Supporting Institutional Reforms in Tax and Customs: Integrating Tax and Customs
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- Merger Strategies
- The Merger Process
- Timing
- Preparing/planning
- Management (leadership)
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- IT and Support Systems
- Conclusions
Motives for IntegrationReasons behind the decision to integrate tax and customs administrations often are stimulated by two factors: The general external environment of the organization, i.e., the legal framework, attitudes of clients and politicians, international pressures, and the level and distribution of wealth in the country, among others. Elements within the organization itself, such as number of staff, ability to attract qualified staff, efficiency, managerial policy, etc. When changes in either external or internal organizational climate affect the ability of the organization to fulfill the expectations and demands of its stakeholders, integration may be perceived as a possible solution. In general, the integration–or “reorganization”--of tax and customs administrations is motivated by the desire to increase either the effectiveness (The Netherlands, Latvia and Colombia) or the efficiency (Denmark) of revenue collection or both (Canada). Effectiveness refers to the way the revenue is collected, e.g., level of fraud, fairness, compliance etc., while efficiency refers to the resources spent on each unit of revenue collected. In the Netherlands, a wide array of primarily external factors resulted in increased workload for the Dutch Tax and Customs Administration. In the mid-1970s taxpayer behavior was changing, partly induced by high tax rates, which led to higher levels of tax avoidance and fraud. Also, with increased prosperity, the number of taxpayers grew rapidly. The tax legislation complexity led to a need for better taxpayer services, which the organization could not adequately provide. The Netherlands thus undertook an organizational change that aimed at increasing the effectiveness of the tax and customs administrations, i.e., the ability to collect revenue and to provide better client services. The 1987 Dutch reform reorganized the organization around target groups to deal directly with tax issues confronting each group. At the time of the reform, the efficiency of the old organization was not an issue. The motive behind the reform was crucial for the choice of strategy. Latvia is another example of a merger motivated by increased demand for effectiveness. There had been an ongoing process of accommodating and modernizing the organization to prepare for membership in the European Union—the primary focus of which was customs reform. A unified tax and customs administration was considered necessary to meet EU accession requirements in the areas of revenue collection efficiency and combating fraud. Colombia also is an example of a reform process that originated from a desire to increase organizational effectiveness. The basic motive is found in the general financial and political climate of Colombia in the beginning of the 1990s. A new constitution mandated a modernization of the State and provided a framework within which institutional reforms could occur. In 1991 to foster globalization, the role of customs needed to change radically and rapidly to focus less on control over the flow of goods and more on collection of customs fees, VAT, and excises—all revenue-related areas—which became the pretext for merging tax and customs agencies. Other countries integrated agencies because of a perceived need to increase the efficiency their organizations. The merger of the Customs and Tax institutions in Denmark was the flagship in the Government’s anti-bureaucracy reform and enjoyed considerable political support. Before the merger Denmark had a relatively high number of staff in the tax and customs administration. Reducing the number of staff to a level comparable to similar countries, such as Sweden and Norway, was fundamental to the reform . A survey revealed the cost of collection also was higher than in Sweden and Norway. The basic motive–to increase efficiency–was reflected in the choice of the strategy adopted, i.e., nearly full integration of tax and customs at all levels of the organization to maximize economies of scale. Similarly, in Canada budgetary constraints placed a premium on reducing redundancies in provision of government services. Emphasis on treating beneficiaries of government services as clients played a major role when “reinventing government” captured the political imagination. At the time, Canada recently had entered into a free trade agreement with the United States, which was later expanded into the North American Free Trade Agreement, including Mexico. Canada also recently introduced a value-added tax, administered by the Customs and Excise Department. These measures focused attention on customs and taxation issues. It also raised awareness of the importance of efficient tax and trade administration procedures to facilitate business activities inside the country and with its major trading partners. As in Denmark, this motive meant that the two departments that had previously operated