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Administración Tributaria 3.0

Tax Administration 3.0: IDB open-source software leverages digital accounting data to facilitate and increase compliance

February 20, 2023 by Monica Calijuri - Andrés Muñoz - Juliano Brito da Justa Neves - Gustavo Henrique de Britto Figueiredo 1 Comment


Digital transformation is changing how government agencies relate to citizens, allowing them to meet their constituents’ needs faster, fairer, and more transparently. One promising area for governments is the creation of Tax Administrations 3.0 by using digital technologies to provide a more seamless and frictionless service for citizens and firms[1].

Tax administrations (TA) have usually been at the forefront of digital transformation in several countries. For example, almost all TAs in the Americas already receive 100% of their tax returns online, many already have electronic invoicing, and some even have introduced electronic payroll.

However, to reach the next level of digitization, known as Tax Administration 3.0, TAs must further capitalize on data and automation to improve their services and processes. In this sense, digitally collecting accounting information from companies is crucial to enable TAs to better measure business activities, such as operations, financing, investments, the performance of companies, and their contractual relationships.

These key factors can impact profitability and the types of taxes firms pay to governments. High-quality data can pave the way for gaining better insights and facilitate the TA’s job of ensuring that companies pay what they owe. Furthermore, it can also help improve the service TAs provide for companies. By accessing accounting data digitally, TAs can move forward with the implementation of pre-filled Corporate Income Tax declaration, which will help firms file their taxes faster and more accurately, reducing their compliance costs.

To support TAs on this front, the Inter-American Development Bank (IDB) has developed an open-source software called CACAO, to digitally capture accounting data and generate the intelligence necessary to improve compliance.

What is CACAO?

CACAO stands for Accounting and Organizational Data Storage and Consultation System. It[1] is a fully flagged system for receiving, storing, and analyzing accounting data, with a web interface and computer-to-computer APIs (Application Programming Interfaces).  

CACAO allows taxpayers to send their accounting data, such as the chart of accounts, opening balances, journals, and ledgers to the TAs, using different formats (for instance, XLS, JSON, CSV). It facilitates tax compliance for taxpayers quickly and safely, eliminating the use of paper and without any additional cost for users.

Once the data is submitted to CACAO, it undergoes a validation process to check its integrity against the TA’s rules and templates and, once validated, the data is made available for analysis by the TA officers.

For instance, CACAO provides from the get-go operational functionalities for managing system users, reviewing uploaded data and accessing taxpayer registry. It also allows the creation of custom-made document templates and domain tables (Figure 1).

Figure 1: An Overview of CACAO’s Main Functionalities

An Overview of CACAO’s Main Functionalities

All source code from CACAO is open software, available for member countries to study or inspect, and developed with scalability and security as priorities. CACAO can help quick-start the adoption of electronic accounting data by tax administrations in IDB member countries either by being a production-ready software for those countries that desire a turn-key solution or by providing a case study for the improvement of existing solutions.

CACAO’s Data Analytics

As for analytical functionalities, the solution offers some of the most important ones for TA officers, including an overview of the taxpayer’s operations, accounting data inspection and validations, like the vertical and horizontal analysis and the Income Statement Analysis.

Moreover, CACAO is equipped with a complete data visualization and dashboard creation tool, which allows TAs to build new and specific visualizations of all data stored in CACAO. One example is the accounting flows diagram that shows how the resources from a given taxpayer move from each account, as seen in the Figure 2 below.

Figure 2: Accounting Flows Chart

Accounting Flows Chart

Such accounting flow charts allow TAs to track the financial flow (depicted in Figure 2 as arrows) for every aspect of a company’s business activity, such as the income subject to taxation, expenses that deduct the tax calculation, payment of salaries to employees, etc. It allows tax officers to easily review accounting operations registered on the general ledger to identify possible incorrect, or event fraudulent, operations. More specifically, the arrows allow tax officers to quickly and easily visualize values transferred from two different accounts that should not interact with each other directly.

Accounting data can be analyzed for each taxpayer, or for a group of taxpayers that share common features, allowing TA to detect or flag outliers for closer inspection, as seen in the Figure 3 below.

Figure 3: Detecting Accounting Data Outliers

Detecting Accounting Data Outliers

To sum up, CACAO is an open-source software that allows tax administrations to speed up the adoption and analysis of digital accounting data, supporting capacity-building initiatives and advancing digitalization efforts by governments as they move towards the creation of Tax Administrations 3.0 to better serve society.  The Fiscal Management Division is working with tax administrations in Latin America and the Caribbean to help implement this solution.

