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									                      CASE STUDY

             Australian Taxation Office

                                                                                     software available from the ATO

             The Australian Taxation Office (ATO) initiated the e-tax program in January 1997. It is one of the first
             applications in the world to be offered by a revenue service and one of the first of its type to use Public Key
             Infrastructure (PKI) technology and Internet transmission. The initiative addressed concerns from a number
             of sources regarding complexity of tax legislation and complexity of the TaxPack, to which the ATO needed
             to develop better solutions. The e-tax program was developed firstly to address these issues and secondly as
             a reaction to a general increase in community use of Internet services. The e-tax program is an easy-to-use
             software package for the 2.5 million individual taxpayers who prepare and lodge their own personal income
             tax returns. It is an electronic advancement of TaxPack and complements the ATO’s Electronic Lodgement
             Service (ELS), used by tax agents to lodge income tax returns.

page 8 | E-government Benefits Study – Agency Case Studies
The groups participating in e-tax are both government and non-government users.

  Non-government                                      Involvement

  Public                                              Downloads the application

                                                      Prepares the tax return offline

                                                      Lodges the return online

  Business                                            Small business – sole traders can also use e-tax

  Government (Federal)                                Involvement
  ATO                                                 Provides Internet facility

                                                      Provides online application

                                                      Acknowledges receipt of online application

                                                      Provides processing to back office system

                                                      Maintains web site

  Child support agency                                Passes some information via ELS

  Centrelink                                          Passes some information via ELS

The e-tax program is strongly aligned with the ATO’s strategic goals relating to taxation reform and has
significantly contributed to increasing the ATO’s ability to develop staff and provide a quality workplace. This
is achieved through major reductions in manual data input, reduced intervention rates and development of
e-tax versions to support call centre help desks. The e-tax program is a key element in ensuring community
access to the information they need to meet their taxation obligations. It has been a significant contributor
to enhancing the effectiveness of tax administration and maintaining compliance levels.
The impetus for developing e-tax arose from customer feedback on the complexity of TaxPack. Customer
feedback was obtained from some 12 000 users in the pilot stages on design and testing of the interface.
The e-tax program represents a new user interface or channel for collecting existing taxation information,
however there is little or no change to back office systems or taxation business processes.

                                                                              E-government Benefits Study – Agency Case Studies | page 9
             The e-tax program is a key component in improving the ATO’s information transparency capabilities by
             providing greater access to taxation related information. It provides key capabilities to the ATO in relation
             to increased levels of efficiency, effectiveness and return on investment. For example, efficiencies have been
             achieved through lower customer enquiry rates, increased accuracy of income tax returns, which lowers error
             correction requirements, and reduced TaxPack printing requirements.

             When planning e-tax, the ATO identified the stakeholder groups and the planned benefits they were likely
             to enjoy.


                Quicker refunds – 2 week processing guaranteed, compared to about 8 weeks to process paper returns

                Online access to help (24-hours-a-day 7-days-a-week)

                Reduced complexity – 90 per cent of user’s feedback indicates e-tax is simple, easy to use and reduces complexity
                of taxation

                Accurate estimate of refund at time of submission

                Calculations done within application


                Increased compliance

                Less intervention in tax return assessments by ATO staff

                Reduced income tax return processing costs

                Reduced TaxPack production and distribution costs

             When e-tax was being developed, the ATO also identified a number of unanticipated benefits.


                Possibly a bigger tax refund, due to a better understanding of entitlements that can be claimed


                Intervention rate is significantly lower than expected, hence greater than expected cost reductions in manual processing
                have occurred

                Improved public relations between citizens and the ATO from user positive word-of-mouth comments about e-tax to
                other citizens

                Uptake has been higher than expected

                Proofing of PKI usage for ATO

                e-tax learning has been reused by other ATO businesses, e.g. use of PKI in business activity statement (BAS) Internet site

             Agency benefits included service cost reductions of between $2 million and $5 million for the five-year
             period to 2004. This represents a reduction of between 10 and 20 per cent in total service costs.
             Social benefits will accrue significantly from improvements to service quality and accessibility, and quicker
             income tax return times (98 per cent of e-tax returns are processed within 14 days, and 88 per cent within
             10 days in comparison to an average of 42 days for processing paper tax returns). Compared to paper or
             TaxPack Express lodgement, it costs citizens between $10 and $24 less per return to use e-tax.
             It is anticipated that e-tax will contribute significantly to increasing government transparency and public trust.

page 10 | E-government Benefits Study – Agency Case Studies
Moderate contributions are also expected in increasing community skills/knowledge (via improved knowledge
of the taxation system); and in improving environmental management (reduced paper waste). Increased tax
compliance also provides broader flow-on effects to the wider economy.
The barriers to fully realising planned benefits were: reduction of paper usage took longer than expected; and
a cross-section of the potential market, with access to the Internet, are unable to access the program due to
platform compatibility issues (e.g. incompatible with Apple Macs). Compatibility issues may become a bigger
problem in relation to older operating systems, such as Windows 95. The ATO has found it difficult to keep up
with technology without leaving people and operating systems behind.
In summary, for citizens e-tax represents an alternative, improved, easier-to-understand channel for completing
income tax returns; and for the ATO, it fulfils a customer service need while providing efficiency returns.

