Note: This may require a modest injection of resources into these departments that could be provided by reallocation (or assignation to) from the operational level.
  - Fast-track development and implementation of standardized business process and procedures across all core business functions.
    - Suggested approach: dedicated work teams out-posted to tax chambers (located in tax chambers but reporting directly to the relevant headquarters department in MOF), mirroring the pilot used by the new collection enforcement competence centers.
  - Review division of responsibilities within the tax administration departments at the MOF to better delineate core functions across deputy directors and their units; avoid overlapping functions for core tax operations to improve management, accountability and strategic drive of modernizations.

### Tax Audit — structure and responsibilities
- Organizational split:
  - Tax audit responsibilities are shared by the Customs Control, Tax Inspection, and Gambling Control Department and the Department of Fiscal Control that report to different Undersecretaries of MOF.
  - Customs Control, Tax Inspection, and Gambling Control Department: primarily focused on the formal economy; responsible for risk analysis and the audit program for customs, taxes and gambling; focuses mainly on registered taxpayers; tax auditors conduct field audits in all 400 local tax offices and have jurisdiction only over taxpayers registered in their geographic patch.
  - Fiscal Control Department: primarily focused on the informal economy; responsibilities include protecting state revenue and ensuring financial integrity within MOF departments and agencies; mandated to conduct investigations across all heads of revenue; primary responsibility for addressing unregistered taxpayers and broader grey economy risks; leads in fighting major tax frauds including carousel fraud; has field audit presence in the same 16 provinces as the tax chambers; Fiscal Control field staff have national jurisdiction though organized in provincial units.
- Risk analysis and planning:
  - Risk analysis currently: at an early stage, conducted at multiple levels; central risk analysis by Customs Control, Tax Inspections and Gambling Control Department based principally on results of prior audits; some third party data captured but not regularly; intelligence from National Tax Information Center FAQs and results from a ‘random’ audit program by local tax offices.
  - Staffing: central risk analysis staff mainly drawn from operational areas and lack expertise in data mining and modern analytics.
  - Risk analysis units established in tax chambers in April 2014; small planning and analysis teams present in all 400 local tax offices to support audit case selection.
  - A new central risk analysis unit will be established early next year to support the Customs Control, Tax Inspections and Gambling Control Department and will focus solely on tax risks.
  - National Action Plan (NAP): requires that 50 percent of the overall tax audit effort be directed to national risks and a further two percent of effort be directed to auditing a random sample of selected industry sub-segments. Tax chambers prepare regional audit plans based on the NAP; tax offices develop operational audit plans from regional plans. Audit case selection occurs exclusively at local tax office level using an IT supported risk rating engine with pre-determined risk parameters; Heads of local tax offices approve final audit case selection.

### Issues with the tax audit function
- Organizational fragmentation and overlap:
  - Responsibility for risk management and the tax audit program is split across two MOF entities with overlapping powers.
  - Tax auditor workforce fragmented across sixteen provincial Fiscal Control Offices and 400 local tax offices, preventing a coordinated compliance strategy and complete picture of risk environment.
- Consequences:
  - Lack of an appropriately organized and managed audit program contributes to noncompliance.
  - Absence of a single specialist tax investigation capability undermines capacity to deal with serious fraud and evasion (e.g., carousel fraud).
  - Fragmented audit capability yields:
    - No single unit with a complete picture of tax risk environment.
    - No assurance enforcement is directed at highest risks.
    - Limited ability to evaluate overall impact of audit effort.
    - Likely overlaps in separate audit programs, inconsistent treatment of taxpayers, and taxpayer confusion about auditor powers.
    - Difficulty coordinating audit activities across two structures in sixteen provincial sites and 400 local tax offices, especially without robust management information systems.
    - Little incentive for local tax offices to enforce collection of additional assessments from fiscal control audits; many assessments from fiscal controllers viewed as unrealistic and unlikely collectible.
- Audit program design weaknesses:
  - Skewed towards micro and small taxpayers due to:
    - Reliance on data from previous audits perpetuates focus on same risks.
    - ‘Random audit’ program not centrally managed and subject to local bias.
    - Market segmentation principles not applied below tax type/industry segment level; does not identify High Net Wealth Individuals or self employed professionals as high risk taxpayers.
    - All taxpayers subjected to same suite of risk parameters; large taxpayers not singled out for special analysis.
    - Case selection done only by local tax offices, of which 380 deal mainly with micro and small taxpayers — resulting audit program heavily weighted to small end and unlikely to impact overall tax gap.
- Workforce capacity:
  - Modern administrations typically allocate at least 25 percent of workforce to audit (risk analysis and field audit).
  - Poland: tax audit workforce of 4,200 staff represents only around ten percent of total staff, fragmented across 400 local tax offices; auditors have jurisdiction only over taxpayers registered in their own local office, requiring cooperation from other offices when needed.
  - Fiscal Control inspectors: 2,250 located at provincial audit units, not solely engaged on tax issues.

