The Icelandic Directorate of Internal Revenue – Ríkisskattstjóri (RSK) is responsible for the assessment and collection of taxes in Iceland which has a population of over 350,000 people.
While the primary mission of the Directorate of Internal Revenue is to ensure that the public and corporate tax returns are correct and in accordance with statutory obligations, another key objective is to ensure that those who apply to the office with a request for services, such as registering companies, receive the service in a safe and sound manner in accordance with current legal provisions.
The Icelandic Directorate of Internal Revenue is focused on:
- consistency in tax practice
- provide good service
- efficient administration of administrative matters
- secure file retention
- effective tax control
- safe operation of computer systems
- efficiency in operation
- the budget is respected
As far back as the mid-nineties the management at the RSK was becoming increasingly concerned about shortcomings in the income tax return system (for handling both individual and corporate taxpayers).
The fundamental problem lay in the fact that the time available for checking and investigating the returns was very limited - the officers at the regional tax offices had to process all returns in a period of ten weeks, after which time the assessment had to be raised.
Given that all returns had to be scrutinised manually, considerable time and effort was being wasted on error-free (the majority) tax returns. This had a negative impact on compliance - since there were fewer resources to handle problematic returns - which in turn lead to a loss of revenue.
In 2001 the ESKORT Risk Analysis Screening system was implemented as an integrated part of the tax return system. All income tax returns are screened in real-time and classified as:
- Approved by System. These returns are approved, the tax calculation and notice of assessment can be issued without delay or any human intervention.
- Corrected by System. Rules in the knowledge base automatically apply certain changes (which are indisputable) to the returns after which they are automatically accepted for assessment. Before the risk analysis system was implemented such trivial changes had to be made manually by tax officers.
- Human Intervention Needed. These returns need human attention, but attention is focused and directed by the system which provides a detailed explanation of the error or probable error together with an indication of where in the return the error might have occurred. For each return the tax officers can review the rules that have 'fired' and make corrections or undertake further investigation.
Today the knowledge base used for risk analysis contains well over 1,000 rules. Besides updating the rules and adding new rules as circumstances change, very little maintenance is needed.
Among the benefits achieved by the introduction of the ESKORT Risk Analysis system are the following:
- Increased revenue. The focus of work and allocation of resources has shifted in the direction of the more difficult tax returns resulting in more collection
- Increased voluntary compliance. The fact that taxpayers now are aware of the existence of a system that can pinpoint errors increases voluntary compliance
- Increased efficiency and effectiveness. This is due to the shift of audit resources to the more difficult tax returns
- Improved turnaround times. As soon as a taxpayer has filed his income tax return via the Internet it is automatically submitted for risk analysis. If no rules 'fire' the return is automatically accepted for assessment