OCDE-Performance Measurement in Tax Adm Practice PDF

GAP005
Issued: 4 May, 2001
Centre for Tax Policy and Administration

Tax guidance series
General Administrative Principles GAP005 Performance Measurement in Tax
Administrations
Performance Measurement in Tax Administrations

Practice Note
Prepared by the OECD Committee of Fiscal Affairs Forum on Strategic Management
Caveat
Each Revenue authority faces a varied environment within which they administer their taxation system. Jurisdictions
differ in respect of their policy and legislative environment and their administrative practices and culture. As such, a
standard approach to tax administration may be neither practical nor desirable in a particular instance.
The documents forming the OECD Tax guidance series need to be interpreted with this in mind. Care should always
be taken when considering a Countrys practices to fully appreciate the complex factors that have shaped a particular
approach.
Ptd: 24 September, 2001
GAP005
Issued: 4 May, 2001
Performance Measurement in Tax Administrations Practice Note
Contents
Executive Summary .......................................................................................................................3
Introduction (Chapter 1)..............................................................................................................3
International comparisons (Chapter 2) ........................................................................................3
The Swedish Case (Chapter 3) ....................................................................................................5
Conclusions (Chapter 4)..............................................................................................................7
1. Introduction ..............................................................................................................................10
1.1 Public Management Reform................................................................................................10
1.2 Performance Measurement..................................................................................................11
1.3 A Note on Terminology ......................................................................................................13
1.4 General Outline of Chapters 2 and 3 ...................................................................................14
2. Performance Measurement in Tax Administrations in OECD Countries ..........................15
2.1 Introduction.........................................................................................................................15
2.2 The Management Context ...................................................................................................15
2.3 Measures of Input, Output, Outcomes and Productivity .....................................................23
2.4 Measures of Quality and Taxpayer Attitudes......................................................................27
2.5 Outcomes, Impacts and the Tax Gap...................................................................................29
3. Performance Measurement in the Swedish Tax Administration .........................................32
3.1 Introduction.........................................................................................................................32
3.2 Institutional Context............................................................................................................32
3.3 A Performance Measurement Model (PMM)......................................................................36
3.4 Performance Indicators .......................................................................................................40
4. Conclusions ...............................................................................................................................50
4.1 Introduction.........................................................................................................................50
4.2 General trends among tax administrations ..........................................................................50
4.3 The Swedish Experience ..................................................................................................... 52
Guidance .......................................................................................................................................57
References ......................................................................................................................................58
Appendix: Questionnaire to Tax Administrations in OECD Countries..........................................59
History............................................................................................................................................62
Compatibility..................................................................................................................................62
Contact ...........................................................................................................................................62
GAP005
Issued: 4 May, 2001
Performance Measurement in Tax Administrations Practice Note

EXECUTIVE SUMMARY
Introduction (Chapter 1)
1.
Faced with growing budget deficits and increasing demands on public services, governments have sought new
ways of making the public sector more effective and responsive to client needs. A common response has been public
management reform. Tax Administrations have been affected by these reforms in much the same way as other
government agencies. Management has become more decentralised and more emphasis has been put on efficiency,
effectiveness and quality of service. The quid pro quo for greater managerial autonomy is accountability and hence
there is a need to develop more effective systems for performance measurement.
2.
Performance measurement, however does not only serve the need to hold managers accountable, it is also a
tool for managers to control and develop operations, motivate staff and to make more informed budget decisions.
3.
The terminology used in this report conforms with the standard usage in OECD reports on performance
measurement. It is based on the so-called input-activity-output-outcome model, from which the basic performance
criteria of productivity (efficiency), (service) quality and effectiveness are derived. The specific meaning of these
terms, however, must be defined in relation to the relevant programme logic, in this case, the ends and means of
taxation.
4.
The main body of this report consists of two parts. The first part (chapter 2) attempts to give a broad view of
performance measurement in tax administrations in OECD countries. Some issues raised in this part will be
discussed in greater detail in the second part (chapter 3), which is a case study of performance measurement in the
Swedish Tax Administration. The report is concluded in chapter 4, where the Swedish experience is discussed in
relation to some basic requirements on performance measurement.
International comparisons (Chapter 2)

5.
The comparative part of this study is based on a questionnaire answered by the tax administrations in 15
OECD countries in the autumn of 1998. The purpose is not to gauge the level of development or to explain the
reason for different approaches, but merely to identify some general trends and common varieties of performance
management and measurement.
Management system
6.
It is obvious that the development of performance measurement owes a great deal to structural factors, service
traditions and the relative urgency of managerial reform, all of which are unique to each country. In some countries,
for example, the tax administration (or its head office) is part of the ministry of finance, in other countries it forms a
separate, more or less, autonomous administration.
7.
A common trend in public management reform is to grant managers greater autonomy, while introducing new
mechanisms for accountability. In many countries this has inspired the introduction of contract management based on
performance agreements that set out targets (in terms of revenue, number of audits, service standards etc.) and the
resources allocated to achieve them. In other countries the procedure is better described as a budget dialogue, which
takes place before the government issues a unilateral budget document. Such budget documents commonly define
general objectives and priorities, and may also specify targets.
8.
No matter if the budget process is based on contract negotiations or not, reports on past performance play an
important role in informing the involved parties. In performance management, especially when a contractual
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approach is practised, it is also common to establish a system of rewards and sanctions that depend on the attainment
of agreed or decreed performance standards. Several countries have introduced performance related pay, which
applies to all staff or to managers only. At the organisational level, some countries have tried or considered
performance budgeting, where budget allocations, to some extent, would be influenced by results. It seems, however,
that no country actually practices a system with a formal link between performance and the size of appropriations.
Although budget decisions may well be influenced by performance, most countries prefer to make such decisions
discretionary rather than rule-bound.
9.
Performance management requires a well functioning reporting system to ministers and top management. At
the managerial level most tax administrations produce monthly or quarterly performance reports, which are discussed
at top management meetings. Reports on performance to the ministerial level typically take the form of interim
reports (submitted every quarter or after six months) and annual reports.
10.
A precondition for timely reports on performance is an efficient information system. The ultimate source of
most data is the tax administrations main business systems, but these systems are not generally designed to provide
timely and easily accessible data on performance. Most, but not all, tax administrations, therefore, have introduced or
are developing special management information systems. A common trait of such systems is that they provide a
gateway to statistical information from many different sources and make it easy to combine these data into key
performance indicators.
11.
In our study, using the input-activity-output-outcome sequence, we have classified performance measures into
three groups. First measures that relate output to input, second, measures of quality and taxpayer satisfaction and,
third, measures of outcome with respect to revenue and compliance.
Input, output and productivity
12.
The main input measures are cost and labour (expressed in work hours). At corporate level most tax
administrations account for all costs (salaries, accommodation, investments etc.), but they do not always apportion
overhead costs to lower levels in the organisation (regions, offices etc.). What is regarded as an overhead cost varies
from country to country, which often depends on the degree to which budget authority has been devolved to lower
managerial levels. In most countries, therefore, it is only possible to calculate the full unit cost at corporate level. On
the other hand, overhead costs are of little relevance, when comparing the unit costs of different offices.
13.
Many tax administrations have introduced time reporting systems. In some countries such reports cover all
activities, in other only specific areas, e.g. audits. The purpose is to attribute input (measured as work hours or direct
labour cost) to different activities, functions, processes, programmes or outputs. This information can also be used to
apportion overhead cost to the appropriate offices or functions.
14.
Typical output measures are related to the workload (number of taxpayers or tax returns) or to tax control
(number of audits or verifications). Some countries include taxpayer contacts in the form of telephone enquiries and
visits to tax offices in their output measures. Most countries also seem to regard revenue, at least additional revenue
recovered by audits, as output although it can also be regarded as outcome.
15.
The distinction between output and outcome will influence the definition of productivity. Most tax
administrations in this study report regularly on productivity development. Productivity is the ratio between output
and input. Output is normally expressed in physical terms, while input can be expressed either as costs or as work
hours. There is a variety of productivity measures depending on different definitions of output. Alternatively,
productivity can be expressed as unit costs. A common measure is cost per taxpayer. When revenue is included in
output, productivity is typically expressed as administration costs in per cent of total revenue.
Quality and Taxpayer Satisfaction
16.
The issue of quality - especially quality of service or client satisfaction - has become more important in recent
years. Some aspects of quality can be measured like timeliness in terms average processing time for applications.
Another aspect is quality with respect to legality and professional standards, which can be assessed by inspections or
review of selected files.
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17.
A third aspect is client satisfaction, which can be studied by taxpayer surveys. Most tax administrations carry
out such surveys and some do so regularly. There are many other ways to get feed back from clients, for example
focus groups, exit surveys, letterboxes for suggestions and complaints etc. Some countries measure quality against
1
published standards (taxpayers charter) .
Outcomes, impacts and the tax gap
18.
Whether classified as output or outcome, all tax administrations measure and report collected revenue. Some
tax administrations work to achieve revenue targets, which makes the attainment of these targets an important aspect
of performance. Much attention is also focused on the direct revenue effects of tax control, and in several countries
audit programmes are expected to achieve certain targets in terms of additional tax revenue. It is also common
practice to relate additional revenue to direct costs to get a measure of audit efficiency. The main function of tax
control, however, is to prevent and deter tax evasion. In some countries attempts have been made to measure the
deterrent effect of tax control.
19.
The overall effectiveness of the tax system can be expressed as the ratio between actual tax revenue and the
theoretically correct yield. The difference between the two is commonly referred to as the tax gap. Many attempts
have been made to measure the total tax gap or with reference to particular taxes. Such studies are largely based on
estimates of the black economy and they are not very reliable. Several tax administrations have been involved in
studies of the black economy. Generally, such studies have not been found to provide much practical guidance and it
seems that no tax administration in the survey carries out such studies regularly.
The Swedish Case (Chapter 3)

20.
In chapter 3 the main issues raised in the previous chapter are revisited and discussed in greater detail drawing
on the experience of the Swedish Tax Administration.
Institutional context and management system
21.
A unique trait of state government in Sweden is that ministries are small and most executive functions have
been delegated to central agencies that have long enjoyed a considerable degree of autonomy.
22.
This traditional autonomy has been further strengthened by recent budget reforms and the introduction of
management by results. Today most agencies are funded by a single lump sum appropriation covering all kinds of
expenditure. Agencies are allowed to carry over surpluses to the next budget year and, within strict limits, take
advances on future appropriations. Capital investments are financed by loans at the National Debt Office.
23.
A parallel development to this devolution of financial authority is the introduction of more stringent
accountability mechanisms. To hold agency heads accountable for performance, stricter reporting requirements have
been introduced. Presently every agency has to submit an interim report after six months and an annual report within
two months after the end of the financial year. The National Audit Office audits these reports, which contain both
financial statements and performance data. Today the annual report has replaced the budget request as the main
document in the budget process.
24.
These developments have also affected the Swedish Tax Administration, which is made up by the National
Tax Board (NTB) and ten Regional Tax Authorities. The NTB is also the parent agency for ten the Regional
Enforcement Authorities, responsible for collecting bad debts owed either to government or to private creditors. In
all, the NTB and its 20 Regional Authorities has about 13,000 employees.
25.
The Swedish Tax Administration has moved from a traditional bureaucracy to modern managerialism in three
great leaps. The first leap was triggered by the introduction of programme budgeting in the 1970s. Although this
reform was aborted after a few years, it created the foundation for the next budget reform and management by
1
See GAP002 Taxpayer Rights and Obligations page 7 for an example Taxpayer Charter incorporating service standards.
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Issued: 4 May, 2001
objectives in the 1980s. In the late 1990s there has been a shift of emphasis to results oriented management and total
quality management (TQM) has been introduced. In the wake of recent organisational changes and to fit this new
management philosophy, the entire management system has been overhauled.
Performance measurement
26.
Since the late 1980s the management system has rested on three pillars; a system for budget allocations; a
system of co-ordinated planning based on annual guidelines; and performance measurement. Despite the need to
balance devolution of authority with improved performance reporting, the performance measurement system has
developed more slowly than budgeting and planning. For a long time, the Annual Report was narrowly focused on a
few performance indicators and it was not clear to what extent they reflected total performance. In 1994 the
government therefore requested the National Tax Board to design a more comprehensive performance measurement
model (PMM) to become the basis for a more informed budget dialogue.
27.
The PMM was built around the so-called input-activity-output-outcome sequence mentioned above. With
reference to these concepts three basic performance criteria were defined: productivity, quality and effectiveness.
Effectiveness was defined as the tax administrations impact on the tax gap. The tax gap was then divided into
collection losses (taxes billed but not collected) and assessment error (theoretical tax minus the total tax bill), which
increased the number of basic performance criteria to four.
28.
To make these performance criteria measurable, they were broken down into sub-criteria, to which
performance measures are attached. Most of these measures are in fact indicators, which means that there is an
assumed causal relationship between the indicator variable and the corresponding performance criterion, but there
will always remain a certain incongruity between the two. Favourable figures on several performance indicators are
therefore not equal to good performance, but a good sign.
Performance criteria and indicators
29.
The first performance criterion is productivity. There are indicators of total productivity (based on cost) and
labour productivity (based on work hours). Output is defined as a weighed total of tax returns, field audits and
corrections due to desk audits.
30.
As for quality a distinction has been made between quality according to legal and professional standards and
quality according to taxpayer perceptions. The former is assessed by frequency of certain errors, timeliness, standard
of quality assurance systems etc. The latter is measured using taxpayer surveys.
31.
Revenue, which can be regarded as an outcome, is of course measured and reported, but it is not included in
the model as a criterion of performance. The reason is that variation in tax revenue is much more influenced by
changes in tax legislation and macroeconomic development than by improved or worsened performance of the tax
administration.
32.
The size of the tax gap, on the other hand, is regarded as more closely related to the tax administration's
performance, but, alas, difficult to measure. The part made up by collection losses is measurable, however, and can
be related to total revenue. Nonetheless, there is no simple way to separate the impact on collection losses of actions
taken by the Tax Administration from other influences. Instead reliance must be put on indicators that measure
activities and outputs that can be assumed to have an impact on the payment of taxes.
33.
The same logic is applied to the criterion impact on the assessment error. There are indicators that reflect
some aspects of compliance and indicators that measure activities and outputs that are likely to deter tax evasion.
Implementation and practical application
34.
These four performance criteria are the pillars on which the performance measurement model (PMM) was
built. It was originally designed to form the basis for the performance assessment in the annual report, which is
submitted to the government. It was, however, also the intention that the PMM should serve internal management
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needs by providing the criteria and indicators for assessing the results achieved by the county (now regional) tax
authorities. To make this practicable an information system (RESUM) was developed. Most data are supplied to
this system from the main business systems and the accounting system via other databases.
35.
From an internal management point of view the PMM has some limitations, since it focuses on outcomes
(rather than outputs), on the external perspective (rather than the internal) and on annual performance evaluation
(rather than short term performance monitoring). Many managers also felt that the system was cumbersome because
of the large number of indicators (although there was a system of aggregation in place that provided summary
measures on different aspects of performance)
36.
It was therefore decided that the PMM should be supplemented by a balanced scorecard that contained fewer
indicators and covered some internal aspects that the PMM did not (budgets, development of human resources and
IT). The scorecard, however, shared most of its indicators with the PMM and it did therefore not compensate for the
main shortcomings of the PMM. Instead short term performance reviews continued to focus around a narrow range
of traditional measures, such as the number of audits and alternations of tax returns.
37.
The PMM, therefore, did not, as intended, become the universal instrument for performance management.
Instead it continued to structure the performance dialogue between the National Tax Board and the Ministry of
Finance. At the conceptual level it also had great influence on the development of compliance strategy.
Conclusions (Chapter 4)
International trends in performance measurement
38.
Although the managerial context varies between countries there is a strong tendency among tax
administrations to follow the general trends of the New Public Management. Among other things this means a strong
emphasis on performance measurement. Most countries have developed new management information systems
(MIS) and apply a wide range of performance indicators to monitor activities and report results to higher levels. In
many, performance is measured against ex ante targets.
39.
There is also a trend towards full cost accrual accounting, which forms the basis for efficiency measures,
where various caseload measures count as outputs. Sometimes the revenue yield of audits is also regarded as an
output when productivity is measured.
Reliability and Validity
40.
The objective of performance measurement is to support better decision-making, which in the end is expected
to lead to improved overall performance. To do this, the measurement system must be functional and satisfy
concerns about reliability, validity, legitimacy and continuity.
41.
A measurement system that does not produce reliable data will not pass any other test. To ensure data quality
at the point of entry, the grounds for classifications must be clear and staff must receive feedback to understand the
purpose of measurement. Since many systems must interact in the production of performance data, sufficient
resources must be allocated to monitor the information systems and ensure data quality.
42.
Validity of performance measures depends on how closely they reflect the basic performance criteria. The
great reliance on indirect measures (or indicators) weakens the validity of the system. However, generally speaking,
weak measures (indicators) that measure important things are to be preferred to strong measures that measure
unimportant things.
Functionality and dysfunctionality
43.
It is much too early to evaluate the contribution of the measurement system to total performance. First it must
be said that the availability of data concerning personnel, costs, activities, outputs and taxpayer perceptions has been
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greatly improved over the last decade. The sheer amount of data has multiplied and it has become available at
thousands of workstations at all levels of the organisation. Despite this progress, the development of the
measurement system has not managed to pace with the growing demand for performance data.
44.
In a management context the measurement system must be assessed with regard to its ability supply
information for decisions concerning accountability, resource allocation, management control and process
development. With regard to accountability it must first be stressed that contract management is not practised in the
Swedish Tax Administration. Neither the Director General nor Regional Tax Managers are at present under
obligation to meet specific targets. Instead performance is assessed with respect to previous results or in relation to
the results of other authorities. Given the great degree of transparency in Swedish Government this does put a great
deal of pressure on managers to perform well.
45.
Furthermore, there are no specific rewards or sanctions linked to performance, neither on organisational nor
on individual level. Individual pay is nonetheless related because there are no fixed pay schedules and the salary of
each individual is negotiated in the same way as in the private sector. In the last rounds of pay negotiations there has
been no guaranteed salary increase, which means that there has been plenty of room to reward good performance by
larger salary increases. On the organisational level there is no link between budget allocations and results.
Appropriations are allocated between the regional authorities according to relative workload.
46.
The measurement system can also make an important contribution to the development of business processes
and work practices since it opens up great opportunities for bench marking between regions and offices. However, at
present, local bench marking initiatives are not very common. Experience shows that such initiatives must be coordinated at national or regional level.
47.
The most immediate need for local managers is, however, timely information to monitor budget expenditures
and the implementation of plans during the current year. The performance measurement model, however, was not
designed to meet this need. The balanced scorecard is intended to compensate for this deficiency at top management
level, but local managers are at present left to their own devices to select the proper indicators among the multitude
of data provided by the information systems.
48.
Many fears have been expressed about perverse behaviour inspired by performance measurement. Because of
the incongruity between indicators and performance criteria there are ways to improve the statistics without actually
improving results. Sometimes such work practices may even be directly counterproductive. There is an abundance of
anecdotes on such cases, but there is little evidence that the practice of working against better judgement to gain
good statistics is widespread. The danger is rather that the entire organisation gets its focus wrong, for example
maximising the number of audits without ensuring that the selection of audit targets is optimal with regard to risk and
deterrence
Legitimacy and continuity
49.
The practice of performance measurement enjoys a high degree of legitimacy in the Swedish tax
administration. There is general recognition of the fact that large organisations cannot be managed effectively
without access to quantitative information about activities, outputs and outcomes. Nevertheless, there is some
scepticism as to the ability of the measurement system to deliver on its promises, which is to provide valid
information about the organisations true performance.
50.
As for continuity, the basic performance indicators have remained reasonably stable since the introduction of
the PMM. The recent overhaul of the management system has, however, introduced a number of new management
tools, all of which do not share the same basic assumptions and terminology. It has therefore has taken some time
integrate these new approaches into a consistent conceptual framework, which is a prerequisite for a well function
performance measurement system.
The future of performance measurement
51.
The reliance on performance measurement in the management of tax administrations is likely to increase
despite problems to establish valid output and outcome/impact measures. There is a need both for measures that are
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useful in monitoring the implementation of the management plan during the current year and for valid and practical
measures or indicators to gauge outcomes and impacts with respect to the central strategic objective of reducing the
tax gap.
52.
The best way to proceed is probably to make a distinction between performance monitoring focused on inputs
and outputs in the short term and performance evaluation to assess impacts and cost effectiveness in the long term (25 years).
53.
In the management plan, operational targets can be selected in such a way that they can be monitored by
information supplied by the management information systems at reasonable intervals during the current year. Such
interim performance reports will focus on costs, activities and outputs and other standards that relate to targets in the
management plan.
54.
To stay on course, it is however also imperative that tax administrations build capacity to evaluate outcomes
and impacts with regard to long-term performance. This requires the combination of several analytical approaches
that cannot be contained within a management information system. It is not possible to cover all aspects of
performance by such studies each year and it will take several years to carry out in depth analysis of all vital parts of
the organisation. It is also important that the assumptions and rationality of the management plans be examined with
respect to the outcomes they produce.
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1. INTRODUCTION
55.
Performance measurement is a central feature of public management reforms carried out in many OECD
countries over the last decades. Tax administrations have not been left out, and in most countries efforts are being
made to design measurement systems that will allow ministers and managers to assess their performance to guide
decision-making.
56.
This study has two purposes: First, to provide both a broad overview of what is currently being done in tax
administrations in OECD-countries to develop systems for performance management. Second, to discuss some
central issues of performance measurement in greater detail based on the experience of the Swedish tax
administration. We hope that this presentation can provide a basis for dialogue and inspire further sharing of
experience in this field among tax administrations.
57.
The approach is descriptive. The international comparison in chapter 2 sets out to identify some common
trends and typical varieties. We believe that the basic problems of performance management and measurement in tax
administrations are shared, at least to some extent, by all countries, but the appropriate solutions vary from country to
country.
58.
In the remainder of this introductory chapter we shall put the issue of performance measurement in tax
administrations in the general framework of public management reform. This presentation is based on the report
Governance in Transition - Public Management Reforms in OECD Countries (OECD, 1995).
59.
We will then proceed to establish a descriptive model and the terminology that we will apply in later chapters.
Again we seek to stay close to the conceptual framework favoured by OECD as presented in the report Performance
Measurement in Government: Performance Measurement and Results-Oriented Management (OECD, 1994).
However, when these broad generic terms are applied to tax administrations they must be given a more precise
meaning. We shall therefore introduce some additional terms of our own.
1.1 Public Management Reform

