Developing a feasibility framework based on the characteristics of big data to reduce the taxation gap in South Africa

Abstract

The purpose of this study was to develop a conceptual framework to aid in the reduction of the taxation gap in South Africa (SA) through the use of third-party data and information technology. In order to develop a framework to prevent non-compliance, an understanding was required of the areas that would enable such a framework to be successful. Since governance, risk and compliance (GRC) is an emerging area in the corporate and information technology domain, organisations, including revenue bodies, are confronted with an increased risk and a growing number of regulatory, legal and other compliance requirements. The frame of reference for integrated governance, risk and compliance was used as base to determine the areas that had to be included in the new feasibility framework for the South African Revenue Service (SARS) in order for the framework to enhance compliance. Thus, the frame of reference for integrated governance, risk and compliance provided a contextual understanding of the areas that had to be reviewed in order to ensure that the framework that was developed adhered to all aspects that would make it a suitable and acceptable framework within SARS. Since the new conceptual framework will be used to address compliance and risk management, existing frameworks had to be considered – one in particular, namely the Compliance Risk Management Process as described by the Organisation for Economic Co-operation and Development (OECD). The OECD guidance note outlines compliance risk management as a structured iterative process for the “systematic identification, assessment, ranking, and treatment of tax compliance risks” that will enhance decision-making. This structural process is depicted in the Compliance Risk Management Process which can be used by revenue bodies, including SARS. Thus, once the different areas had been identified, discussed and understood, the existing Compliance Risk Management Process as described by the OECD was discussed to identify how the new conceptual framework that would be developed as part of this study could enhance this existing framework. Finally the framework was developed by making use of an extended literature review on the main characteristics of ‘big data’, which was then tested with the use of two selected case studies and concluded with a comparative analysis of the case studies. Overall, the framework will aid to determine whether it is feasible to continue with a project to use third-party data and information technology to automate the detection and prevention of taxation gaps before spending too many resources without any significant effect on diminishing the taxation gap. It is therefore recommended that SARS implement this new feasibility framework as a pre-check in order to determine whether:  there is third-party data available for a specific type of transaction that will result in the reduction of the taxation gap;  the third-party data is reliable and usable. If not, which changes are required from the third party in order to ensure that it can be linked to specific taxpayers (for example, such as capturing additional data or changing the format of existing data that had been captured in order to ease the extraction process);  any tax acts or legal aspects should be enhanced to ensure all relevant taxpayer information is available from a specific third party; and  both organisations (SARS and the third party) have the relevant information technology to ensure SARS can extract, store and manipulate the data in a timely fashion in order to obtain the maximum effect. In conclusion, a new feasibility framework was developed as part of this study in order to aid SARS with the reduction of the taxation gap by using third-party data and information technology. The purpose of the new feasibility framework is to identify whether there is third-party data available and whether any changes are required to the data in order to provide SARS with a mechanism to link it to specific taxpayers. This will provide SARS with guidance as to the steps that are required in order to automate the process of collecting third-party data through by using information technology. The feasibility framework would also indicate whether it is feasible to continue with such an automation project before exhausting too many resources without any significant effect on reducing the taxation gap.