Date Published: Aug. 1, 2017, 10:12 p.m.
n order to increase the efficiency in tax management and its revenue collection, the city of Seongnam, in Korea, started using Big Data in 2015 to identify fraudulent tax payers. One year after the programme's implementation, the municipality's tax collected had already increased by 10,9%.
Located in the Gyeonggi Province of South Korea, the City of Seongnam has a population of 994,271 and a population density of 7,032 per square kilometre. Its main export commodities include electronics and technology, and alone from these two areas, it exports goods worth not less than US$ 571 million annually. Other significant sectors of the economy are textile manufacturing and petrochemical industrial processing.
Seongnam’s 2016 revenue, thus far, is comprised of about 32.2% local taxes, 12.5% non-tax revenue such as parking tickets and fines, 16% matching funds for specific projects from the central government, and 9.4% subsidies from the provincial government. Additionally, 29.2% of the revenue is miscellaneous carry-over from the previous year such as late tax payments or projects that came in under budget. The city of Seongman provides ambitious social programs including pre-and post-natal care centres, as well as stipulation-free basic income for youth. In fact, social welfare programs account for 25% of the city’s budget, with education and culture, environmental protection, and land and infrastructure development making up 36.3%, 13.8%, and 24.9% respectively.
Previously in Seongnam, separate databases existed for each department regarding collection of payments such as standard local taxes, standard non-tax revenues, traffic and parking fines. A dedicated team was typically charged with collecting taxes and fees specific to its department. This entailed coordinating 87 departments. The fragmented system led to unpaid taxes slipping through the cracks and ultimately resulted in loss of revenue. Furthermore, it was difficult to establish and evaluate bigger picture trends and patterns emerging across departments.
To improve its revenue collection and help fund priority social programs, the municipality has targeted three key areas: corruption, budget waste, and tax evasion. The last area, tax evasion, when effectively controlled, has the ability to increase revenue for city budgets. As such, Seongnam has taken an innovative approach in utilizing ICT to engage its inhabitants and encourage the payment of uncollected taxes and fees.
In May 2015 Seongnam embarked on a journey to streamline the revenue collection process through the utilization of big data and personalization. Towards this end, the “Comprehensive Digitized Outstanding Tax Collection System” was developed and implemented. A step-by-step big data system is now in use and is being continuously improved to analyse methods to increase the payment of overdue fees. Seongnam undertook the project, funded entirely by its own municipal budget without additional assistance from provincial government, central government, or public-private partnerships. The program cost was US $ 823,563USD, whereas the annual operating costs are expected to average $ 30,872 USD.
Centralization was the most essential aspect as the improved efficiency simply made it more difficult for delinquent taxpayers to escape notice. By streamlining the previously fragmented departments’ collection, Seongnam was able to recognize repeat offenders across a variety of types of taxes. Furthermore, 79% of these delinquents (13,996 people), were found to be well within the financial means to be able to pay these taxes. For those who were unable to easily afford payments, deadlines could be extended, and the government had more data to effectively target these individuals for social welfare programs.
Several methods have been deployed to collect the outstanding payments, from simple text message reminders to phone calls. The most effective method has been dispatching personnel to pay visits and reason-out with citizens to encourage payments. These employees offered assistance to failing taxpayers on how to make payments more convenient, through the available apps and educate them on doing it online. In mid-2016, the final project stage commenced and aims to use Big Data to further track and analyse trends in outstanding payments.
After being operational for one year, the municipality was able to pursue 17,587 cases through the new system and found a 468% return on investment. In one year, the revenue increase through the programme amounted to $3,840,000 USD, and taxes collected in 2015 increased by 10,9% compared to 2014, before the programme implementation.
As the Seongnam City government possesses the broad legislative backing to collect taxes, no additional laws were needed. The biggest obstacle was in restructuring the tax departments. The tax department swelled from 16 to 148 employees as it absorbed those who had been in charge of taxes in other departments. Not all of the employees may be excited by the prospect of changing their role, nor will they initially excel at their new duties, particularly if they feel unprepared to use the new technology. In addition, a project like this one should not be rushed. Rather, each department’s tax policies must be thoroughly analysed, and employees should be pre-emptively educated on their new roles prior to moving which will in turn ease their transition and leave them less frustrated by the change. Extensive training on the new IT tools is also advisable to make the process smoother. Finally, the new methods of payment may initially annoy citizens who are not used to them, but a public campaign to raise awareness can ameliorate this as well. In Seongnam’s case, citizens were able to view the remaining balance of their taxes in real time, and received text message updates.
The municipal employees should explain to the citizenry what programs the taxes collected have been used for, and further, the citizens should experience the benefits of these social programs in order to establish a greater culture of social trust and cooperation associated with tax payment. Though the end result may appear to be low-tech, it was the use of ICT and data that made it possible. While the face-to-face aspect of the campaign was key to the success, it was also supported by an advertising campaign to educate citizens on the nature of their taxes and that the programs that they rely upon in their daily lives depend on the timely payment of such taxes. The combination of these two educational methods is recommended.