Efficiency of Tax Collection and Tax Management in Taiwan's Local Tax Offices

• Author: Yu‐Shan Wei,Ming‐Huei Chen,Ming‐Miin Yu,Ming‐Shenq Hwang,Shwu‐Huei Huang
• Date: 01 October 2017
• Published date: 01 October 2017
• DOI: http://doi.org/10.1111/1468-0106.12235

EFFICIENCY OF TAX COLLECTION AND TAX

MANAGEMENT IN TAIWAN’S LOCAL TAX OFFICES

SHWU-HUEI HUANG National Taichung University of Science and Technology

MING-MIIN YU*National Taiwan Ocean University

MING-SHENQ HWANG National Chengchi University

YU-SHAN WEI National Yunlin University of Science and Technology

MING-HUEI CHEN Taichung City Government

Abstract. This study investigated the performance of individual departments and the efficiency of

resource utilization in tax offices. The results can be used to improve the performance of tax offices

and to increase tax revenues. In this study, the operational flow of local tax offices was divided into

two stages: tax collection and tax management. Network data envelopment analysis (NDEA) and a

Russell directional distance function were used to evaluate operating efficiency in departments of 20

Taiwanese local tax offices for 2013. The results indicated that, first, efficiency was significantly differ-

ent for tax collection and tax management. Second, the input inefficiency of tax collection was mainly

due to total floor area, which was 15% larger than required, and the input inefficiency of tax manage-

ment was mainly due to total floor area (23% larger than required), followed by direct labour input

(19% larger than required). Finally, on average, the amount of collected property transfer taxes was

23% smaller than required. The model used in the present study included undesirable outputs. The

findings indicated that the highest levels of overall inefficiency were due to inability to collect taxes

(intermediate outputs) in Hsinchu County (9.27%), Chiayi County (3.25%) and Pingtung County

(20.44%), which required reduction in the number of instances of inability to collect property taxes

by 5619, 1258 and 12 350 cases, respectively. In total, 19 227 fewer cases of uncollectable property

taxes in Taiwan would indicate improved arrears settlement and tax prevention measures.

1. INTRODUCTION

Finance is the cornerstone of state operations. The various regions of Taiwan

have suffered due to the issue of unequal distribution of financial resources for

many years. According to an analysis of certified financial statements for 2013,

expenditures were higher than revenues in all the counties and cities of Taiwan,

excluding Taoyuan, Yilan, Hsinchu, Nantou, Hualien, Kinmen, Keelung,

Hsinchu and Chiayi. Moreover, the percentage of own-source revenues was

exceedingly low. Areas with comparatively higher percentages of own-resource

revenues included Taipei City (79.18%), New Taipei City (75.51%), Taoyuan

City (81.08%), Kinmen County (93.54%), Hsinchu City (75.08%), Taichung City

(73.17%) and Kaohsiung City (70.39%). In other areas, own-source revenues

accounted for only approximately half of the utilized resources, meaning that

these areas depended heavily on government subsidies.

According to statistics, a higher percentage of tax revenues in the total

revenues of local governments indicates high fiscal capacity. Thus, tax revenues

are given high consideration in local government financial systems, and the

efficiency of tax offices is of great importance.

*Address for Correspondence: Department of Transportation Science, National Taiwan Ocean

University, Keelung, Taiwan, ROC. E-mail: yumm@mail.ntou.edu.tw.

Pacific Economic Review, 22: 4 (2017) pp. 620–648

doi: 10.1111/1468-0106.12235

© 2017 John Wiley & Sons Australia, Ltd

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Efficiency assessments of the public sector are more complicated than such

assessments of the private sector, as the products and services in question cannot

be based on market values. These evaluation issues can be overcome by using

data envelopment analysis (DEA), which requires input–output information

for performance assessments. DEA can process multiple inputs and outputs of

different measurement units without the need to assume a production function

relationship. This helps to avoid problems associated with parameter estimation.

Rigorous analysis is particularly necessary in analysing the public sector, where

the input–output relationship is unclear. Thus, DEA was used in the present

study to evaluate the performance of the tax offices.

The performance of a local tax office is determined by the careful implemen-

tation of full and accurate operation plans. Although they are linked to the

overall efficiency of operating flow, the performance of individual departments

should be examined separately. In this study, the tax offices’operating flow

was divided into the tax collection stage and the tax management stage. The

tax offices in different counties and cities were compared with regard to their

execution efficiency over both stages, and this information was provided to

managers as a reference for making adjustments to input and output allocations.

Traditionally, DEA uses a decision-making unit (DMU) viewed as a ‘black

box’(Färe and Grosskopf, 2000), and no consideration is given to internal

production operations or the network structure of the DMU. DEA assumes that

the departments within an organization have similar production technologies

and does not consider their actual differences. In other words, the connections be-

tween operations of different departments within an organization are ignored in

DEA; thus, it cannot provide adequate information on operations management.

Much attention has been recently given to network data envelopment analysis

(NDEA), which can be used to evaluate the efficiency of individual departments

within a DMU. Previous studies on the efficiency of tax offices have used DEA

and have focused on comparing tax offices based on their overall efficiency. By

not examining the performance of different departments, however, these studies

failed to identify those departments with the lowest levels of operating efficiency

that could affect the overall results, which is necessary considering that it is

unlikely that all departments have equally low efficiency. Consequently, the

managerial implications that could be inferred based on the efficiency results

were limited. In this respect, NDEA is a more effective approach than DEA.

In recent years, to support local finance sectors and meet public expectations,

Taiwanese local tax offices have been taking measures to improve their admin-

istrative performance, with special attention being paid to their performance

concerning taxation. The evaluation of tax collection and tax management

efficiency can provide a better understanding of the inefficiencies of local offices,

which can benefit the state finance sector and promote local development. This

study is the first attempt to evaluate the efficiency levels of tax offices using

NDEA. The model was expected to provide a more comprehensive and objec-

tive analysis, the results of which would help to increase tax revenues. If

efficiency scores are determined by radial measures, then inefficiencies where

non-radial slack values were not considered may result in deviations in those

PERFORMANCE OF TAIWAN’S LOCAL TAX OFFICES 621

© 2017 John Wiley & Sons Australia, Ltd