independently, were gradually completely integrated. Merger StrategiesGovernments must choose the tools and strategies that best “fit” the motive behind the reorganization. The number and nature of strategic tools are many and various. If the political or administrative motive focuses on the performance of the administration - results or effectiveness – the focus of the reorganization often is external, i.e. on clients and the capacity to deal with all client groups. The strategy often includes operational integration of administrations or mergers to foster revenue collection cooperation and serve clients. The latter includes optimizing compliance, providing services oriented to compliance goals, cooperation across units, and development of common operational targets. When the motive is efficiency, the strategy often includes a functional integration of a few or all elements of the organization, frequently to facilitate back-office and support functions by eliminating duplicative activities, reducing staff, and integrating IT-systems. Both operational and functional integration can occur at central, regional, and local levels, depending on distribution of tasks. In the Netherlands, the old structure, based on different types of tax or means of raising tax, was transformed into a target-group oriented structure, integrating different types of tax and working processes within one local office. Before this integration an individual taxpayer had to cope with different Dutch Tax and Customs Administration offices, each with its own approach, forms and procedures. Acquire an up-to-date and complete picture of a taxpayer’s situation was nearly impossible, and taxpayers played the different parts of the agency off against the other. In the new structure, one local office contains all pertinent taxpayer information for case-handling of the target group. The new structure also took into account the complexity of tax issues which vary for each target group, and numerous business processes were altered accordingly. The Dutch restructuring, focused on agency-client interaction, took place primarily at the functional level in regions and local offices. The central administrations (policy, planning etc.) did not undergo the same restructuring. In Latvia, the focus was on more effective revenue collection, rather than on ensuring a greater internal efficiency. In 1991, two years after forming the independent Latvian Custom Administration, efforts were focused on creating the structural and legal framework for a customs agency of a sovereign state. The State Finance Inspection Board (taxes) and the Customs Department were merged on the central level to improve revenue collection. There was no merger at regional or local levels. Local offices varied in cooperation between tax and customs, as well as in size, workloads, and composition of staff. Subsequently, additional organizational changes took place to integrate SRS functions for better coordination between headquarters and local offices. An amendment to the 1996 Law on State Revenue Service facilitated combining and linking key functions central to revenue collection. In 1998, the SRS Modernization Project began to reorganize the SRS along functional lines. The aim was to increase organizational efficiency by reducing administrative costs of tax and customs collection. The project includes forming regional offices of similar size and structure, and functional integration of support functions at all levels. The strategy chosen by the Government of Colombia also focused on effectiveness. The original plan in 1991 was to fully integrate tax (DIN) and customs (DAN) into a new organization (DIAN). Unfortunately, DIAN was unable to meet expectations of either the government or the business community for three basic reasons: First, the major driver of the 1991 merger was the premise that revenue issues--collection of customs fees, VAT and excises--would become more important for customs operations, and that traditional customs activities, such as control over flow of goods and imports, would be less important in the open economy of the early 1990s. However, revaluation of the Colombian currency, abundant foreign exchange reserves (from increasing drug trafficking), and easier import protocols, compromised DIAN’s ability to conduct traditional customs tasks. Local manufacturers were strongly critical of this outcome. Second, the merger of operational aspects did not succeed. The institutional design retained independent customs yards for physical verification of merchandise and classification. The substantive procedural differences between customs and tax created asymmetries that could not easily be accommodated by a unified institution. Specifically, taxes operated on the basis of self-assessment and ex-post control. This allowed tax related data to be batched. Customs procedures required payment and control to take place simultaneously--though self-assessment was possible with ex post control. The complex procedural design caused substantive dilemmas just as DIAN was created. Third, vested interest groups—i.e., former DAN employees, private customs advisors, and local business communities—all fought against the creation of