What is the most cost-efficient mechanism for tax collection?

The tax collection strategy traditionally used by the Dirección de Impuestos y Aduanas Nacionales de Colombia (DIAN) (National Tax and Customs Direction of Colombia) reduced its performance during 2013. In order to identify alternatives to maximize tax collection, the organization, jointly with CAF, Development Bank of Latin America, carried out an impact evaluation of different collection systems to determine which was more successful.  

During the national collection days held in September of 2013, a group of more than 20,000 taxpayers, who had pending debts with the DIAN, were selected to be a part of the evaluation. Debtors were assigned randomly to four groups that would receive the same message through different channels. One group received the communication by letter, another group received an electronic mail, another received a visit from an inspector, and another group was not contacted, serving as the control group. 

The results of the study showed that the different channels used to contact taxpayers may have different impacts on the probability of payment. The personalized visits were the most effective mechanism. However, this is true only if the taxpayer was contacted in the working place or at home. When this was not the case, the effect of the visit was similar to that of the electronic mail. According to Cecilia Rico, Director of Income Management at DIAN, "the electronic mail has a lower cost than personalized visits, so it is the most cost-efficient mechanism".

In line with the same objective of evaluting the different collection strategies, an additional experiment was conducted, selecting almost 35,000 tax payers with pending debts, even after they had received the inspector´s visit. This group was divided into two: the treatment group who would receive calls through which they had to make an appointment to process their pending payments, and the control group, who would not receive any calls. The results of the evaluation indicated that calls increase the probability of payment relatively more for those who have more than one debt and that tax payers with smaller debts are most likely to pay. .

The results of both evaluations contribute rigorous information to the DIAN about its collection strategy as well as possible strategies to focalize efforts depending on the type of taxpayer that needs to be contacted. To learn more about the results of the study, follow this link.