- State Audit Office of Latvia - http://www.lrvk.gov.lv/en/ -

State Audit Office: one must know the causes of new tax arrears and improve IT governance of the tax administration

The State Revenue Service (SRS) has still not remedied the deficiencies in information system (IS) security management, which the State Audit Office had already pointed out in 2015.

In the opinion of the State Audit Office, this endangers the security of data held by the SRS. Moreover, neither the activities of SRS nor the Ministry of Finance have significantly reduced the pace and amount of occurring new tax arrears. New tax arrears have emerged in the same amount during last year just like in previous years, about 850 million euros, but the causes for their occurrence are still not been studied.

The SRS IS stores big data that also contains confidential information, but one has not identified and properly controlled all IT risks. Unfortunately, similarly to the audits of previous years, the State Audit Office found shortcomings in the SRS IS security management this year as well. The weaknesses identified in the audit pose risks of data manipulation and fraud, as well as jeopardise the confidentiality of information.

Although the amount of tax arrears has decreased by 14% compared to the previous year due to voluntary debt repayment, recovery or amnesty, reaching 1044.2 million euros, the audit concludes that new tax arrears occur similarly like in previous years, amounting to about 850 million euros a year.

“A comprehensive and thorough analysis of the causes of occurring tax arrears is needed to minimise the accumulation of new tax arrears and to help taxpayers overcome their tax difficulties, as well as to encourage the public willingness to pay taxes fairly. The State Audit Office has already made such a recommendation in 2012, but it has not been implemented yet,” reminds Auditor General Elita Krūmiņa.

The State Audit Office considers that neither the activities carried out by the SRS nor the activities implemented by the Ministry of Finance so far have reduced the pace and amount of occurring new tax arrears significantly. Therefore, the State Audit Office will continue to monitor the dynamics of tax arrears and periodically assess whether the action to improve tax payment has been successful. The Ministry of Finance has also acknowledged this year at least that it should turn to research the causes of those problems.

At the same time, the State Audit Office assessed the tax amnesty process and concluded that the support measure aimed at taxpayers consisting of the cancellation of late payment and penalty payments by paying the principal debt was implemented by the purpose and legislation in general. This would increase the state budget revenue by 99 million euros over three years.