### Recommendations for re-organizing tax audit
- Consolidate mandate and powers:
  - Revise mandates so full responsibility for all tax related audits shifts under one department dedicated to tax enforcement (separate from Customs and other revenue heads).
  - That department should report to the same Undersecretary as the Tax Administration Department under current MOF structure and be subsumed into the unified tax administration service when established.
- Consolidate field audit teams:
  - Tax field audit teams should be consolidated at the provincial level similar to Fiscal Control organization.
  - Extend jurisdiction of these staff at least to the provincial level and preferably national level.
  - Benefits: increase critical mass, allow greater specialization and targeted training, simplify command lines, improve communication with headquarters, tighten control over audit case selection, shift audit focus toward medium and large taxpayers.
  - Identify and remove any legal constraints related to structure of first and second instance decisions.
- Strengthen risk analysis and centralize case selection:
  - Employ far more detailed market segmentation to obtain sharper picture of risks within taxpayer populations (especially the top 1,000 genuinely large taxpayers).
  - Secure better access to third party data and develop skills in modern analytics including data mining.
  - Centralize audit case selection with only a small proportion of resources for locally identified risks to improve targeting and reduce opportunities for corruption.
- Resource reallocation and workforce build-up:
  - Review allocation of staff and financial resources within MOF to account for workload transferring from the Fiscal Control Department.
  - Aim to build the specialist tax audit workforce over time to at least 25 percent of total tax administration staff.

### Taxpayer Service — current situation and issues
- Current transition:
  - Tax administration in Poland is transitioning to a new taxpayer service approach to support self-assessment and build community confidence.
- Initiatives implemented:
  - E-filing of tax returns.
  - Modern customer service centers in local tax offices.
  - Targeted information campaigns.
  - Seminar program for new businesses.
  - Centralized National Information Center for consistent and accurate advice.
  - General and private binding rulings system for taxpayer certainty.
  - Tax portal for taxpayers to access information on their own accounts.
  - Proposed program of personal assistance to all new micro taxpayers for a full eighteen months after registration in the draft Tax Administration Act (details not finalized).
- Issues:
  - Responsibility for taxpayer services is fragmented across several areas at the MOF tax administration department.
  - Confusion around the term ‘taxpayer service’; some filing, verification and payment processing activities labeled ‘direct services’ while assistance initiatives managed across different units reporting to different deputy directors.
  - Progress on service fronts exists but lacks an overarching taxpayer services strategy.
- Recommendation:
  - Consolidate all genuine taxpayer assistance responsibilities into a dedicated Taxpayer Services manager and develop a taxpayer services strategy.
    - Strategy should provide differentiated services tailored to needs and capabilities of different taxpayer segments.
    - Determine appropriate communication channels for delivery of services.
    - Accommodate development of general service campaigns and targeted service initiatives integrated into compliance improvement strategies addressing specific risks.

*Source: _cr15112 - 75. As noted in Section III, successful tax administrations are anchored by a strong (IMF PDF chapter).*

### 92.      The taxpayer service strategy should pay particular attention to new businesses

### _cr15112 - 92.      The taxpayer service strategy should pay particular attention to new businesses

### Taxpayer service for new businesses
- New businesses should be treated as a discrete taxpayer segment with targeted outreach to promote good compliance behavior from the start.
- Typical outreach program elements:
  - Free seminars conducted in conjunction with other government agencies to help new businesses understand their obligations and entitlements.
  - Outbound telephone calls to check if the new business operator is experiencing any problems and to offer help and advice.
  - Optional free advisory visits at the taxpayer’s premises to resolve any problems that have emerged.
  - Targeted advisory visits (nonoptional) to the premises of new businesses that are considered high risk.

### First-time employers
- Particular attention should be paid to businesses that become employers for the first time because the transition to employer status introduces many new obligations and complexities.
- New employers are a key leverage point for embedding good compliance behavior around obligations to withhold income from employees’ wages and to make social security payments where required (the latter fall within the remit of the Social Security Administration).

### Personal assistance for micro taxpayers
- The proposal to provide personal assistance for new micro taxpayers is commendable but requires careful management.
- Ongoing one-on-one assistance to large numbers of micro taxpayers is unsustainable.
- Recommended delivery model: dedicated teams of service officers responsible for groups of taxpayers via a structured program of seminars, outreach visits, and telephone and electronic communication.

### Large Taxpayer Administration — Current situation
- The current LTOs (established in Poland in 2004) are legally and operationally identical to the broader network of local tax offices.
- The network comprises twenty full-functional offices with a presence in every province.
- In total, this office network is responsible for around 87,000 taxpayers ranging in size from micro businesses to genuinely large taxpayers.
- Each LTO is a separate organizational entity with its own budget and high degree of autonomy; they share the same management and reporting relationship with the provincial tax chamber and the MOF as other local tax offices.
- Box 9: Taxpayers included in the large taxpayer population (as listed):
  - Capital groups
  - Banks
  - Insurance companies
  - Investment and retirement funds, and other financial institutions
  - Branches and representatives of foreign enterprises
  - Legal entities who:
    - generate gross sales of at least €5 million per annum;
    - hold shares in companies based abroad or control such companies; and
    - are managed by nonresidents.