DIAN. Thus, the original motive behind the creation of DIAN–namely, the ability to meet changing demands of an open economy–was compromised. The need to shore up traditional customs tasks brought about a retrenchment in 1995, with a new separation of several of DIAN’s tasks into specialized tax and customs units. The main part of the collection now occurs in non-integrated local offices. Only the major strategic and planning functions are integrated. The focus on effectiveness was embodied in the tax reform law of 1995 that precipitated the counter-reform by setting specific, ambitious performance targets. Targets focused on reducing pervasive tax evasion and creating a client-oriented collection system to encourage an increase in voluntary compliance. These changes proved effective and met private sector and public expectations. The revenue system was updated and the revenue level increased considerably. Although DIAN did not reach the objectives in all areas, the concept of concrete performance objectives had been introduced successfully. The motive in Denmark was to increase considerably the efficiency of tax and custom administrations. The strategy centered on full integration of tax and customs at all levels to reduce administrative costs, and included a number of rationalization measures: The number of staff was reduced – from 6.742 employees in 1989 to 5.846 in 1992 and 5.643 in 2000. Design of an ambitious, integrated IT-system, integrating all revenue collection systems into one Massive reduction in the number of local offices, merged into a few regional offices Establishment of a “flat organizational structure”, reducing the number of management levels and delegating responsibility to lower levels Implementation of a number of “new public management” tools, such a contract management between central and regional offices, contracts between the ministry and the office managers, focus on core activities and reduction of support activities and a massive focus on value based management. Before the merger, tax and customs authorities had offices spread across Denmark but not always in the same cities. One main goal was to establish new regional units. To introduce the EU’s single market in 1992, all customs operations on internal borders had to be abolished. The new Central Customs and Tax Administration designated for each office a prescribed number of staff to be recruited. The calculation was based on the estimated number of tasks per number of citizens and enterprises in the area. The responsibility for company taxation remained with the municipalities when customs and tax merged. In the late nineties the responsibility was handed over to Customs and Tax. The aim was to establish an audit function of company taxes, which was more uniform across the country and, again, to increase the efficiency in the case handling, thus reducing administrative costs. Under the new procedures Customs and Tax could sign a contract with single municipalities or groups of municipalities, which wanted to continue auditing company accounts and who met a certain standard of quality and size. Finally, the successful merger of the Canadian tax and customs administrations is an example of a merger, where the motive is not so much the inability of the administrations to deal effectively with its tasks, but rather a desire to rationalize the collective revenue administration, partly to make it more efficient and partly to improve customer services. The choice of strategy reflected the desire to improve the internal efficiency of the new organization, created in 1996. The reorganization included virtually all aspects of the political and administrative setup of the new organization, in order to secure maximum advantages and benefits: At the political level, the posts of deputy minister for taxation and customs were merged into one position New legislation was introduced to integrate the two sets of statues, and to merge existing legislation The former 23 overlapping regions were reduced to six consolidated regions--Atlantic, Quebec, Northern Ontario, Southern Ontario, Prairie, and Pacific--performing all functions of the tax and customs administration at regional level The headquarters of the two former departments were consolidated into one, organized into a series of business lines supported by corporate services A major staff development program was initiated IT- and other support systems were consolidated into joint systems Today, only the Customs Border Services remains a separate entity – all other aspects of the work of the former departments and regional offices have been organizationally and operationally integrated. As of 2001, the structure has five substantive branches. The heads of the six regions report directly to the Commissioner of the Agency. The headquarters branches provide functional support to the regional offices; they are not in line control of the regions. The Customs function is also integrated into the regional structures, although Customs Border Services remain separate entities reporting to each regional Assistant Commissioner. All other aspects of the work of the former departments have been organizationally integrated, although in some