Contributions Network in Mauritius Abstract The Contributions Network Project (CNP) connects all large employers, and the majority of small ones, to the relevant government tax departments via a single point of contact. The system enables employers to submit their returns directly through a two-way, fully electronic system. In return, employers receive confirmations from the respective departments. Payments are also made electronically through a direct debit arrangement. The payments covered under the project include PAYE (Pay As You Earn), Corporate Income Tax, VAT (Value Added Tax), NPS (National Pensions Scheme), NSF (National Savings Fund), the IVTB levy,(1) and company registration. Application Context Contributions and taxes are an essential source of revenue for the government to sustain a healthy economy. (Taxes on income and VAT constitute around 34% of Government recurrent revenue.) These are collected by the Income Tax Department, the VAT Department, and the Ministry of Social Security, National Solidarity & Senior Citizen Welfare and Reform Institutions. While the internal activities of these institutions have been computerized for some time (since 1993), revenue collection remained paper based, cumbersome, and time consuming until 2000. Employers maintained several tax identification numbers for payments made to different institutions. A New Approach The CNP, a joint public and private sector initiative, is spearheading the government initiative to foster electronic interaction with businesses and citizens. The CNP revolutionizes the way employers interact with the government for the submission of PAYE and VAT returns. There will be no need to file separate returns for VAT and PAYE. Employers can send a single return for VAT and PAYE electronically, as well as effect electronic payment of both taxes in one single account. The option for separate returns and payments has, however, been maintained. Two alternate modes of electronic submission of returns have been implemented, according to the employer's size. For large employers(2) a front-end EDI software is layered upon their own application software used for return preparation. The data is translated into standard EDI messages, processed and routed by a messaging engine to the relevant receiving ends across a Value Added Network (VAN) maintained by Mauritius Network Services (MNS).(3) The government departments and commercial banks have their computer systems hooked into the private VAN for receiving, reverse translation and processing of the EDI messages. Small employers, who are not using any application software, will submit their returns through the Internet via a common browser such as Internet explorer or Netscape. Implementation of firewall controls and data encryption ensure security. An employer identifier harmonization scheme has been designed for PAYE and NPF to minimise duplication and the potential for error. Embedded codes in the "multiple-returns electronic form" ensure
that data specific to a particular contribution is lifted and sent to the relevant government system automatically. The EDI interface software installed on both the employer's and government systems features a built-in mechanism for message verification, syntax checking, automatic user validation, and integrity checks. The CNP system automatically acknowledges that a return has been received from an employer. A submitted return automatically generates an instruction to the employer's bank to effect a funds transfer to the government's account, with each party receiving a debit and a credit information message, respectively. Initially, an account in the name of the commissioner was opened at the head office of each bank into which PAYE and VAT payments were credited. However, with the implementation by the Bank of Mauritius of the Mauritius Automated Clearing and Settlement System (MACSS) in December 2000, payments are transferred directly to the Bank of Mauritius for the account of the respective revenue departments. Implementation Challenges Given its complexity, the project is being implemented in several phases. Phase I, which is operational since May 2000, enables the electronic submission of one single return for VAT and PAYE and payment of both taxes in one single amount to the Commissioner of Inland Revenue. Phase II, which is under implementation and expected to be operational by July 2001, concerns the electronic submission of returns and contributions to the National Pension Scheme and National Savings Fund and for the IVTB levy. Phase III will cover the electronic submission of corporate information and payment of fees to the Registrar of Companies, while phase IV will focus on the electronic submission of corporate Income Tax returns. Phases III and IV will begin soon after the implementation of phase II. As the project develops, other taxes and contributions would be considered for inclusion, such as the excise duty on locally manufactured goods and land registration duties. The main challenge has been to demonstrate the government commitment to better services and get all participants to actively engage in the project. Several workshops covering aspects of e-commerce and sound principles of change management have been organised, along with an awareness programme and training to prepare employers for the CNP. Appropriate legislation was necessary to create a new regulatory and legal framework for operation of the CNP. The Information Technology Act (2000) provides for the acceptance of electronic records, reprint of a record as the true or certified copy, and personal identification marks having the same legal effect as a signature. The National Pensions Act will need amendments to take the CNP into its second phase. Significant resources had to be mobilised to implement the system within the adopted timescale of 12 months for the pilot. Out of 4000 potential employers, only some 150 only are connected one year after the system commenced operation. Now that the pilot phase has ended, it is envisaged that the electronic facility could be extended to the remaining 1200 large employers before the end of 2001.