### Large Taxpayer Administration — Issues identified
- Original purpose of LTOs (focus on relatively few taxpayers who account for a large share of tax revenues) has not been achieved.
  - In most countries, LTOs cover only the largest 500–1,000 taxpayers who typically account for 50–70 percent of total tax revenue.
  - Poland’s criteria captured more than 80,000 taxpayers including many small and micro taxpayers, straining resources and losing focus on genuinely large taxpayers.
  - The mission was advised that, in practice, around 80 percent of effort is expended on small and medium sized taxpayers.
  - The same risk parameters are applied to all taxpayers regardless of size, skewing the audit program towards the bottom end of the market.
- Need for a more sophisticated approach:
  - Large taxpayers require individual risk profiles; these profiles determine audit selection.
  - Auditors should be organized into specialist industry sector teams (e.g., information technology and communications; energy; transport; construction; banking and insurance) to develop specialist industry expertise.
  - Service initiatives for large taxpayers should focus on fast turnaround of technical advice related to large scale projects.
- Box 10: Illustrative risk indicators for large taxpayers (as listed):
  - Related party cross-border and tax haven dealings where profits returned in Poland do not reflect economic activities undertaken or the taxable nature of imports.
  - Complex structures and intra-group transactions associated with generating tax benefits unrelated to the economic substance of the commercial activity.
  - Tax benefits from financial or other arrangements that are disproportionately high compared to the financial exposure.
  - Characterization of transactions for tax purposes that are at odds with their economic substance.
  - Distortions and inconsistencies in market valuations.
  - Unexplained losses, low effective tax rates, and cases where a business consistently pays relatively low or no tax.
  - Financial or tax performance that varies substantially from industry patterns.

### Large Taxpayer Administration — Key statistics (Table 2, 2013)
- Overall totals:
  - Number of taxpayers: 1,690,792
  - Total turnover (sales): 4,718 (PLN billion)
  - Total VAT paid: 178 (PLN billion)
  - Number of Audits: 63,946
- By segment:
  - Large (Above 200 million (b)):
    - Number of taxpayers: 2,463
    - % of total: 0.15
    - Amount (PLN billion) turnover: 2,504
    - % of total turnover: 53.07
    - Amount (PLN billion) Total VAT paid: 84
    - Percent of total VAT paid: 47.4
    - Number of Audits: 1,214
    - Percent of all audits: 1.92
  - Medium (40 million - 200 million (c)):
    - Number of taxpayers: 9,578
    - % of total: 0.57
    - Amount (PLN billion) turnover: 777
    - % of total turnover: 16.46
    - Amount (PLN billion) Total VAT paid: 29
    - Percent of total VAT paid: 16.55
    - Number of Audits: 3,287
    - Percent of all audits: 5.14
  - Small (8.5 million - 40 million (d)):
    - Number of taxpayers: 34,876
    - % of total: 2.06
    - Amount (PLN billion) turnover: 612
    - % of total turnover: 12.96
    - Amount (PLN billion) Total VAT paid: 25
    - Percent of total VAT paid: 13.91
    - Number of Audits: 9,349
    - Percent of all audits: 14.6
  - Micro (0 - 8.5 million (e)):
    - Number of taxpayers: 1,643,875
    - % of total: 97.23
    - Amount (PLN billion) turnover: 826
    - % of total turnover: 17.51
    - Amount (PLN billion) Total VAT paid: 39
    - Percent of total VAT paid: 22.14
    - Number of Audits: 50,096
    - Percent of all audits: 78.34
- Turnover (sales) notes:
  - Turnover (sales) includes all sales according to VAT returns, including exports.
  - The sales ranges in Zloty equals:
    - (b) € 50 million and above
    - (c) Between € 10 million and € 50 million
    - (d) Between € 2 million and € 10 million
    - (e) Between € 0 and € 2 million

### Recommendation to refocus on genuinely large taxpayers
- Decline in revenue collections signals need to re-focus on genuinely large taxpayers.
- In Poland, the largest 1,000 taxpayers account for around 50 percent of total tax revenue.
- Recommendation:
  - Establish a new LTO, responsible only for these top 1,000 taxpayers, without delay.
  - Given demographics, the new LTO should be located in Warsaw with national jurisdiction and deal only with national taxes (CIT, PIT, and VAT).
  - Recruit the best qualified and most experienced auditors from the existing network of LTOs for this specialist office.

### Cross-cutting recommendations (selected from Section E)
- Improving headquarters management of tax operations:
  - Clearly articulate and communicate the roles, accountabilities and reporting lines for all levels of the tax administration.
  - Strengthen central control of the national planning processes.
  - Implement a standard performance measurement system across all relevant MOF departments.
  - Support headquarters with dedicated work teams out-posted to tax chambers.
- Taxpayer audit:
  - Establish a single Tax Audit Control Department with full responsibility for control of national taxes.
  - Consolidate tax field audit teams at the provincial level and extend tax auditor jurisdiction to the national level.
  - Strengthen the tax risk analysis function and centralize the audit case selection process.
  - Increase the size of the tax audit workforce over time to at least 25 percent of total tax administration staff.
- Taxpayer service:
  - Establish a single accountability for Taxpayer Service within the tax administration department at the MOF.
  - Develop an overarching taxpayer service strategy.
  - Develop a structured outreach program for new businesses and micro taxpayers.
- Large taxpayer administration:
  - Establish a new LTO in Warsaw to deal only with the largest 1,000 taxpayers, using turnover as the main selection criteria, and only with national taxes.
  - Recruit the best qualified auditors for this new LTO.