60.
Administrative reforms in the late 19th and early 20th centuries aimed at stamping out arbitrariness,
corruption, political patronage and keeping costs down. This was achieved by establishing rule-bound and
hierarchical bureaucracies whose chief virtues were impartiality and compliance with law and other rules of
procedure.
61.
These reforms were largely successful, but as often happen, the solution to yesterdays problems become a
new issue in need of reform today. The growth of the public sector in the 20th century has changed the character of
public administration. Today, traditional governance makes up only a small part of the duties of the public sector;
most public sector workers are not bureaucrats but teachers, doctors, nurses, social workers etc. The administrative
workload has also increased and to a large extent the basic processing of applications, tax returns, payments etc. is
done by computers. In this new administrative environment, management can no longer be structured in the
traditional way.
62.
Public management reform has often been linked with budget reforms and since the 1960s a number of such
reforms have been launched with varied success. The slowing down of growth and, as a consequence, rising taxes
and/or widening budget deficits have given management reforms a new urgency, since they are expected to improve
efficiency and effectiveness and thus allow the public sector to do more with less.
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63.
In 1995 the OECD Public Management Committee listed five reasons why unchanged government structures
2
and classic responses are inadequate in the new policy environment:
Maximising economic performance and ensuring social cohesion requires governments to adjust rapidly to
changing circumstances
Centralised rule-bound and inflexible organisations that emphasize process rather than results impede good
performance
Large government debts and deficits place limits on the size of the state and require greater cost effectiveness
Extensive government regulation affects the productivity of the private sector and requires greater cost
effectiveness
Demographic changes and economic and social developments demand more government services, while
taxpayers want more value for money and become more reluctant to pay taxes.
64.
Against this background, according to the Committee, governments need a new paradigm for public
management with a closer focus on results about efficiency, effectiveness and quality of service. The centralised
hierarchical organisational structures are being replaced by decentralised management environments. There is greater
flexibility to explore alternatives to regulation and direct public provision of services. To improve the efficiency in
the services provided directly by the public sector, productivity targets are set and more competitive environments
have been created.
65.
Tax administrations in OECD countries have not been left unaffected by these developments. First, naturally,
tax administrations have been drawn into reforms that are applied globally to all parts of government, like budget
reforms. Then there are developments that put particularly strong pressure on tax administrations:
Increasing scale of operations. The need for more tax revenue to finance the growth of the public sector has been
satisfied not only by raising tax rates, but also by introducing new taxes and by widening existing tax bases. This
has increased the number of taxpayers that file tax returns and demand service.
Growing complexity of tax law and the rate at which tax laws are changed means that tax officers must become
more skilled in order to handle their case loads and to serve taxpayers with information.
Greater reluctance on part of the public to accept high taxes and a feared increase in non-compliance has made
effective tax enforcement more urgent.
66.
One way of dealing with these challenges is to make maximum use of information technology. In many tax
administrations today a large part of the processing of tax returns and payments have been automated.
67.
Another solution is more effective management. The general approach to management reform is the same in
tax administrations as in other parts of the public service. The re is a greater focus on performance in terms of
efficiency, effectiveness and quality of service offered to taxpayers. Authority is devolved to managers at lower
levels in the organisation (without compromising a uniform application of tax of rules). Internal markets are created
for support services and/or contracting out of such services. Sometimes contracting out has also included the
operation of core information systems.
1.2 Performance Measurement

68.
As noted by the OECD (1995), the quid pro quo for increasing autonomy and flexibility in resource use is
more stringent accountability for performance. This requires both a definition of tasks as well as measures of
performance and systems for monitoring, reporting and analysis.
OECD, Governance in Transition - Public Management Reforms in OECD Countries, 1995
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69.
Accountability, however, is not the only motive for performance measurement. As pointed out by OECD
(1994), the main objective of performance measurement is to support better decision taking leading to improved
outcomes for the community. All other objectives are derived from this, including:
improved performance of an organisation from the point of view of economy, efficiency, effectiveness and
quality of service
improved control mechanisms for managers and ministers and accountability mechanisms for external reviewers,
such as auditors and legislators
informing the budgetary process by giving decision-takers new kinds of information, which allows them to make
linkages between performance and budgets
motivation of staff to improve performance
70.
The same report offers some general advice on the design of performance measurement system. A first point,
which is stressed, is the need to clearly define the objectives of the organisation. Another is to relate measurement to
a common model or conceptual framework for performance measurement like the commonly used the input-activityoutput-outcome sequence.
71.
Against this background performance measures can be grouped into the following categories:
Economy measures, which refer to the ratio of costs of inputs to the expected value of those costs. An
organisation is economical if it is purchasing its resources as cheaply as possibly
Efficiency measures, which describe the relationship between outputs and the resources used to produce them.
Effectiveness measures refer to the achievement of intended objectives or outcomes. If measures of
effectiveness incorporate cost, they are referred to as cost-effectiveness measures.
Service quality measures can be regarded as an aspect of programme effectiveness, but in a more narrow sense
it refers to service delivery rather than service outcomes.
Financial performance measures which refer to gross or net earnings of user charging organisations or more
generally to appropriate management of cash flows
72.
Finding performance measures that correspond directly to a particular objective is not always possibly.
Instead, performance indicators are used. According to OECD (1994) one can make the following distinction
between measures and indicators:
measures correspond to expected direct results at any particular performance level such as the number of clients
served (output) or decreases in infant mortality (outcome).
indicators are less direct measures and are used where direct measures are difficult or costly to obtain. They
correspond less precisely to the performance being measured, e.g. fewer insurance claims as a measure of safer
car design.
73.
Developing performance measurement systems, there are, following OECD (1994), three major concerns that
must be satisfied in order achieve a system that is functional:
Validity, which is about whether the system measures what it claims to measure and does so in a reliable, correct
and accurate way
Legitimacy. It is important that those who operate and use the system, both internally and externally, accept it.
Continuity. Once developed and started, the system must be kept alive and remain functional. The performance
information produced by the system must be used and seen to be used.
74.
The basic terminology and standards of performance measurement presented above apply to tax
administrations as much as to any other public administration. Inputs are defined in much the same way across the
whole public sector, but objectives, outputs, and outcomes must be defined with reference to the specific programme
logic of each administration.
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1.3 A Note on Terminology

75.
The terminology used in this report conforms with the usage in the OECD reports referred to above. The
point of departure is the so-called input-activity-output-outcome model illustrated by the diagram below. In this
section it will be explained how this conceptual model is applied in this report and how the terms derived from the
model are interpreted.
Diagram 1: The input-activity-output-outcome model
Effectiveness
Inputs
(costs)
Activities
Output
Outcomes
Impacts
Quantity * Quality
Productivity
(Efficiency)
76.
Inputs are the resources consumed to produce the outputs. They can be described in financial terms as costs
or in physical terms with respect to the factors of production (work hours in the case of labour).
77.
Activities are the basic steps of the production process. Appropriate costing of these activities is a great
accounting challenge. Normally it requires some form of time report system to calculate direct labour costs. The
greatest difficulty, given full cost accounting, is to find relevant factors by which to apportion overhead costs to
activities.
78.
Attaching precise meanings to the terms output, outcome and impact is difficult, as definitions vary between
different government services. One definition of output is the goods and services funded and directly produced by a
programme (European Commission 1997). In schools, output measures could seek to quantify the volume of
teaching produced by the school for the benefit of its students.
79.
Outputs are seldom ends in themselves, but means to produce certain desired socio-economic effects. These
effects can be termed outcomes, impacts or results. The terms are also often used in conjunction with each other to
make distinctions between short and long-term effects or with respect their social reach. Thus impacts may be chosen
to represent all effects on society and then let results mean initial impacts and outcomes longer-term impacts
(European Commission 1997). Other ways of arranging these concepts have also been suggested, but in most cases
outcome (rather than impact) is used as a generic term covering all effects.
80.
While it is our ambition to stay as close as possible to the standard terminology our use of these terms is also
dictated by the specific programme logic of taxation. In this context outputs are often defined in terms of final tax
assessments or tax bills (sometimes the number of tax returns is used as a proxy measure). Because of the great stress
put on tax control, the number of audits, alterations etc. are also often regarded as outputs. In this report outputs are
understood in this general way, i.e. as a measure of the number of finished cases, but the precise definition may vary
from country to country.
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81.
This means that we do not, in this report, include tax revenue, neither total revenue collected nor additional
liabilities imposed by tax audits, as output. Instead we regard revenue as an outcome. This agrees with the general
terminology in as far as raising revenue is the ultimate aim of taxation.
82.
However, we have also found it useful to introduce the term impact to describe the effects of information,
service and tax control on taxpayer compliance. The reason is that many tax administrations have adopted a general
strategy that aims at encouraging voluntary compliance, while deterring those less inclined to comply by effective
tax control. When we stress the behavioural effects of this strategy, we use the term impact, while the term outcome
is reserved for the monetary effect of improved compliance.
83.
The development of performance measurement over time can be described as an expansion of its scope from
left to right in the diagram above. Traditionally management control in government focused on inputs. With
programme budgeting it became more important to measure the costs of different activities grouped into
programmes. The next natural step was to measure efficiency or productivity as outputs in relation to inputs. In this
report the terms efficiency and productivity are regarded as synonymous, although many authors make a distinction
between the two.
84.
Measures of productivity based on simple quantitative measures of output have been criticised because they
leave out important qualitative aspects. As more emphasis was put on compliance costs and service to taxpayers, this
clearly was not satisfactory. Measuring quality, a distinction can be made between quality of process and quality of
product. While quality of process focus on how well procedural safeguards to protect taxpayers are observed and
how well taxpayers are served in contacts with the tax authorities, quality of product focus on correctness of
decisions.
85.
Effectiveness, finally, relates outcomes and impacts to the corresponding objectives. Reliable measures of
effectiveness are highly desirable, but often difficult to find. But not always. If the government sets a total revenue
target, it is easy to measure the outcome in terms of collection and compare that to the target. The problem with
revenue as a target and measures of effectiveness is that in most countries the amount of revenue collected depends
much more on economic growth and changes in tax legislation than on the general performance of the tax
administration. This makes setting appropriate revenue targets a science in itself.
86.
A less practical but conceptually preferable measure of effectiveness is the tax gap, i.e. the difference between
the theoretical tax and actual tax revenue. The snag, of course, is that calculating the tax gap is almost impossible.
87.
If outcomes or impacts are related to inputs or costs, we speak of cost-effectiveness. Sometimes tax
administration costs are related to total revenue, which could be regarded as a measure of cost-effectiveness. If such
measures are used for international bench marking, they tend to favour countries with high taxes.
1.4 General Outline of Chapters 2 and 3

88.
The following chapters will be structured along the lines of the conceptual model described above. This
means that we will discuss measurement in terms of inputs, outputs and productivity (efficiency), before moving on
to measures of quality and outcomes and impacts.
89.
However, performance measurement, does not stand alone, but must be understood in its proper context. This
is especially important when the experiences of tax administrations in different countries are compared with each
other. Therefore both chapters two and three begin with descriptions of the managerial contexts in which
performance measurement is supposed to function. It is this broader approach to performance management that
determines the scope of measurement, benchmarks, reporting requirements and so on.
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2. PERFORMANCE MEASUREMENT IN TAX ADMINISTRATIONS IN

OECD COUNTRIES
2.1 Introduction
90.
Under pressure to cope with rapid change and increasing workloads many tax administrations have introduced
new management practices. A central feature of modern public management is performance measurement. This
chapter describes different approaches to performance measurement in a number of OECD countries.
91.
The comparisons are based on the replies to a questionnaire distributed to the tax administrations in all OECD
countries in September 1998 (see appendix). We have received replies from 16 countries. The coverage is therefore
not complete and important developments in some countries may have been overlooked. Neither can short answers to
a questionnaire give a full picture of performance measurement in the countries that have supplied answers. Instead
our aim is to identify some general trends and common varieties of performance measurement, not to gauge the
development in different administrations against some common benchmark. We quote individual countries as
examples to give a more concrete picture and better understanding of the variety behind the general trends, not to
provide a complete picture.
92.
Comparisons of management practices are complicated by the fact that tax administrations are organised
differently in different countries. To some extent, such structural variations can explain the choice of approach to
performance measurement. Most countries, but not all, have more than one revenue service (customs, inland revenue
etc.) but the way that responsibilities are divided between them varies. Many tax administrations also perform other
tasks than taxation. In some countries there are separate or semi-autonomous revenue authorities, while in other
countries the entire tax administration or its executive head office is a ministerial department. Federal countries may
have both federal and state tax administrations.
93.
This chapter opens with a discussion of the role of performance measurement in the management system. It
then moves on to the measurement of productivity and efficiency based on input, output and outcome measures. A
third section is devoted to the issues of quality and taxpayer attitudes. Finally there is a short discussion about
measuring impact as tax gap estimates.
2.2 The Management Context