cases substantive integration has not proven to be practical. The Merger ProcessDefining the right level and overall strategy for integration is only the first step in obtaining the aims and purposes of integration. A successful merger process must take a wide array of things into consideration in order to ensure a successful merger. TimingThe time span of the integration processes varies considerably in the five selected cases. In Denmark, the merger was carried out in just 14 months. Several time schedules were considered, but an urgent need to decrease budget expenditure and the risk of a possible loss of efficiency called for a quick implementation. The planning began in March 1989 and the last step in the merger of the regional administration took place 1 May 1990. In contrast to the Danish case the integration of Revenue Canada took place over a longer period of time. Some tasks were more easily consolidated than others. Financial, administrative, personnel and information technology services came first, and were largely completed by the end of 1995. The new management structure for the department, including a new regional structure, was set in place during 1996. The consolidation of programs and activities took longer, being generally completed during 1999. The pace was somewhat slowed down due to the fact that 1993 was an election year. There were in fact two transitions of government, both involving major changes in government organization (and new ministers for Revenue Canada). The first, in June 1993, had a direct impact on Revenue Canada: the new Prime Minister announced her intention to create a separate Border Service within the Department of the Solicitor General. This would have removed the Customs Inspection Service from Revenue Canada. Following the new Prime Minister’s announcement of the intention to create a Border Service, work began to determine how best to give effect to the decisions. As it turned out, however, when the Liberals won the general election of November 1993, the new Prime Minister, Jean Chrétien, announced that the Border Service would not be established after all. Evidently 1993 - as an election year - slowed progress on the integration of the new department. In the Dutch case the reorganization took place between 1987 and 1992. The five-year transition period, however, was initiated back in the late seventies when the organization realized that reorganization was needed. The actual reorganization was the response to a long period of investigation and analysis. The advantage of a short implementation period is – obviously – that the goal of the merger is reached earlier. Also it is likely that the organization will be less efficient during transition, and employees face a high level of uncertainty. Often, however, circumstances do not allow an implementation period of only a few years. A successful merger requires the attention and support of a number of different stakeholders, that might be distracted and loose focus due to other developments and circumstances. In such cases it is important to adjust the process according to developments in the organization’s environment. Preparing/planningPlanning of the merger process is crucial for a successful result. This includes the involvement of all key stakeholders in the design and implementation. In Colombia, design and implementation of the initial merger failed to undertake a precise analysis of winners and losers and to develop strategies to address their concerns. The courage and commitment of the reform team faced insurmountable challenges. In particular, there seems to have been limited political support among the population for the reforms. Most importantly, there was no successful effort to develop constituencies supporting the reforms. The attempt to remove corruption from customs while at the same time implementing a tough anti-smuggling policy backfired. Capture of the customs by regional political forces could not be removed abruptly and it is likely that they have come back to play an important role in the organization today. The infighting surrounding the creation of DIAN and its preparation period during the first half of 1993 seriously affected the potential success of the merger. With hindsight, the Minister should have appointed a leader of change, with a clear mandate, and should have restrained other elements within the ministry that sought to block the merger. A serious process of consensus building should have taken place during the design period to avoid conflict during implementation. There was hardly any management of change and conflict inside the agency, and focus on the process of change took attention away from institution building objectives. In contrast to the Colombian experience, the Canadian merger was carefully analyzed in terms of impact on people inside the institution and took a long-term perspective. A series of expert groups (“project teams”) examined every aspect of consolidation, including the need for legislative change and integrating administrative and information technology services. They also looked at ways to provide seamless service to clients–what became the single-window approach. Groups also looked at practical