Tax Administrations’ Rules: Do not create or raise taxes until all processes are optimized

Although it is recurrent to try to cover public spending by increasing rates or creating new taxes, the reality is that - in general - this does not have the desired effect if the tax administration problems have not been solved beforehand.

The reason for this is that although it is easier to carry out such action in the short term (raising a tax or creating it is normally a law and a form), in the medium and long term it generates great social discontent - given that by not increasing the only ones who were already paying the others will be subject to the new tax - and a tax cannibalization of other taxes. It can be said that tax cannibalization occurs when a taxpayer chooses whether to comply with their taxes when the tax pressure is excessive.

Now, in no way does this imply that there are no ways to increase tax collection, but that it is necessary to improve all collection processes and once that route has been exhausted, only consider an increase in rates or the introduction of a new tax.

At a minimum, the following tasks should be accomplished:

1. Ensure that the tax base or universe of taxpayers is registered in its entirety, in order to avoid economic actors who should declare and pay but escape the tax task.
2. review and discard those debts that due to statute of limitations or proven uncollectibility are impossible to recover, in order to lighten the work of the collection areas and accelerate recovery.
3. Review and increase collection tasks for those taxpayers with tax debts, particularly in the friendly or administrative collection process when it exists because it is more expeditious. In the same sense, increase the tasks of omission management, to ensure that those taxpayers who are obliged to declare and do not do so, comply with that obligation.
4. Analyze the impact of tax changes on taxpayers through statistics and simulations.

This and other principles are available in the book Principios de Administración Tributaria published by Thomson Reuters - La Ley.