2.2.1 Ministerial and managerial roles
94.
Traditionally the political management of state bureaucracies such as the tax administrations has been based
on carefully itemised budgets, rules and directives. Under the influence of new public management ideas there has
been a shift towards performance budgeting and contractual relationships between the political level and the
executive level (as well as between different management levels). In many countries today appropriations are
coupled with stated objectives, expected levels of output and quality and service standards. In some countries this is
formalised as contracts signed by the minister and the chief executive, in other countries there is consultation but the
final budget document takes the form of a one-sided directive
95.
In our study at least five countries (New Zealand, Australia, United Kingdom, Denmark and Finland) report
that there is some form of performance agreements between the tax administration and the political level.
96.
The New Zealand system is the purest form of contract management. The most important prescription of
departmental accountability is the Purchase Agreement. This details the operational aspects of performance, outputs
and costs. The Purchase Agreement is agreed with the Minister and post-ante reports are audited and tabled for
parliamentary scrutiny. The development of performance standards and targets involves discussions between the
department, the Treasury and the Minister of Revenue. In contrast, the Chief Executives Performance Agreement is
a contract between the Minister and the Chief Executive. This agreement, with a medium-term working focus, details
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high-level strategic priorities and key developmental projects rather than the overall departmental performance.
3
Reporting back includes the Annual Report and the Chief Executives Performance Assessment . The Annual Report
is audited by Audit New Zealand (Central Governments auditors) to verify the financial and the non-financial
performance. In verifying that the accounts in the Annual Report are correct, Parliament is assured that the Annual
Report provides a clear and accurate picture of the departments performance. The Chief Executives Performance
Assessment is an account of the Chief Executives performance against the contract between the Minister and the
Chief Executive.
97.
In the United Kingdom, the Management Plan of the Customs and Excise incorporates the Departments
Output and Performance Analysis framework, which is agreed with the Financial Secretary. This allows the
Departments performance to be measured against its high level operational objectives. The Next Steps Initiative
separated the executive aspects of public service from the political, to allow operational units to focus more
effectively and transparently on their operational priorities. Customs & Excise operates along Next Steps grounds,
with a small headquarters and 24 Executive Units. As part of the introduction of an accruals-based accounting and
resource management, from 1999 all Departments will be required to produce annual reports on performance and
output, within the three-year framework of the Public Service Agreement. The Minister is closely involved in the
setting of annual targets and forecasts and takes a keen interest in outturn against key indicators.
98.
In France, the implementation of performance measurement indicators has paved the way for the conclusion
of agreements on objectives between three operational levels of responsibility within the administration (the
Chairman of the General Tax Directorate, the directors and the local managers). These agreements are based on
reciprocal commitments in terms of results and allocation of resources. Each territorial director, following his
appointment, reports to the Chairman on the diagnostic of his directorate and his priorities. Commitments are
expressed in terms of objectives regarding indicators linked to defined priorities. Official assessment of results is
made in the form of a conference and an in-depth assessment takes place two years after the arrival of a new director.
The validation by the Minister of Finance of the national guidelines, based on an agreement on resources and
objectives concluded in October 1999 for the period 2000-2002, is the only direct involvement of the political level
in the management process.
99.
The outcome/output measures of the Australian Tax Office (ATO) are agreed with the Treasurer. These
measures form part of the ATOs resource agreement with the Department of Finance and Administration, and the
budget submission as part of the Treasury portfolio. While the Government may indicate priority performance areas,
such as client service, the Government does not set specific performance targets. The ATO is subject to scrutiny by
Parliamentary committees. The Treasurer evaluates ATO performance overall and provides feedback to the
Commissioner. The Commissioners annual report to Parliament and the commitments made to Government in the
resource agreement provide the basis for evaluating performance.
100. In Denmark, the Outcome Agreement, which is concluded for periods of four years between the Ministry of
Finance and the tax administration, lays down the overriding performance requirements. These are further specified
by the Department of Taxation. In Finland, the political involvement is visible primarily through the performance
agreement between the Ministry of Finance and the tax administration. Annual targets are set also in the written part
of the budget.
101. The approach of the other two Nordic countries in our study, Norway and Sweden, is not explicitly
contractual and the main steering documents, the annual approval documents, are issued by the ministry or the
government. However, their contents are highly dependent on an ongoing dialogue between the ministry and the tax
administration. In Norway the approval documents specify the budget allocation as well as overriding objectives,
priorities and performance targets for the next fiscal year. The Tax Administration reports back twice a year to the
Ministry and the reports are discussed at meetings between the management of the Tax Directorate and the Ministry.
In these meetings, the results are discussed and evaluated along with current issues of importance, and agreements
are being made on future priorities for the tax administration. Through this dialogue agreements have been reached
about the design and content of the main documents in the steering process (e.g. the budget bill, approval documents,
annual report etc.). This way the conformity with the objectives and strategies of the tax administration is ensured.
3
An agreement between the Minister and the Chief Executive. This agreement sets out the key priorities for the Chief Executive over the medium
term (1-3 years) and performance assessments are weighted towards achieving these goals.
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102. The Swedish approach is similar to that of Norway. The Swedish constitution, however, gives executive
agencies a more independent status vis--vis the ministries. Although the Ministry of Finance is responsible for
handling the budget of the tax administration, the National Tax Board is not subordinate to the Minister of Finance.
The cabinet makes all formal decisions concerning the executive agencies - the National Tax Board being one of
them, and not individual ministers. In this way neither ministry nor parliament becomes closely involved in the
management issues of the Swedish tax administration.
103. In contrast to Sweden, the United States Congress is closely involved with the performance management of
the Internal Revenue Service (IRS). In reviewing and approving the IRS annual operating budget, the Congress
considers the Services high-level performance measures and strategic goals. The Congress communicates its
concerns and priorities by questioning and examining specific targets and measures during formal budget hearings as
well as during informal consultations between Congress and IRS executives and staff. In addition, the Congress is
consulted about, and thereby influences the development of, the IRS Strategic Plan from which agency goals and
performance measures flow. Results are shared with the Congress through an annual performance report. Again,
these results are discussed during formal budget hearings and informal consultations. The IRS is asked to account for
and explain instances where performance fell short of stated goals.
104. The relationship between the political level and the tax administration is of course different when its head
office or the entire administration forms a part of the Ministry of Finance itself. This is the case in the Netherlands,
where Parliament takes a close interest in the managerial aspects of the tax administration. The yearly business plans
and yearly performance reports of the Tax Administration are sent to and discussed in the tax commission of the
parliament. These discussions can lead to amendments in plans or processes.
105. In Canada, the Department of National Revenue (Revenue Canada), a department of the federal government,
is responsible for tax and trade administration, as well as customs and excise matters. In 1999, it is expected that
Revenue Canada will become the Canada Customs and Revenue Agency. As an agency, this new organisation will
be well positioned to provide better service to its clients, and will have more flexibility and authority than traditional
government departments. For example, the agency will be fully responsible for managing its human resources,
capital assets, real property and procurement and contracting. However, the Minister of National Revenue will retain
his existing duties and responsibilities and will remain fully accountable to the Parliament of Canada for the Agency.
In this respect, the Minister will, each year, provide Parliament with a summary of the Agencys Corporate Business
Plan (strategic goals, priorities, initiatives, and planned results) and an Annual Report on the operations of the
Agency.
2.2.2 The Use of Key Indicators and Targets
106. Result-based management requires benchmarks against which to assess performance. Past performance may
serve as such a benchmark. Productivity will be expected to improve compared with the previous period and failure
to do so will demand explanations. Within an organisation with many regional or local offices the efficiency of the
best performing offices may serve as benchmarks for the others.
107. It seems, however, that the preferred benchmarks in most administrations are targets or standards that define
the required (minimum) level of performance. This level may be defined as a certain level of revenue, a number of
processed returns, standards for timeliness (e.g. refunds within a certain number of days), approval ratings in surveys
etc.
108. Such targets can be imposed by the ministry or by parliament, but normally after consultation with the
administration. In countries applying contract management, the targets are negotiated between the minister and the
chief executive. The agreement will specify budget allocations and the quantity of output, quality standards, service
levels, reporting requirements etc.
109. As part of the annual budget process, the New Zealand Department of Inland Revenue completes an
extensive exercise of prioritisation of tasks and detailing of the performance measures for the upcoming year. During
this phase, measurable targets are set for all output areas, for example number of returns to be processed or amount
of debt to be collected.
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110. The Australian Tax Office (ATO) Agency Agreement includes a number of measures from the ATO Plan.
Performance against these measures is used in determining whether to award productivity pay rises to staff.
Performance each year must improve for revenue collection and professionalism, and improve or be maintained in
other measures. Relevant performance measures in the Agency Agreement are
collection of budgeted revenue and improved professionalism of field operations and debt collection and
improvement in corporate outcomes in any two of the following areas without reduced performance against the
others: (a) debt collection, (b) taxpayer service standards and (c) technical quality.
111. In the United Kingdom, the Customs & Excise selects key indicators to set measurable targets, for example
the percentage of risk-based assurance visits which produce assessments against the total number of visits completed
(target 46%). Another target is the sum of net errors identified from such visits (target 1.5 billion). Still another
target is that month end arrears do not exceed 2% of the 12-month payment liability.
112. In Finland key indicators are defined for service, tax control, quality, personnel and organization. They
include, for example, the correspondence between prepayment and final taxation, realisation of tax surveillance
plans, duration of appeals, client satisfaction surveys, expenditures by client group etc. In Denmark, the VAT liable
turnover of controlled traders also counts among the particularly important indicators
113. Both Norway and Sweden have built measurement systems based on a hierarchical goal structure starting with
the basic aim to achieve Due taxes the correct way. In Norway this basic aim is specified as three overriding
objectives, one of them being the correct assessment and collection of taxes and duties. At the next level in this
hierarchical structure there are six main objectives and for each programme there are special goals linked with
measures (some of them with specified targets).
114. At the conceptual level the Swedish approach is very similar to the Norwegian. In Sweden, however, there
has been a shift of focus from management by objectives to management by results. This is not a radical departure,
but it means that less effort is put on establishing ex ante targets and more energy is spent on analysing output,
outcomes and impacts in relation to previous performance. The governments annual approval document to the
Swedish tax administration therefore sets out goals and performance criteria, but does not define any precise ex ante
targets linked to these criteria. Similarly the National Tax Board makes clear what measures and indicators will be
used to assess the performance of the regional authorities, but the Board does not set out any specific levels that have
to be reached. Instead the best performing authorities will provide benchmarks for the others.
115. A related approach is that of the Netherlands. In the Dutch Tax Administration the strategic goals have been
linked to a number of critical success factors, which in turn are linked to performance indicators. The success factors
include for example optimisation of tax yield, client acceptation and quality of communication, treatment of
taxpayers, quality of fraud combat, feasibility of laws and rules, process and product quality, budget control,
personnel satisfaction etc. Division directors have management contracts with the Director General. In these
management contracts the expected performances are formulated in quantities. Every quarter the central Planning
and Control department has interviews with the divisions on the basis of their performance. In these interviews
actions to improve performance are prepared.
116. In France, the diagnostic working programme developed in the 1990s relies on the identification of
prioritised areas and the definition of a program adapted to the situation of each operational entity. Although the
relation between administration costs and the yield of each type of tax (intervention rate) is an important indicator,
the main focus of the agreement on objectives and resources is the level of compliance. Indicators used to measure
compliance are the rate of compliance with filing deadlines in the areas of VAT and income tax, respectively, and the
percentage of taxes paid on time.
117. Other tax administrations do not establish key indicators or targets on the basis of a global structure of goals
and objectives, but rather select such indicators and targets to reflect specific priorities. In Canada, for example, key
indicators are related to the specific corporate priorities for the year. The targets are generally expressed in terms of
initiatives related to the priority. For example, a priority could be to improve management processes. Specific
improvements in management processes would be reported against that target.
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118. In Spain, the National State Tax Agency is obliged to present every year to the Parliament the objectives of
the State Agency during the first months of the year. In some areas, Tax Inspection units set up measurable targets as
their work objectives. These targets are - number of people to be investigated, number of tax inspections by
economic activity, provinces and so forth. In fact there is a "National Tax Inspection Plan" with targets, which is
actualised every year.
119. In Germany key indicators include the relationship between finished assessments and the number of tax
returns, the quota of audited firms, the number of audited firms per auditor, additional assessments (or tax revenue)
per audited firm.
2.2.3 Performance Budgeting - Rewards or Sanctions?
120. In performance based management it is natural to include rewards or sanctions dependent upon the attainment
of agreed or decreed performance standards. In some tax administrations there is an element of performance related
pay for all staff or managers only. The extent to which this is practised, however, lies outside the scope of this study.
121. The question posed here is to what extent rewards or sanctions are applied on the organisational level; i.e.
does budget allocation in some way depend on results. One can imagine such systems being applied both on the total
budget allocation to the tax administration and within the administration on allocations to regions, offices etc. Few
such systems are however in operation, but they are considered.
122. In Norway a system where budget allocations would be influenced by results was considered but abandoned.
The system was believed to become too dependent on a few measurable indicators. An unintended side effect of
rewarding offices with good performance could also be the starving of offices with weak performance of resources
needed for their improvement. Instead, the Directorate has tried to develop a system that allocates resources
according to the number and complexity of the taxpayers in the different counties. In Mexico, however, resource
allocation is established in the Tax Administration Service Annual Budget and is based mainly on the performance of
all the different areas. In the Netherlands, there is presently no formal link between performance and resource
allocation, but on a central level a system is now under development. Likewise, in the tax administrations of the
German Lnder there is presently no connection between performance and resource allocations. It is however under
consideration in some places.
123. In the United States the Government Performance and Results Act, which requires agencies to develop
strategic plans, performance plans and performance reports, also calls for the piloting of a performance budgeting
program to examine the feasibility of linking resource allocation to program performance. At this point, the
performance budgeting pilots have been delayed pending further progress by US agencies on improving their
strategic plans, performance plans, and performance reports. Therefore, while it was the intention of the US Congress
to enact performance budgeting as part of the Government Performance and Results Act, that phase has not yet been
tested and is not currently in use.
124. Rather than being dependent on previous performance, budget allocations as a rule are determined by
organisational and structural factors (the number and kind of taxpayers in the area). Low productivity due to internal
(or structural) factors are seldom punished by lower budget allocations, rather it is financially compensated. In
Finland, budget allocations are based on the person-work year calculations. The National Board of Taxes sets up the
person-work year framework annually for the regional tax offices, taking into consideration the productivity level of
each regional tax office. A similar approach is applied in Denmark, where the main emphasis is on making sure that
all the regional administrations are enabled to perform their work at the same quality level externally as well as
internally. The relation between input and performance indicators is analysed annually in order to establish a key for
the distribution of funds. This is used for a dialogue where qualitative aspects are also taken into account. In France,
the in-depth assessment based on the agreement on objectives may lead on to a decision by the Chairman to allocate
additional resources, along with new commitments on objectives.
125. The Swedish model applied by the National Tax Board for allocating budgets to the regional authorities is
based on workload calculations, which take account of the number and composition of taxpayers in each region. It
has been suggested that the best performing regional authorities should be rewarded with a financial bonus as
recognition of their achievement, but this idea never materialised. To make any substantial part of the budget
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dependent on historical results was however never seriously considered. Apart from this, there have been two
isolated tests with individual performance related pay, but these tests have been abandoned for the time being.
126. In the United Kingdom, the Customs & Excise has a complex, centrally based statistical risk analysis system
for UK VAT traders, which can be used to allocate assurance resources according to risk priority. Performance
information is used in the assessment of risk but there is no direct link between performance information and
resources allocated. The link between risk and resources is useful as it allows estimates of how a local office should
perform and identify issues for discussion with local managers, with the overall aim of improving their performance.
127. In New Zealand, there are a number of external mechanisms that allow the monitoring of departmental
accountability.
The Minister (following consultation with the Chief Executive) may initiate remedial action if there are any
significant areas of non-performance.
A Parliamentary Select Committee (Finance and Expenditure Committee) scrutinises the departments Annual
Report and other accountability documents. This Select Committee has the ability to institute inquiries or
recommend remedial action into areas of poor performance.
The Central Agencies evaluation of the Chief Executives Performance Agreement may also highlight areas of
non-performance or make adverse comments.
128. Internally, the departments performance management system is partly based on rewarding achievement of
agreed output targets and bonus payments may be made for exceptional performance.
129. Resource allocations at the business line level in the Australian Tax Office are based on managing the
business as usual, addressing identified risks and preparing for the future, for example by re-investing in technology.
Senior managers receive individual performance pay based on achievements in relation to their performance
agreements. General staff receive productivity pay increases if ATO performance satisfies the requirement of the
Agency Agreement.
130. In Spain, a portion of the civil servant's wage is related to his or her productivity. It is difficult to measure the
link, but in certain areas, e.g. Tax Inspection, there even exists a complex model to allocate tax inspector's rewards
with the accomplishment of his or her tasks.
2.2.4 Performance Reporting within Tax Administrations
131. Performance management requires a well functioning reporting system to top management and ministers. In
order to make measurement a management tool, monitoring and evaluation of performance must become an integral
part of the on-going management processes.
132. In most tax administrations in our study senior management receive and discuss key performance data on a
monthly and/or quarterly basis in order to take appropriate action where necessary. A typical model is to have key
indicators reported monthly to the executive board without extensive comment. Each quarter (or every six months)
top management will receive a more thorough progress report with comments and trend analysis and, sometimes,
proposals for necessary corrective action. In addition to this most tax administrations publish annual reports.
133. The Dutch tax administration is typical in this respect. A central department produces monthly and quarterly
performance reports for the board of directors. The monthly reports are restricted to critical headlines and without
extensive explanation. The quarterly reports contain all the performance indicators plus interpretation and action
programs for indicators in the red zone. In addition to these monthly and quarterly performance reports there is a
yearly extensive report with performance indicators and their interpretation, and a production and yield report on all
divisions and tax items.
134. The same model is applied by the Australian, New Zealand, British and Mexican administrations. In
Australia, revenue and debt collection performance are reported monthly to senior management. Business lines
submit brief monthly reports to the Executive Board covering financial performance, service standards performance
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and significant issues. More extensive reports are submitted tri-annually and accompanied by discussions between
the Executive Board and senior business line managers.
135. In New Zealand, the Internal Revenue Department produces internal performance reports every month that
are discussed and assessed by the senior operations managers. The department also produces a Quarterly Report for
the Chief Executive, General Managers and the Minister. These reports are inclusive of all performance measures,
and also include the departments financial performance. They provide details of actual performance against budgets
and provide explanations for any significant variations from expected performance. On an annual basis the
department produces the Annual Report to Parliament.
136. In the United Kingdom, output against targets and forecast is monitored within Customs & Excise and
reported to a Board level Management Committee for monthly discussion. Emerging annual output is published in
the Management Plan alongside the next years plan in April, and final output is reported to Parliament in the
Departments Annual Report in October.
137. In France, results in terms of indicators are calculated annually. In order to help the directorates assess their
performance level, a classification was set up for each indicator. Departmental directorates are classified in five
homogeneous groups (size, tax environment), permitting a comparative approach between departments. Data are also
available to the administration on a monthly or quarterly basis, depending on type of mission.
138. In Mexico, there are (generally) monthly productivity meetings of the general directions with the President of
the Tax Administration Service. In addition, the Tax Administration Service participates with other areas of the
Ministry of Finance and Public Credit Board of Directors in meetings held on a quarterly basis where issues related
to the productivity of each sector are followed up, discussed and evaluated.
139. The Swedish tax administration has recently been reorganised and a new management structure has been
created. Presently a new model of performance reporting at top management level is being introduced based on the
concept of Balanced Scorecard with performance indicators grouped under 6 focus areas. Monthly figures are
reported, but comment is restricted to major deviations from expected trends. Mid year - in August - there is a more
thorough review of performance development. Towards the end of the calendar year emerging outturn is analysed
and discussed in preparation for the Annual Report, which is submitted, to the Government by the end of February.
140. In Finland, reporting is based mainly on the performance management process. Every year the National
Board of Taxes makes performance-objective agreements with the regional tax offices. Reports on the matters
covered by the agreements are produced twice a year. At the same intervals the National Board of Taxes will report
to the Ministry of Finance about how the objectives have been met within the Tax Administration.
141. In Norway, the regional and special (taxation) offices report to the central Directorate of Taxes by annual
reports. The regional collection offices, however, report twice a year. This is partially determined by historical
factors, and partially because the collection of taxes is important for the state budget/finances. In its turn, the
Directorate submits an annual report as well as a six-month report to the Ministry of Finance. These reports focus on
the attainment of objectives and other performance indicators. Within the Directorate of Taxes the management plan
is evaluated quarterly.
142. In Denmark, too, the results of productivity measurement and other standard reports are delivered annually.
In addition, performance is reported to and discussed with the political level regularly, at shorter intervals (e.g.
quarterly), with regard to the objectives set up for initiative oriented programs, activities that have to be completed
by a fixed time of the year and certain qualitative aspects.
143. Revenue Canada has a formal accountability session held in the third quarter of the fiscal year. At this inyear review session, senior managers for both the Programs (involved in program design and development) and the
Regions (involved in program delivery) are asked to report on progress and identify emerging issues. Also, in the
first or second quarter of the next fiscal year, a similar, end-of-year accountability session is held.
144. The Federal Tax Inspectorate in Austria (a department of the Ministry of Finance) submits annual
performance reports to the Minister and the Director General. These reports are also sent to the regional Financial
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Directorates, which are under obligation to explain discovered weak spots and measures taken to remedy them. In
addition, electronically available key performance indicators can be produced at any time. This is done at least each
quarter.
2.2.5 Management information systems
145. Timely reporting on performance requires efficient information systems. The source of most data is the tax
administrations accounting and business systems. However, these systems are not always designed to provide timely
performance data easily accessible to management. Many tax administrations, therefore, have introduced
management information systems, specially designed to provide tailored information to decision makers.
146. In the United Kingdom Customs & Excise has developed a number of specific information systems for
planning and capture of performance information. These cover all aspects of the activities by which results are
achieved. Currently a Resource Management Information System is being introduced, which brings together the key
performance information from these systems together with cost and expenditure information to provide a single
integrated system for performance monitoring across the Department. Beneath this is a series of feeder systems,
which capture data on productive time and output and enable performance to be reviewed at the local level.
Measurement of key-indicators in the Dutch tax administration is based on the Mirabel performance system
(Management Information and Report system). The Mirabel system is supported by several information systems to
generate the performance indicators and a system to make a uniform report.
147. The New Zealand Department of Inland Revenue has developed a number of information systems that serve
performance measurement. These information systems are both manual and automated. The Financial Management
Information System is the latest information system designed for the department. When the FMIS was being designed
4
the needs of the organisation were carefully considered and incorporated into the final design. In addition to the new
financial management information system, the department has also rolled out a data warehouse system with the aim
of providing improved information for decision-making. It provides the department with a wide range of information
on taxpayers, thus allowing improved targeting of enforcement and services to taxpayers.
148. In Mexico, there is a specific information system operated by the unit in charge of reporting to the top-level
management. This system keeps track of the objectives established at the beginning of each year by comparing such
information with the actual figures determining deviations that may be subsequently analysed in a detailed manner.
149. The Spanish Tax Administrations SHMO-system ("Sistemas de Informacin de Medios y Objetivos" "Information System on Targets and Means") is operated by the Internal Audit. This system serves the territorial
delegations of the tax administration with controls and measures of workload, results, time needed to process
documents etc, all of them related to taxpayer activities. This information and data are distributed by provinces and
other territorial units of the Tax Administration.
150. In the United States, the IRS uses an automated Executive Management Support System (EMSS) to track and
report its performance measures. A variety of other systems is used by the program areas and functions to gather raw
data that is then uploaded and/or entered into EMSS. This information is updated and is available to management for
review continuously. Some restrictions are placed upon who may access this data and at what level of the
organization results are made available. For example, the IRS is striving to move the organisation away from
focusing purely on the numbers, to focusing on a dialogue about the causes and actions that lead to results. As such,
district managers and executives may only review results for their site and compare those to the composite, overall
Service-wide results.
151. In Denmark, the Performance Requirement System (REKS) has been developed for management purposes.
The system is continually being expanded to cover new areas. In the Swedish tax administration several statistical
databases were merged into one in 1994. In 1997 a system specifically designed to support the Performance
Measurement Model (PMM) was added. No restrictions are put on access to the information in these databases, as
4
The need for the system to be flexible, enhancing the ability of the system to apply cost allocations and the updating or redesign of operational
financial management procedures.
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they contain no information that can be linked directly to individual taxpayers. In the Finnish tax administration a
new Internet-based information system was introduced in 1998. The central part of the system includes the control
and supervision of the appropriation, personnel reporting and productivity (under construction). All employees have
the right to use the system.
152. Although most tax administrations in our study have introduced different kinds of high-level management
information systems to support performance management others, like the Australian, Canadian and Norwegian
administrations, rely on information provided directly by the business systems.
153. In Australia, information for performance reporting comes from systems used to manage the business. Some
enhancements to business line case management systems were required to enable reporting on the full range of
Taxpayers Charter service standards when these were introduced across all lines in July 1997. Similarly, in Canada,
performance measures are gathered by a number of systems that support operations. Other than the departmental
financial system, no systems have been designed to serve performance measurement exclusively. In Norway there is
no specific information system to support performance measurement. There is a need for such a system, but there are
technical and financial difficulties that have to be overcome in order to do that.
2.3 Measures of Input, Output, Outcomes and Productivity