### Managing compliance risks — VAT and short‑term priorities
- The tax administration should adopt a more strategic approach to manage taxpayer compliance based on risks; VAT represents the greatest risk because VAT collections account for 50 percent of total tax revenues administered by the tax administration and the sharp increase in the VAT gap is the major concern.
- Immediate actions recommended for VAT and compliance:
  - Undertake industry based compliance improvement projects for the high risk industries identified in the NAP; these projects provide experience useful for a medium term shift to a modern CRM approach.
  - Adopt an overarching strategy for the fight against the grey economy; appoint a senior officer as the risk owner for VAT to coordinate relevant parties and develop an integrated strategic approach.
  - Establish a specialist investigation capability within the tax administration to deal with VAT fraud; central VAT anti-fraud units should cooperate closely with customs, the office for international administrative cooperation, and judicial authorities.
  - Strengthen the compliance framework around the registrations process with measures such as:
    - Conducting pre-registration visits to verify legitimacy of new VAT registrations.
    - Implementing a post-registration monitoring program for risky traders and early/on-going post-registration on-site visits for risky registrations.
    - Introducing a fast track process to refuse or cancel VAT registration where there is strong evidence of fraud or intended fraud, and empowering the administration to require securities as a pre-condition of registration when evidence is insufficient to refuse registration.
    - Keeping the VAT register free of inactive taxpayers to reduce re-activation or replacement of de-registered missing traders.
  - Broaden the power to recover losses of VAT revenue by making bona fide traders jointly and severally liable where they could reasonably be expected to have known they were collaborating in VAT fraud.
  - Increase criminal prosecutions for VAT offences and publicize them; negotiate with the state prosecution authority to allocate high priority to serious tax fraud cases.
  - Develop a much stronger revenue analysis and quantitative risk analysis:
    - Consolidate VAT gap and high-level risk monitoring as part of revenue analysis for VAT.
    - Create a simple, ‘fit for purpose’ analytical database to consolidate the 400 current databases more quickly than the fully-specified database currently planned.
    - Integrate VAT records with other sources: customs declarations, company formation agents, financial disclosure information from banks, data from administrative co-operation, and law enforcement agencies.

*Italic line: Source: _cr15112 - 92.      The taxpayer service strategy should pay particular attention to new businesses*

### Box 11. Illustration of a Typical Industry Based Compliance Improvement Project

### Box 11. Illustration of a Typical Industry Based Compliance Improvement Project

### Objective
- Describe an industry-level approach when an industry or trade is identified as high risk.

### Sequential steps for a compliance improvement project
- Engage with the relevant industry or business associations to explain why it is seen as high risk and to ensure that the revenue agency has an accurate understanding of how the industry operates.
- Publicize the revenue agency’s intention to conduct a verification program of the industry and seek the support of the associations in informing their members.
- Identify tax practitioners who have a significant client base in the targeted industry, alert them to the issues and request that they inform their clients of the intention to conduct a verification program.
- Conduct a sample audit program to confirm the most serious areas of noncompliance and to quantify the amount of tax at risk across the industry.
- Engage with the relevant associations and tax practitioners to prepare advice to industry participants on the areas of noncompliance identified through the sample audit program.
- Send letters to taxpayers in the industry and/or communicate with taxpayers through the relevant associations and tax practitioners advising them of the specific areas of noncompliance and requesting that they review their returns and make any necessary self-corrections.
  - Highlight that voluntary disclosures will attract lenient penalties, and that further audits are planned under which taxpayers who have not self-corrected will be subject to full penalties.
- Offer free seminars and advisory visits to taxpayers who are unsure of their obligations (these seminars should ideally be conducted jointly with the industry association).
- Ensure that the tax administration’s enquiry staff is aware of the compliance improvement program and has scripted answers for enquiries received from taxpayers about the program, including how to make a voluntary disclosure, attend a seminar or request an advisory visit.
- Ensure that the collection enforcement staff is aware of the program and applies the reduced penalties and more flexible payment arrangements to taxpayers who voluntarily self-correct.
- Conduct a follow-up audit program of the industry with wider coverage and targeting taxpayers who have failed to self-correct and are assessed as high risk; and prosecute the worst offenders.
- Publicize results of audits and prosecutions highlighting how data matching and other new approaches facilitated detection of high risk taxpayers, and using representative case studies to show how informal economy participants were identified and dealt with.
- Measure the effectiveness of the project, e.g., by tracking the number of voluntary disclosures received and the overall change in tax paid by taxpayers in the target industry, and surveying the industry and practitioners to test for observed changes in compliance behavior.

### Performance measurement and enforcement links
- Use sample audit findings to quantify tax at risk and to design respondent communications and remedial measures.
- Apply graduated incentives and sanctions:
  - Lenient penalties and flexible payment arrangements for voluntary self-correction.
  - Full penalties, wider audits, and prosecution for taxpayers who fail to self-correct and are identified as high risk.
- Publicize audit and prosecution outcomes to increase deterrence and demonstrate the effectiveness of new detection techniques (for example, data matching).

### Implementation considerations
- Coordinate with associations and tax practitioners to increase reach and legitimacy of outreach and corrective actions.
- Ensure frontline enquiry, advisory, and collection staff are briefed and equipped with consistent messaging and processes.
- Combine outreach (seminars, advisory visits) with enforcement (audits, prosecutions) to maximize voluntary compliance and target persistent noncompliance.
- Include explicit metrics to assess effectiveness (voluntary disclosures, change in tax paid, survey evidence of behavioral change).