Building confidence in the system was crucial to facilitate acceptance and exploitation of this electronic transaction tool. Appropriate access controls and authentication mechanisms had to be incorporated into the system to ensure security and confidentiality, and minimize risks of intrusion and tampering. Different employers have been using a variety of front-end software for preparing tax returns. Designing and developing a standard EDI interface software to integrate into these different front-end applications was not straightforward. Benefits and Costs To implement the CNP, the government has had to bear costs to install telecommunications lines for linkage to the MNS network and adjustment to internal Oracle-based software for electronic interfacing.(4) Employers have shouldered the costs pertaining to purchase of hardware, connection to MNS, and training: to connect a workstation to the MNS network each employer has to pay a connection fee of Rs 4,000 (around US$140) and training charges of Rs 2,000 (around US$70) per user; a fee of Rs 35,000 (around US$1,200), inclusive of training, is charged if an employer wishes to link its local area network to the MNS. MNS generates revenue essentially from communication fees, payable by employers, based upon the volume of data transmitted.(5) The EDI software has been provided free of charge by the MNS to the employers as an incentive for adopting the new system. The CNP system currently runs only on a small scale; and thus it is hard to quantify the full benefits that can reaped from wide exploitation. (As of June 2001, at least 9.5% of PAYE and 11.6% of VAT are handled electronically by the CNP.) Nevertheless, it is clear that the adoption of this electronic lodgement system promises multiple advantages: A faster electronic process avoids backlog, smoothes processing, and reduces work pressure at peak periods. As the front-end software is equipped with built-in validation rules, the workload with respect to input and validation of returns decreases. There is no need to waste energy on reconciliation since the electronically submitted return already includes a breakdown of PAYE by employee. Government staff initially required for data entry and paper handling can be redeployed to more productive tasks. Improved cash flow controls for clients (who can afford to pay closer to deadline without fear) and for government (due to automated cash flow, reduced cash collection times and a drop in arrears(6)). No need for employers' staff to travel to a government office and stand in a queue to submit of returns and payment.(7) Key Lessons The creation of a shared vision is indispensable to secure the full participation of all parties, which is essential to the effective exploitation of system. This has been achieved in Mauritius by giving all key
stakeholders the chance to comment and contribute on the design of the Contributions Network Project. Evaluation and feedback on a CNP prototype from would-be users in the private sector, government, and the community has encouraged early involvement of users, and resulted in strong commitment to building an effective system. Given the far-reaching impact of the CNP, the large number of stakeholders, and the monetary nature of transactions, the government opted for a gradual rollout, starting with some 30 employers. In this way, the need for amendments was limited within a small group, and trust in the system could be built gradually with the whole target population. The operation and maintenance of the VAN, which falls outside the core expertise of the government, was outsourced to MNS. This has helped the government to focus on its core functions, limit its initial investment,(8) establish a long-term relationship with the supplier, free up the goverment's ICT professionals, and ensure a consistent level of service at fixed cost. Notes 1. The Industrial and Vocational Training Board (IVTB) is a parastatal organisation operating under the aegis of the Ministry of Training, Skills Development and Productivity to provide for, promote, assist, and regulate the training or apprenticeship of persons who are or will be employed in commercial, technical and vocational fields. Employers contribute up to 1% of employees' salary as levy to the IVTB for financing training. 2. The amount of VAT paid by employers has been used as a basis to differentiate between small and large employers. The cut-off point is Rs 12 million (around US$400,000) as monthly VAT payment. 3. The MNS is a tripartite joint venture company involving public and private sector representatives and SNS (Singapore Network Services Pte Ltd.) as a technical partner. 4. The Income Tax and VAT departments were already running Oracle based computerised systems. However, with the operation of CNP, the software has had to be amended at the total cost of around Rs 300,000 (around US$10,000) for communicating electronically with employers through MNS. 5. Employers are charged Rs 5 (around US$0.18) per KB of data transmitted over the MNS network. 6. In the past, arrears accruing from dishonoured cheques have amounted to around Rs 1 million (around US$35,000) for VAT on a monthly basis. For PAYE, arrears are almost insignificant. 7. An average of 2 to 3 hours is spent by employer's personnel in travelling and being attended to at each office for submission of return and payment. 8. Setting up the MNS facility necessitated a capital investment of around Rs 7 million (US$250,000). Case study author: Messrs. B. Lollbeharree and Robin Unuth Information used to develop the case: Contributions Network Project final report - Ministry of Finance
(1999), meeting notes of CNP committees, and feedback from MNS and government agencies (VAT, Income Tax, Revenue Authority)