2.3.1 Input measures
2.3.1.1 Costs
154. To make it possible to relate performance measures to the full costs of their achievement, the budget
allocations to the tax administration must be designed to cover all costs related to its activities. Although not always
directly stated, it can be implied from the replies that this is the case in most countries in our survey.
155. Some costs are generally regarded as corporate overhead costs and budgets are not always allocated to lower
organisational levels, programmes or outputs. The United States (the IRS) may be quoted as an example. Its
financial management system does track all cost categories but such costs as rent and utilities are considered
corporate expenses and are not apportioned to program usage. Similarly, in Denmark costs other than labour costs
are monitored at national level but do not seem to be apportioned to organisational units or programs.
156. Such a system may still allow calculation of unit costs, but only at the national level. In the United Kingdom
(Customs & Excise) unit costs are used, but only at the centre of the Department, and include apportioned overheads
as well as direct costs. In Australia each output must have measures for price based on accrual budget costings. In
New Zealand the debt management measure (dollar return on debt collected) and audit measures (dollar return on
audit activity) are based on the allocation of full costs (personnel, operating and overhead costs).
157. In Canada measures expressed in terms of achievement of major Departmental programs often include full
costing. In Sweden total costs are apportioned to the tax administrations major programs in order to calculate annual
productivity changes. In Finland, costs are followed up by type of activity, type of tax and type of client. Costs
include all kinds of costs at the national level. At the regional level costs do not include IT costs.
158. In France, surveys are carried out, by the General Tax Directorate, in order to assess performance. The full
costs (salaries including social security contributions etc., IT support, premises, furniture and investment costs) are
allocated to each of the main taxes and to different units of the administration. Other, more limited surveys are
carried out to determine e.g. the annual cost of computer investments.
159. Another approach is to exclude overhead costs and relate outputs only to direct costs that relate specifically to
a responsibility centre (salaries and other running expenditure). Such cost measures are useful to monitor and
evaluate the performance of different organisational units. Canada, New Zealand, Norway and Sweden refer
directly to such measures, but it can be assumed that they are used much more widely than that.
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160. Where cost related performance measures are not used service-wide they can be used to monitor specific
activities. In Mexico broad cost measures were introduced in 1998 for the purpose of making cost-benefit analysis of
the auditing process. In Norway costs are generally apportioned to organisational unit, but not to outputs or targets.
However, in evaluation of special projects the costs of these projects are related to the achievement of their
objectives.
161. In Germany, efforts are made at present in the Lnder to introduce cost and performance measurement in
their tax administrations and meetings are being held at Federal level to co-ordinate measurement methods in order
to allow for comparisons between the Lnder.
162. As far as a trend can be discerned from the replies it seems to indicate movement towards full cost and
(sometimes) accrual accounting (at least at corporate level) as well as the introduction of financial management
systems that allow for flexible allocation of costs to activities. Australia, Mexico and New Zealand report moves in
this direction during 1998 and United States is working to develop an activity-based costing system for use Servicewide.
2.3.1.2 Time reporting
163. Time reporting may be used e.g. to compare manpower productivity over organisational units, functions and
processes etc., to monitor productivity trends, establish unit costs for different products and to orient input towards
prioritised activities.
164. In some countries, time reporting seems to cover all activities and organisational units of the tax
administration. This applies to Canada, Finland, the Netherlands, New Zealand, Sweden, the United Kingdom
(Customs & Excise) and the United States. Some replies mention specifically the treatment of indirect (overhead)
costs and describe the methods used to apportion these costs to programs and activities (the Netherlands, New
Zealand, Sweden). In Denmark, time reporting covers a wide range of different activities.
165. In other countries, time reporting is applied only in specific areas, for instance tax inspections and auditing.
This is the case in Austria and Mexico. In Australia, the costs for every person can be linked to an organisational
unit and, in addition, time reporting is used by internal ser-vice units to attribute costs to functions. In Norway, time
reporting systems have been developed for large parts of the organisation: the county tax offices, the local
assessment offices and the county tax collection offices. Time reporting has not been introduced at the Directorate
yet, but some departments have developed individual systems. In France the General Tax Directorate does not have
a global time reporting system at its disposal. Instead, surveys are carried out with a view to assessing, for example,
the time dedicated to the management and collection of different taxes. In Spain there is no direct reporting of actual
working hours, but a pro-rata system is applied for persons with multi-functional work.
166. As some countries have recently introduced time reporting, and others are expanding their use of it to new
areas of the tax administration, there would seem to be a movement towards full use of time reporting across all
organisational units and activities, also including different methods of apportioning indirect costs to programs and
activities. However, there also seems to be quite some way to go before this is accomplished, and it should be noted
that in some cases the replies cover only central government agencies, while parts of the tax administration is a
responsibility of regional or local government.
2.3.2 Output measures
167. A majority of the countries seem to regard at least additional revenue resulting from different types of
enforcement activities as a key output measure. However, there are a variety of approaches to the use of these data
and only a few of the countries mention explicitly the relationship between revenue collected and costs incurred.
Some countries make no specific mention of revenue effects.
168. In Australia total tax collected as percentage of estimate is a key output measure. In Finland, the output (in
revenue terms) is being supervised separately, but not used in the calculation of productivity and economy. In
Mexico, the key elements of measurement are the numbers of audits, desk verifications and tax returns. In Norway,
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amounts are important in monitoring the precision of the advance payment system and the timeliness of tax
payments, while the number of products is otherwise paid more attention to.
169. In the United Kingdom (Customs & Excise) revenue from errors discovered through the inspection
programme is applied as a key measure. In France indicators used for performance measurement and sector-based
follow-up of missions include total amount of taxes collected and tax audit adjustments. Another category, the socalled activity indicators, includes frequency of adjustments. In the United States, workload measures include
numbers of products as well as revenue collected, but these measures are not intended to be viewed as goals. Other
measures are ratios like the percentage of returns selected for verification (Norway), percentage of assessments
finished and percentage of companies audited (Germany), the number and importance of fraud cases discovered
(Luxembourg), percentage of audits/inspections where unreported amounts are discovered (United Kingdom) and
percentage of tax owed that is paid duly (Norway).
170. In Denmark, the additional yield from tax control is one of 7 particularly important quantitative indicators
and in Austria the key measures are additional revenue and number of inspections. In Spain, efficiency indexes are
established which measure the relation between revenue collected and costs incurred. In New Zealand total revenue
is not used in performance measurement, although it is monitored and reported regularly. In order to measure the
overall performance other proxy measures are used, such as customer contacts, the dollar return generated through
audit activity and outstanding arrears recovered.
171. In fact, the numbers of various products play an important role as throughput measures in all the countries in
the survey, at least in the area of audits and inspections. In addition to numbers of tax returns processed, inspections,
amendments etc., some countries have made specific reference to the numbers of different kinds of taxpayer contacts
such as telephone enquiries and visits to a tax office (Australia), providing taxpayer services (New Zealand) and
clients access by telephone for enquiries purposes and calls handled by automated response systems (Canada).
172. Some of the countries in the survey refer specifically to timeliness as an indicator of the service level of the
tax administration, e.g. time taken to process non-complicated objections (Canada), percentage of VAT registration
forms processed within 3 weeks (Norway), percentage of VAT repayment returns authorised within 10 days of
receipt (United Kingdom).
2.3.3 Measuring Productivity
2.3.3.1 Use and reporting of productivity measures
173. Almost all tax administrations in our survey have measures and report on productivity development. This is
true for Austria, Australia, Canada, Denmark, Finland, Mexico, the Netherlands, New Zealand, Norway,
Spain, Sweden and the United Kingdom. Typically productivity measures or unit costs are published with other
performance measures in their annual reports, which, depending on the institutional set-up, are submitted to the
Minister, the Government or Parliament. In New Zealand the Internal Revenue Department produces a Health
Report annually, with an overview of the relationships between the various initiatives being pursued by the
department and their contribution to the overall efficiency of the tax administration. It also identifies particular areas
that are generating pressure on the operation of the administration. The Health Report provides input into the
purchase advice provided to the Minister as part of the ongoing budgetary cycle. The Annual Report of the Spanish
Tax Administration includes an estimation of tax collection costs.
174. Some countries supply productivity measures to ministers or parliament at shorter intervals. In the
Netherlands this is done twice yearly (in the Annual Report to Parliament and in the National Budget Plan). In the
United Kingdom, Customs & Excise report emerging outturn against targets in the Management Plan in April and
final outturn to Parliament in the Annual Report in October. It is also stated that figures are supplied on request
(Canada, Spain).
175. In the United States, the IRS does not currently report productivity/efficiency changes due to restrictions
placed on the organisation by statute governing the use of enforcement/productivity measures. As part of a new
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measurement system to be introduced in 1999, the IRS is pro-posing the use of some productivity measures that will
be balanced by equally important measures of quality.
176. Productivity measures are also often an important tool for the management of the tax administration to
monitor performance of different business lines or units of the organisation. In Mexico reports on audits and desk
verifications are submitted to the chief executive of the tax administration on a monthly basis. In New Zealand
changes in the levels of efficiency is measured through unit costs and senior operations managers monitor the unit
costs, also on a monthly basis
2.3.3.2 Measures of productivity
177. Productivity measures are based on the relationship between outputs and inputs. Using expenditure as the
input measure, this relationship can be expressed as a ratio between total (weighted) output and total costs, or as unit
costs for individual outputs.
178. Another approach is to replace cost by labour input expressed as days or staff years (full time equivalents).
The ratio between total (weighed) output and the total number of work hours (days, staff years etc) yields labour
productivity. Working time can also be compared to individual outputs, which yields the average time spent on each
case.
179. To get costs or work hours right can be a problem. The greater problem is however to define the proper output
and how to take account of different levels of quality of output.
180. Efficiency is often used as a synonym for productivity, but other slightly different definitions are also in use.
One measures the degree of efficiency in relation to the productivity frontier formed by units making the best use
of their resources. The problems of finding proper measures of input and output still remain.
181. None of these problems will be discussed here, but they should be kept in mind when comparing different
approaches to productivity measurement.
182. Output can also be expressed in terms of the number of taxpayers and be compared with the number of tax
officers. This number is often a rough equivalent of the number of tax returns.
183. Productivity measures normally define output as some kind of physical quantity. It is not unusual to apply
efficiency measures where output is defined in monetary terms such as total tax revenue per dollar spent or additional
assessment produced per dollar spent on audits. In tax administrations where the management plan defines output
targets, these targets often replace cost efficiency as benchmark. The important thing is to reach the targeted volume
(within a given budget restraint) not to attain best possible ratio between output volume and cost.
184. All these approaches to efficiency measurement are represented among the tax administrations in our study.
Many (or most) use a combination of methods. In Australia, for example, the efficiency measures of the Australian
Tax Office are cost in relation to revenue collected, cost of collection per taxpayer and the number of taxpayers per
tax officer. Canada also reports a great variety of output measures that are combined with inputs in terms of
expenditures or full-time equivalents. In the Netherlands production volumes of diverse tax items are related to
expenditures. Measures also include production time of assessment and appeals and labour capacity.
185. Sweden has a long tradition in measuring total productivity (total output in relation to total expenditure).
There are time series for the entire public sector as well as for individual agencies dating back to the 1960s. This
long-term productivity index for the Swedish tax administration is based on the number of taxpayers (or tax returns
as a proxy measure) as output, which is related to cost deflated to constant prices. The problem with this measure is
that output is virtually impossible to influence by the tax authorities as the number of taxpayers or returns are
determined by the legal definition of tax subjects. To estimate productivity development in the medium term (up to 5
years) the number of desk and field audits is also included in the output measure. In order to arrive at a total
productivity index, the different components of output are weighted according to their unit cost a given base year.
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186. In Finland, productivity is measured as the number of taxpayers related to total costs and reported work
hours. In Norway a similar approach is used, and productivity indicators relates the number of taxpayers of different
categories to staff years.
187. In Spain, the most common output measure is the amount of tax revenue collected and the most common
input is the cost incurred to collect this amount. It is however pointed out in the Spanish reply that other outputs
could also be considered (the number of taxpayers affected by tax measures or amounts discovered by tax
inspections). It is also regarded as a problem that qualitative measures are difficult to evaluate.
188. In Austria and Mexico it seems that efficiency measurement is focused on the audit area. The main output
measures of the Austrian Tax Administration appear to be the number of verifications and additional revenue
recovered as a result. This output is related to the number of work hours. The Mexican administration measures the
number of verifications carried out and the number of auditors involved in a specific verification as well as the
amount of taxes collected.
189. In France the performance measurement system is composed of three main elements: activity, quality and
efficiency. Efficiency indicators link services production to the number of employees available, permitting to
measure e.g. average number of cases handled per employee. Efficiency indicators are regularly analysed, taking into
account also environment factors (social and economic environment that may influence the work of the relevant
service).
190. In the United Kingdom (Customs & Excise) unit costs are calculated at Department level. Such measures,
however, do not feature prominently in the management plan and focus is rather put on to achieve objectives, each
operationalised through performance measures and indicators with planned outputs or ratios expressing timeliness,
accuracy etc.
191. In the New Zealand system of contract management based on so called Purchase Agreements, the Minister
and the Chief Executive Officer of the Inland Revenue Department agree what quantity of output will be produced at
an agreed price. The agreement contains a detailed specification of each output in terms of quantity, quality,
timeliness and cost. Individual outputs are not always related to cost, but in debt management a dollar return is
calculated (target $50 for every dollar spent) and a similar measure is applied to auditing (target $4 on every dollar
spent).
192. In Germany, it is being discussed in the Lnder what measures of input should be included in the design.
However, assessments seem to be regarded as the most important output measure.
2.4 Measures of Quality and Taxpayer Attitudes

2.4.1 Approaches to quality assessment
193. The issue of quality is important to tax administrations and seems to become even more so. Most countries in
the survey report measures to ensure or improve quality standards. It is, however, often stated that quality is difficult
to measure.
194. One can discern different strands in quality work. One is to secure quality in terms of high levels of legal
accuracy, professional standards in processes, decisions and other output. This is accomplished through internal audit
(Mexico, the Netherlands), quality checks by experts from within or outside the organisation (Austria, the
Netherlands, New Zealand, Sweden, the United States).
195. In Denmark, one important aspect of quality is uniformity, not only in applying tax laws but also as regards
the manner in which taxation work is carried out in the regions. In addition, the number of appeals, administrative as
well as appeals to the courts, is reported and an account is published annually by the Ministry of Taxation.
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196. Another focus is on service delivery and client satisfaction. Taxpayers are more often than not referred to as
customers and their views are studied through regular or ad hoc surveys (see next question). In some cases service
standards are publicised, as in the United Kingdom (taxpayers charter etc) and quality is measured against these
standards. In France, in the 1997 up-date of the measurement system, the need to improve quality measurement was
stressed. Quality indicators are defined according to type of mission and include the duration of appeals, rapidity of
responses to taxpayers etc. The General Tax Directorate has committed itself to observe five quality standards by
2002, regarding reception of taxpayers on appointment, no phone calls without any follow-up, sending out of leaflets
and forms, interim replies when needed and the abolishment of anonymity.
197. Quality is also discussed in a broader sense (total quality - TQM). Finland reports that quality work is related
to the assessment criteria of the Finnish Quality Award modelled on the American Malcolm Baldridge Quality
Award. Similar work is being done in New Zealand, Denmark and Sweden.
198. In Germany, it is regarded as difficult to measure quality in the tax administration, but attempts are made to
take qualitative aspects into consideration within the framework of cost and performance measurement.
2.4.2 Investigating taxpayers attitudes
199. Almost all the countries in our study report that they conduct surveys to find out what taxpayers think about
the tax administrations service delivery etc. In some countries this is done on a regular or on-going basis. In other
countries surveys are carried out frequently but not according to any fixed schedule (Norway). In Denmark, surveys
have not so far taken place regularly. However, in the strategic management plan for the years 1998-2001, overall
client surveys are foreseen to take place at two-year intervals. There will be a set of questions to be asked nationwide, but the regional administrations can add questions that they find particularly relevant to their region. In
Germany, regular surveys of taxpayers are not performed, but it is planned to do such surveys in the context of
organisational studies.
200. Surveys are sometimes global, in other cases focused on special target groups, a special issue, or programme.
In some countries it is up to the regional or local offices to carry out surveys.
201. The surveys are often carried out by private sector survey companies (Sweden, Finland, the United States)
or independent institutes (Spain) to make sure that they have a high professional standard and that they protect the
confidentiality of respondents. In France, the General Tax Directorate will regularly measure taxpayers awareness
on quality service and users needs by a sampling process.
202. But surveys are by no means the only way to investigate stakeholder opinion. Tax administrations frequently
arrange meetings or seminars with industry associations (Mexico) or with local user groups (the United Kingdom).
203. In Mexico there are letterboxes to collect complaints and suggestions from taxpayers. In the United States, in
addition to mail and phone surveys covering certain categories of customers, exit surveys are offered regularly to
taxpayers who visit an IRS walk-in site.
204. The main focus of these surveys seems to be on the tax administration's service delivery. But surveys and
other forms of investigation are also used as input into compliance research (New Zealand, Sweden) or into other
issues. In the Netherlands, for instance, they are used as input for drafting new, or upgrading of existing, policy
measures, which can be found in the yearly business plans. To ensure this yearly survey by the Netherlands Tax and
Customs Administration, called Fiscal Monitor, is embedded in the planning and control cycle.
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2.5 Outcomes, Impacts and the Tax Gap