*Source: Box 11, "Illustration of a Typical Industry Based Compliance Improvement Project."*

### 1. Committee for Operational Management.

### _cr15112 - 1. Committee for Operational Management.

### Committees: Purpose, Responsibilities, Membership, Frequency
- Three management committees outlined: Operations, Reform, Compliance.
- Purpose:
  - Operations: Manage the annual business planning processes and monitor operational performance.
  - Reform: Set the strategic direction and oversee reform implementation.
  - Compliance: Manage the compliance risk management system and promote the development of integrated compliance improvement strategies.
- Responsibilities (as listed):
  - Operations:
    - Ensure that annual business plans are in place, adequately resourced and meet budget revenue targets.
    - Monitor implementation progress.
    - Identify performance gaps and take remedial action.
    - Regularly review and refresh the business plan to take account of emerging risks.
  - Reform:
    - Develop the strategic plan.
    - Ensure that annual reform plans developed in line with strategic plan and are properly resourced.
    - Provide direction and support to reforms.
    - Review and refresh strategic plan to ensure remain appropriate in a dynamic environment.
  - Compliance:
    - Identify and prioritize significant compliance risks according to a structured risk assessment process.
    - Identify compliance risks that pose sufficient threat to warrant senior attention.
    - Ensure an integrated response strategy is in place for severe compliance risks.
    - Ensure response strategies adequately resourced and are supported by functional departments.
- Members:
  - Operations: Head of tax administration (chair); Deputy heads; LTO head.
  - Reform: Director (chair); Deputy Directors; LTO Head; Head of Reform Unit.
  - Compliance: Director (chair); Deputy Directors; LTO Head.
- Meeting Frequency:
  - Operations: Weekly.
  - Reform: Monthly.
  - Compliance: Monthly.
- Support units:
  - Operations: Head’s office.
  - Reform: Reform unit.
  - Compliance: Risk management unit.

### Illustrative Function-Based Organization
- Recommendation: adopt an organization model along main core tax administration functions for a unified national tax administration.
- Possible organization chart elements mentioned:
  - Head, Tax Administration Service; Minister of Finance; Deputy Heads for TP services/processing/payment, Audit and Collection, Corporate Services, Operations, Policy and Legislation; Internal audit; Tax Offices; Tax Chambers; LTO; Specialist Offices; Deputy Head Headquarters; Other direct reports.

### Appendix 6 — Field Visit Scope and Limitations
- Scope of mission visits:
  - One of sixteen tax chambers visited.
  - One of twenty large taxpayer offices visited.
  - One of 380 local tax offices visited.
- Observed constraint: field offices operate with a great degree of autonomy, separate legal entities, own budgets; little standardization or consistency across field offices; observations based on a very small sample.

### A. Taxpayer Registrations — Current arrangements and issues
- Current identifiers and registration process:
  - Individuals: unique personal identification number (PESEL), eleven digit number; first six digits represent the birth date. Since September 2011 no other registration required for taxation purposes unless the individual engages in business. Employer advises the tax office of the taxpayer’s PESEL upon employment and the individual automatically becomes registered for PIT purposes.
  - Sole traders/business individuals: register through the Ministry of Economy (MOE) one-stop-shop at local government level; MOE maintains a central business registry and allocates a unique identifier (NIP). Tax office then advises the taxpayer of its NIP.
  - Legal entities: register with the Ministry of Justice (MOJ) that maintains a central company register and allocates a Court Registration Number; MOJ advises the local tax office and the local office issues a NIP.
  - NIP: ten digit number; first three digits identify the municipality (local government area) and the local tax office responsible.
- Central taxpayer register development:
  - Work almost completed on a central taxpayer register (e-registration project).
  - Until recently, separate registers in each of the 400 local tax offices; a central register now exists nationally.
  - Ongoing work to make a greater range of taxpayer related data (compliance history) available nationally.
- Issues identified:
  - Registration requirements differ across tax types:
    - Income tax: businesses register in local tax office aligned with location of head office.
    - VAT: taxpayers register in local tax office in whose territory principal business activities are conducted.
    - Result: logistical and jurisdictional issues managing taxpayer accounts across multiple offices.
  - Taxpayer registration data may not be accurate and complete:
    - Tax office has limited control over accuracy; cannot initiate changes to central business registers maintained by MOE and MOJ—can only advise relevant authorities to update registers.
    - Misalignment can occur across three central registers maintained by MOF (taxpayer register), MOE (sole traders) and MOJ (legal entities).
    - Tax office can flag taxpayers as inactive on MOF central register if evidence of cessation (e.g., VAT returns not filed for six consecutive months).
    - The number of VAT returns not filed each month suggests the register may not be accurate and up to date.
  - Insufficient focus on registration risks:
    - Close scrutiny of new registrations is important for fraud prevention (carousel fraud).
    - Many countries conduct pre-registration checks; in high risk cases refuse registration or require substantial up-front security payments.
    - The tax administration is not empowered to refuse registration if all relevant data has been provided and so no pre-registration checks are conducted.
    - Registration not identified as a high risk process by tax administration or Fiscal Control Department, so only limited post-registration checks are conducted.
    - In relatively few cases where registration canceled by the tax office, there have been no appeals—suggesting potential under-identification of problems.
    - Recommendation: adopt a far more robust approach to risk management of registration, facilitated by the central taxpayer register.