ways to bring about the consolidation of core activities, such as accounting, audit, appeal, and collection. Still others looked at standardization of penalties, interest rates, and appeal procedures. At the time of the merger of the Danish Tax and Custom departments the Tax Minister decided to create a new, non-permanent administration, the Directorate for Tax and Excise, which would be responsible for planning and introducing a new customs and tax structure, including the merger between the State Tax Service and the Customs and Excise Administration. A main contributor to the success of the merger was inviting all staff to participate in drafting the new vision. In all, 732 staff contributed and drafted proposals leading to a common vision. The participants could work in groups or as individuals. Throughout the process everyone received personal feedback on their contribution. Total staff involvement led to acceptance of the common vision regardless of previous affiliations. In summary, the planning process should be characterized by the following: Directly or indirectly it must represent or take into account all affected groups, especially groups having vested interests in the reorganization. It should lead to staff empowerment building the necessary capacity and time to conduct any investigations and analysis needed. Management (leadership)Often one person is appointed to carry the responsibility of leadership for a merger. This person naturally becomes the personification of the process for politicians, government executives, employees, the general public and agency clients. So the power and ability to provide the required leadership is vital to the success of the merger. In Denmark, a new General Director was recruited externally with one objective: to implement the merger. He had no former experience with tax and custom matters; instead, he was selected solely for his management skills. This meant he was considered “neutral,” with no knowledge of, or sympathy with one organization over the other, which provided a sense of impartiality when making difficult decisions. The Canadian merger began with the appointment of the same person to be both Deputy Minister of Taxation and Deputy Minister of Customs and Excise. The Prime Minister selected the incumbent Deputy Minister of Taxation, to lead the merger. The appointee, Pierre Gravelle, had served as Deputy Minister Taxation since 1987. In recognition of the challenge ahead, he was promoted to the senior Deputy Minister level as part of his dual appointment, October 1, 1992. Gravelle had a vision for a unified tax administration based on client service. He was highly motivated, focused, and possessed the skills to persuade others of his vision. Among those persuaded were the Prime Minister and his key advisors on government organization. As a first step of the Colombian reorganization, the Ministry of Finance transferred the head of the National Tax Directorate (DIN) to manage Customs (DAN). The idea was to replicate DIN’s success and seek independent status for the Customs Directorate. At the time no thought was given to merging tax and customs. In the end, independent status could not be obtained, despite no legal impediment. The failure to reform customs along the lines of tax provided a pretext for merger. DIN’s director proposed combining the administration of the two institutions as a first step to reduce costs and share skilled personnel in both entities. The Minister of Finance and the two directors agreed to continue with the merger. However, two concepts arrived on the desk of the Secretary of Public Administration of the Presidency, one prepared by the head of Customs and the other by the Deputy Minister of Finance. The rival proposals reflected institutional and personal rivalries within the MOF about the new DIAN. The decree creating the Directorate of Tax and Customs allowed six months to prepare for merger. Continuing personality conflicts and internal disagreements in the MOF led to resignation of the Customs director who was leading the integration. About 30 high- and mid-level executives resigned with him leaving a costly institutional vacuum. To prevent more loss of personnel and a revenue crisis, the Minister of Finance quickly appointed as DIAN director the head of the Budget Directorate, who was not part of the internal conflict. This prevented the resignation of regional managers who had been selected on technical, not political criteria. Even so, some middle management at headquarters left the agency. Among them were the previous tax director and two future directors of the DIAN—who eventually de-merged the agencies. Overall, there have been seven directors since the creation of DIAN in 1992-93. Two of the first three were fired because of political pressure, while the third was removed for questionable connections to mafia groups. The fifth fled the country because of death threats. The importance of smuggling and links to drug trafficking meant that customs received most of DIAN directors attention. This led several of them to seek the limelight for personal recognition. The merger and the possibility of developing viable strategies for DIAN became compromised.
