Strengthening tax compliance by assessing external context and taxpayers’ behaviour

The commission helped the National Revenue Agency (NRA) of Bulgaria understand, forecast, and influence taxpayers’ behaviour alongside the economic, demographic, cultural and other relevant external context in which the Agency operates. The technical support focused on identifying, designing and implementing new statistical and predictive models and tools for the NRA that would estimate the impact of different factors of the external context to the size of the grey economy, and the tax gaps associated with Value-Added Tax (VAT) and Personal Income Tax (PIT).

Context

This project was carried out in the context of an urgent need of the NRA to improve risk management, strengthen tax compliance and ensure sustainability of the public finances. In a situation of sub-optimal revenue collection, the Agency has been recommended several consecutive years under the EU Semester process to maintain the efforts to improve tax collection and take targeted measures to face the challenges to further reduce the size of shadow economy. The COVID-19 pandemic and the following economic crisis brough additional stress to the NRA and put public finances under a significant pressure.

In this view, and despite the achievements and efforts so far, the Agency had a strong need to fill in methodological gaps and build its knowledge and skills in areas such as:

• Implementation of innovative econometric models to understand and influence the external context, including taxpayers’ behaviour in order to achieve more effective and sustainable tax compliance;
• Forecasting future changes in the external environment by using analytical methods and tools to detect future significant risks of non-compliance.

Support delivered

The project was designed in a structured and systematic way, which would make the NRA able to forecast potential changes in the taxpayers’ behaviour and the tax base. The NRA would also be able to understand how and what kind of initiatives would be needed to influence and adjust the taxpayers’ behaviour to be more socio-economic optimal/efficient. The technical support focused on upgrading NRA’s analytic methods and working tools and support an implementation in the NRA’s daily working modalities. 

The project addressed the needs of the NRA by producing the following deliverables:

• Report identifying methodological gaps and tools to improve the non-risk management procedures/assessments;
• Upgraded analytic methods and working tools to understand, forecast and influence;
• Capacity building and a report with an example applying the upgraded analytic methods and working tools for a particular year;
• Communication strategy/plan and presentation for introducing the upgraded analytic methods and working tools to internal and external stakeholders.

Results achieved

As a result of the project, the NRA has upgraded its analytic methods and working tools to address tax non-compliance issues and enhanced its capacity to use the upgraded analytic methods and working tools within the organisational framework of the Agency.

In the long run, the support measures would contribute to improving the level of voluntary tax compliance and increasing the revenue collection.

More about the project

You can read the final report and linked documents here:

• General publications
• 18 October 2023

Strengthening tax compliance by assessing external context and taxpayers’ behaviour