For many years, one of the biggest challenges faced in tax administration was figuring out how to capture the data needed to effectively assess and collect taxes owed to the government. Over the last 25 years, the advent of electronic filing, advances in data capture technology, and the growth of data sources have replaced this problem with a new one: How to effectively use the now abundant amount of data (usually called “big data”) available to solve business problems.
Now, the amount of data available can be overwhelming and many tax agencies have struggled with how to best use it. Trying to churn through it all is overwhelming and often yields only insights into the data, not actionable information that produces a result. But there is a better way.
Solving this problem is all about developing a solid strategy and then executing on the plan. The plan should include the following steps:
- Identify problems: Start by assessing potential problems that could be solved by enhanced use of data or decision analytics. This should be done both by looking at existing enterprise problems and using analytical tools to evaluate data to determine how the data impacts results. For example, you can define behaviors of compliant and non-compliant taxpayers and then use analytical tools to sort through historical information to determine pieces of information that are predictive of good or bad behavior.
By the way, this is not just the domain of data scientists. It can also start with agency managers and employees who understand their challenges. The best ideas often come when these two groups collaborate.
- Understand constraints: Coming up with a great idea that can’t be implemented provides little value. Many organizations fail in effectively using available data because they take up too much time conjuring up unworkable ideas. If you take these constraints into account during early planning, the unachievable ideas are moved to the side and the focus is given to the ideas that can truly yield a positive result.
- Break things down: Once you know what the problems are, and which constraints you’re working under, break things down at a lower level. Smaller, faster initiatives that achieve results give the team confidence and provide immediate business benefit. This helps to build momentum for the team and, in larger organizations, proves the value that can be provided by the analytics group. However, do not lose sight of the big picture: as you’re breaking things down, remember how the pieces fit together.
- Build an initiative roadmap: Once things are broken down into smaller, achievable initiatives, prioritize them. You can’t do everything all at once. Use a quantitative process, where the return provided by one initiative is then used to drive the next high-value initiatives to the top of the list. The initiatives should then be laid out into a 3-to-5 year roadmap showing when each one will be executed.
- Execute on the plan. Review it periodically to ensure your progress is on track, and to accommodate any shifts in priorities. This approach can take you from being overwhelmed to producing consistent results on a regular basis. Think about how this approach could change things in your organization. Just remember: Always know where you want to go, and take small steps to get there.
Read our previous blogs on solutions to difficult tax enforcement challenges:
- 3 trends in behavioral science that could boost tax compliance, by Kate Thomas
- How behavioral science improves tax compliance, by Gordon Smith