The merger exercise should be visible to politicians by informing them of results throughout the process. This process should provide management with the latitude to carry out the merger without interference from politicians on technical details. Depending on organizational arrangements – whether the merger is supervised by a superior ministry (e.g. the Ministry of Finance) or the central government - the leader will need continuous advice, consultation, and approval. The general public or clients might not perceive the leadership factor. However, the image of the organization can easily be affected if the public believes that the process lacks the necessary focus and leadership. Some clients – particularly large companies – might expect to be consulted during this process. Employees of the organization must be informed and involved in the change process by the leadership cadre. Finally, international organizations can provide support for reorganization of the tax and customs administrations, which governments and managers of the merger process can draw on to support external objectives, e.g., EU accession. In sum, a large-scale reorganization, like a merger, generates insecurity and suspicion of mangers and staff. Often there is the perception, usually by customs, that the merger is a takeover. So it is vital that leaders are selected for both managerial skills as well as a perception of neutrality, to balance the interests of the two organizations. CultureTax and customs administrations often represent different organizational cultures, with employees behaving according to differences in education, remuneration, incentives, and institutional history. In merged tax and custom agencies most employees continue to deal with either tax or custom matters. However, internal communication and data exchange is crucial to integration, so that both groups respect each other and understand the need for cooperation. In Latvia the cultures of tax and customs were shaped by different historic developments. When Latvia gained its independence, custom posts defined the border of the new state, which led to clashes between Latvian patriots and the Soviets, with some border posts burned down. The new custom service attracted many Latvians for whom it was a point of honor to defend the border of the newly independent country, but who lacked knowledge of customs or its role in the economy. Before independence, only 10% of Customs employees were Latvians, so few nationals had experience or an understanding of how to manage and administer customs responsibilities. The high risk associated with working at the border, combined with low salaries, meant customs became quickly vulnerable to “silent” corruption. In contrast, the Tax Administration was much less directly affected by independence. The typical employee of the Tax administration was female, educated, and accustomed to and disciplined by the bureaucracy. The culture of the tax side of the merger was said to be one of a “Roman army”. The merger of the young, inexperienced, and somehow undisciplined Customs Administration with the experienced and well-functioning Tax Administration was perceived as a takeover with the hope that some of the good behavior and work habits would rub off on customs staff. Today, customs staff still express a sense of being treated as the underdog, and some believe customs should have been given more time to develop an identity of its own. The cultural integration at central level also has not been made easier with the central administration maintaining separate addresses in Riga: the tax headquarters is near the Ministry of Finance in a well-appointed section of central Riga, while customs headquarters resides in a run-down building in a more humble neighborhood. In Canada departmental cultures differed. In fact, within Customs and Excise there was a distinct culture basically divided by the largely uniformed Customs Inspection Branch. Through the merger process, however, the use of a unified structure became in itself an important contributor to breaking down barriers between the two departments. The Customs section was particularly apprehensive that the taxation people were taking over. For this reason, consultants were not used. It was important that staff assume ownership of the new organization and take part in its evolution and purposes. So staff at all levels worked through the merger issues themselves. The use of management teams and teams of specialists (e.g., auditors) worked out the highly complex details of implementation. The Danish merger was also a broad-based process where all staff was invited to participate in drafting a new agency vision. The new vision therefore was accepted by staff across the two former administrations relatively easily. All staff had background in one of the former organizations; however, in retrospect, the impact of the merger was not fully realized until later, when new staff was recruited. Customs and Tax began to measure staff satisfaction by surveys every other year beginning in 1987. In 1989, 83% expressed general satisfaction with their employment in the new agency, which is considered high compared to other public administrations. The staff members assess their direct managers, regional management, and the Board of Directors. The trend is that satisfaction with management and general staff satisfaction is high and still rising. Clients/imageThe relationship to clients is an important motive for integration to promote more interactive service and higher compliance. Clients should also be consulted during the merger process for several reasons: Clients, especially larger firms, can contribute to the design of the new organization, pinpointing areas where increased cooperation is needed or where integration would make client interfaces with the agency smoother. The image of and confidence in the tax and customs administration can be damaged if the transition leads to protracted delays in handling cases or the administration makes more errors. This is crucial, as confidence in the tax and customs administrations of a society is a precondition for high levels of voluntarily compliance, and thus effective revenue collection. The Canadian Minister and Deputy Minister made a special point to include consultation with client groups. Both spent time explaining their objectives and seeking