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1. The Tax Administration deploys IT

It all started with punched cards

The Tax Administration took its first steps into IT in 1947, when the Helsinki tax preparation office started using its first punched card machines. Punched cards were used to store data using perforated lines. They multiplied calculation power compared to the traditional approach of paper, pen and calculator. By 1960, the Tax Administration had acquired a total of five punched card machines, which were located around the country.

The Tax Administration got its first real computer, an IBM 1401, in Helsinki in 1961. By the mid-1960s, it had built up a network of seven computer centres. These centres handled calculation tasks and payment monitoring for the tax offices, as well as matters such as the pre-completion of tax returns and production of tax books. ‘Automated data processing’, as it was referred to in Finnish, became an integral part of tax preparation and implementation.

The Tax Administration wanted to centralise the IT of its different sectors at the Finnish State Computer Centre (VTKK) in the 1960s. The operations of the Tax Administration’s computer centres were also transferred under VTKK in 1968. However, it soon became apparent that taxation required specialised design and programming. To this end, the National Board of Taxes, established in 1970, started to hire design personnel, and the Tax Administration gradually took on a larger role in handling its own IT requirements.

In 1984, the Ministry of Finance took a decision in principle that taxation IT operation functions would be transferred from VTKK to the Tax Administration. Taxation data processing had grown so large that it was no longer economical for VTKK to handle it. That said, the National Board of Taxes also continued to use VTKK’s services until the 1990s.

The “IT mess” and its lessons

“The ‘automated data processing’ of the Tax Administration became infamous in 1990.”
(National Board of Taxes’ Annual Report 1990)

The tax assessment process for 1989 had to be completed by the end of October 1990 so that tax refunds and back taxes could be paid in December, as usual. In summer 1990, however, news of IT problems began leaking to the media – and these problems threatened to delay the completion of assessment. Newspapers ran many stories on “the IT mess” and the matter was even deliberated on by the Government and Parliament in 1990–1991.

The root cause was a modernisation project launched in 1988 (the VTL project), which sought to build a new tax calculation system. The work relied on the National Board of Taxes’ own personnel resources. The VTL project introduced new tools and a new programming language – the additional work required due to the comprehensive tax reform ongoing at the same time increased the workload substantially.

Recurring delays in this multifaceted project played havoc with the normal taxation schedule. The tax assessment process for 1989 was finally completed at the end of March 1991, five months behind schedule. Citizens who had been expecting to get their tax refunds before Christmas had to wait until late spring.

The Tax Administration caught up in a couple of years. The taxes for 1992 were once again on the right schedule. This was a tough experience for the Tax Administration – but the agency also learned from it. Going forward, it carried out large-scale overhauls in phases and set up a sufficiently large project organisation for them. The Tax Administration also paid attention to safeguarding taxation in situations with a transitional period and when changing over from one system to another.