The development of digitalization in Tax Administration 1947–2019
The Tax Administration deploys IT
It all started with punched cards
The Tax Administration took its first steps into IT in 1947, when the Helsinki tax preparation office started using its first punched card machines. Punched cards were used to store data using perforated lines. They multiplied calculation power compared to the traditional approach of paper, pen and calculator. By 1960, the Tax Administration had acquired a total of five punched card machines, which were located around the country.
The Tax Administration got its first real computer, an IBM 1401, in Helsinki in 1961. By the mid-1960s, it had built up a network of seven computer centres. These centres handled calculation tasks and payment monitoring for the tax offices, as well as matters such as the pre-completion of tax returns and production of tax books. ‘Automated data processing’, as it was referred to in Finnish, became an integral part of tax preparation and implementation.
The Tax Administration wanted to centralise the IT of its different sectors at the Finnish State Computer Centre (VTKK) in the 1960s. The operations of the Tax Administration’s computer centres were also transferred under VTKK in 1968. However, it soon became apparent that taxation required specialised design and programming. To this end, the National Board of Taxes, established in 1970, started to hire design personnel, and the Tax Administration gradually took on a larger role in handling its own IT requirements.
In 1984, the Ministry of Finance took a decision in principle that taxation IT operation functions would be transferred from VTKK to the Tax Administration. Taxation data processing had grown so large that it was no longer economical for VTKK to handle it. That said, the National Board of Taxes also continued to use VTKK’s services until the 1990s.
The “IT mess” and its lessons
“The ‘automated data processing’ of the Tax Administration became infamous in 1990.” (National Board of Taxes’ Annual Report 1990)
The tax assessment process for 1989 had to be completed by the end of October 1990 so that tax refunds and back taxes could be paid in December, as usual. In summer 1990, however, news of IT problems began leaking to the media – and these problems threatened to delay the completion of assessment. Newspapers ran many stories on “the IT mess” and the matter was even deliberated on by the Government and Parliament in 1990–1991.
The root cause was a modernisation project launched in 1988 (the VTL project), which sought to build a new tax calculation system. The work relied on the National Board of Taxes’ own personnel resources. The VTL project introduced new tools and a new programming language – the additional work required due to the comprehensive tax reform ongoing at the same time increased the workload substantially.
Recurring delays in this multifaceted project played havoc with the normal taxation schedule. The tax assessment process for 1989 was finally completed at the end of March 1991, five months behind schedule. Citizens who had been expecting to get their tax refunds before Christmas had to wait until late spring.
The Tax Administration caught up in a couple of years. The taxes for 1992 were once again on the right schedule. This was a tough experience for the Tax Administration – but the agency also learned from it. Going forward, it carried out large-scale overhauls in phases and set up a sufficiently large project organisation for them. The Tax Administration also paid attention to safeguarding taxation in situations with a transitional period and when changing over from one system to another.
Laying the foundation for e-services
Tax proposal
For decades, completing tax returns in January was an annual nightmare for many citizens, requiring considerable time and effort. Taxpayers compiled information on their income, attached the required receipts, and mailed the tax return to the Tax Administration.
This changed in the mid-1990s. Thanks to the massive increase in IT adoption, the Tax Administration could collect information from different parties: employers, the Social Insurance Institution (KELA), pension and insurance institutions, and banks. This information no longer had to be collected from taxpayers – taxes could be implemented without bothering customers.
The solution was the tax proposal: the Tax Administration used the information it had collected to send a proposal to taxpayers. All the taxpayer had to do was check that the tax proposal was accurate, and correct the information if necessary. The tax proposal also enabled the Tax Administration to turn its approach to service upside down. Now the roles of the Tax Administration and taxpayers were reversed.
The introduction of the tax proposal commenced with a pilot in connection with the taxation for 1995. It involved 12 localities and 358,000 wage earners, pensioners and students. The pilot was successful: it resulted in less inconvenience for customers and higher cost-savings for the Tax Administration.
This approach was rapidly expanded. The next year, as many as 1.6 million taxpayers received a tax proposal. At the turn of the decade, 80 per cent of wage earners and pensioners, three million customers, were receiving tax proposals.