2.5.1 Outcomes: Effects of Tax Control
205. Many tax administrations (see section 2.3.2) regard tax revenue, or at least additional revenue as a result of
tax control as output. For reasons given in section 1.3, tax revenue can also be classified as outcome. No matter how
they are classified, the revenue effects, direct as well as indirect, of enforcement activities are essential as a basis for
discussions regarding priorities within the tax administration as well as for the budget dialogue with the political
level. They can also be used to monitor trends in productivity and quality of tax enforcement.
206. Most member states measure the direct revenue effect of audits and desk verifications in absolute terms and,
in some cases, as percentage of total revenue. Some member states report that they also measure direct effect in
relation to costs incurred, i.e. a kind of productivity measure, or the percentage of audits etc. where unreported
amounts are discovered (which could be viewed as a quality indicator).
207. One country (Norway) mentions specifically the role of information and different forms of co-operation with
taxpayers. Good information could make taxpayers report accurately, so as to make assessment and payment of taxes
more correct, and probably increase revenue. The type of information varies according to whom you want to
influence. Some groups of taxpayers want to handle their taxes correctly, and need and demand information in order
to do so. For others, information regarding controls/audits in their business may strengthen the feeling that there is a
risk of getting caught.
208. Only a few member countries report attempts to measure or estimate the total direct and indirect impact of
enforcement measures or to estimate the gap between the actual revenue yield and the theoretically correct yield (see
section 2.5.2 below).
209. In Australia, revenue effects are determined in reference to specific risk areas. Revenue effects are reported
by risk area and may be assessed by comparing actual revenue trends with projected trends if there was no
intervention, revenue raised, reduction in the level of deductions and losses claimed, increase in the number of
lodgements etc.
210. In Sweden, the direct revenue effect of audits and desk verifications is measured on a regular basis and has
been regarded, along with the number of audits and inspections carried out, as a key element in performance
assessment. The indirect effect has been researched and was discussed recently in a report based on enforcement
activities in the years 1992 through 1997. It was concluded that the deterrent effect of tax control is considerable but
cannot be specified in revenue terms. In an earlier estimate, the total indirect revenue effect of an expansion of
enforcement programs was assumed to be somewhere between 100 and 200 per cent of the direct effect. In
Denmark, revenue effects are implied from the degree to which performance targets have been attained, notably the
number of controls performed and the size (turnover) of taxpayers controlled.
211. In the United Kingdom, the effectiveness of the VAT assurance program is evaluated in the three areas direct
effect, preventive effect (which is the increased level of tax declared by a trader following a visit) and deterrent effect
(which is the increased level of tax declared by traders other than the trader visited). The direct effect is measured
using an operational measurement system. The preventive effect has been researched a number of times and the
deterrent effects have recently been measured by university academics working on behalf of Customs & Excise.
212. In the United states, the effects of auditing are measured and estimated by monitoring the actual direct
enforcement yield, predicting (periodically) future direct enforcement yield expected from a significant expansion of
an enforcement program and estimating the indirect effect of enforcement. The latter is said to be particularly
difficult with regard to those who have not been contacted directly by an enforcement program. A limited study
completed recently has, however, confirmed the presence of the indirect effect and indicated that it is much larger
than the direct effect.
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2.5.2 Estimates of the tax gap
213. To close the tax gap, i.e. the difference between actual revenue and the theoretically correct yield can be
regarded as the ultimate (if unattainable) objective of tax administrations. It can be assumed that most of this gap is
made up by deliberate tax evasion, since genuine involuntary mistakes on part of taxpayers and tax officials should
tend to cancel each other out. It is however difficult to monitor progress against this objective, since it requires a
reliable measure of the hidden economy which is notoriously difficult to find.
214. It is therefore not surprising that no country reports regular estimates of the tax gap or the hidden economy as
an integrated part of a performance measurement system. Some administrations have carried out or commissioned
special studies at different points in time, but not in a regular fashion. Generally this seems to be regarded as the
domain of economic research, with limited practical use for tax authorities.
215. In Sweden, the tax administration has commissioned studies based on national account data. One such study
was made in the mid 1980s and another in the early 1990s. The earlier study indicated that the size of the black
economy was between 4.7 and 7.5 per cent of GNP in 1981 and the later study gives the figure 4.7 per cent for
1991. By combining the 1991 measure with data from tax audits based either on random selection of targeted
taxpayers or total coverage of a certain target group, the total tax gap has been estimated to about 9 per cent of the
theoretical tax yield (including a collection loss of 0.5 per cent). This figure is by no means undisputed, there are
other estimates that give both higher and lower figures, but most fall in this range. The significance of this estimate is
to give an indication as to the size of the problem. It does not, however, give much practical guidance.
216. This experience seems to be shared by many other tax administrations. In the United Kingdom the Customs
& Excise and a number of independent economists have tried to measure the theoretical yield of VAT and to
compare it to the VAT actually declared. This turned out to be very difficult. From the Departments point of view
the most successful attempt was a study focusing on small sectors of the economy. But even this study revealed
problems with data quality. A more fruitful approach seems to be trend analysis. Currently Customs & Excise
calculate a VAT Compliance Measure, which is a relation of the actual VAT declared over the VAT calculated as
due on the basis of data from the Office of National Statistics.
217. In Finland, the tax gap has been estimated by a working group set up by the Ministry of Finance in 1995,
targeting on the underground economy. This work has been continued by the National Board of Taxes, concentrating
on different fields of activity. The estimation made is based on the analysis of the information in the balancing of
accounts and income distribution statistics.
218. Another approach is represented by the United States. Up to 1988 the IRS made estimates of the tax gap
that relied heavily on thorough audits of representative samples of taxpayers. The audit data were then supplemented
by studies to compensate for weaknesses of these audits. More recently the IRS has explored the use of a compliance
measure based on such studies, but have found it impractical, partly because the Service cannot control external
influences on the measure, partly because these measures must be based on historical data.
219. Canadas tax administration is based on the fundamental concepts of self-assessment and voluntary
compliance. Individuals and corporations provide information on income, expenditure, tax credits and other
entitlements. As a result, it is extremely difficult to objectively measure the tax and compliance gaps in various
programs, and attempts to do so have been largely inconclusive. New Zealand recognises the tax gap as an indicator
of tax system and tax administration efficiency, but notes that no accurate method of measuring this gap has been
established.
220. In Denmark, too, there are no regular assessments of this kind. A private foundation has attempted to
measure the size of the shadow economy in 1997. The investigation was based on a questionnaire to find out the
number of people engaged in unreported work and the time spent on it.
221. To the extent the idea of finding measures of compliance has not completely been abandoned it seems that
approaches more closely linked to tax control and risk assessments are preferred. Australia does not attempt to
estimate the total tax gap, but undertakes rigorous risk assessments to identify and address areas where this gap may
30
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Issued: 4 May, 2001
be significant or have the potential to become significant. The effectiveness of its risk assessment is in itself an
important compliance measure and is included in the annual report.
222. Nor does the Netherlands Tax Administration measure the level of non-compliance through estimates of the
tax gap. Percentage of surveys with corrections and amount of audit discrepancies are however important
performance indicators.
223. Recognising the difficulties other countries such as Austria, Norway and Spain do not attempt to measure
the tax gap. In Germany, in the context of an organisational review in one of the Lnder, such estimates have been
made in order to check on the necessity of quality assurance, but they are not part of a performance measurement
system.
224. To sum up, the general position on measuring the tax gap is that it is difficult if not downright impossible and
even if it were possible to get a reliable total figure it would not tell us much of practical value in the struggle against
non-compliance.
31
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3. PERFORMANCE MEASUREMENT IN THE SWEDISH TAX

ADMINISTRATION
3.1 Introduction
225. In the previous chapter some current trends and common varieties of performance measurement in tax
administrations were identified. In this chapter some of the issues touched upon in chapter two will be discussed in
greater detail drawing on the experience of the Swedish Tax Administration.
226. The first part of this chapter describes the institutional context of performance management in the Swedish
Tax Administration. This is to explain how the traditionally large autonomy of Swedish agencies has been further
strengthened by recent budget reform. Then the focus will shift to the management system. The following sections
describe the design of the Performance Measurement Model (PMM), which has been derived from the general
programme logic of taxation and the basic strategy of the Tax Administration. The choice of performance indicators
will be discussed as well as some implementation issues.
3.2 Institutional Context

3.2.1 Ministerial and managerial roles
3.2.1.1 Constitutional Background
227. In Sweden ministries are small and the responsibility for implementation of government programmes is
essentially left to the central agencies and their regional and local branches. These agencies enjoy a considerable
degree of autonomy, which is based primarily on the fact that agency heads (director generals) do not report to any
individual minister but to the government as a whole. Although ministers are responsible for the development of
policy, drafting legislation, as well as preparing the budget for and monitoring the performance of agencies in their
respective policy area, no minister can issue direct orders to the director general of an agency. Such directives must
take the form of cabinet decisions. There are of course frequent informal contacts between the central agencies and
their ministries, but ministers are, in fact, very careful not to act on their own and interfere with day-to-day
management of the agencies.
228. Furthermore, neither ministers nor the cabinet as a whole are allowed to interfere with how individual cases
(applications, tax returns, complaints, investigations, etc.) are handled by the agencies.
229. In recent years this constitutionally based autonomy of the agencies vis--vis the government has been further
strengthened by devolution of managerial authority (especially in human resource management) and budget reform.
3.2.1.2 Budget Reform and Management by Results
230. In Sweden, like in most other Member States, the budget process has undergone fundamental changes during
the last few decades. The 1970s saw a period of experimenting with the Program Budget concept developed in the
United States, but basically budgeting for the public administration remained traditional up to the late 1980s.
231. Traditional in this context means that the process was short sighted - based on a closed fiscal year, without
saving or borrowing facilities - and focused on marginal input changes rather than an overall analysis of input and
output (performance) of the agency or administration, as a whole.
232. In 1988, the Swedish Parliament endorsed the principles of a new budget and management process, to be
implemented gradually over the fiscal years 1991/92 through 1993/94. In general terms, the major administrations,
such as the Police and the Tax Administration, were left to the last round in 1993/94, when some experience had
already been gained regarding transition problems and the functioning of the new system.
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Issued: 4 May, 2001
233.
Basic features of the new process were the introduction of:
three year planning periods, with an in-depth assessment of the agency, or administration, preceding each such
period, and a simplified procedure the years in between;
accounting on an accrual basis, virtually along the same lines as business accounting;
comprehensive Annual Reports, containing performance data as well as financial information presented in the
form of a balance sheet, a profit statement, a statement of appropriation and a financing analysis;
a single appropriation, referred to as frame appropriation, for all kinds of expenditure (salaries, accommodation,
travel costs, computers etc.) and with facilities for unlimited saving and borrowing up to, normally, 5 per cent of
the amount of the appropriation;
loans from the Public Debt Office for investment in durable assets, at market interest rates, instead of ad-hoc
adjustments of the appropriation in order to accommodate investment needs.
234. These innovations constitute a major shift of powers and responsibilities. The Government offices were to be
less preoccupied with details of financial management and, on the other hand, play a more active role in designing
targets and setting priorities of the agencies operations. As a consequence, the idea was to reduce the role of the
agencies Budget Request and develop the Annual Report and the annual Government approval document for each
agency/administration into the most important documents of the entire budget and management process. The
Government approval document was to contain far less details on the input side (financial restrictions) and, on the
other hand, clear cut goals, performance targets and reporting requirements.
235. The new process was implemented successfully over the period mentioned above, even though many agencies
had difficulties at the beginning in meeting the new requirements on their accounting systems. As an increasing
number of agencies were integrated into the new process, it was realised that three year planning periods being
applied to all of them was too stiff a system and the in-depth assessment was made optional: currently an in-depth
Budget Request has to be submitted only when demanded by the government from a specific agency/administration.
This is likely to be less often than after three years.
236. An important reason for introducing saving and borrowing facilities was, of course, the desire to induce
agencies to plan for expenditure over longer periods and make them less inclined to use up all the funds available
towards the end of each fiscal year. Obviously, for this to be achieved, a certain degree of discipline was required on
the hand of the government and the parliament, who would have to abide with the new rules and refrain from
confiscating savings even if these appeared to be excessive. By and large this would seem to have been observed
so far, with the possible exception of budgeting for premises.
237. In order to gain experience of the key elements of the new budget and management process, a limited number
of agencies were selected to start developing performance measurement and submitting annual performance reports
in the late 1980s. Development in this area has continued, along with efforts to develop the skills of the government
offices in designing goals and performance targets. The trend right now would seem to be away from what was
initially a rather rigid system towards a more differentiated one, where the characteristics of each area of public
administration can be taken into account when designing goals, targets and reporting obligations.
238. Besides specific success indicators for each agency/administration, productivity and quality issues have been
addressed and an attempt has recently been made to measure the overall productivity development of Swedish central
government over the years 1991 through 1997. Plans are to present overall productivity figures regularly henceforth,
based on the profit statement presented in the agencies annual reporting.
239. In response to the need to tighten up what was realised in the early 1990s to be a, by comparison, very loose
budget process, several other changes have been introduced in recent years. Amongst other things, the so-called
suggested (or preliminary) appropriations that could be exceeded by government decision have been abolished. As a
consequence, efforts are being made to develop and refine expenditure-forecasting methods, especially with regard to
the major subsidy programs within the social insurance and social security sector. Fundamental changes have also
taken place in the parliamentary decision making process. However, as these changes have little to do with
management at the level of individual agencies or administrations, they need not be discussed in greater detail in this
context.
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Issued: 4 May, 2001
240. To conclude, while focusing on the development of instruments for follow-up and evaluation, enhancing the
role of the government and its services in the management process, and strengthening budget discipline, the Budget
Reform has not addressed the issues of incentives and sanctions. There are good reasons why this has not been very
highly prioritised so far, but it would seem to call for more attention in the future, as the reform processes itself is
being evaluated.
3.2.2 Organisation of the Swedish Tax Administration
241. With only a few exceptions, all taxes (including local income tax) are collected by the Swedish Tax
Administration (skattefrvaltningen). At central agency level the National Tax Board (Riksskatteverket) is the
"parent" not only of the 10 Regional Tax Authorities (skattemyndigheter) but also of 10 Regional Enforcement
Authorities (kronofogdemyndigheter).
242. The role of the National Tax Board (NTB) is to provide guidance on the application of tax law and to
coordinate and support the activities of the regional authorities, which carry out most operational duties. Despite the
common "parentage" the Tax Administration and the Enforcement Service are in many respects two separate
services. The Enforcement Service is responsible not only for collecting tax arrears and other unpaid debts to the
public sector but also for the collection of bad debts owed to private companies and individuals.
243. The Tax Administration is the larger of these services (in 1999 there were 9,400 employees at the regional tax
authorities while the regional enforcement authorities employ about 2,700 people). The NTB itself had about 1,100
employees, 60% of which work in the Computer Services Department.
Diagram 2: The organisation of the Swedish Tax Administration and Enforcement Service
Ministry of
Finance
Cabinet
The National Tax

Board
Staff: 1 100
10 Regional
Enforcement
Authorities
10
Regional Tax
Authorities
(with about 80 local

offices)
(with about 120 local

offices)
Staff: 9 400
Staff: 2 700
34
GAP005
Issued: 4 May, 2001
3.2.3 Management System
3.2.3.1 Management by Objectives 1987:
244. After a major reorganisation in 1987 a new management system which was established, which was based on
Management by Objectives and built on three pillars:
A model for budget allocation

A system for coordinated planning
A model for performance measurement
245. The Tax Administration is financed through appropriations put at the disposal of the National Tax Board. The
Board decides the allocation of funds to the regional authorities. This allocation is based on a model that divides the
available sum between the authorities in relation to their workload, which is estimated on the basis of factors such as
population, the number of businesses weighted according to size etc. This is done annually and thus gradual changes
in the population or business structure will result in gradual shifts in the allocation of resources. As long as the
regional authority does not exceed its total budget there are no formal restrictions on the use of its budget allocation.
By reducing staff, an authority can gain room for buying more equipment or by reducing its accommodation costs it
can retain more staff. Such decisions are made by the head of each regional authority.
246. Until recently the planning process is coordinated by the National Tax Boards annual guidelines that set out
the goals and priorities. The guidelines were based on the Government approval document, which was supplemented
by policies and strategies drawn up within the Tax Administration. As a rule these guidelines did not contain specific
targets to be met by the regional authorities. It was left to the Authorities themselves to work out their own targets,
provided that they were in line with overall strategy.
247. While models for budget allocation and coordinated planning were quickly set up in the late 1980s, it has
taken long to create a system for performance measurement. Although the Tax Administration did not lag behind
other agencies in this respect, it was soon recognised that the lack of a comprehensive measurement system created
an imbalance between the degree to which authority had been delegated and the capacity of the Ministry and the
Board for monitoring performance. The awareness of this problem eventually led to the development of the PMM
that will be described below.
3.2.3.2 Results oriented Management and Total Quality 1999:
248. The need for improved performance measurement has led to a shift of emphasis from Management by
Objectives to Results Oriented Management. The Government expects agencies to spend less time on arguing for
their budget allocations and more time on providing informative and well-structured annual reports.
249. In the wake of a recent reorganisation, in which the 24 county tax authorities and 24 county enforcement
authorities were merged into 10 regional authorities in each service, there has been a comprehensive review of the
management system. This review has not affected the degree to which powers are delegated to the regional
authorities, but a smaller number of regional authorities has allowed for a new management structure. The Director
General, his deputy and the (10+10) regional managers now form two management groups, one for the Tax
Administration and one for the Enforcement Service. Usually their meetings are coordinated so that the two groups
discuss common matters jointly and then meet separately to discuss topics that are specific for each service.
250. The annual management process has also been redesigned. The starting point is a joint 3-5 day strategy
seminar for the two management groups. The outcome of this seminar will decide the contents of the Boards overall
management plan, which serves as framework for planning and budgeting at authority level. The management plan
has replaced the annual guidelines and unlike the guidelines the plan contains a great number of national targets to be
met by the end of coming year or by the end of the three-year planning period.
251. Implementation of the management plan is monitored through key indicators, which are discussed at the
monthly meetings of the two management groups. A more thorough analysis of performance development is
presented in an Interim Performance Report (per 30 June) and in the Annual Report (per 31 December). These
reports also form the basis for meetings with the Minister of Finance.
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GAP005
Issued: 4 May, 2001
252. Another development has been the introduction of Total Quality Management as the framework for the Tax
Administrations management philosophy. The Swedish Quality Award has recently been introduced as a vehicle of
creating both a new culture and a framework for business process development. A number of the central values that
form the basis for the Quality Award have been selected as the core values around which the Tax Administrations
new culture will be fostered. To promote this culture, existing missions statements, objectives and policies, are being
reviewed, revised and amended.
253. Currently work is under way to document present management practices according the Swedish Quality
Award criteria. In this context present business processes are being defined with respect to categories of taxpayers
(individuals, small businesses, medium-sized businesses and large businesses). So far process orientation has not
had any major impact on actual organisation, but within functional departments process coordinators are being
appointed to ensure consistent implementation of policies, strategies and plans throughout the organisation with
regard to the different target groups.
254. At a more practical level a number of new management tools have been adopted in order to structure the
planning process, facilitate continual improvements and other forms of business process development. Of critical
importance are tools to monitor and measure progress. Great emphasis is therefore put on improving measurement,
analysis and evaluation of internal processes and their impact on our business environment.
3.3 A Performance Measurement Model (PMM)

3.3.1 Introduction
255. With time the scope of performance measurement has widened. In the 1970s programme budgeting focused in
improved measurement of inputs. In the Swedish Tax Administration it brought a new accounting system that
allowed costs and work hours to be linked to activities and programmes. There were also attempts to quantify the
output of each programme. Before 1987 progress was slow, however, because of a complex organisational structure
that made it difficult to measure the Tax Administrations total costs and outputs.
256. When a new unified tax administration was formed in 1987 reliable figures on costs and manpower became
5
available for the entire tax administration. By linking them to caseload figures, productivity could be measured.
These productivity measures became a central feature in the annual reports that the National Tax Board began to
publish in the late 1980s.
257. The early 1990s was a period of reform and restructuring. Costs increased and output fell and so did reported
productivity. In the years that followed it became urgent to restore productivity, especially in tax control. Great stress
was put on increasing the number of field audits, but there were signs that quality suffered. A number of steps were
taken to improve quality. One was to extend the quality assessment programs. It was also seen as important that
performance measurement should include indicators on quality, such as the number of complaints, average
processing time for applications etc. Taxpayer surveys became a useful tool form measuring public perceptions of
the quality of service delivery.
258. Productivity and quality are prerequisites but no guarantee for reaching the objectives. It is not enough to
produce the desired outputs and to ensure quality. To achieve effectiveness it is also necessary to measure outcomes
in terms of revenue and evaluate the impact of service and tax control on compliance.
259. Thus it became evident that figures on productivity and recovered revenue through audits were not enough to
gauge performance. A more comprehensive measurement model was needed and in 1994 the government instructed
the National Tax Board to design such a model, which was to form the basis for a more informed dialogue between
5
Rough estimates of productivity had already been carried out by the Swedish Agency for Administrative Development (Statskontoret, 1995 and
ESO, 1994). In the late 1970s it started measurement of productivity development in the entire governmental and public sector in Sweden. Later
studies have brought up these studies to the present day and today the entire period 1960-1997 is covered.
36
GAP005
Issued: 4 May, 2001
the Board and the Ministry concerning the Tax Administrations performance. The central question was: what are the
basic criteria of a good result?
3.3.2 A Model for Performance Measurement
260. The overriding objective of taxation is to assess tax liabilities and collect tax in accordance with law and at
minimum cost to the government and to taxpayers. The amount of revenue that should have been collected if there
were no tax fraud and no unintentional errors can be labelled the theoretical tax revenue. The difference between the
theoretical tax revenue and the tax actually collected is often referred to as the tax gap. The tax gap can be divided
into two parts. One part is made up by the difference between the theoretical tax and the tax actually assessed and
billed (assessment error). The other is equal to the discrepancy between the amount of tax billed and the amount of
tax collected (collection loss).
261. Estimates of the assessment error are based on calculations of the black economy supplemented with
estimates of other forms of tax evasion. Recent studies of the size of the black economy in Sweden range between
6
3% and 5% of GDP. On the assumption that the correct figure is 5 %, this represents a loss of about 5-6 % of
7
theoretical revenue. Another 3 % can be added for other forms of tax evasion and unintentional errors. This brings
the total assessment error to about 8-9 % of the theoretical tax. This figure is admittedly shaky and of interest only as
an indication of its likely magnitude. According to the latest figures, the actual collection loss is about 0.5% of tax
8
revenue.
262. Taxation is done at a cost to society. If excess burden in the form of lost production is disregarded, the
governments administration costs and the taxpayers compliance costs still remain. The administration costs
include not only the cost of the Swedish Tax Administration, but also costs incurred by other government agencies
such as the Customs, the Prosecutors, the Police etc. In 1992 the administration costs of taxation were estimated to
about SEK 5bn or roughly 0.5% of tax revenue.
263. Compliance costs include the sacrifice of time spent on preparing tax returns, direct outlays for tax
consultants, extra costs for adapting accounting systems to the demands of taxation, etc. A study based on survey
data estimated the compliance costs in 1992 to SEK 9 billion, or about 1.0% of theoretical tax revenue (Malmer,
Persson and Tengblad, 1994)
A number of studies have been conducted in Sweden in the 1980s and 1990s. In a study based upon the National Account carried out in 1997 by
ke Tengblad the size of the black economy was estimated to lie within the range 3.17 4.5 % of GDP (The Swedish National Audit Office,
1998)
E.g. smuggling, VAT fraud based on false invoices, deductions based on false information etc. Random audits give some information about the
size of such tax evasion.
For a discussion of the size of the tax gap, see the English summary of the Tax Statistical yearbook of Sweden 1999 published by the National
Tax Board (Riksskatteverket, 1999), also available on the Boards web site, www.rsv.se
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GAP005
Issued: 4 May, 2001
Diagram 3: Actual tax revenue and costs of taxation as percent of theoretical tax revenue
Theoretical Tax Revenue = 100 %

