ICC Document & publication

Improving tax efficiency: the responsibilities of tax administrations and taxpayers (2006)

Governments must assess and collect sufficient revenue to meet their goals and obligations. However, it is important that the costs of compliance and administration for taxpayers and tax administrations be reduced wherever possible.

This ICC Policy Statement makes recommendations intended to improve the efficiency in administering and complying with a particular tax system. ICC’s comments are based on the following economic proposition:

“Given a particular targeted level of tax revenue, a tax system that requires fewer resources to administer (monitor, legislate, audit and collect) and to comply with (understand, comply, report and transfer tax payments) is better than a tax system that costs more.”

This economic proposition is referred to as “efficiency.” ICC offers the following suggestions or best practices which can reduce the overall cost of tax compliance and administration for tax administrations and taxpayers, thereby promoting an efficient tax system. Tax administrations should view themselves similar to business that provide services to customers and should constantly strive to improve the manner in which they provide such services.

Tax administrations should administer the substantive tax regime in a manner that is no more complicated than necessary to assess and collect tax.

All else being equal, simplification should result in lower costs for tax administrations and taxpayers because:

  1. fewer resources are required to apply simple rules than to apply complex ones;
  2. the time to conduct an audit may be shortened and thus reduce the costs typically associated with protracted audits;
  3. fewer tax controversies may be expected to arise; and
  4. simpler rules provide more certainty over tax reporting which thus improves financial reporting.