The Adoption of Electronic Filing for
Individual Income Tax Returns in Brazil
Nicolau Reinhard
University of São Paulo
Fax:55-11-3814-5047
and
Ricardo Wagner Moya
University of São Paulo
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Abstract
Brazilian Taxpayers have adopted the Internet-based filing of their Individual Tax returns at a very high rate (92% in 2001). This success has become the motivation for many other e-government initiatives. The paper uses Rogers innovation diffusion model to analyze the adoption and presents Governments decisions used to steer the process. Adoption was found to be irreversible, age being the only variable discriminating early adopters from late adopters. Social support networks and computers at the workplace allow for a generalized access to technology, bridging income and instruction barriers.
Introduction
The Brazilian Secretariat of Federal Revenues (SFR) operates some of the largest systems and nationwide networks in the Country, having received return filings from 12 million individuals in 2000 and from more than 13.5 million in 2001. SFR has a nationally recognized tradition of innovating processes and technology. Motivating factors are cost reduction, improved speed, quality and process integration. These e-government initiatives are central to gain public service performance and therefore strongly related to government’s image.
Due to former high inflation rates, Brazilian banks are highly automated and therefore the public at large has long being using electronic media for financial transaction processing. The public knowledge and trust has greatly facilitated the implementation of the more recent e-government initiatives.
Both Firms and Individuals, with revenues above certain levels have to pay income tax. Since 1997, only electronic media can be used by corporations for filing their tax returns (on-line or off-line). This poses no problem to smaller outfits because they usually have their statements prepared by accountant’s offices that all have access to the technology.
Although constantly growing, only a small percentage of the Brazilian population (168 million) is obliged to file personal income tax returns (8%). Most of these taxpayers prepare the statements themselves, with only larger income earners using the services of a professional accountant, although many may seek the help of a friend, relative or colleague. There are large differences in income, instruction, regional culture and demography that may influence the decision to adopt or reject the Electronic-based filing of Tax Returns by individuals (EBTR).
The Communication of taxpayers with the SFR.
The SFR organizational structure and operational procedures that are now in place where initially defined in 1968, in substitution of other taxing processes. The SFR executes the functions of Taxation, Collection, Inspection, Customs, and has the support functions of Technology, Information and Logistics. The SFR is structured in Central Units that take care of strategic and tactical activities, while a hierarchy of 10 Regional Superintendents, 105 Regional Branches and 357 local Offices execute the processes in direct interaction with the public. The State of São Paulo, responsible for about 40% of GNP has 22 Regional Branches and 60 local SFR Offices.
The change from paper to Internet as communication medium was conducted as a stepwise process, as shown in Table 1, leading to adoption rates presented in table 2. Considering only the Internet phases, the adoption rates are presented in Table 3.
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Table 1: Communication Medium and automated taxpayer support
Function and Medium / Innovation PhasePhase
A / Phase
B / Phase
C / Phase
D / Phase
E
Before 1991 / 1991 / 1992à1995 / 1996 / 1997 / 1998 à2001
Filing
Medium (1) / Paper / Diskette / Diskette / Diskette / Internet / Internet (2)
Tax
Calculation / None / Program / Program / Program / Program / Program
Simulation
/ None / Program / Program / Program / Program / ProgramActual
Filing / In person / In person / In person / In person / Virtual / Virtual
Taxpayer
Receipt / Paper / Paper / Paper / Paper / Digital
File / Digital
File
Microcomputer
Operating
System / No Operating System involved / MS-DOS / MS-DOS / Windows / Windows / Windows
Innovation(3)
Type / Discontinuous / Continuous / Dinamically
Continuous / Dinamically
Continuous / Continuous
Notes
(1) At every innovation Phase, all previous media remain available
(2) Since 1999 lower income taxpayers can file (and have their calculation performed automatically) also by phone or on an electronic form at the SFR site. All others have to get a free SFR-supplied diskette or download the program from the SFR web site.
(3) Innovation types according with Robertson ( 1971).