The tax proposal was based on extensive use of IT – and was a tangible demonstration of the opportunities it opened up. That said, the tax proposal was implemented in the traditional way with paper forms, like all of the Tax Administration’s customer services.
The Internet revolution
The rapid expansion of Internet use as from the mid-1990s revolutionised the services of the Tax Administration. The agency started assessing the use of the Internet as a tool for customer communications in 1995. The Tax Administration introduced Apaja, its first www-based intranet system for internal communications, in 1997. An Internet service for customers went live the next year at www.vero.fi. The site was published in Finnish, Swedish and English.
The original site was not interactive. Vero.fi focused on sharing information: it provided tax instructions and information on current tax issues. In addition, most of the Tax Administration’s forms were available for printing on the site.
The service was used actively right from the start: during the first six months, the site received almost 800,000 visits. The most popular feature of Vero.fi was a calculator for assessing tax rate percentage changes. The site developed into the most important service channel for taxpayers and tax recipients (municipalities, parishes, the state).
Thanks to the online service, the availability of the information provided by the Tax Administration improved decisively. This was a dramatic change – before this, most communications and guidelines had been handled using letters, bulletins and telephone service. The site now provided convenient one-stop access to tax instructions.
The Internet laid the foundation for digital services that can be used wherever and whenever. Many calls and visits to the tax office were no longer necessary. Taxpayers would not be free of paper forms for many years to come, but during the 2000s an increasing number of subareas of taxation were gradually transferred online.
From paper to digital
Tyvi
In 1996, the Ministry of Finance launched the Tyvi project (an acronym for “information flows from companies to the authorities”), which sought to standardise the information collection processes of different authorities. Earlier, information on the same company was sent to different authorities using different forms, an approach that caused extra work and was prone to errors. Now the information would be collected in electronic format.
The concept behind the system was that companies would send their information electronically to Tyvi operators, which would then forward it to the Tax Administration. After pilots, the first Tyvi information transfers were carried out in 1997.
Tyvi proved its worth. Its adoption was accelerated by an order issued by the Tax Administration in 2004, which obligated companies with more than 40 employees to use the Tyvi service to submit information to the Tax Administration. In 2007, more than 90 per cent of corporate annual returns were already submitted electronically.
Tyvi was free to companies, but the Tax Administration paid the operators for data transfer. This was one of the reasons that spurred the Tax Administration to create its own Ilmoitin.fi service, through which companies could file Tyvi returns without using the Tyvi operators.
BIS
Another project that facilitated the collection of corporate data was the Business Information System (BIS), which the Tax Administration prepared in the late 1990s with the Finnish Patent and Registration Office (PRH). The system was launched in spring 2001. After its launch, a company only had to submit one notification to be included in the Prepayment Register, Employer Register, VAT Register and Trade Register, and as being obligated to pay insurance contributions. The authorities received the information on the company on one shared form.
BIS significantly cut down on the red tape involved in setting up companies and submitting notifications of changes. BIS’s free information service (ytj.fi/en), which anyone can use to look up information on companies, was launched in summer 2001. The service includes all public information on companies and organisations entered in the Tax Administration’s registers, the Trade Register and Register of Foundations.
Greater efficiency in electronic information collection thanks to systems such as Tyvi and BIS enabled the Tax Administration to also develop services for individual taxpayers. One example of this was the pre-completed tax return, introduced for 2005 taxation. It combined a tax proposal and traditional tax return, which at that time was still being filled in by more than 1.5 million people. Now all individual taxpayers received a pre-completed tax return based on information collected by the Tax Administration and a shared procedure was introduced for them.
Interactive e-services
The Tax Administration introduced an electronic transaction environment in 2006. It enabled a standardised approach to providing new e-services. After this, the Tax Administration started launching new interactive services online.
Palkka.fi, the free online service for the payroll calculation, wage payments and official notifications of small employers – whether companies or private individuals – went live after pilot runs in February 2006. Like the Tyvi service for larger employers, it supplemented electronic information collection and facilitated the paperwork of self-employed persons.