Demand and take-up
Demand estimates were developed using the numbers of self-preparers, cross-referenced with Australian
Bureau of Statistics (ABS) data on Internet usage, to determine the potential demographic. This was
compared against individuals with simple returns—those considered most likely to use the service.
A take-up plan was developed for year one, and subsequent yearly targets were established. The overall
target is for 1 million e-tax users in the 2004 tax year. At the outset, it was recognised that the process
would take 4 to 5 years to provide a return on investment.

  e-tax income tax return software                1999     2000      2001           2002            2003           2004

  Estimated demand                              25 000   100 000   300 000      550 000          800 000      1 000 000

  Actual take-up                                27 000   117 000   280 000     *550 000                 –              –

* actual take-up for 2002 is for only part of the year

The ATO identified possible ways to improve take-up:
• promote through mass media;
• improve useability and functionality;
• address technology issues for those who have older or disparate technology;
• automatic insertion of known data, such as name, address and bank interest; and
• improve the system to address current security processes, particularly identity verification, from a user
  perspective, without compromising confidence in security.

The initial development cost was $8 million. Ongoing development costs, help desks, salaries etc. are in the
order of $2 million per year. The total expenditure for e-tax, as of 2002, is approximately $15 million.
Costs to citizens to move to the online service were not seen as a deterrent. E-tax is one of four income tax
lodgement options (that is, e-tax, ELS via a tax agent, paper and TaxPack Express) available to self-preparing
taxpayers and it was assumed that those choosing e-tax already have the appropriate systems in place.
Some ATO offices provide facilities for citizens to use e-tax.

                                                                             E-government Benefits Study – Agency Case Studies | page 11
             Unforeseen costs the ATO incurred when developing e-tax were:
             • hardware leasing costs to deal with increasing lodgement volumes, particularly volume peaks in the last
               days of the tax lodgement period. In 2001 additional server capacity was needed to support
               authentication tasks, and in 2002 additional web server capacity was needed;
             • cost to get security right, the ATO was the first agency to use PKI to verify identity;
             • the high volume on PKI was unanticipated but unit cost for the digital certificates was kept as low as
               possible by the ATO, rather than a third party, issuing certificates,;
             • increasing infrastructure costs due to the higher-than-expected take-up;
             • keeping up with technology whilst still supporting services to older and/or disparate technology;
             • cost of restarting e-tax servers; and
             • legislative changes to taxation, such as the baby bonus.

             Return on investment
             No formal cost benefit analysis or return on investment analysis was undertaken for initial approval. These
             are now required as part of new ATO forward planning process. Migration to lodgement via e-tax over the
             last few years has reduced internal processing costs by an average of $5.57 per e-tax return. Total direct
             benefits accruing to the ATO are estimated to be $15.5 million over the five years to 2004.

                Details                                            Pre 2002                   2002                2003   2004

                Annual costs and benefits

                Costs ($m)                                                  12                     3                 2      2

                Financial benefits ($m)*                                   2.3                   3.1               4.5     5.6

                Benefit/cost ratio %                                        19                   103               225    280

                Cumulative costs and benefits

                Costs ($m)                                                  12                    15                17     19

                Financial benefits ($m)                                    2.3                   5.4               9.9    15.5

                Benefits/cost ratio %                                       19                    36                58     82

             * Financial benefits represent total number of e-tax returns for the year, not the annual increase

             The return on investment for e-tax is highly dependent on converting paper tax return preparers to the
             e-tax lodgement channel. The ATO expects the paper channel will reduce in numbers, but it will not
             disappear. Clearly the target level of 1 million e-tax returns appears achievable and will exceed the break-
             even point for the annual costs of providing the service as well as contributing to a positive return on
             investment for the full life of e-tax (it is assumed that no additional infrastructure costs will be incurred to
             meet this level of take-up).

page 12 | E-government Benefits Study – Agency Case Studies
Impact on the organisation
The e-tax program is a new application, built to interface with the existing back-end ELS system. A new
infrastructure, including servers and secure links, required a large investment in technology which will need
future expansion. Whilst the e-tax infrastructure is capable of handling the overall volume of transactions
envisaged, ‘load balancing’ to meet volume peaks is an issue being examined, including options for sourcing
the required capacity from existing ATO infrastructure.
The overall impact on the organisation has been minimal given that e-tax is a new delivery channel for a
pre-existing service, and co-exists with existing processes and systems. However, e-tax is a significant
change in the way in which the ATO does business with its customers.

  Lessons learned

  Planning                       Start the process early especially when bound by immutable deadlines.

  Contracting                    Know what you want to achieve—if you do not understand specifications,
                                 limit liability to your level of knowledge at the time.

                                 Have key expectations, specifications and guidelines with external parties
                                 clearly identified.

                                 Establish clear roles and relationships with partners.

                                 Consider a broad range of options when you contract and understand the risks.

  Consultation                   Target consultation that is useful and relevant; untargeted consultation
                                 can burden the program.

  Direct user involvement        Increased user involvement and testing broadens the appeal of the final product.

  Moving from paper              Design should not be limited to original paper form; do not assume
                                 paper-based inputs will directly translate to the online environment.

                                 Change control (i.e. legislation clearances) needs to be aligned with the
                                 dependencies between online and manual support processes to avoid
                                 restrictions and delays.

  Program support                Be aware of the broader agency priorities and resource availability to ensure
                                 the program is adequately supported.

                                 Promote program internally to increase understanding, support and
                                 maintain momentum.

  Enterprise architecture        Develop strategic relationships with key stakeholders to ensure business
                                 and technical architectures are aligned.

  Whole-of-government            Need a fast-track development process to accommodate urgent legislative changes.

                                 It can be difficult and time consuming to establish open communication with
                                 other agencies.

                                 Online exposure increases the need for shared responsibilities between
                                 agencies to be consistent.

  Creating new demand            Success in one area can generate demand in others (e.g. businesses are now
                                 seeking something similar to e-tax).

  Customer access                Be aware of cross-platform issues when developing a program for a broad
                                 population or user base and the restrictions or limitations they may introduce.

                                                                              E-government Benefits Study – Agency Case Studies | page 13

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