120%
100%
Assessment Error = about 8 %

Collection Losses = 0,5 %
Tax Gap = 9 %
80%
Actual Tax Revenue = about 91 %
60%
40%
20%
0%
Administration Costs = 0,5 %

Compliance Costs= about 1 %
-20%
3.3.3.1 Strategy, Performance Criteria and Performance Indicators

264. The ultimate concern of the tax administration is to reduce the tax gap. This means influencing taxpayer
behaviour by encouraging compliance and by deterring and preventing tax evasion. The tools available for this
carrots and sticks approach are essentially information and service on the one hand and tax control and sanctions on
the other.
265. None of this can be achieved unless the basic machinery works properly. Funding is limited and the tax
administration must maintain high productivity in basic processing in order to free resources for service and tax
control. Productivity is measured as the ratio of output (e.g. income tax returns and audits) to total cost or work
hours.
266. Quality must first of all be maintained to safeguard against errors in decision-making (quality of product) or
in procedure (quality of process), which may cause losses to taxpayers. Such misunderstandings and errors are often
costly to correct for both taxpayers and the tax administration. There are indicators that measure quality against legal
and professional standards (frequency of complaints etc) as well as according to taxpayer perceptions (surveys).
267. Turning to outcomes and impacts, the obvious measure would seem to be total revenue collected. Under
normal circumstances, however, variations in revenue depend much more on changes in the tax law, rising or falling
tax rates and the ups and downs in the business cycle. The overall measure of effectiveness is therefore not total
revenue but the gap between actual and theoretical revenue (the tax gap). From the tax administrations point of
view, this concerns its impact on the size of collection losses and the assessment error.
268. Although total collection losses can easily be measured, it is difficult determine the administrations impact
on the collection losses. According to experience their movements up and down correlates more closely with the
business cycle than with steps taken by the tax authorities and the enforcement authorities.
269. Most difficult of all is to measure the impact on the assessment error. This involves solving the dual
problem of (1) measuring the size of the assessment error and (2) to identify the Tax Administrations influence on
38
GAP005
Issued: 4 May, 2001
this error. Essentially this boils down to estimating the effects of different programs (auditing, service etc) on
taxpayer compliance. Although difficult to measure, in order to get priorities right it is important include indicators
that focus attention on compliance, e.g. indicators of actual compliance as well as indicators of deterrence and
prevention by tax control.
The task
Performance Criteria
Performance Indicators
Theoretical Tax Revenue
Actual and Theoretical Tax Revenue
(Voluntary or actual)
Compliance
Total Tax Assessment

Error
Impact on
Assessment
Error
Deterrence
Direct Monetary
Outcomes
Tax Collection Losses
Total Tax Revenue/
Impact on
Collection
Losses
(Voluntary or actual)
compliance
Comparisons with National

Accounts
TCMP-measurements
Income tax returns
filed on time
Frequency of desk and
field audits
Additional tax levied
through desk and
field audits
Deterrence
Direct monetary outcomes
Total Volume of Output
Output controlled by
Tax Authorities
Number of
audits/total cost
Productivity
Output determinded by
external factors
Costs of
Administrative Costs
Number of tax
returns/total cost
Quality by legal and

Quality
Quality as perceived by
taxpayers
Compliance costs
Diagram 4: Performance criteria and performance indicators
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Issued: 4 May, 2001
3.4 Performance Indicators

270. The previous section dealt with the logic and structure of the PMM. This section will present the performance
indicators. We will discuss the performance indicators in the same order as they appear in the input-output-outcomeimpact sequence:
Productivity
(the ratio of output to input)
Quality
(of process and outputs)
Outcomes
(in terms of revenue)
Impacts
(on collection losses and assessment error)
3.4.1 Productivity
Performance Indicators
Total Productivity
Number of processed returns / costs

Number of desk audits / costs
Number of field audits / costs
Labour Productivity
Number of processed returns / work hours

Number of desk audits / work hours
Number of field audits / work hours
271. Productivity links outputs to inputs measured in terms of costs or work hours. In either case inputs and
outputs need to be identified.
3.4.1.1 Inputs
3.4.1.1.1 Work hours
272. A work hour or time report system was first introduced in the Swedish Tax Administration in the 1970s but it
was abolished along with programme budgeting in the early 1980s. It was reintroduced in the early 1990s and
became a very important source of information on activities and actual resource allocation.
273. The system is based on monthly reports filed by all employees specifying the number of hours spent on
different activities according to a detailed chart of accounts. Even if all employees do not record their activities on a
daily basis and some time reports are sloppy, the system is deemed to provide a reasonably accurate overall picture.
274. At macro level the time reporting system is an important source of information on the impact of process
development and re-engineering. At micro level it is a useful instrument for planning and monitoring activities.
3.4.1.1.2 Costs
275. Today Swedish agencies are financed through frame (or lump sum) appropriations that cover all costs.
Accounts are kept on accrual basis. It is therefore easy to determine the total costs of an agency. If there is more than
one output, however, productivity measurement requires a way to apportion direct and overhead costs between these
outputs. This is done primarily on the basis of time use.
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Issued: 4 May, 2001
Table 1: Costs in the Swedish Tax Administration, current prices (SEK Million)
Basic processing, service, & adjudication
Desk auditing
Field auditing
1994
1 967
903
856
1997
1 810
1 353
1 071
Change
-157
+450
+215
Taxation
Cost index, current prices
Cost index, fixed prices
3 726
100,0
100,0
4 234
113,6
102,6
+508
3.4.1.2 Outputs
276. There is no obvious answer to the question which outputs should be included in the productivity measure. One
approach is to use the caseload or the number of taxpayers as a measure of output. In the first productivity studies the
number of final tax bills or tax returns were used as a proxy measures of total output. In later studies the number of
registered employers and VAT-traders were added.
277. The difficulty with this kind of measure is that output is made almost entirely dependent on tax legislation and
cannot be significantly influenced by the Tax Administration. This means that when basic processing is made more
efficient and resources are shifted to auditing, this would not have any effect on reported productivity. Today,
therefore, the products of desk and field audits are also included as outputs in the productivity measure.
278. To calculate total output, each kind of output is given a certain weight that corresponds to its unit cost a given
base year. The actual volumes of each kind of output are then multiplied by their respective weights and the resulting
sums are added to get a total figure. These sums form the basis for an output index.
Table 2: Index of output
Function
Basic processing etc
Desk auditing
Field auditing
Number of tax returns

Number of altered returns
Number of completed audits
Total
1994
100,0
100,0
100,0
1997
107,2
117,1
99,1
100,0
107,7
279. It is a moot point whether the chosen outputs give a fair representation of total output. Also it is disputable to
what extent the selected outputs, taken one by one, are comparable over time because the figures may be distorted by
changes in tax law or administrative procedures.
3.4.1.3 Productivity
280. Given an index of cost in fixed prices and an index of output, productivity is calculated by combining the two.
Table 3: Index of total (cost) productivity 1997 (1994=100)
Costs
Costs
Output ProducFunction
current
fixed
tivity
prices
prices
Basic processing etc
Desk auditing
Field auditing
92,0
149,8
125,1
83,1
135,3
113,0
107,2
117,1
99,1
129,0
86,5
87,7
Total
113,6
102,6
107,7
104,9
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Issued: 4 May, 2001
281. By replacing the cost index by a work hour index we can calculate labour productivity. It shows the same
tendency, but productivity improvement is much greater. This is not surprising given the massive investment in
information technology in recent years.
3.4.2 Quality
Quality according
to
legal
and
professional
standards
Performance indicators
Product quality
Frequency of errors by the tax

authorities corrected through
the
simplified
complaints
procedure
Number of tax assessments
decided by the tax authorities
altered by the courts
Quality of registers
Quality according
to
taxpayer
perceptions
Process quality
Average processing time for

complaints
Quality Assurance
Standard of internal quality

assurance programmes
Product quality
Perceptions of professionalism
Process quality
Perceptions of
information etc
Confidence
Perceptions
of
the
tax
authorities ability to their job
availability,
282. There are many aspects of quality. True to its external perspective the PMM focuses on the aspects of quality
that are most relevant to taxpayers. Taxpayers (or customers) have a right to expect that decisions made by the tax
authorities are correct (product quality), that they are made within reasonable time and well explained (process
quality) and that taxpayers are treated in the same way in all parts of the country (uniformity). With regard to method
of enquiry another distinction can be made, between (a) quality according to legal and professional standards and
(b) quality according to taxpayer (customer) perceptions.
3.4.2.1 Quality according to legal and professional standards
283. There are several ways to assess quality against legal and professional standards and to what extent the tax
administration lives up to taxpayer expectations. Some aspects can be monitored through available statistics, for
example certain errors made and corrected by the tax authorities, assessments altered by the courts, damages paid to
taxpayers, average processing time for complaints etc. Uniformity can be checked by comparing the frequency of
such factors between regions.
284. Another approach to quality assessment is to review random samples of decisions made by the tax authorities.
Such reviews will look into both procedural and material correctness as well as the intelligibility of language used in
communication with taxpayers. Such quality reviews are regularly carried out by the National Tax Board as well as
by the legal units within each Regional Tax Authority.
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285. Quality reviews, however, are time consuming and the Board can only carry out spot checks, whose findings
cannot be generalised to a total nationwide quality assessment. Instead, the Board seeks to evaluate the standard of
quality assurance within the regional authorities. This evaluation, which is based on self-assessment, is aimed at
establishing how systematic internal quality controls are planned, carried out and reported back.
3.4.2.2 Quality according to customer perceptions
286. Still another approach to quality assessment is to ask the taxpayers. Such surveys are carried out at a national
level every year and cover a wide range of issues. The target group alternates between the general public and
business taxpayers. Each group is surveyed every second year. The findings are used not only for performance
measurement, but also for evaluations and other studies.
287. The Swedish Tax Administration has carried out taxpayer surveys many years and with time these surveys
have covered an increasingly wide range of topics. Since 1986 the general public has been asked about their attitudes
to the tax system and the tax authorities. Generally the approval rating for the tax administration is higher than for
the tax system. Most questions are much more specific and relate to various aspects of product and process quality.
Typically questions are framed as statements about professionalism, accessibility etc and respondents are asked to
indicate to what extent they agree or disagree with these statements on a scale 1-5 where 5 represents full agreement.
288. The number of respondents is large enough to produce reliable figures for each regional authority. The latest
survey of the general public (Autumn 1998) had about 12,000 respondents and a response rate of 68%.
3.4.3 Outcomes and Impacts
Performance indicators
(Total Revenue)*
Impact on
collection losses
Impact on
Assessment
Error
Total collection loss
Total collection loss / total revenue
Voluntary
compliance
Degree to which taxes are paid on time with the

right amount
Rate of collection
before enforcement
The ratio between preliminary tax and final tax

Share of tax arrears handed over to enforcement
service
Deterrence
Frequency of certain actions to secure payment

Number of cases of suspected fraud reported to the
prosecutor
Voluntary
compliance
(Frequency of errors detected by TCMP-audits)

(Survey statements)
Share of returns filed on time
Deterrence
Share of returns altered by desk audits

Share of returns altered by field audits
Direct monetary
Additional tax charged as a result of desk and field
outcome
audits
*) Not included in the PMM, but discussed below
289. Productivity and quality are not results but prerequisites for a good result. The result is the degree to which
outcomes and impacts match the objectives. In other words: We have chosen outcome as the term representing actual
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revenue and impact to denote the tax administrations influence on the behaviour of taxpayers in the direction of
compliance. Outcomes and impacts are two sides of the same coin, but the distinction is nonetheless useful.
3.4.3.1 Outcome 1: Total revenue
290. Total revenue collected and delivered to the treasury can be regarded as the final outcome of taxation. As a
performance measure, however, revenue has the drawback of varying more because of changes in tax legislation, tax
rates and fluctuations the business cycle than as a consequence of steps taken by the tax administration. Neither
rising nor falling tax revenue, therefore, give any indication of the effectiveness of tax administration. Only a very
sharp increase or steep decline in compliance is likely to have any noticeable impact on total revenue.
3.4.3.2 Outcome 2: Impact on collection losses
291. In Sweden, about 99.5% of the total tax bill is collected, although not all of it on time. This means that the
collection loss is about 0.5%. Like total revenue, fluctuations of the tax losses are largely dependent on the business
cycle, but also to a noticeable degree on some forms of tax fraud like asset stripping. When such fraud increased in
the late 1980s, the collection losses rose from the normal level of 0.5% to about 1%. A few years later the recession
in the early 1990s brought losses to 1.2%, but since then the level has dropped to the normal level.
292. However, the question of the impact of the Tax Administration and the Enforcement Service on this
development remains unanswered. The problem can be analysed using indicators that show the share of total taxes
paid with the full amount on time (voluntary compliance) and how much more is paid through the measures taken by
the Tax Authorities and the Enforcement Authorities. There are also indicators that show the frequency of actions to
deter taxpayers from late payment and persuade them to pay up. Such actions include withdrawals of business tax
9
cards , legal action to make executives of negligent companies liable for its debts, reports to prosecutors of suspected
cases of fraud etc.
3.4.3.3 Outcome 3: Impact on the Assessment Error
3.4.3.1 The assessment error
293. In section 3.3.2 above the assessment error was defined as the difference between the theoretical (or correct)
tax and the total tax bill. This discrepancy is caused not only by tax evasion but also by mistakes made by the
taxpayers or the tax authorities. To measure the assessment error is next to impossible. First there is the problem of
defining what is the correct tax. We have included interpretations of tax law that are clearly incompatible with the
intention of the lawmaker as long as such interpretations in the end are upheld by the courts. Then there is the
problem to measure what is invisible. This involves estimating the size of the black economy by indirect or direct
methods. As noted above, recent estimates of the black economy in Sweden range between 3 and 5 % of GDP.
However, there are other forms of tax fraud which are not included in measures of the black economy, like
smuggling, VAT-refunds based on fraudulent documentation, groundless deductions and so on. In addition to this
there are unintentional mistakes, which can be measured only to the extent they are discovered and corrected.
294. Although they help to focus attention on this strategic problem, macro figures on the size of the assessment
error are not likely to provide much guidance on what to do about it. From a practical point of view it is more
important to know how different sectors of the economy contribute to the assessment error, what forms of tax
evasion are most serious and what are the main growth areas. Such studies and evaluations have to apply methods
and tap on sources of information that cannot be included in a PMM.
295. Indicators of impact on the tax error have nonetheless been included in the PMM. It is important that the
choice of indicators reflect the Tax Administrations strategy to promote compliance and combat tax evasion. Even if
most indicators of compliance and deterrence are only proxy measures and some of them are ambiguous, they have
been incorporated if they measure factors generally deemed to have a positive impact on compliance.
3.4.3.2 Voluntary compliance
296. Surveys are valuable tools to monitor the willingness of taxpayers to comply with tax laws, but they must be
interpreted with care. Responses to sensitive statements about non-compliance are likely to be either overstated or
9
Business tax cards grant immunity to customers to become responsible for paying PAYE and social security contributions for workers providing
services in the case that the employer fails to do so. Therefore the business tax card is important for small businesses.
44
GAP005
Issued: 4 May, 2001
understated. Time series analysis and comparisons between different groups of taxpayers will nevertheless provide
important information about changes in attitudes to compliance and the level of non-compliance.
297. Apart from surveys the supply of data on compliance produced on a regular basis is limited. Audit data can
only be used to the extent those audited have been selected on a random basis. Although there is a programme of
random audits, different target groups are selected each year and no time series can be established. It would be too
costly and ineffectual to select random audits from the whole population each year.
298. Partial measures of compliance with administrative procedures are more readily available. One such indicator
is the ratio of taxpayers who file their income returns on time. If this ratio rises, it may reflect a more general
willingness to comply.
3.4.3.3 Deterrence
299. Deterrence is based on the perceived risk that tax evasion is found out and punished. In the short run this
perceived risk need not reflect the real risk, but in the long run the taxpayers perception of risk cannot be maintained
unless there is a real risk of detection. To a large extent this real risk depends on the number of desk and field audits
carried out in relation to the size of different target groups.
300. For technical reasons the number of desk audits cannot be measured. Instead the number of actual alterations
is used as a proxy measure. This measure is ambiguous in the sense that alterations depend not only on the intensity
of auditing, but also on the number of factual errors there are to correct. If tax control becomes more effective and
taxpayers become more compliant, this can reduce the number of alterations, which mistakenly could be interpreted
as declining deterrence of tax control. However, for the time being, it is generally assumed that the number of
undetected errors is so large that variations in the frequency of alterations much more reflects the intensity of
auditing than the actual level of compliance.
301. Although the frequency of control is a fundamental factor when it comes to increasing the risk of detection
other factors are also essential, not least the professionalism of auditors. Audits that fail to detect fraud may create
negative deterrence. Also, effective sanctions have to be applied when tax returns are found to contain false
information.
3.4.3.4 Prevention or direct fiscal outcome of tax control
302. The amount of additional tax being levied as a result of desk and field audits has always been regarded as a
key outcome. This sum compared with the direct costs of tax control is frequently used as an indicator of its
profitability. In 1994 an extra SEK 200 million was allocated to the tax administration for tax control on condition
that it should return 10 times this amount in recovered tax revenue.
303. The great importance attached to the direct monetary outcome as a performance measure has been criticized
both for technical reasons and on grounds of principle. Most recently the Parliamentary Auditors and by the National
Audit Office pointed out a number of technical flaws inherent in this measure, for example the difficulty to separate
audit outcome from mere routine corrections of technical errors. They also observed that alterations with respect to
recorded business losses affect only future taxes that may never materialize and that a large part (about 30%) of
additional assessments do not generate any extra revenue but result only in increased collection losses.
304. On grounds of principle, the great stress put on the monetary value additional tax assessments as a
performance indicator has also been criticized for deflecting attention away from deterrence, which is the strategic
objective of tax control. The statistics are also very much influenced by a few very large decisions, which will distort
comparisons over time or between tax authorities. A final point, strongly stressed by the Parliamentary Auditors, is
that revenue targets may tempt auditors to treat taxpayers with less objectivity than they should.
305. This is not to say that additional revenue does not matter. It matters a great deal both for fiscal reasons and as
a way to attract attention and publicity to tax control, which is necessary for deterrence. Aggregate figures should,
however, be used with great care and not be used as performance indicators without prior analysis of its component
parts.
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306. Despite these objections the monetary outcome is still included in the PMM, but only as one of a large
number of indicators.
3.4.4 Implementation and practical application
307. The primary purpose of the PMM was to serve as a basis for the performance dialogue between the
government (Ministry of Finance) and the Tax Administration (The National Tax Board) within the general
framework of results oriented management. In 1995 the basic performance criteria of the PMM were integrated into
the governments annual approval document, which defines what the administration should accomplish during the
coming year within specified financial restrictions. The PMM also defines the reporting requirements in the annual
report, which the National Tax Board submits to the government.
308. However, the PMM was also intended to serve internal management needs, more precisely to form the basis
for evaluating the performance of the (then) 24 county tax authorities. To make this practicable a new management
information system was created and named RESUM. This system became operational in the spring of 1997. Other
systems provided raw data that were combined into the ratios that make up the performance indicators defined by the
PMM.
309.
From a managerial point of view, however, the PMM has some limitations due to its focus
on outcomes or impacts rather than on outputs (although outputs are frequently used as proxy measures for
outcomes),
on the external rather than on the internal perspective
on evaluation of performance annually rather than on monitoring of the implementation management plan during
the current year,
on comparisons (benchmarking) between different regional tax authorities during the same year rather than on the
development of an individual authoritys performance successive years or comparisons between planned and
actual output.
310. In short, the PMM is primarily an instrument for ex post evaluation and it is not an effective tool for
monitoring the implementation of the management plan during the current year. Many of the performance indicators
are only available on an annual basis and others are difficult to interpret in the short term (less than one year).
311. In other words, there are management information needs that the PMM does not satisfy. In some respects, this
could be rectified either by expanding the PMM to include new performance criteria and sets of indicators, or to
supplement the PMM with other measurement instruments. A different road was taken, however.
3.4.4.1 Balanced Scorecard

