Cultivating bonsai takes effort, the right tools, and time to limit the growth of what would be a massive tree so it will exist in a small container. Controlling corruption in a tax system and tax administration is similar. Without the initial and ongoing effort, and without the right tools, the roots of corruption in a tax system and administration will spread, and the corruption will grow large and strong.
But a full-grown tree cannot be tamed to become a bonsai. So how can you turn a corrupt tax system and administration into one with integrity? Doing so requires a culture change that is not easy to achieve and that will not happen quickly. While theoretical solutions abound, translating theory into practice give small accomplishments, and likely also large setbacks. To address corruption in a tax system and administration, begin by ensuring stakeholders understand that. In fact, transparency is a foundational element of instilling integrity into a corrupt tax system.
The first key point to consider in addressing tax system and administration corruption is that solutions are unique to each situation. Still, it is important to look at efforts that work for others, and then figure out how to apply those accomplishments in a way that works for your tax system or administration. Governments that develop sensible rules and practices that allow for change in their own environments while making the best use of tested traditions and legacies are more likely to succeed than those copying without adaption methods applied elsewhere.
Recently, the New York Times published an opinion that everyone's income taxes should be public. While that level of transparency would help support a tax system with integrity, it will not be accepted by many governments or societies. But publicly outlining a plan to remove corruption from the tax system and administration will provide a seed of accountability that should be cultivated.
The second key point to remember is that tax system and administration corruption is not only about bribes. Achieving a tax system with integrity means the tax administration consistently and fairly applies tax laws. Having a tax administration with integrity means tax administration officials need to be free of corruption, starting at the top. If tax administration leadership is known to engage in corrupt practices, lower-level employees have another justification to engage in similar practices.
A government needs to appoint an official who will operate the tax system independently of political and economic pressures, and without influence of private interests. Tax administration leadership needs to demonstrate, communicate, and establish a pervasive philosophy and operating style of integrity. Fixed-term appointments to top tax administration positions is a way to help those officials remain loyal to the tax system and not whatever is happening politically, economically, or privately.
Appointments of any tax administration official needs to be free of corruption, not "sold" instead of filled through unbiased and appropriate selection procedures. All tax official appointments should be based on qualifications, integrity, and independence, not politics or loyalty to anyone or any interests other than the mission of the tax system.
A third key point is that tax systems with integrity require a robust control structure. A tax administration should assess itself against government standards that should be based on the Committee of Sponsoring Organizations of the Treadway Commission (COSO) model for evaluating internal controls. That model is internationally recognized as the definitive standard against which organizations measure the effectiveness of their systems of internal control. A tax system and administration's control structure should include monitoring by credible, objective, and independent officials, such as inspectors general or internal auditors.
A fourth key point in addressing tax system and administration corruption is that greater challenges to doing so exist because many tools to cultivate the desired integrity require support from a government's executive, legislative, and judicial branches. The integrity within and independence and motivation of those branches of government will influence how well a corrupt tax system can change. An entire government needs to share values and want a culture that emphasizes accountability for addressing corruption in the tax system and administration. Such tools include public sector pay, investing in the tax administration automation and simplifying the tax system itself, as well as having and applying fair and objective penalties.
There is an inverse relationship between the level of public sector wages and the incidence of corruption. So, paying civil servants adequately will reduce the need and justification for corruption by tax officials.
Just as importantly, minimizing the need for taxpayers and tax officials to interact will also help. As opportunities for "negotiation" between taxpayers and tax officials diminish, so do possibilities for tax system corruption. Automating a tax system is, itself, one way to minimize such interactions while at the same time helping establish or improve controls in the tax system. However, another way is to simplify a tax system. Complex tax systems require more tax audits. Tax officials may take advantage of complex rules or the discretion they have in conducting audits, while taxpayers may find it more economical to pay off tax officials than pay the appropriate taxes.
Impunity is another factor stimulating corruption. The likelihood of corruption increases if penalties are not consistent, fair, and adequate. Addressing corruption in a tax system and administration, therefore, requires effective laws as well as a sound judicial system to enforce compliance.
I worked as an internal auditor for the United States Internal Revenue Service for more than a decade and have seen a tax system and administration that operates, while certainly not perfectly, with reasonable integrity. I have also seen corruption and worked with countries and international organizations to address corruption when I headed the integrity function of a multilateral development bank for seven years.
It is possible to uproot well-established corruption in a tax system and administration. But such change will take a great deal of effort and consistent motivation. You cannot abruptly excise deep-rooted corruption from a tax system and administration any more than one can take a full-grown tree and convert it to bonsai. But by cultivating seeds of integrity to form new growth, while continuing to prune away the corrupt old growth, one can create a new garden where integrity dominates, and corruption is contained.
(This writer retired from the United States federal government in 2017 after 25 years as an auditor and program analyst for several agencies. He bifurcated his government career to work for an international organisation in Manila, the Philippines, from 2000 to 2007. The views expressed in this article are not necessarily those of the newspaper)
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