Watch CACAO’s video

Check out https://cacao.iadb.org/ to learn more about CACAO.

Learn more about the IDB’s work with tax administrations.

Other related blogs

Digital Maturity Index: How to measure digital transformation progress in tax administrations


[1] OECD, 2020. https://www.oecd.org/tax/forum-on-tax-administration/publications-and-products/tax-administration-3-0-the-digital-transformation-of-tax-administration.htm


Filed Under: Administración financiera y tributaria, Taxes

Monica Calijuri

Especialista líder en Administración Tributaria en la División de Gestión Fiscal del Banco Interamericano de Desarrollo. Se especializó en la modernización de Administraciones Tributarias en América Latina y el Caribe a través del desarrollo de capacidades y apoyo a la digitalización. Es la autora del libro Gestão Tributaria: uma abordagem multidisciplinar, donde explora una visión holística de la tributación como parte de las operaciones de negocios. Anteriormente trabajó para el gobierno de Brasil y el Fondo Monetario Internacional. Tiene un PhD en Contaduría de la Universidad de São Paulo y una licenciatura en Economía.

Andrés Muñoz

Andrés Muñoz is an economist from the Universidad de los Andes and holds a master's degree and a doctorate in Public Administration from New York University (NYU). He currently works as a Senior Fiscal Specialist in the IDB's Fiscal Management Division, and in the past he served as a researcher and teaching assistant in public finance and democratic governance at NYU, and as a consultant to the United Nations Development Program ( UNDP) and the Bogotá District Finance Secretariat. His areas of expertise include decentralization, local public finance, and financing urban development. He has experience in the design and execution of fiscal and urban development projects in various Latin American countries, and has conducted research on fiscal decentralization, property taxation, equalization transfers, and sub-national capital markets in this region.

Juliano Brito da Justa Neves

Juliano Brito da Justa Neves holds a degree in Computer Engineering, two MBAs, one in Project Management and the other in Public Administration. He holds two master’s degrees, one in Computer Science and the other in Public Finance and Tax and Financial Administration. He is currently pursuing a Doctorate in Public Administration. He has worked as a tax administration consultant for both the International Monetary Fund and the Inter-American Development Bank. He has been a tax auditor for the Brazilian Tax and Customs Administration since 2006, where he currently holds the position of Undersecretary of Corporate Management, overseeing IT, human resources, budget, and logistics operations for the entire organization.

Gustavo Henrique de Britto Figueiredo

Gustavo Henrique de Britto Figueiredo graduated in Electronic Engineering at Instituto Tecnológico da Aeronáutica (ITA), one of Brazil’s top engineering schools. He has worked with software development since 1995 and joined the public career as a tax auditor at Brazil’s federal tax agency (Receita Federal) in 2004, where he has participated in software development and data engineering award-winning projects at the national level. Since 2016, he has participated in the development of big data solutions at Receita Federal and is currently working on the migration to the cloud environment. In recent years, he has also worked as a consultant for the IMF and the IDB.

Reader Interactions

Comments

  1. PMO Global Institute says

    August 2, 2023 at 6:08 am

    Hello! I just finished reading your fascinating blog post on “Tax Administration 3.0: Open-Source Software Leverages Digital Accounting Data,” and I must say, it’s an eye-opening read. Your exploration of how open-source software can revolutionize tax administration and leverage digital accounting data is both informative and thought-provoking.

    The concept of Tax Administration 3.0 and the use of open-source software in this context is truly innovative. Embracing digital accounting data can undoubtedly lead to more efficient and accurate tax collection processes, benefiting both governments and taxpayers.

    Your explanation of how open-source software fosters collaboration and knowledge-sharing among tax administrations is commendable. It’s incredible to see how this approach can result in the development of advanced tools and methodologies that can be adopted globally.

    Moreover, your emphasis on the importance of data security and privacy is crucial. With the increasing reliance on digital data, ensuring the protection of sensitive information is paramount.

    I also appreciated the real-life examples you provided, showcasing how open-source software has already made a positive impact in various countries. These success stories demonstrate the practical applications and potential of Tax Administration 3.0.

    Thank you for sharing this insightful perspective on the future of tax administration. Your article has expanded my understanding of how technology can transform the field and drive more efficient tax collection practices. Keep up the excellent work, and I’m looking forward to reading more thought-provoking articles from you in the future! Well done!
    For more information: https://pmoglobalinstitute.org/pmo-software/

    Reply

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