An e-service for tax card changes, Tax Card Online, served as a project to pilot interactive services for individual taxpayers. Customers logged into this service with their online banking codes or ID card with a chip, filled in the information on changed income and deductions, and then submitted their order for a tax card. The service had a limited launch in Joensuu, Ostrobothnia and Pirkanmaa in 2006. It went live nationwide at the beginning of the next year. From then onwards, all customers could change their withholding tax online.
Tax Card Online was the Tax Administration’s first interactive service for individual taxpayers. In 2007, its very first year, 200,000 tax card changes were made online.
The Tax Return Online service was launched in spring 2008. In the first phase, taxpayers could report tax-deductible travel expenses. The service was expanded gradually: in 2009, users could report tax credits for domestic help online, along with child support payments and capital gains and losses; in 2010, rental income; and finally in 2011, changes to earned income.
The Tax Return Online service was the culmination of the development process that began with the introduction of the tax proposal in 1995. The Tax Administration wanted to provide a service that inconveniences the customer as little as possible and does not require shuffling paper. For the first time, it was now possible to handle a tax return in an entirely paperless manner. In spring 2019, more than 80 per cent of those who added information to their tax return did so online.
Towards automated taxation
Taxpayers online
The Tax Administration set the automation of taxation as a strategic objective in the early 1990s. The idea was that the taxation of individual taxpayers would be as automated as possible. The majority of tax decisions would be made based on the information the Tax Administration collected on behalf of the taxpayer and any corrections made by the taxpayer. The automated process would improve customer service and the legal security of taxpayers, as the process would be the same for everyone.
In the early 2000s, automation gained broader momentum from the State’s information society and productivity programmes, which sought to enhance the efficiency of administration through automation and e-services. In the 2000s and 2010s, face-to-face service at tax offices decreased to a fraction of what it was, and the use of telephone services also declined. Meanwhile, the use of the Tax Administration’s online services surged.
User-friendliness is a key factor for customers in online services. In this, the Tax Administration was helped by factors such as the widespread launch of online banking services and their adoption by taxpayers. Taking care of both banking and taxes online requires the use of strong identification. Bank codes became the primary means of identification among individual taxpayers using the Tax Administration’s services.
Streamlined administration
When the National Board of Taxes was established in 1970, a three-tier administrative hierarchy was set up, in which provincial tax offices served under the National Board of Taxes and tax offices under them. In 1993, the Tax Administration was reorganised into a two-tier organisation and in 2008–2013 into a single nationwide agency.
The development of information systems and telecommunications played a key role in this. Decentralised regional databases were combined to form a nationwide database in the early 2000s. Tax preparation and advisory tasks that were previously handled regionally could be gradually shared for processing elsewhere in Finland.
As customer service moved online by degrees, location no longer had the importance that it once did. This meant that workloads could be distributed more evenly in the 2000s by allocating tasks from the busiest areas of Finland to the rest of the country. Automation and nationwide operating methods produced even more standardised ways of working – and thereby led to more consistent treatment of taxpayers.
MyTax
The VALMIS project was the most important reform of digital services in the 2010s. At the beginning of the 2010s, the Tax Administration had about 70 individual information systems, some of which dated back to the 1980s. The systems were intended for specific tax types. This meant that if a Tax Administration employee had to use several individual systems, they had to open multiple applications on the desktop. The maintenance and development of separate systems was laborious and caused additional costs.
In 2013, the Tax Administration decided to reform its tax information systems and replace them with a single off-the-shelf software solution. This modernisation was dubbed the VALMIS project. The chosen software was the American system, GenTax. The VALMIS project progressed into the deployment phase in 2016 – the gradual transfer of different types of taxes into GenTax began. All tax systems had been replaced by this single system by the end of 2019. All types of taxes are now handled by a single application.
This modernisation became apparent to customers when MyTax, the new e-service channel, was launched at the beginning of 2016. Separate digital services were gradually transferred to MyTax in 2016–2019. From 2019 onwards, services covering all tax types for individual and corporate taxpayers became available in MyTax.