input from ad hoc groups that advised on matters affecting corporations or small- and medium-size business or personal income tax, as well as from mayors of the numerous cities along the Canada-US border. The need to improve client services was the key focus of much of this work. The technology to create the unique business identification number received high priority, as did preparing the legislative amendments to permit its use throughout the new organization. The business number and the single business window were not only important evidence of progress but became the drivers of the longer-term project to achieving back-office integration. The Dutch reorganization was structured to accommodate the needs and characteristics of different client groups. Integration in any sense and level was perceived as good for the client. Two pilot projects (Rotterdam/Haag and Amsterdam) showed that assumption was incorrect in some cases. Large companies that import oil through the large harbors of the Netherlands had created separate departments for handling tax and customs issues. Integration made audits more complicated for this enterprise sector. IT and Support SystemsThe effectiveness and efficiency of business processes are extremely important for output, information, and communication systems, e.g. which tasks still should be done manually and which by information technology. Even after the merger of the Danish Tax Administration and Custom Administration, the new organization continued to use two separate IT systems for company registration and control. The systems had comparable purposes but were structured on different operating principles and were not compatible or able to exchange data. A delay in implementing an integrated system because of technical, managerial, and organization problems meant that Customs and Tax had to spend extra resources on maintaining and developing the old systems, and were unable to implement the planned IT rationalization. This meant that enterprises did not experience the promised increase in service. The plan to develop a completely new system for the new organization was quite ambitious, as the organization possessed two well- functioning but separate systems. Some critics have pointed out that development of one of the existing systems would have been far better manageable than developing a completely new system. The target group orientation of the Dutch Tax and Custom Administration required data to be organized by taxpayer (or group) in such a way that it could be used coherently. This meant the agency had to completely restructure its information systems. All files for one taxpayer had to be assembled so that the target group concept and control could be properly integrated. Moreover, the files of those taxpayers who had social, administrative or financial interrelationships, which had to be considered together, needed to be grouped to form “entities”. The IT integration occurred with no major problems. In Canada the development of integrated skills took place gradually between 1995 and 2000. It was spurred on by Revenue Canada’s commitment to providing businesses with integrated services. Two initiatives played key roles in making this a reality: the single business number and a single window for answering queries and providing information to business clients. Both initiatives depended on the integration of information technology services, handled as a priority starting in 1993. The business number was introduced in 1996. The underlying technology permitted behind-the-scenes integration of most aspects of a corporation’s dealings with the Revenue Canada. The single window, also introduced in 1996, was the first sign of staff integration from the silos of the two former departments. Staff integration began with the identification and training of 450 employees drawn from each of the new agency’s key activities. In summary, today an increasing part of business processes are embedded in information technology. Whether the solution is to acquire and develop a totally new system or to use one of the old systems as the basis of a integrated system will depend on the technical feasibility assessment. ConclusionsThe five case studies as well as previous studies of integrating tax and customs agencies suggest some general observations and conclusions. Reforms of tax and customs administrations are based on one of two motives from which strategies evolve: The need to increase either effectiveness or organizational efficiency. The priority for most governments will be effectiveness, followed by efficiency considerations. This means that effective collection of revenue will be the top priority of any government. The efficiency of the agency will be second - even when the internal performance (productivity) is unimpressive. An optimization of the effectiveness of the revenue services does not necessarily require a large degree of integration between the operations of the tax and customs authorities. The case studies illustrate that full merger of the two institutions may in fact impede the goal of increasing effectiveness. A joint focus on the operational aspects, a cross-institutional focus on target groups, and coordinated legislation and planning may serve the purpose, where as a merger of the “physical” organizations (shared personnel, organizational culture, infrastructure and IT systems) requires tremendous effort on behalf of the political and administrative leadership, staff, and the stakeholders (vested interests, clients) of the agency - an effort that may in the end be counterproductive. This was the case in Colombia, and at times threatened to imperil the merger in Denmark. Recently, Latvia has decided to roll back the merger efforts. For this reason, it is vital that governments are clear on the motive behind the integration process, and that strategies chosen for implementation are in harmony with the motive. Thus, institutional reform is a two-stage process. The first priority, increasing effectiveness, should be secured first, before efforts and resources are put into increasing the efficiency of the organizations. In essence: motives and strategies must be linked; and the implementation process be carefully monitored and necessary adjustments made. WB20156 Download 452.03 Kb. Share with your friends:
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