EPI Report: Revenue Service Audit Department

Significant improvement to a country’s business environment can be achieved only with complex reorganization of key government institutions and public service providers. Such complex reorganization requires political will, administrative power, and the capability to engage information and communication technology for building solutions aligned to business needs and allowing for interoperability.

A business enabling environment, environments in which businesses establish and operate easily and without overwhelming administrative burden, is a precondition for each country’s economic growth.

During the last few years, Georgia was a leader in the Doing Business Survey. (http://doingbusiness.org/rankings – Georgia is ranked 12 in 2010 among 183 countries; the break-point was in 2008) Despite this, the Georgian government is determined to work toward the country’s economic prosperity through further improvements within the business environment and by establishing public service practices that are compliant with international standards. The USAID-funded Economic Prosperity Initiative (EPI) is designed to provide technical support to the Georgian government in achieving its goals.

One of the areas that should be addressed to improve the business environment (BE) is public services to businesses, which include tax administration and customs services. This document addresses tax audit functions of the tax administration.

At the beginning of 2011, the Revenue Service (RS) published its “New Course” paper outlining several main directions, including implementation of the new tax code, allowing for reliable services, and fair administration.

Some initiatives are already under way, including:

  • Organizational changes;
  • Development and implementation of e-audit and audit case management software solutions;
  • Establishment of a mediation process as an integral part of the tax audit process;
  • Development of manuals, guides, and templates for tax audits in order to impose standards; and
  • Establishment of a tax audit quality control practice.

The leadership of the RS and the Audit Department realize and admit the need for changes to the existing practices in the areas of compliance risk management, tax audit planning and execution, and the quality of tax audits. They are determined to introduce new models of tax audits; a relevant quality control system; and a standard, manageable, and controllable business process widely supported by IT solutions in order to achieve their objectives. The leadership also realizes that these changes are possible only with highly qualified human capital. This is why the immediate short-term goal is to build capacity and capability through formal and informal training programs.

While the current status of a tax audit’s organizational structure and operational levels has its justification in economic and political events, which occurred during the last few years, it is time for significant transformations in organizational structure and the scope of tax audits.

This should be accomplished by building on human capacity, capabilities, and operations in order to achieve Georgia’s economic goals.

This report addresses three main topics: organizational structure of the Audit Department, business processes, and IT solutions facilitating those business processes.

Due to the agility of the BE during the period of this assignment: April 18-May 20, 2011, not all business processes were documented.

Information and facts reflected in this report were gathered from research on regulations, existing documents, and multiple working meetings with managers and employees of the RS, mainly from Audit Department.