### B. Filing Enforcement — Current situation and modernization recommendations
- Current situation:
  - Tax returns for PIT, CIT, and VAT may be filed electronically or paper.
  - E-filing voluntarily rolled-out; proportion filing electronically: around 30 percent.
  - Tax Administration Department at MOF advised mandatory e-filing for taxpayers with more than five employees may be introduced next year.
  - Returns are not pre-filled with taxpayer identification data, resulting in significant number of data errors at lodgment.
  - Paper returns: mailed or taken personally to local tax office where they are checked at service counter; paper returns by mail are verified and taxpayers summoned if basic errors detected.
  - Once accepted, return information entered into tax accounting system.
  - Around 8–10 percent of VAT returns are filed late each period, with a further 5–6 percent not filed at all.
  - Filing and payment process is not fully automated:
    - Within a few days of the filing deadline, a report of nonfilers is automatically generated from the system to each local tax office.
    - Each account must be reviewed to check if taxpayer provided explanation (e.g., cessation of business).
    - Standard reminder letters are available but must be manually generated.
    - No systematic follow-up procedures if taxpayer cannot be contacted or does not respond to reminder letter.
    - Fines or forfeiture of tax breaks or field audits may be applied at discretion of local tax office.
- Issues noted:
  - Lack of structured approach to filing enforcement; high-volume problem (around 70,000 VAT nonfilers per month).
  - No central analysis to verify claim that majority of nonfilers are ceased businesses.
  - Nonfilers flagged as ‘inactive’ after six months.
  - Headquarters does not effectively monitor filing performance; only performance standard refers to promoting e-filing.
- Recommendations to modernize filing enforcement (key steps):
  - Set clear performance standards for improving on-time and final filing rates for tax returns.
  - Engage with MOF IT provider to develop a fully automated approach to identification and follow-up of late filers/nonfilers.
  - Require taxpayers to file “nil” returns for filing periods with no economic activity.
  - Review the effectiveness of current penalties and other sanctions in deterring noncompliance.
  - Consider introducing a power for the tax administration to issue default assessments to nonfilers.

### C. Collection Enforcement — Current situation, issues, and recommended actions
- Current situation:
  - No standardized procedures in place for collection enforcement; broad procedural guidelines in law but local tax offices free to develop business processes and staff priorities.
  - New IT support tools introduced in past eighteen months forced some harmonization, but function not fully automated.
  - Tax administration appears to have adequate legal powers to manage tax arrears.
  - Headquarters issued guidelines eighteen months ago instructing local tax offices to prioritize new and large debts and prescribed performance indicators.
  - No central analysis conducted to identify specific large debtors for priority action.
  - Tax chambers monitor local office performance and provide aggregated reports to headquarters; some local heads do not fully comply with guidelines due to fear of criticism from government audit office if they fail to pursue old debts.
  - Collection enforcement process currently split across two units in local tax offices:
    - Administrative Enforcement unit: responsible for ‘soft’ enforcement—negotiates and monitors time to pay and installment arrangements for legitimate businesses with reasonable compliance record.
    - Collection Enforcement unit: responsible for garnishee of wages, seizure of property and other assets.
  - Competency centers established within tax chamber network to assist development of harmonized procedures; they report effectively to headquarters but reside in tax chambers.
  - Local tax offices also collect a wide range of local taxes and charges; one local office reported up to two thirds of its collection effort expended on small local taxes and charges.
  - Stock of arrears not excessive and relatively stable except for VAT; VAT arrears have risen sharply in recent years and increase not sufficiently analyzed.
- Issues identified:
  - Collection enforcement function needs urgent re-engineering; critical to revenue outcomes.
  - Need for standardized, fully automated processes to optimize effectiveness and reduce corruption opportunities.
  - Collection enforcement should be staffed by full-time specialist staff and focused predominantly on national taxes.
  - Current resource allocation unwise: majority of resources expended on small fees and charges while national tax collection performance declines.
  - Recommendation to consolidate collection enforcement for national taxes at the provincial level to create critical mass for specialist expertise and standard procedures; local offices retain responsibility for local government taxes, fees and charges.
- Recommended project approach to clear existing debts:
  - Headquarters should analyze stock of national tax debt to identify largest collectible debts by matching taxpayers in arrears with registered assets.
  - Priority: secure payment beginning with the largest 200 cases.
  - Form a dedicated project team comprised of experienced collection enforcement staff supported by legal experts and, if practicable, experienced private sector debt collection experts.
  - Team to operate transparently, assess each case by nature of debt, evidence quality, litigation prospects vs costs.
  - Fast-track cases to Court where settlement cannot be reached.

### D. Dispute Resolution — Current framework, issues, and improvements
- Current dispute resolution framework:
  - Informal reviews of procedural issues can be requested prior to finalization of formal decision.
  - Formal process involves two administrative review points and two judicial review points:
    - First instance administrative review: All decisions can be appealed within 14 days; conducted by head of local tax office where decision made. Appeal can go to relevant tax chamber.
    - Second instance administrative review: Tax chambers review the whole case, not just disputed issues. If further evidence required, matter must be returned to original local tax office for enquiries due to jurisdictional boundaries.
    - First instance judicial review: Appeal to Administrative Court—all issues of fact and law can be appealed.
    - Second instance judicial review: Appeal to the Supreme Administrative Court subject to certain limitations.
  - Tax administration represented by qualified lawyers employed in Legal Support Units of tax chambers in all litigation.
- Issues and recommended improvements:
  - Streamline appeals process to reduce timeframes and costs: appeals should consider only specific issues disputed rather than require review of entire case.
  - Jurisdictional boundaries between tax chambers and local tax offices cause logistical problems and severe time delays and appear artificial and unnecessary.
  - Tax chambers should have jurisdiction to conduct further enquiries needed to resolve dispute at second instance.
  - Establish structured feedback loops between tax chambers and local tax offices to reduce procedural errors: around half of second instance administrative appeals decided in favor of taxpayers relate to procedural errors in local tax offices.

