Description of Project
The client is a statutory body established pursuant to a national Act as the lead agency for tax administration in one of the ASEAN countries. In an effort to further increase tax revenue, the client plans to improve its efficiency and to be more responsive to changes in the tax environment. Towards achieving this objective, the management had explored the option of turning into an independent self-financing agency.
Working with a diverse group of consultants comprises of business strategist, legal advisor and real estate consultant, the client aspired to commission a study relating to the transformation and corporatization of the organization into self-financing agency. This means removing the tax administration tasks out of the government mechanism and make it an independent self-financing agency.
Full Story
As a statutory body established under a national Act, the client had to abide to the agency agreement with the federal government especially on its financial governance and administration of human resources. However, there are several operational issues encountered by the client when carrying out its statutorily mandated role which is to administer the collection of direct taxes in the country especially on the aspects of funding, staffing and governance.
The operating expenditure remains high (more than 80%) for a long period of time and staff costs are the main contributor to operating expenditure while the revenues are stagnant. The agency realized there is a need to address the issue of diminishing margin to avoid over-rely on federal grant to sustain their daily operation. To achieve this, the client had begun to make reference to the other self-financing agency and its autonomy in financial and human resources administration.
Key Outcomes
The team began with a detailed analysis on the cost and revenue profile of the client, breaking down the financial items to a granular level and identified the notable cost and revenue drivers. This was followed by further assessment in terms of the financial efficiency of the agency. It had quickly become apparent that the agency needed to devise a revenue model that is more financially sustainable in the long term.
Leveraging on the internal data and international benchmark, the team had evaluated fifty-two countries on their autonomy of tax collecting agencies. With this, the team had a pool of information on various aspects such as budget expenditure management, organization and planning, staffing recruitment, development and remuneration, information technology, enforcement and penalties et cetera.
With these benchmark insights, the team had explored several possible revenue models that would allow the agency to generate own income, make investment and generate additional revenue for the government. Due to the large portfolio of real estate under the purview of the agency, the team had proposed the establishment of a Real Estate Investment Trust to unlock the property value and to expand the source of revenue. To further fortify the ideas, a detailed thirty years financial model were built to quantify the economic benefits from each of the options available, at different charging mechanism on the agency fee.
With the self-financing framework detailed out in the transformation and corporatization plan, the client is now in a better position to request for a reinstatement of the Agency Agreement with federal government at a new charging mechanism.
Important Notice
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*This project was delivered by the core team of 27Group during their tenure in a management consulting firm based at United Kingdom. While it may not deliver under 27Group, we hereby declare that the contents above and our involvement are authentic and genuine.