312. One attempt to solve this problem was the introduction of a balanced scorecard to supplement the PMM. The
intention was to give top management a broad view of performance through a limited number of key indicators that
reflect central elements of the management plan.
313. The Balanced Scorecard was created by Robert S. Kaplan and David P. Norton and was first introduced to the
general public through a number of articles in the Harvard Business Review in 1992. It was founded on the belief
that existing performance measurement approaches in business were becoming obsolete because they relied to
heavily on financial accounting measures and did not identify the processes that were truly strategic (Kaplan and
Norton 1996, p. viii). The Balanced Scorecard is therefore intended to complement financial measures of past
performance with the drivers of future performance.
314. The objectives and measures should be derived from the organisations vision and strategy and view
performance from four perspectives:
financial
customer
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GAP005
Issued: 4 May, 2001
internal business process

learning and growth
315. The Balanced Scorecard has become popular in the private sector and in many countries it has also been
applied in the public sector. The Swedish National Audit Office has suggested an adaptation that is built around four
focuses (Riksrevisionsverket 1996):
Internal
External
Historical (rear view)
Future (forward view)
316. It is in this adapted form that the Balanced Scorecard has been introduced in the Swedish Tax Administration.
In this form it represents no real departure from the PMM. The chosen structure means that three of the four
perspectives of the new scorecard closely correspond with those of the PMM and most of the scorecard indicators are
in fact provided by the PMM.
Perspective
Focuses according to proposed

scorecard
The PMM
Internal View
Process focus
Productivity
Lead times of individual
outputs
Productivity
Productivity
External View
Customer focus
Quality according to legal and
professional standards
Customer attitudes
Quality
Quality according to legal and
professional standards
Quality as perceived by taxpayers
Rear view
Results focus
Impact on tax error
Collection loss
Enforced collection of public
and private debts
Financial (budgets and
spending)
Outcomes and Impacts

Impact on tax error
Impact on collection loss
Forward View
Development focus
Development of human
resources
Development of information
technology
3.4.4.2 Conclusion
317. The balanced scorecard was only one of a great number of new management tools that were introduced in the
great overhaul of the Tax Administrations management system following the appointment of a new Director
General in 1996. Most were picked from the standard toolbox of Total Quality Management, but some, like the
scorecard, had been developed within the framework of rival management schools. Although the problems should
not be exaggerated, the co-existence of management tools that represented significant differences in approach and
terminology still made it difficult to establish an internally consistent framework for the on-going development of the
management system.
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318. Conceptually there is little that separates the balanced scorecard (in the form that it was adapted by the
Swedish Tax Administration) from the PMM. Terminology aside, the main difference was that the scorecard
contained some internal indicators relating to the annual budget, human resources and the development of
information technology. The scorecard also contained much fewer indicators. In this light the scorecard can be
viewed as a modified version of the PMM.
319. This meant, however, that the scorecard did not effectively compensate for the major shortcomings of the
PMM as a tool for short term performance monitoring. A number of prototype scorecards were presented, but none
10
provided a very useful framework for interim performance reviews. Instead the management group, in monitoring
performance during the current year, continued to rely heavily on a small number of traditional indicators, mostly in
the compliance area, such as the number of finished field audits, frequency of altered tax returns etc.
320. The impact of the PMM on the internal management environment thus turned out to be more limited than
envisaged when it was launched in 1997. The PMM still defines most of the main performance indicators that are
used in interim and annual reviews of tax authority performance, but, as pointed out, they are used selectively.
321. The PMM has however been very influential at the conceptual level in informing the debate on corporate
strategy. Its basic conceptual framework is very simple and has turned out to be useful in communicating some key
messages to staff and other stakeholders. This is especially true in the development of compliance strategies. The
PMM has highlighted discrepancies between basic strategies and their application in the field. The main purpose is
deterrence but in practice implementation has been guided more by notions about maximising the number of audits
(regardless of their impact on deterrence) and on the revenue yield in the individual actions.
322. The PMM has also highlighted issues concerning process and product quality. When the PMM was
introduced in 1997 the taxpayer surveys were expanded and conducted annually. Gradually these surveys have been
expanded and they now contain questions concerning most aspects that are relevant to strategy development, both in
the field of service provision and tax control.
323. With regard to performance measurement, the present situation can be described as one where there is great
access to relevant performance data. A conceptual framework is also available for interpretation of these data. On top
management level a system of monthly and periodic (every four months) performance reviews has been introduced.
Still implementation of an effective and comprehensive system for performance monitoring has turned out to be
more difficult than anticipated. A recent organisational review has identified some of the reasons for this. One has
been a shortage of staff for these tasks at the National Tax Board. Another that the division of responsibilities of
different departments were not clearly defined. Management has now acted on these findings and the Boards
functions for management control have been strengthened and the roles of the different departments of the Board, as
well as of the Board vis--vis the regional authorities, have been clarified. Against this background there are good
reasons to believe that the main obstacles for a more rapid development of the management system have been
removed, and, indeed, significant steps have already been taken.
324. Another development is to distinguish more clearly between short-term performance monitoring (focused on
the implementation of the management plan) and long-term performance evaluation (focused on outcomes, impacts
and cost effectiveness). With some minor modifications and additions the PMM still provides the long-term
performance criteria as viewed by the government and external stakeholders. The overriding goal is to minimise the
tax gap, while administrative and compliance costs are kept as low as possible. At the same time protection of
taxpayer rights means that quality and service standards must not be sacrificed. This means that the tax
administration must be very cost effective.
325. However these long-term permanent criteria must be supplemented by temporal objectives or targets that are
defined in the management plan. Short term performance monitoring is focused on the attainment of these annually
defined targets and objectives.
10
This is not to say that the balanced scorecard cannot function as a tool for short term performance monitoring. Its usefulness in this respect
depends mainly on making the right choice of indicators to ensure that they are relevant to current plans and that they can be provided and
presented in a meaningful way in a short term perspective.
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Issued: 4 May, 2001
326. To avoid that the new focus on targets will turn into a dysfunctional straight jacket that prevents the
implementation of flexible strategies and discourages innovative practices (which may not always produce the best
statistics) a new planning procedure has been set up. During the planning stage there will be a great deal of
consultation between the National Tax Board and the regional authorities. Before the start of the new year the
management plan of each individual authority is reviewed and approved by the Board. Less emphasis will be put on
the attainment of national targets and more on how well each of the 10 regional authorities has implemented its
individual plan and reached the targets set in this plan.
327. This approach, however, requires that regular impact and cost-effectiveness evaluations be carried out. Such
evaluations will lean heavily on the performance criteria of the PMM. They will also review the assumptions of
general strategies and how they are translated into the management plans on national and regional level. There is
always the possibility of flaws in the strategy or that the management plans are ill conceived in relation to long term
strategy.
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GAP005
Issued: 4 May, 2001
4. CONCLUSIONS
4.1 Introduction
328. According to OECD (1994) the main objective of performance measurement is to support better decision
taking, leading to improved outcomes for the community (see section 2.2 above). From this main objective other
objectives can be derived, such as improved performance, improved control and accountability mechanisms, a betterinformed budget process and a more motivated staff. To live up to these aims the measurement system must be
functional and satisfy three major concerns: validity, legitimacy and continuity.
4.2 General trends among tax administrations

329. In Chapter 2, member countries replies to the questionnaire are in as far as possible grouped together in order
to reflect common approaches adopted by some countries and, as applicable, contrast one approach against another.
Even so, it may not be altogether easy to discern common standards or to assess the state of the play in performance
measurement. The following is an attempt to draw that kind of conclusions regarding at least some of the areas
covered by the questionnaire.
4.2.1 The management context
330. Tax administrations are typically organised either as separate revenue authorities or as a department within
the ministries of finance. In most cases the political responsibility is borne by the Minister of Finance. In most
countries the minister (and sometimes parliament) is involved with the design of the measurement system, the setting
of targets and evaluating performance. This involvement is particularly strong where there is a contractual
relationship between the minister and the tax administration or its chief executive. Only a small number of member
countries apply a clearly contractual concept. However, even in countries where this is not the case, the dialogue
regarding priorities, operational targets, development projects etc. would in many cases seem to lead up to what can
be labelled as quasi-contractual documents. Examples of this are the annual approval documents in Norway and
Sweden.
331. The preferred benchmark in most administrations seems to be targets that define the required (minimum) level
of performance (see section 2.2.2). This level may be defined in terms of revenue (although total revenue is rarely
seen as relevant to the management process), number of processed returns, audits carried out, taxpayer contacts,
timely delivery of services etc.
332. In most cases, there is no clear link between performance and resource allocation. In fact, the idea of
rewarding well performing offices, units etc. by allocating additional resources, and vice versa, while being
considered by a few administrations, is explicitly rejected by others. The reason for this is that organisational units
that do not perform well are seen to need assistance and encouragement rather than automatically applied punishment
in the form of reduced allocations. Instead, resource allocation models based on workload (number of taxpayers by
category, number of returns filed or the like) are applied by a number of administrations.
333. Measurement does not automatically translate into better performance and results. In the worst case it is just
another set of statistics used to adorn annual reports with little or no impact on behaviour in the organisation. In order
to make measurement a management tool, monitoring and evaluation of performance must become an integral part of
the on-going management processes. In most tax administrations in our study senior management receive and discuss
key performance data on a monthly and/or quarterly basis in order to take appropriate action where necessary. A
typical model is to have key indicators reported monthly to the executive board without extensive comment and each
quarter a progress report with comments and trend analysis and, sometimes, proposals for necessary corrective
action.
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GAP005
Issued: 4 May, 2001
334. Most countries have at least to some extent developed IT systems to support the management process. This is
natural as the core processes of developed tax administrations depend heavily on information technology, meaning
that much of the information needed is already kept in a digital form. Far from all the countries have as yet
introduced management systems that cover the whole range of activities. The sub-area best covered by this kind of
systems would seem to be auditing. However, keeping in mind the rapid development of the IT sector in general, the
time elapsed since the questionnaire was answered calls for caution in drawing conclusions in this area.
4.2.2 Measures of input, output, outcome and productivity
335. Productivity measures are based on the relationship between outputs and inputs. Using expenditure as the
input measure, this relationship can be expressed as a ratio between total (weighted) output and total input, or as unit
costs for individual products.
336. Another approach is to replace cost by labour input expressed as days or staff years (full time equivalents).
The ratio between total (weighted) output and the total number of work hours (days, staff years etc.) yields labour
productivity.
337. It can be implied from the replies to the questionnaire that in most countries in this study, the budget
allocations to the tax administration are designed to cover all costs related to its activities. However, some costs are
generally regarded as corporate overhead costs and are not always allocated to lower organisational levels, programs
or outputs. Such a system may still allow calculation of unit costs, but only at national level. In this study, a broad
variety of solutions were found, including systems where measurement is based on full costs in some sectors (e.g.
auditing) but not in others, or where costs are apportioned to organisational units but not to outputs or targets.
338. As far as a trend can be discerned from the replies it seems to indicate movement towards full cost and
(sometimes) accrual accounting at least at corporate level as well as the introduction of management systems that
allow for flexible allocation of costs to activities.
339. Productivity measures applied in tax administrations normally defines output as some kind of physical
quantity. Efficiency measures where output is defined in monetary terms are less usual. This applies in particular to
total revenue, as this is seen as being too much influenced by factors out of the tax administrations control to be of
any use for management purposes. On the other hand, additional revenue resulting from different types of
enforcement activities is seen as a key output measure by most administrations. In tax administrations where the
management plan defines output targets, these targets often replace cost efficiency as benchmark.
4.2.3 Measures of Quality and Taxpayer Attitudes
340. As set out in 2.4.1, most countries in this study report measures to ensure or improve quality standards. One
approach to this is to secure quality in terms of high levels of legal accuracy, professional standards in processes,
decisions and other output.
341. Another focus is on service delivery and client satisfaction. Taxpayers views are studied through regular or
ad hoc surveys, often commissioned external, to private or public sector institutes or companies. Almost all the
countries report that they conduct surveys to find out what taxpayers think of the tax administration service delivery
etc. Surveys are in some cases global, in other cases focused on certain target groups, issues or programmes. In some
countries it is up to regional or local offices to carry out surveys. Other ways to investigate stakeholder opinion
represented in this study are to arrange meetings or seminars, e.g. with organisations representing the business
society or with local user groups, to collect complaints in writing or to do exit polls. The main focus of these surveys
seems to be on the tax administrations service delivery, but surveys and other forms of investigation are also used
e.g. as input into compliance research.
342. A third strand is total quality (TQM). A number of countries have reported that quality work is related to
some kind of global assessment criteria, e.g. a national quality award.
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GAP005
Issued: 4 May, 2001
4.2.4 Outcomes, Impacts and the Tax Gap
343. The revenue effects, direct as well as indirect, of enforcement activities are essential as a basis for discussions
regarding priorities within the tax administration as well as for the budget dialogue with the political level. They can
also be used to monitor trends in productivity and quality of tax enforcement. Most countries in this study measure
the direct revenue effects of audits and desk verifications in absolute terms and, in some cases, as percentage of total
revenue. Some countries report that they also measure direct effect in relation to costs incurred, i.e. a kind of
productivity measure, or the percentage of audits etc. where unreported amounts are discovered (which could be seen
as a quality indicator).
344. One country mentions specifically the role of information to and different forms of co-operation with
taxpayers. Good information could make taxpayers report accurately, so as to make assessment and payment of taxes
more correct, and probably increase revenue. Although mentioned specifically only by one of the respondent
countries, the recognition of this fact would seem to be fundamental to all developed tax administrations. Continually
developing taxpayer services using, amongst other things, information technology, is the only way to secure effective
tax collection at an acceptable handling cost.
345. Only a few countries report attempts to measure or estimate the total direct and indirect impact of
enforcement measures or to estimate the gap between the actual revenue yield and the theoretically correct yield. To
close this gap can be seen as the ultimate (if unattainable) goal of tax administrations. It is however difficult to
monitor progress against this objective, since it requires a reliable measure of the hidden (shadow) economy which is
notoriously difficult to find. No country reports regular estimates of the gap as an integrated part of a performance
measurement system. Some administrations have carried out or commissioned special studies, but not in a regular
fashion. Generally, this seems to be regarded as the domain of economic research, with limited practical use for tax
administrations.
4.3 The Swedish Experience