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Table 2: Nationwide adoption of EBTR (diskettes)
Year / % of taxpayers adopting electronic media1991 / 3
1992 / 6
1993 / 13
1994 / 20
1995 / 35
1996 / 44
Table 3: Nationwide adoption of EBTR
( Internet only )
Year
/ % of taxpayers adopting Internet1997 / 5
1998 / 25
1999 / 53
2000 / 81
2001 / 86
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Besides the generalized diffusion of computer technology, several administrative measures taken by the SFR contributed to this process. Until 1999 taxpayers would receive their forms by mail. After 1999 blank forms would be available only at stores and SFR offices. The SFR would also set up temporary kiosks in Shopping Centers and other public places. Until 1995 users could receive the program by taking a blank diskette to a Bank or SFR Office in exchange for the program diskette. Companies and individuals were encouraged to copy and redistribute the software. This policy eliminated competing return preparation software providers. After 1995 the diskettes would be distributed for free. Beginning in 2000 the program would be distributed on CD or from the web site. At SFR Offices users still could download the program on diskettes for their later use at home.
Traditionally users could return their filings at any of the over 6.000 Bank Agencies in the Country and SFR Offices. In 1995 this was reduced to the 2.000 plus Agencies of State-owned Banks and SFR Offices. All changes were heavily advertised through mass media. Companies and service providers would be encouraged to distribute the software through their own channels (diskettes, CDs, Web sites). From 1991 to 1994 the SFR strategy seems to have been simply to promote and facilitate de adoption of electronic media. From 1995 on, the innovation was considered viable and irreversible.
Long waiting lines at the tax return reception places close to the deadlines may also worked as an incentive to adoption of the Internet medium.
Taxpayers filing through electronic media would also receive earlier their refunds from the SFR. From 2001 on taxpayers could also pay their income taxes or plan the payment in installments from the SFR site at filing time. These measures led to increased quality and efficiency, indicating a control and inducement strategy by the SFR. In 2000 the SFR stopped sending paper forms by mail, and reduced the software media to CD and web site, indicating an imposing approach. On the other hand, without size restriction imposed by diskette media, the software could be made more flexible and user-friendly.
During this whole period (except for the first year) the software, and later the web site, had no significant bugs or operational problems and was generally accepted by the public as technically sound and dependable.
Table 4 summarizes the chronology of these measures.
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Table 4: Distribution and Reception of EBTR
Distribution
/ 91 / 92 / 93 / 94 / 95 / 96 / 97 / 98 / 99 / 2000 +Paper Forms / SFR by mail (1) / x / x / x / x / x / x / x / x / x
At SFR Offices / x / x / x / x / x / x / x / x / x / x
At Stationary stores / x / x / x / x / x / x / x / x / x / x
Diskettes / SFR exchange for blank / x / x / x / x
SFR free / x / x / x / x / x /
x
SFR-download to diskette / xInternet / Download to PC / x / x / x / x
CD / SFR free / x
Reception
Forms / All Banks / x / x / x / x
Public Banks only / x / x / x / x
Post Offices / x / x
SFR Offices / x / x / x / x / x / x / x / x / x / x
Diskettes / All Banks / x
Public Banks / x / x / x / x / x / x
SFR Offices / x / x / x / x / x / x / x / x / x / x
Internet / x / x / x / x
Note (1): only for users that had used paper forms in the previous year
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Model of Innovation Diffusion
According to Rogers (1995), innovation diffusion is a process whereby an innovation, through certain communication channels, over time, is transmitted to members of a social system. The innovation diffusion is a special type of communication, where the messages are related to new ideas, practices or objects. The decision process, adapted from Rogers, is shown in Figure 1.
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Figure 1: Innovation-Decision Process
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Adopters, according to Rogers (Rogers 1995) can be grouped in the following categories according to their adoption behavior toward the particular innovation: Innovators, Early Adopters, Early Majority, Late Majority and Laggards.
Rogers also uses the concept of selective perception, assuming that the knowledge about the innovation may occur stimulated by the users needs.
This is consistent with the suggestion of Presser (1969) that innovators should be taken from those who need the innovation, meaning that persons not needing that innovation should not be considered non-adopters.