*Source: _cr15112 - 1. Committee for Operational Management.*

### Appendix 7. Implementing a Modern Compliance Risk Management Model

### Appendix 7. Implementing a Modern Compliance Risk Management Model

### Features of the compliance risk management approach
- CRM aims to improve compliance behaviors across entire taxpayer segments using leveraged strategies; market segmentation principles divide the taxpayer population into smaller groupings based on common characteristics and potential risks.
- Compliance risks are identified and prioritized from a corporate perspective to address major compliance problems contributing to the tax gap.
- The CRM approach:
  - Recognizes that the factors underlying taxpayers’ compliance behaviors in any specific risk area are quite complex and are unlikely to be treated successfully with a single action strategy—particularly one based solely on enforcement actions;
  - Directs attention to understanding the factors that shape taxpayers’ compliance behaviors, so that responses can deal with underlying causes rather than focusing on symptoms;
  - Promotes development of treatment strategies that aim for an optimal mix of responses (e.g., education, assistance, clarification of the law, simplified procedures, audit, enforcement, and marketing) to achieve the widest possible impact on voluntary compliance across the entirety of the target taxpayer segment; and
  - Ensures that responses are sequenced in a coherent manner to deliver the maximum compliance leverage from the overall treatment strategy.
- High priority risks and response strategies are amalgamated into an annual compliance plan—a high level document describing the most significant compliance risks and broad details of intended responses.
- The cyclical development of a targeted compliance plan:
  - Systematizes the CRM approach, focusing on the most significant issues;
  - Makes best use of available resources across competing priorities; and
  - Provides a transparent and defensible record of why resources are devoted to particular risks.

### Features of a Typical Taxpayer Compliance Plan
- A compliance plan is structured around major taxpayer segments, typically:
  - (1) individuals; (2) micro and small businesses; (3) medium-size businesses; (4) large businesses; (5) nonprofit organizations; and (6) government organizations.
- For each taxpayer segment, the plan summarizes the economic, revenue and business environment (e.g., number of taxpayers, nature of entities, total tax contribution, number of persons employed, and structural features).
- The plan addresses the major risks in each of the taxes administered in each taxpayer segment.
- The plan outlines headline compliance issues and specific risks for each taxpayer segment; headline issues impact more than one segment and include examples such as the economic crisis, informality, international profit shifting and abuse of tax havens.
- The plan records the number and type of different service and control initiatives planned to be undertaken in the coming year within each taxpayer segment.
- Regular reporting against these commitments helps ensure planned activities are carried out and builds community confidence in the administration of the tax system.

### Organizational arrangements to support compliance risk management
- The modern CRM approach is founded on three key organizational capabilities:
  - Sophisticated risk identification and analysis—the administration must access multiple sources of disparate information and combine and interpret data to create intelligence about the risk environment.
  - Effective strategy development—planning and management arrangements must look across operational functions and tax types to identify and prioritize risks; develop integrated response strategies; and marshal and coordinate human and financial resources to deliver the appropriate mix of interventions.
  - Efficient core business operations—key units such as taxpayer services, audit, filing and collections must be resourced, trained and equipped to deliver targeted activities in a timely and effective manner.
- A high level steering committee (Compliance Council) is required to guide and manage the CRM process. Genuine buy-in and ownership of the annual compliance plan by functional departments is critical and is best achieved through a formal Compliance Council, ideally chaired by the Director General (or Deputy Director General) and including heads of core functional departments.
- The Compliance Council takes ongoing responsibility for:
  - (1) Identifying and prioritizing significant compliance risks according to a structured risk assessment process;
  - (2) identifying those compliance risks that represent a sufficient level of threat to warrant the ongoing attention of the senior executive;
  - (3) ensuring that an appropriately integrated mitigation strategy is in place for each of these severe compliance risks;
  - (4) ensuring that the treatment strategies are adequately resourced (people, finances, skills, business support tools etc.);
  - (5) determining appropriate effectiveness measures;
  - (6) promoting awareness across the organization of the high priority to be allocated to the annual compliance plan; and
  - (7) monitoring the implementation and effectiveness of the strategies.
- A permanent specialist compliance risk management unit (RMU) is essential to support the process with two key functions:
  - (1) risk identification and analysis; and
  - (2) development of integrated compliance improvement strategies.

### Risk management unit—Risk identification and analysis team
- Responsibilities for capturing and analyzing data from a wide variety of internal and external databases using sophisticated analytics (e.g., data mining technology and automated search engines) at multiple levels:
  - Strategic level:
    - Responsible for managing the data warehouse;
    - Monitoring the external environment for changes likely to have a significant impact on the organization or operational environment;
    - Using macro-economic indicators, demographic trends, behavioral analysis, tax gap analysis, taxpayer profiling, and risk modeling to identify emerging compliance patterns; and
    - Providing research-based decision-support to the strategic risk assessment process.
  - Tactical level:
    - Identifying and analyzing emerging compliance patterns among taxpayers, particularly in registration, filing, reporting, and payment compliance;
    - Conducting sectoral analyses (e.g., professions, trade sectors, and industries); and
    - Assisting to refine and prioritize identified risks.
  - Operational level:
    - Working with the compliance strategy team and other headquarters units to analyze specific risks;
    - Understanding drivers of noncompliant behavior;
    - Identifying the specific taxpayer populations subject to identified risks; and
    - Profiling taxpayer populations to assist in targeting case selections.
- Note: While the IT provider may be responsible for the physical infrastructure of the data warehouse, this team comprises expert knowledge managers and intelligence analysts and is responsible for deciding what data the organization captures, and how it is captured, stored, analysed, retrieved and reported.