346. In the concluding part of Chapter 3 we discussed some of the problems of implementation of the PMM and its
limits in terms of short term performance monitoring. We also discussed other approaches tried and recent
developments to overcome the obstacles. This section will put our experience in a more generalised context. We
shall begin with the related issues of reliability and validity, i.e. whether the indicators are reliable and really
measure what they claim to measure. After that we will move on to questions about legitimacy and continuity.
Finally we will bring up the broader issue of functionality with respect to the management system as a whole and the
impact of measurement on actual performance.
4.3.1 Reliability and Validity
4.3.1.1 Reliability
347. A system that does not produce reliable data will not pass any other test. The weakest link in the chain is data
input, especially if it involves an element of judgement. Classification is often a problem, and if the grounds for
classification are not clearly defined, data will become less reliable. This problem is aggravated if there is a lack of
feedback. If staff is not properly informed and motivated, they are not likely to take great care in how work hours are
recorded or decisions coded.
348. Although less frequent there are also internal errors or mismatches that occur when data are processed and
transferred and between different systems. Now and then batches go wrong. Errors also occur because changes in the
systems supplying data are not matched by corresponding modifications in the receiving system. It is therefore
important that quality controls are built into the systems and that they are monitored by people who have a thorough
understanding of the system as a whole.
349. To sum up, reliability is a fundamental factor for building and maintaining confidence in the performance
measurement system. It is therefore imperative that sufficient resources are set aside for monitoring and ensuring the
reliability of the data produced by the system. In our experience this need is often underestimated and while much
52
GAP005
Issued: 4 May, 2001
effort is put into developing the measurement system insufficient resources are often allocated to its operation and
maintenance.
4.3.1.2 Validity
350. To ensure validity, measures should reflect the basic performance criteria as closely as possible. This often
turns out to be difficult because data are not available. To make performance criteria operational, therefore,
indicators or proxy measures are needed. In the words of Bouckhaert (1993), inputs or activities become indicators
for outputs, and outputs are used as indicators for effects or impacts.
351. Even if such compromises are unavoidable, it is important that a set of measures is not simply composed from
whatever data are available. When the Performance Measurement Model (PMM) was developed, the current supply
of data did not restrict the design of performance indicators. Consequently, when the system was launched there were
many indicators that could not be calculated because the production systems could not yet provide the necessary
data. It was hoped that this problem would correct itself as existing production systems were modified and new ones
developed.
352. Validity thus suffers from a lack of data. But sometimes the problem is not to find data but to select the right
measures to describe a complex reality. When measuring productivity, for example, a limited number of outputs
must be chosen to represent total output. The number of taxpayers and the total number of tax returns or tax bills are
common measures of output. In the Swedish Tax Administrations the number of audits and altered tax returns are
also included in total output. It can be argued, however, that, since the purpose of audits is to verify information, an
increase in audits should be regarded as an enhancement of quality rather than as an increase in output.
353. A greater problem is that many output measures will be affected by changes in work processes that occur over
time. Some of these changes are true rationalisations and should show up as improved productivity while other
changes are carried out for other reasons. The following example will illustrate this. In 1995 the introduction of a
simplified income tax return reduced the processing costs and productivity improved. At the same time the standard
accounting period for VAT-returns was reduced from two months to one and the number of returns doubled. Since
the cost of handling this increased workload did not increase to the same extent, this did also count as improved
productivity. It can be argued, however, that only the first change caused a true efficiency gain, since the second
change actually increased costs (marginally) while leaving the number of taxpayers and revenue collected largely
unchanged.
354. To measure quality is also difficult, because many aspects of quality are subjective. One approach, therefore,
is to use surveys to quantify the subjective views of representative samples of taxpayers, staff or other stakeholders.
It should be kept in mind, however, that to get valid results from surveys a great deal of professional expertise is
needed. Our experience is that taxpayer surveys are useful, but expensive, since much time and effort must be
invested in design, analysis and dissemination of results.
355. Another approach is to measure quality against explicit service standards, e.g. a target number of days to
process an application, the percentage of incoming phone calls lost etc.
356. Finally there is the broader issue of effectiveness, which we have defined as outcomes or impacts related to
objectives. It is easy to measure outcomes in terms of revenue, but to assess performance, revenue must be related to
a relevant objective or benchmark. Usually, growth or decline in revenue will depend more on changes in the tax law
and economic growth than on the performance of the tax administration. For this reason revenue is not used as a
performance indicator in the Swedish Tax Administration.
357. Impact on taxpayer compliance is even more difficult to assess. First, the level of compliance is largely
unknown. Second, even if it were known, it is very difficult to separate the tax administrations impact on
compliance from other influences. To deal with this problem a programme theory must be established. Impacts will
then be judged on the basis of indicators assumed to be linked to these (desired) impacts. Measures based on a good
programme theory should improve validity, but there is always the risk that the programme theory is based on
mistaken assumptions.
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Issued: 4 May, 2001
358. A final point regarding validity is that productivity, quality and effectiveness, as they are defined here, do not
cover all relevant aspects of performance. A manager should not only be judged on what has been accomplished in
the organisation, but also on how well it has maintained or developed it resources to be prepared for future
challenges. In the short run, productivity can be increased if resources are not set aside for investments in training
and development of new work processes etc. This consideration is one reason for the development of a balanced
scorecard, which includes these aspects.
4.3.2 Functionality
359. Performance measurement is primarily a means for the "owner" (i.e. the government) and management in
steering the organization to achieve its objectives. The PMM was first and foremost developed with a view to
improve the dialogue between the Ministry of Finance and the National Tax Board concerning the results of the Tax
Administration. It was however also intended as an instrument in the hands of the National Tax Board to assess the
performance of the Regional Tax Authorities.
4.3.2.1 Accountability
360. The so-called performance dialogue between the Minister and the National Tax Board is very much focused
on control and accountability to ensure that the objectives set out in the Governments approval document are
realised. These objectives are stated in quite general terms, however, and the Director General of the National Tax
Board is not under any contractual obligation to deliver performance according to ex ante targets. The same applies
to the regional tax directors vis--vis the National Tax Board. Consequently, there is no predetermined rewards or
sanctions.
361. The philosophical ground for this soft approach is the fact that the system primarily contains performance
indicators rather than real measures. To link targets to indicators that are just substitutes for measures of real
performance creates a risk of throwing activities off track. The experience so far of setting targets such as a certain
revenue return on auditing activities has raised many doubts, since it will make auditors less inclined to act
proactively to prevent errors in the first place. It will also affect the selection of audit targets with a view to achieve
the best possible statistics rather than to create maximum deterrence.
362. Instead, the idea is to develop a broad view of performance that can be related to previous years or - in the
case of regional authorities - to other authorities in the same year.
363. The absence of predetermined rewards and sanctions may blunt the impact of performance comparisons. The
important thing, however, is that principals (here, the Ministry of Finance or the National Tax Board) publicly
recognize good and react to poor performance by their agents (here, the Board or the regional tax authorities).
Therefore the system must be transparent and performance data for all units should be available to managers across
the organisation.
364. It should also be pointed out that rewards and sanctions are not simply a matter of peer pressure. Although
there is no official system of performance related pay, managers as well as other staff are in fact appraised in
connection with the salary negotiations. In the case of managers, performance data will play an important role in
assessing their performance. If a region does not perform well over some length of time and no good reason can be
offered it is very likely that the manager will not get another 5-year term when the present term expires or will have
to resign before the end of his or her term.
4.3.2.2 Guidance in budget decisions
365. In the discussion on rewards and sanctions, ideas about making budget allocation dependent on performance
have been floated. However, these ideas have been rejected on the ground that poor performance is seldom corrected
by starving the tax authority in question of resources to remedy the problem. Budget allocations have to be decided
on the basis of workload, not performance.
366. A good measurement system will, however, shed light on the workload. If it can be shown that poor
performance in a certain area is caused by lack of funding due to factors that the current allocation model does not
take into account, this may be a reason for adjustment.
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GAP005
Issued: 4 May, 2001
367. For the tax administration as a whole, an examination of performance data may show that productivity gains
have been accomplished at the cost of quality and effectiveness, e.g. that the tax administration does indeed process a
greater number of returns at lower costs, but this is at the expense of fewer or less effective audits or less service to
taxpayers. This may be taken as supporting evidence for an increase in funding. Facts may of course also be turned
the other way.
4.3.2.3 Process development
368. The new performance measurement system opens up new possibilities for bench marking. If two comparable
regions, or better, two offices find that performance data are greatly diverging, this is evidence that they do things
differently and that at least one of the two offices has something to gain from sharing experiences.
369. The idea was for the PMM to promote spontaneous bench marking, but experience points to the fact that
superior levels - regional headquarters or the National Tax Board - have to promote this more actively.
370. Currently, though, there is a program for promoting quality work in the tax administration. The aim is to
encourage continual improvement and an active use of performance data can serve as a basis for such work.
371. Large scale re-engineering also needs a factual basis and, at least at the stage of feasibility studies, the
measurement system can offer much information.
4.3.2.4 Performance Monitoring
372. The most immediate need of managers is for information to monitor budgets and the activities in his or her
organisation. The PMM was not conceived to satisfy this need, but the data warehouse created to support the PMM
has became a comprehensive source of performance data.
373. Of course the information needs for dialogue about accountability, process development and monitoring of
current activities overlap to a considerably degree. But where accountability and process development is largely
based on ratios that allow comparisons between units or years, monitoring at operational units has much to do with
operational plans, especially short term targets with respect to time limits. Total volumes are often of greater interest
than ratios etc.
374. Performance monitoring by higher levels of management, of course, will have to rely on either aggregate
numbers or key indicators selected to reflect priorities in the current year but not necessarily covering all aspects of
performance. It is primarily this need that the balanced scorecard has been presented to satisfy.
4.3.2.5 Perverse Effects
375. Functionality of the measurement system, in the broad sense, has to do with whether it in fact promotes
performance or whether it has dysfunctional effects. In the best case it will help owner and managers to make wellinformed decisions and motivate workers and direct their efforts in the right direction. In the worst case measurement
will have perverse effects on performance.
376. Perverse effects are likely to occur if there is a lack of validity because indicators are used instead of direct
measures. If managers and staff are primarily motivated to achieve good statistics this may not always encourage
good performance in the real sense.
377. As mentioned above, there is plenty of anecdotal evidence of such perverse behaviour on the part of
individual tax officers and sometimes units. Examples include cases where tax officers refrain from informing
taxpayers in advance in order to be able to correct errors that produce good statistics. Such cases are rare however. A
more serious form of dysfunctionality occurs when general priorities regarding auditing targets are based on
statistical considerations (to increase the number of alterations or the number audits) rather than on fashioning the
audit strategy so as to provide the highest degree of deterrence.
378. In the end much of this boils down to the quality of managers themselves. There is no room for managers that
use the measurement system as a scapegoat for making unwise decisions. Performance measurement will demand
more not less of managers. Managers must have a very acute understanding of real performance (according the
55
GAP005
Issued: 4 May, 2001
performance criteria) and act on that knowledge even in cases where it may come in conflict with a performance
indicator.
4.3.3 Legitimacy
379. There is a strong legalistic tradition in the Swedish Tax Administration, but in recent decades the culture has
become more technocratic and management oriented. In this environment performance measurement has become a
well-established and accepted practice. Outright comparison between regions, offices and units was a first more
difficult to embrace but such comparisons have now become routine.
380. The internal debate has not circled around performance measurement per se, but mainly around the reliability
and validity of indicators and measures as well as the general functionality of the measurement system. A typical
response to bad figures is to look for statistical errors. Indicators are also often criticised for failing to take account of
special circumstances in different regions or for being easy to manipulate.
381. This reflects an undercurrent of scepticism among some staff about the feasibility of performance
measurement, which often surfaces as fears about the possible perverse effects of measurement. These fears are
based on the observation that measurement sometimes makes managers and staff more interested in attaining good
statistics than good results in a genuine sense. The abundance of anecdotes about actual or possible ways of getting
good statistics without achieving good results would suggest that such fears are shared by many people. There is,
however, little real evidence of widespread dysfunctional practices that would be a response to performance
measurement.
4.3.4 Continuity
382. Performance management requires continuity. On the basic level this means that measures must remain stable
over time to allow time series. On the whole the Swedish Tax Administration has lived up to this requirement. In the
annual report tables show the development of productivity and other essential performance indicators over a period
of many years.
383. At the management system level, however, many changes have taken place that has affected the whole
management process (see sections 2.2.3 and 3.4.4). In connection with these changes a number of new management
tools have been brought in. This has also affected the measurement system. In some ways there has been a loss of
continuity that has delayed the development of a workable system. On the other hand the experience gained is likely
to put the system that now is emerging on a more solid footing.
4.3.5 The future of performance measurement
384. In the Swedish Tax Administration the development of a performance measurement system that meet high
standards has been a long and arduous process. The main problem has been to establish valid output and
outcome/impact measures. This is not primarily a conceptual problem but a practical one. There is no reliable way to
measure the assessment error. The best we can hope for is to combine a number of analytical approaches and then
make an estimate, which seems most consistent with the facts available. Another way forward is to concentrate on
partial analyses of specific taxes or sectors of the economy, which may yield more reliable and useful figures.
385. One way forward, therefore, is to separate the need for measures to monitor the implementation of plans in the
short term from the need to find ways to gauge progress with respect to long term strategic objectives (i.e. to reduce
the tax gap, improve productivity, quality etc.).
386. What is required to meet the needs of interim performance monitoring depends on what activities and targets
are contained in the current management plan. Such targets may well vary from year to year depending on shifting
management priorities. Some may refer to outputs others to the development of productive resources (staff,
information technology, business processes and organisation). Targets that are to be attained by a certain date should
be measurable, preferably in such a way that progress towards this target can be monitored and corrective action be
taken if implementation runs off course.
56
GAP005
Issued: 4 May, 2001
387. Progress towards the long-term strategic objectives, on the other hand, can only in part be monitored by
indicators available in a management information system. Instead those responsible for the programme must rely on
analysis of information pieced together from a number of studies and evaluations carried out over multi-year cycle.
Such information will also serve as a basis for re-examining the rationale (or programme theory) that underlies
previous and current management plans.
388. It is therefore our belief that future development of performance measurement must follow a dual track. On
the one hand efforts must be made to produce timely and reliable indicators to monitor the implementation of
management plans at different levels of the organisation. This means upgrading the management information
systems and the analytical skills of those responsible for producing interim and annual reports. On the other hand the
tax administration must develop its capacity to carry out studies and evaluations of outcomes, impacts and costeffectiveness with respect to the long term overriding goals. Such evaluations will serve the both purpose of
improving existing programmes and the purpose of re-examine the effectiveness of these programmes
Guidance
1.
Revenue authorities are encouraged to utilise performance measurement approaches in their

administration.
2.
Revenue authorities are encouraged to share details of their performance measurement approaches and
results with other Revenue authorities to assist in the identification of best practices.
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GAP005
Issued: 4 May, 2001
REFERENCES
BOUCKAERT, GEERT (1993), Measurement and Meaningful Management, Public Productivity and Management
Review, vol XVII, no 1, Fall 1993,
EUROPEAN COMMISSION (1997), Evaluating EU Expenditure Programs: A Guide, Ex post and Intermediate
Evaluation
ESO (EXPERTGRUPPEN FR STUDIER I OFFENTLIG EKONOMI) (1994), Den offentliga sektorns
produktivitetsutveckling 1980-1992, Ds 1994:71
KAPLAN, R. S., and NORTON, D. P. (1996), The Balanced Scorecard, Harvard Business School Press
MALMER, H, PERSSON, A, and TENGBLAD, , (1994), rhundradets skattereform: Effekter p skattesystemets
driftskostnader, skatteplanering och skattefusk, Fritzes
OECD (1994), Performance Management in Government: Performance Measurement and Results-oriented
Management, Public Management Occasional Papers No. 3, Paris
OECD (1995), Governance in Transition: Public Management Reforms in OECD Countries, Paris
OLSSON, G. (1996), A Model for Performance Measurement in the Swedish Tax Administration, New Trends in
Public Administration and Public Law, European Group of Public Administration (EGPA), Yearbook,
Annual Conference, Budapest 1996.
RIKSREVISIONSVERKET (1996), Balanced score card i myndigheterna frbttrad resultatinformation fr
intern styrning
RIKSSKATTEVERKET (1999), Skattestatistisk rsbok (Tax Statistical Yearbook of Sweden), Bors
STATSKONTORET (1985), Statlig tjnsteproduktion: Prodktivitetsutvecklingen 1960-1980, Rapport 1985:15
SWEDISH NATIONAL AUDIT OFFICE (1998), Illicit work in Sweden a report on a welfare state dilemma, RRV
1998:61
58
GAP005
Issued: 4 May, 2001
Stockholm, 16 September 1998

Ministry of Finance
Fiscal Affairs Division
APPENDIX: QUESTIONNAIRE TO TAX ADMINISTRATIONS IN OECD

COUNTRIES
Performance Measurement in Tax Administrations
Dear Sir/Madam,
The Swedish Ministry of Finance has been asked by the OECD Commit-tee on Fiscal Affairs to
coordinate the drafting of a paper on Performance Measurement in Tax Administrations, to be
discussed and adopted by the Committee. The work is carried out by Director Gunnar Olsson,
head of the Research Unit of the Swedish National Tax Board, and Deputy Director Frank
Walterson from my own staff. They are aiming at presenting a first draft version in time to allow
circulation before the 1999 summer meeting of the Committee.
Basically, the paper will consist of two parts - one containing a brief over-view and comparison
of approaches to measurement in different Member States and one containing a more detailed
account for the Swedish model.
Therefore, we kindly ask you to provide us with some information about the application and use
of performance measurement in your Tax Administration. More specifically, we would like to
know the following.
Input, output and outcome measures
1. Do the cost measures used in performance measurement include all kinds of costs (salaries,
accommodation, IT-systems, travel, postage etc.)?
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GAP005
Issued: 4 May, 2001
2. Do you have time reporting systems to measure the total number of work hours divided up into
different functions, processes, organisational units or the like? If not, how do you measure input
in manpower terms?
3. What are the key throughput and output measures (tax returns, audits etc.)?
4. How do you measure or estimate the revenue effects of tax control (desk and field auditing)?
5. Do you regularly seek to estimate the total gap between actual revenue and the theoretically
correct yield (compliance measurement)? If yes, what methods are used (e.g. audit based studies,
changes in tax return items, financial data). Are such estimates integrated as parts of a
performance measurement system?
The issues of quality and tax payer attitudes
5. Most tax administrations have found that performance measurement cannot rely solely om
quantitative measures, but also has to take into ac-count quality aspects of their operations. What
is your approach to quality assessment?
6. Do you carry out regular enquiries to tax payers to find out about their general attitudes and
specific problems related to tax administration work methods and performance?
Productivity or efficiency
7. Does your tax administration report productivity/efficiency changes
- regularly (e.g. in the annual report)?
- only when requested?
8. What input and output measures are applied?
The role of performance measurement in the management system
9. Do you select key indicators to set measurable targets? If so, what are they?
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GAP005
Issued: 4 May, 2001
10. What are the procedures for performance reporting at top management level? How often are
reports submitted to top managers (annually, quarterly, every six months, monthly)?
11. Is there a link between performance and resource allocation (or other rewards/sanctions)?
12. In what way is the political level involved in designing the measure-ment system, setting
targets and evaluating performance?
Use of information technology
13. Have specific information systems been designed to serve performance measurement?
To be able to circulate a draft for comments well in time before the meeting of the Committee on
Fiscal Affairs we need your replies by 16 November at the latest. In order to minimise the risk of
misinterpretation we kindly ask you to reply in English, German or French (besides, of course,
Danish, Norwegian or Swedish, if preferred by the Nordic countries).
Please send your reply to Frank Walterson, either by mail (Ministry of Finance, S-103 33
Stockholm, Sweden) or by fax (+46-8-405 14 66). If any questions arise regarding the
questionnaire, please contact Frank Walterson , phone +46-8-405 23 37, or Gunnar Olsson, phone
+46-8-764 83 23.
Yours sincerely
Johan Salsbck
Director General
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Issued: 4 May, 2001
History
1998: Early in 1998, it was agreed that Sweden would draft a report on Performance Measurement in Tax
Administrations to be presented to the OECD Forum for Strategic Management. The work was to be carried out by
Mr. Gunnar Olsson, head of the National Tax Boards Research Unit, and Mr. Frank Walterson, Deputy Director of
the Finance Ministrys Unit for Tax Administration and Personal Income tax.
As it was not possible, within the framework of this study, to describe in any detail the practices in all member
countries, it was decided the key elements of the report would be a brief survey of member country practices and a
case study of Swedish experience in the area. A questionnaire was sent to all member country tax administrations in
September 1998 and a compilation of the answers was circulated for comments early 1999.
June 1999: A first draft of the report, where account was taken of comments received from member countries was
submitted to the Forum in June 1999 and it was posted on the Forums Electronic Discussion Group. At this stage it
was the Forums intention to widen the scope of the report by adding a few more country cases and the Forum took
upon itself the to ask some member countries to provide such cases. No such studies materialised however.
Therefore and given the fact that an overall update of the information from member countries would be excessively
burdensome and only delay the publication of the report further, the report is now put to the Committee for Fiscal
Affairs for approval. The international comparison (Chapter 2) is based on information supplied about two years
ago. However the Swedish case is updated to reflect the situation in October 2000 and information from France
supplied in March 2001 is taken into account in Chapter 2.
The report authors are:
Gunnar Olsson
Frank Walterson
gunnar.olsson@rsv.rsv.se
frank.walterson@finance.ministry.se
December 2000: At its meeting in December 2000 the FSM Steering group agreed to the tax administration papers
series being made available as public documents. This was endorsed by the CFA at their meeting in January 2001.
May 2001: The revised note is published as part of the Tax Guidance Series from the Centre for Tax Policy and
Administration.
Compatibility
The principles in this document are compatible with those contained in:
GAP001 Principles of Good Tax Administration

Centre for Tax Policy and Administration, OECD 2001
Performance Management in Government
Public Management Occasional Papers No. 3, OECD 1994
Governance in Transition: Public Management Reforms in OECD Countries
OECD 1995
Handbook for Tax Administrations, Chapter 5
Inter-American Center of Tax Administrations/ Centro Interamericano de Administraciones Tributarias (CIAT) 2000
[Ministry of Finance, The Netherlands]
Contact
For further information please contact Mr Stuart Hamilton, Centre for Tax Policy and Administration,
Tel 33 1 45 24 94 63, Fax 33 1 44 30 63 51
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GAP005

Issued: 4 May, 2001

Centre for Tax Policy and Administration

Performance Measurement in Tax Administrations

Ptd: 24 September, 2001

Performance Measurement in Tax Administrations Practice Note

Ptd: 24 September, 2001

Performance Measurement in Tax Administrations Practice Note

International comparisons (Chapter 2)

Ptd: 24 September, 2001

Ptd: 24 September, 2001

The Swedish Case (Chapter 3)

Ptd: 24 September, 2001

Ptd: 24 September, 2001

1.1 Public Management Reform

Ptd: 24 September, 2001

1.2 Performance Measurement

OECD, Governance in Transition - Public Management Reforms in OECD Countries, 1995

Ptd: 24 September, 2001

Ptd: 24 September, 2001

1.3 A Note on Terminology

Ptd: 24 September, 2001

1.4 General Outline of Chapters 2 and 3

Ptd: 24 September, 2001

2. PERFORMANCE MEASUREMENT IN TAX ADMINISTRATIONS IN

2.2 The Management Context

Ptd: 24 September, 2001

Ptd: 24 September, 2001

Ptd: 24 September, 2001

Ptd: 24 September, 2001

Ptd: 24 September, 2001

2.3 Measures of Input, Output, Outcomes and Productivity

Ptd: 24 September, 2001

Ptd: 24 September, 2001

Ptd: 24 September, 2001

Ptd: 24 September, 2001

2.4 Measures of Quality and Taxpayer Attitudes

Ptd: 24 September, 2001

Ptd: 24 September, 2001

2.5 Outcomes, Impacts and the Tax Gap

Ptd: 24 September, 2001

Ptd: 24 September, 2001

Ptd: 24 September, 2001

3. PERFORMANCE MEASUREMENT IN THE SWEDISH TAX

3.2 Institutional Context

Ptd: 24 September, 2001

Basic features of the new process were the introduction of:

Ptd: 24 September, 2001

The National Tax

(with about 80 local

(with about 120 local

Ptd: 24 September, 2001

A model for budget allocation

Ptd: 24 September, 2001

3.3 A Performance Measurement Model (PMM)

Ptd: 24 September, 2001

Ptd: 24 September, 2001

Theoretical Tax Revenue = 100 %

Assessment Error = about 8 %

Administration Costs = 0,5 %

3.3.3.1 Strategy, Performance Criteria and Performance Indicators

Ptd: 24 September, 2001