1. A MODERN TAX SYSTEM FOR
THE REPUBLIC OF MOLDOVA
MODERNIZING PUBLIC FINANCES
Dr. Markus Mitzkat
GBS Public Sector Central Eastern Europe & GBS Country Leader Romania
Chisinau, 18 May, 2011

2. AGENDA
 Current Challenges in Public Finance/Tax
 Alternative Solutions in the Market
 Engaging and Addressing the Challenge
 An Approach to Transformation in Public Finances/Tax
1 © 2011 IBM Corporation

3. CURRENT CHALENGES
Governments face a tax gap, ranging from 5% to 40% of revenues
“… the tax error caused by evasion in
Sweden at 5% in 1997 and 4% in 2000 …” “No one knows quite how much VAT
the European Union loses to fraud,
Swedish Tax Agency
… estimates say B€100 a year.”
The Economist
“… the tax gap (in
Pakistan) has increased
from B$10.1 in 1982
The gross tax gap to B$579.6 in 2004.”
was estimated to
Georgia State
be B$345 in 2001 University study
U.S. Department
of Treasury
“… the total tax-gap is of the order of
6.4% to 10.2% of total tax liability…”
David Giles, University of Victoria
© 2011 IBM Corporation

4. CURRENT CHALENGES
Tax implementation impacts everyone and reflects the values of society
 Law enforcement & public order
 Defense
 Property protection
WHAT ARE TAXES  Economic infrastructure & development
USED FOR…
 Public/social/welfare services
 Public utilities/transportation
 Government operation
 Reflecting communal values
WHAT IS REFLECTED
 Choice regarding who is to take the tax burden and how
IN THE TAX SYETEM… taxes will be spend
‣ Revenue, Redistribution, Repricing, and Representation
3 © 2011 IBM Corporation

5. CURRENT CHALENGES
Three domains drive the need for change in Public Finances
‣ Traditional tax gaps: Non-filers,
Non-payers, Under reporters Using new compliance analytics
COMPLIANCE ‣ Cross border/tax haven issues solutions, New York State
and money laundering avoided bad refunded payouts
Additional tax revenue of M$600 in 4 years using IBM’s
‣ Effective use of third party data “Tax Audit Compliance System”
‣ Anticipating compliance trends
‣ Serving taxpayers based on full
knowledge of their account Catalonia/Spain uses IBM’s
SERVICE ‣ Taxpayers expectations of service single view capabilities to
levels increasing: Real time consolidate data from multiple
Single taxpayer view – transactions, Full account view, data bases, presented to
increased transparency Ability to manage account on-line taxpayers through
a web portal
‣ Effective management of multiple
service channels
‣ Modernizing a tax administration is
like changing the engine on a plane IBM designed and built the
MODERNIZATION while flying – you can’t stop the tax Australian portal through which
administration while modernizing it financial filings for multiple
Process standardization
‣ Extensibility & flexibility: agencies, including the tax
& cost efficiency agency, will be received
technological concepts like SOA/
COTS based solutions
4 © 2011 IBM Corporation

6. AGENDA
 Current Challenges in Public Finance/Tax
 Alternative Solutions in the Market
 Engaging and Addressing the Challenge
 An Approach to Transformation in Public Finances/Tax
5 © 2011 IBM Corporation

7. ALTERNATIVE SOLUTIONS
Custom developed solutions are more and more replaced by packages
CUSTOM ADAPTABLE & FIXED
DEVELOPED STANDARDIZED PACKAGED
SOLUTION SOLUTION SOLUTION
COTS
Tailor made Commercial of the shelve Black Box
SAP, Oracle, etc. Gentax, ECS , etc.
‣ Market demand is moving away from “custom developed”
and “black-box”, towards COTS solutions
© 2011 IBM Corporation

8. ALTERNATIVE SOLUTIONS
“COTS” solutions have advantages over any of the other solutions
STANDARD  proven industry standard in Public sector
BASED  multiple references available
incl. OPEN STANDARD  support Government Transformation
eGOVERNMENT based on open Business Process Platform
COST
EFFICIENCY
OFF-THE-SHELF  SOA enabled, integrated and configurable
& CUSTOMIZEABLE to directly address tax agency pain points
TIME-TO-MARKET
COTS  Adaptable and extendable to future needs
SOLUTION
MAINTENANCE
BUSINESS  provide a Business Intelligence platform
to identify fraud, manage compliance, risk
INTELLIGENCE and optimize an organization’s
CAPABILITIES performance FLEXIBILITY
ADAPTABILITY
END-TO-END  offer a complete end-to-end enterprise
SOLUTION support based on standard upgradeable
COTS tax and revenue solution
& PROCESSES
7 © 2011 IBM Corporation

9. ALTERNATIVE SOLUTIONS
Major IBM tax implementation projects reflect the trend towards “COTS”
Custom Developed Adaptable & Standardized Fixed Solution
Solution Packaged Solution Package
Luxembourg
Netherlands
Slovenia Denmark
Czech State of Trinidad
Republic Florida & Tobago
State of
Costa Rica
New York Queensland
State
Slovakia
Tailor made COTS “Black-box”
8 © 2011 IBM Corporation