### Risk management unit—Compliance strategy team
- Responsible for developing integrated strategies to promote compliance and deal with noncompliance, informed and supported by the risk identification and analysis team; close collaboration is required.
- Tasks:
  - Identify key compliance risks and provide structured information to the Compliance Council.
  - With Council approval, develop integrated, multifaceted response strategies that generally require significant interaction with core functional departments and often external stakeholders (e.g., industry and professional associations).
  - Once endorsed by the Compliance Council, compliance strategies become corporate priorities and take priority over other independently planned business activities.
  - Delivery may be undertaken by relevant functional departments with coordination by the compliance strategy team, or by special project teams drawing operational staff from multiple functional departments.
- The compliance strategy team also provides secretariat support to the Compliance Council (e.g., preparing and circulating agendas, discussion papers and reports; recording minutes and action items; tracking action items; maintaining records; organizing issues-based working parties).

### RMU staff, skills and core operational capabilities
- RMU staff typically include statisticians, economists, and data analysts together with staff experienced across tax administration functions; RMU plus a modern data warehouse effectively becomes the “brain” of a modern tax administration.
- Strong core operational capabilities are prerequisite—taxpayer services, audit, filing and payment enforcement require sufficient capacity, field office authority and control, trained and empowered staff, reliable management information systems and a structured performance management system.

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### Appendix 8. Mitigating Compliance Risks from Informality

### Nature and examples of informal-economy compliance risks
- Many countries have a sizable informal economy; extensive use of cash in commercial transactions features prominently among compliance risks.
- Typical noncompliant behaviors in the informal economy include:
  - Businesses operating outside the tax system: unregistered businesses transacting only with consumers, not supplying tax invoices, providing mainly services with minimal inputs, not reporting income, not paying income tax or VAT, and potentially claiming social security benefits.
  - Cash sales: a VAT registered business reports electronic/check/credit card sales but not cash sales; consumers are unaware VAT is not passed on; no VAT is paid on these sales and sales are not reported for income tax; the business operator may claim VAT input tax credits and income tax deductions for supplies that went into the cash sales; loss to the budget is the VAT plus income tax on the sales.
  - Business-to-consumer transactions: a VAT registered tradesperson excludes VAT if householders pay in cash; tradesperson does not pay VAT or report income or pay income tax; total revenue lost includes income tax evaded as well as VAT.
  - Moonlighting: a person employed during weekdays works weekends for cash in hand; no tax withheld and income not reported; the person may gain access to social security support; the employer continues to claim an expense though tax was not deducted.
  - Claiming private expenses as business expenses: entrepreneurs or business owners account for personal expenditure as business expense, inflating inputs and fraudulently reducing net tax liability.

### Underlying causes and strategic response
- The range of noncompliant behaviors is driven by varied underlying causes; the informal economy is largely centered in micro, small, and medium business sectors where audit-only approaches are not logistically feasible.
- An effective mitigation strategy should address underlying causes through an integrated set of measures to:
  - (1) reduce community tolerance for the informal economy;
  - (2) provide targeted assistance;
  - (3) encourage self regulation; and
  - (4) demonstrate a visible and credible enforcement capability.

### Targeted measures to reduce community tolerance
- Community attitudes influence voluntary compliance; limited experience with self assessment and perceptions of unfairness can lead to disengagement and high noncompliance.
- A comprehensive communication strategy should:
  - (1) Raise community understanding of the role played by taxes in achieving social equity objectives and providing essential public services and infrastructure;
  - (2) Promote a voluntary compliance culture;
  - (3) Raise awareness of the dangers of dealing with cash economy operators;
  - (4) Engage the community in identifying and rejecting cash economy operators; and
  - (5) Inform the community of the tax administration’s increasing capability to detect and deal with cash economy activities.

### Targeted taxpayer services and assistance
- Noncompliance often arises from lack of understanding and low skill levels—particularly among small business operators who cannot afford professional advice.
- Tax administrations should provide a range of assistance measures targeted to small businesses, combining a balanced program of reactive services and outreach programs.
- Small taxpayers are usually “time poor”; assistance must be proactive and accessible.

### Managing new businesses as a discrete group
- Managing new businesses as a discrete group can prevent compliance issues from arising by:
  - Early identification of a business as ‘new’;
  - Ongoing monitoring in early stages; and
  - Timely and proactive provision of assistance when a potential problem emerges.

### Incentives to encourage voluntary compliance
- Incentives that recognize and reward good compliance behavior may include:
  - Remission guidelines for penalties and interest that recognize a good compliance record.
  - Less-onerous reporting requirements and easier access to extended filing periods and payment installment arrangements for taxpayers with a record of good compliance.
  - On-line self-help tools to promote accurate reporting of complex obligations (e.g., a decision support system for determining employment status of workers).
  - Pre-filling of tax returns with third-party data—e.g., income from salaries and wages; interest; dividends; social service payments; credits for tax payments withheld; and credits or offsets from other transactions.

### Promoting self regulation through stakeholder liaison
- Effective liaison with tax agents and other tax practitioners, banks and other financial institutions, industry, business and professional associations, and business service providers can build two-way communication channels to promote compliance through self-regulation.

### Visible and credible enforcement
- Education, assistance and encouragement must be complemented by a highly visible and credible enforcement program to detect and deal with noncompliance.
- This requires development of effective intelligence gathering, risk identification and analysis, case selection capabilities, and a skilled compliance enforcement workforce.

*Source: Appendix 7 and Appendix 8, _cr15112 - Appendix 7. Implementing a Modern Compliance Risk Management Model*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15112.pdf_