Rogers’ normal-like frequency distribution is adequate for continuous adoption innovations. The decision to adopt or not the EBTR, however, can be made only once a year, a discontinuous adoption process.
These considerations led the authors to define the concept of generations of potential adopters: taxpayers who in a certain year had, for the first time, the obligation to (or interest in) file their tax returns. Innovativeness will then be measured for members of a same generation. In fact, if the adoption decision is a time-dependent process, adopters have to be compared on the same time frame.
Innovativeness
According to Sheth and Ram (1987), there are three types of risks involved in the adoption of an innovation: economic, performance and physical (personal or property). Considering the EBTR, the risk of economic loss can be discarded. The performance risk can also be ignored, since the system has worked well over the years and the comfort offered to the user is unquestionably higher than the paper alternative. The physical risk is a possibility: taxpayers may understand that more of their personal data would be readily available to Government by the use of EBTR and therefore more controls could be exerted. This could be more of a problem for high-income persons.
A negative general attitude toward Government in general could also work against cost reduction measures.
In order to make the results of this research useful to other Government Agencies, it is convenient that it be based on data that are readily available from existing databases. For financial services (including the SFR) the following personal data are available and can be published in aggregate form:
- Personal Characteristics: Age and Gender
2. Social Status: Income and Occupation.
The research hypotheses are that these characteristics of taxpayers are not related to their innovativeness (null hypothesis). Our research measured only the simple associations between each variable and innovativeness.
Research methodology
The research was of an exploratory nature. The statistical sample was based on taxpayers from a single region (Campinas, a high-tech, high-income area close to São Paulo, with about 1 million inhabitants of which, about 300,000 ( 2001 data) are income tax payers). The survey considered 600 users who started filing their returns between 1997 and 2000, yielding 573 usable responses. For each respondent the survey collected the following data:
- Gender,
- Year of birth,
- Year of first filing,
- Year of first electronic filing,
- Chosen electronic media,
- Occupation,
- Income.
Analysis of Results
SFR global statistics presented in Graphs 1 and 2, show the adoption of electronic media for the total population of taxpayers in Brazil and Campinas, demonstrating the high adoption rate of the innovation.
Graph 1 : Evolution of EBTR nationwide adoption
Graph 2: Evolution of EBTR adoption in Campinas
Table 5 and Graph 3 show the evolution of the number of adopters for each “Generation” in the sample.
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Table 5: Generations of Adopters and Year of adoption.
Year of adoption of EBTRGeneration / 96 / 97 / 98 / 99 / 2000 / Total adopters / Non Adopters / Total
96 / 47 / 20 / 17 / 20 / 3 / 107 / 7 / 114
97 / 76 / 19 / 13 / 5 / 113 / 4 / 117
98 / 126 / 12 / 4 / 142 / 10 / 152
99 / 102 / 2 / 104 / 5 / 109
2000 / 81 / 81 / 0 / 81
Totals / 47 / 96 / 162 / 147 / 95 / 547 / 26 / 573
Graph 3: EBTR Adoption by “Generation” in Campinas
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These numbers are the result of all intervening factors: personal decisions, social factors and SFR’s managerial action. New entrants have already been influenced by previous generations, requiring the separate testing of the hypotheses for each Generation.
Table 6 presents the results of the tests for the four model research hypotheses.
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Table 6: Summary of Hypotheses Tests
H0,1Gender / H0,2
Occupation / H0,3
Income / H0,4
Age
Reject? / Sig / Reject? / Sig / Reject? / Coef / Sig / Reject? / Coef / Sig
96 / No / .631 / No / .402 / No / +1,18E-05 / .202 / Yes / -2,4E-02 / .002
97 / No / .177 / No / .815 / No / -2,4E-05 / .01 / No / -1,9E-03 / .839
98 / No / .675 / No / .153 / No / +1.76E-06 / .675 / No / -5,3E-03 / .192
99 / No / .153 / No / .543 / No / +6,30E-07 / .582 /
Yes