10. ALTERNATIVE SOLUTIONS
Typical full-scale tax and revenue management solution – Example
9 © 2011 IBM Corporation

11. AGENDA
 Current Challenges in Public Finance/Tax
 Alternative Solutions in the Market
 Engaging and Addressing the Challenge
 An Approach to Transformation in Public Finances/Tax
10 © 2011 IBM Corporation

12. ENGAGING AND ADDRESSING THE CHALLENGES
Client are typically facing similar challenges when getting started
Decentralized databases Various analytical 360° view on taxpayers
to be consolidated applications not very receivables/payables not
sophisticated/integrated available
 low data quality  Low level of analytical  Information on taxpayers
support for tax auditors distributed across systems
 duplicates
and departments
 no ability to consolidate
Too many core Time-consuming Difficult
applications in point-to- manual work communication, no
point, no integration automation, no
collaboration platform
 different technologies, no  Tax administrators
innovation overloaded, low level of  mostly done in a written/
workflow deployed letter form lack of
 very difficult and expensive
to maintain and develop  Business processes not interactive communication
standardized within one
core tax solution
 Incorrect data entered into
system
11 © 2011 IBM Corporation

13. ENGAGING AND ADDRESSING THE CHALLENGES
Alternative starting points in modernizing public finances
SCOPE
IMPACT
COMPLEXITY
Treasury & Tax
Standard-based
packaged Solution
(SAP, ORACLE)
eTax
Standard-based
packaged Solution
(SAP, ORACLE)
Tax Audit and
Compliance
Solution
(TACS)
TIME
COST
CHANGE
12 © 2011 IBM Corporation

14. ENGAGING AND ADDRESSING THE CHALLENGES
TACS is a very effective solution which can help fund additional activities
TACS – Tax Audit and Compliance System
 advanced analytics to detect taxpayers who show “suspicious” behavior
 auditor/collector-centric application suite going well beyond existing methods of tracking
tax compliance with
— configurable to meet particular compliance needs, sophisticated identification and
selection methods including predictive modeling for early detection, etc.
— business rules controlled and maintained by the business
 does not require advanced statistical skills to be use and it gives auditors the power to
experiment
 does not require a data warehouse or any underlying operational application, but can
simply be installed as an independent layer or provided rapidly as a cloud solution/SaaS
 Has several patents for the technologies/algorithms used which underline its uniqueness
‣ TACS can be used to generate financial sources from realized savings
which can then be invested into building a new core operational system
13 © 2011 IBM Corporation

15. AGENDA
 Current Challenges in Public Finance/Tax
 Alternative Solutions in the Market
 Engaging and Addressing the Challenge
 An Approach to Transformation in Public Finances/Tax
14 © 2011 IBM Corporation

16. TRANSFORMATION APPROACH
Such projects include much more than just implementing an IT system
SKILL & SKILL
ASSETS
TRANSFER
TAX PAYER EMPLOYEES
IT SYSTEM
CONTEXT &
INFORMATION
PARTNER
PROCESSES & CHANGE
STANDARDS MANAGEMENT
15 © 2011 IBM Corporation

17. TRANSFORMATION APPROACH
Where do you stand today – Checklist to assess the status quo?
The taxpayer can build his/her own economic activity with minimal thought of or
interaction with the tax agencies 
The revenue collecting/tax agency proactively sends the complete pre-filled tax form for
approval ☐
Policy changes are implemented in a “few clicks” ☐
The tax agency delivers an integrated one stop service 
The tax agency is not the heart of tax collection, but the heart is the network of tax
agencies and other revenue collecting bodies 
The tax agency has a complete view of their citizens/businesses data, anywhere and
anytime taking into account privacy and security regulations ☐
The tax agency has a good forecasting in detail of the incoming revenue of the coming
year, 
Collaborative/cooperative information sharing across the value chain 
The tax agency informs citizen/businesses proactively of being non-compliant in one/
more areas ☐
There is a common, global infrastructure in place which offers access to anyone to any
agency 
© 2011 IBM Corporation

18. TRANSFORMATION APPROACH
Finally, five Take Aways…
 Implementing an up-to-date tax system is a matter of credibility
and will support collecting taxes while serving citizens effectively
 Customizable packaged solutions are available, which can be adjusted and
further developed, yet do not have to be custom developed from scratch
 IBM has a solution to identify fraud management (TACS), which can be
made available rapidly and may help funding a core operational system
 Introducing a modern tax system is not only about implementing
an IT solution, but represents a significant transformational effort
 IBM has wide experience – in Central Eastern Europe and beyond – and is
ready to partner with the Republic of Moldova to modernize its Public
Finances
17 © 2011 IBM Corporation

19. Dr. Markus Mitzkat
Public Sector CEE &
Country Leader Romania
IBM Global Business Services
Cell +420.733 149 489
E-Mail markusmitzkat@cz.ibm.com
18 © 2011 IBM Corporation