Valstybės Kontrolė

National Audit Office of the Republic of Lithuania (VK)

Smart tax administration system Read full summary in English

2019 report
Economic motivation - Bacground

"In 2014, Lithuania took the initiative to develop a smart tax administration system (i.MAS). The Smart Tax Administration feasibility study2 sets out the following objectives:"

"- reducing the shadow economy and increasing tax revenues;"

"- improving the efficiency of tax administration;"

"- reducing the administrative burden for taxpayers."

"The smart tax administration project is of great importance to Lithuania because it can serve as a tool in the fight against the shadow economy. The shadow economy has a negative impact on the tax revenues of the state and includes illegal activities where tax obligations may be avoided or other illegal tax benefits may be obtained. The size of the shadow economy in Lithuania is high: based on the data of the 2019 survey carried out by the company 'Spinter Surveys', it amounted to 23.9% of GDP in 2018. Tackling the shadow economy is one of the priority areas for the government activity, whereas reduction of the shadow economy is one of the main objectives of this system, therefore the proper implementation of this objective could have a significant economic impact on the state."

Shadow economy to be reduced

"Smart tax administration offers opportunities to improve tax administration, but the potential of data analytics has not yet been fully exploited at national level in order to reduce the shadow economy."

"when planning the project activities, there was no sufficient focus on the strategic preparation of the changes, which led to a lack of data and human resources management in the introduction of analytical models that caused the failure to implement the full scale of the planned work."

"the objectives of the iMAMC does not include reducing the size of the shadow economy at country level, therefore we believe that the potential of data analytics is not fully exploited in the fight against the shadow economy, and the contribution of this tool to the reduction of the shadow economy is limited."

1 In order to further contribute to the reduction of the shadow economy and to maximise the impact at national level on all its manifestations, by also improving the tax administration process and reducing the tax administrative burden, by making use of the available institutional and interinstitutional data analytics capacities, to assess the alternatives to the follow-up of the STI data analysis and competence centre at national level and decide on the operational model of this centre and its implementation at country level (2nd main audit finding).
Weak monitoring

"There is no monitoring system to assess how much i.MAS project and the analytical models developed contribute to reducing the shadow economy and increasing tax revenues."

2 In order to reduce the administrative burden, increase the maturity of e-services and focus more on taxpayers' needs: 2.1. carry out a more detailed analysis of the needs and expectations of taxpayers, by assessing the problems encountered in administering taxes and, based on the results obtained, plan measures that would increase the maturity of e- services, reduce administrative burden and promote the use of i.MAS e-services (1st main audit finding); 2.2. lay down criteria and adopt a procedure for the assessment of e-services suitability for consumers, to be followed when carrying out periodical assessments of the suitability of e-services for users and, on the basis of their results, improving e-services (1st main audit finding).
Impact not yet realised

"due to the weaknesses in the implementation of the i.MAS project, some of the objectives of the i.MAS may not be reached in full after completion of the project."

"The solutions developed in the framework of the smart tax administration system provide preconditions for reduction of the administrative burden on business, however this impact has not been realised yet."

"The introduction of these solutions did not reduce the administrative burden for business."

4 In order to ensure the achievement of the i.MAS project's objective to reduce the shadow economy and increase the collection of tax revenues, it is necessary to create a system for measuring the socio-economic benefits of the i.MAS project and to carry out interim and final evaluations of the impact of the i.MAS project on the shadow economy and the collection of tax revenues (2nd main audit finding).
Safety deficiencies

"A system designed to ensure the safety of taxpayers’ data, but some controls are not effective enough The existing legal regulation in the STI does not explicitly regulate the procedure for the legal entities’ consent to the submission of their data to recipients, the lack of regulation on the anonymisation (pseudonymisation) of data and the removal of those data at the end of the procedure, the model for the data confidentiality classification is not updated."

"informing staff about safety requirements and educational measures should be improved, as people are not resistant to social engineering threats, staff are not attentive to social engineering attacks and are easily exposed to email manipulation."

"The control measures on the legality of data leakage and processing are not sufficiently effective in addressing systemic safety deficiencies."

5 5. In order to ensure a sufficient level of safety for taxpayers' data: 5.1. improve the safety policy, providing in greater detail the arrangements for the consent of legal persons as regards the submission of their data, detailing the purpose of the data use, the time limit for depersonalisation and deletion of the data at the end of the period and updating the confidentiality classification model of the updated data (3rd main audit finding); 5.2. improve the current mechanism to monitor safety policy documents (3rd main audit finding); 5.3. improve the organisation of safety training to ensure more effective safety and development activities (3rd main audit finding); 5.4. improve the control system for data processing and data leakage prevention to ensure reliable screening of cases, the removal of systemic irregularities (3rd main audit finding); 5.5. improve the procedures for granting access rights through enhanced control of the granting of these rights (3rd main audit finding); 5.6. review the vulnerability management practices of the information systems and increase the scope for testing resilience based on OWASP or other globally accepted safety testing practices (3rd main audit finding).
Objectives

The main questions of the audit were:

- whether voluntary e-services developed/under development in the framework of the i.MAS create the preconditions for reducing the administrative burden for taxpayers;

- whether the models developed in the framework of the i.MAS project will make it possible to contribute to reducing the shadow economy and increasing tax revenues as well as improving the efficiency of tax administration;

- whether the safety of information on taxpayers and their activities is ensured.

The items above were selected and named by the e-Government Subgroup of the EUROSAI IT Working Group on the basis of publicly available report of the author Supreme Audit Institutions (SAI). In the same way, the Subgroup prepared the analytical assumptions and headings. All readers are encouraged to consult the original texts by the author SAIs (linked).