Tax accounting and control information system (MAKIS)

Client: Customs Department under the Ministry of Finance of the Republic of Lithuania 

Sector: public sector, tax administration, customs activities.

Overview of the Activity

Lithuanian Customs is a public sector organisation performing functions of the tax administrator and the controlling institution with respect to international trade and the economic space of the Republic of Lithuania and the European Union. In order to satisfy the EU requirements for tax accounting and administration in the sector, it was necessary to develop and introduce an information system for tax accounting and control which would comply with the requirements of the EU regulations and the laws of the Republic of Lithuania.

Organisation Description

The main element of the EU Common Market is the Customs Union, which is based on the free movement of goods, persons, services and capital. In the Customs Union, all customs duties among the EU Member States are eliminated, while foreign trade and customs policies with regard to third countries outside of the EU are unified. Therefore, the Customs had to accomplish particularly significant tasks during Lithuania's preparations for the accession to the EU. Administrative structure had to be reorganised, information systems interfaced with the EU information systems had to be introduced, posts on the external EU borders of the future had to be modernised, and legislation complying with the EU legal provisions had to be prepared.

According to the data for 31 December 2005, the Lithuanian Customs employed 2543 employees. In 2005, the Lithuanian Customs administered customs tariffs, excise duties and value added tax (hereinafter referred to as VAT) on imported goods that are released into free circulation. Over the period of 2005, 209.8 million litas in taxes were collected to the state budget and transferred for administration by the State Tax Inspectorate. The Customs Department was made responsible for the European Union's own resources, which include customs tariffs on agricultural products and other taxes imposed on trade with non-EU states in accordance with the Common Agricultural Policy except for taxes collected on the basis of the EU sugar market organising provisions, as well as for the country's own resources, which consist of the customs tariffs applied to trade with non-EU states. The forecast of the EU’s own resources falling under the competence of the Customs Department, which was based on the assessment of import flows to Lithuania from third countries, estimated 145 million litas of its own traditional resources in 2005, 157 million litas in 2006, and 169 million litas in 2007.

Challenges

In order to integrate with the European Union, it was necessary to reform the administrative structure and activity processes in the tax administration and accounting areas, to introduce information systems interfaced with the EU information systems, and to prepare legislation complying with the provisions of the EU laws. 

The purpose of the information system for tax accounting and control:

• To assure performance of the tax (including the European Union’s own traditional resources) administration and control function delegated to the Lithuanian Customs by the Lithuanian laws and the European Union’s (hereinafter – EU) regulations and directives;
• To assure performance of the tax (including the EU’s own traditional resources) administration and control function delegated to tax administrators and state institutions by Lithuanian law and the EU’s regulations and directives;
• To assure performance of the tax (including the EU’s own traditional resources) administration and control function delegated to the EU’s institutions by the EU regulations and directives;
• To develop a tax (including the EU’s own traditional resources) accounting system complying with the EU requirements;
• To develop an integrated system – the information system for tax administration and control must assure integrated access to all necessary data stored in the Customs’ information system and provide all necessary information for performance of tax accounting and control activities;
• To develop an efficient system – the system must have the capacities to utilise data stored in other information systems and to provide the most up to date data allowing for the expeditious reaction to the existing situation – in other words, necessary information must be accessible to the system’s users within the shortest time possible from the moment of its entry into the system or other information systems;
• To develop an automated system – the system must have the capabilities to automatically use data stored in other information systems, to process the entered data, and to generate reports.

Solution by ERP

The system was developed by drawing on the functional and technical capabilities of SAP AG SAP R/3 Enterprise Edition. The key priorities applied to the system and implemented are as follows:

• The system’s main priority – to implement an information system complying with the EU requirements and assuring accounting of the tax duties (registration, performance and control);
• One of the main priorities is performance of tax duties. Integrity and reliability of the data also presents a priority because it assures performance of the tax duties and prevents possible violations;
• While integrating into the EU, it is important to increase the expeditiousness and effectiveness of the tax duty performance and to automate this process;
• Data analysis and prevention are also important in assuring effective performance of the tax duties. Therefore, one of the system's priorities is to create capacities and develop software means allowing for accumulation of the data, which can then be used for the analysis of the performance of the tax duties and for undertaking respective preventive actions.

The assessment of all requirements applicable to the tasks and determination of the system’s needs led to the selection of the SAP R/3 Enterprise Edition solution, preparation of the central system's infrastructure, and implementation of the interfaces with other systems. In order to obtain maximum satisfaction of the requirements applied to the functionality, standard SAP functions were expanded and modified. The project lasted almost three years: the first version was introduced after 10 months, while the remaining time was spent expanding and optimising the system’s functionality in accordance with the needs arising out of changes in the Customs’ activities.

Results

The developed and implemented information system for tax accounting and control complies with all of the applicable requirements. This was confirmed by the conclusions of the audits of the Customs Department’s activities and tax accounting performed by the European Commission. The competence and professionalism of ERP specialists in SAP and public sector activities helped the Customs Department to implement all established goals in the areas of tax accounting, tax administration and control, and resource management. Lithuania implemented the information system interfaced with the EU information systems and complying with the provisions of the EU laws. Centralised management of debts, contributions, payments, and guarantees permitted simplification of the Customs' activities and reduced their cost to the taxpayers.

More than 300 officials are now working with the SAP system.

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