Tackling Tax Evasion in Serbia with Big Data

In recent years, big data has become a buzzword across many industries, and tax collection is no exception. By analyzing large amounts of data, authorities can identify tax evaders, streamline tax collection processes, and ensure that taxpayers are paying the correct amount.  

However, tax evasion is a serious problem in Serbia, which affects the business environment in every aspect of the economy, leading to unfair competition, reducing resources for public goods and services, and undermining public policies. Informal labor limits access to employment rights, social protection, and basic opportunities for skills development, training, and career advancement.

Since 2015, under its 2015-2020 and 2021-2025 (pdf) Transformation Programs, the Tax Administration of Serbia (STA) has implemented reforms to increase tax collection efficiency. While significant improvements have been made, further improvements are still needed, especially for individual income taxes, social security contributions, and value-added taxes. The development of new techniques and finding innovative ways to recognize new forms of tax evasion is urgently needed.

How Big Data Can Help

Big data analytics can be a powerful tool to help governments like Serbia increase revenue while reducing tax evasion  in the following ways:

1. Improved accuracy: Identify errors and inconsistencies in tax data to reduce mistakes during tax collection and increase the accuracy of assessments.
2. Better compliance: Identify non-compliant taxpayers and detect tax evasion more effectively to increase revenue collection.
3. Enhanced risk management: Identify high-risk taxpayers and prioritize audits accordingly to reduce the risk of fraud and improve the overall effectiveness of the process.
4. Faster processing times: Automate time-consuming tasks associated with tax collection to speed up processing times for returns and improve efficiency.
5. Cost savings: By automating many of the manual processes associated with tax collection, big data analytics can reduce costs and generate savings.

One example of using data analytics for tax collection dates back to the 1960s when the United States Internal Revenue Service (IRS) began using computers to select tax returns for audit.

In the early 2000s, tax authorities in some countries began using big data analytics to identify patterns of non-compliance. For example, the Australian Taxation Office launched a data-matching program that compared data from various sources, including banks, employers, and government agencies, to identify discrepancies in taxpayer information. This program helped them identify millions of dollars in unpaid taxes.

A Partnership Between the Government, Academia, and the World Bank

In 2018, Serbia’s Tax Administration partnered with the Faculty of Science of the University of Novi Sad (FSUNS) to use big data for its compliance risk management (CRM) system. The collaboration led to using artificial intelligence to process big data and automatically identify significant deviations, which allowed for more efficient tax control with fewer field visits, raised awareness of voluntary tax declaration, and provided insights on enhancing voluntary compliance.

Under the 2021-2025 Transformation Programme, the World Bank is supporting Tax Administration Reforms through the Tax Administration Modernization Project. The big data project, along with other reforms implemented by the STA, as well as a solid performance of the Serbian economy, has contributed to the growth of salary tax revenue by 70 percent in nominal terms from 2018 to 2022 (while total tax revenue increased by 50 percent during the same period).  

Moving forward, and with the support of the Bank, a new tax administration system will be implemented to enhance analytics by improving data availability and integration to allow for more sophisticated modeling techniques. By using existing administrative data, we can improve governance and public services for citizens. As technology continues to advance, we expect to see more innovative applications for tax collection and other areas of public administration.