Digitalisation of tax: international perspectives (2019 edition)

Find out how digital technology has been utilised by international tax administrators to reduce costs and improve compliance and tax yields, while crucially assessing the future challenges these economies face.

In particular, in this updated 2019 version, we synthesise a holistic review of the processes of digitalisation: the needs of the different stakeholders, the tools and options available for making digital administration a reality, and the thorny issues that countries need to consider when making their plans. It builds on 12 case studies to create an understanding of what constitutes a good digitalisation project.

While the case study countries differ substantially, there are still many common threads in the challenges they face. The most commonly cited one was digital exclusion – how to fairly treat those taxpayers who were unable or unwilling to move to online or automated filing.

Some countries, such as Italy, took the path of full mandation, expecting taxpayers to buy software or hire agents if they couldn’t comply themselves. Others allowed taxpayers to stay on paper-based or in-person systems, or provided community filing support or digital skills training, but suffered increased costs as a result. Even the most digital-native of countries were not exempt.

The benefits of pre-populating tax returns

A second key trend was pre-population of tax returns. With ever more information reported to tax authorities digitally and often in real time, many countries are taking advantage of this to start pre-filling taxpayers’ returns with relevant third-party information. As well as making filing quicker and easier – averaging under five minutes in Estonia, for example – this shift also reduces the chances of omissions and errors. But pre-population isn’t just a convenience – it also spells major change for the tripartite relationship between the tax authority, the taxpayer, and their tax advisors. With the taxman preparing the return and the taxpayer auditing it, the flow of information is reversed. If defaults are chosen on things like elections, complacent taxpayers may end up overpaying.

The importance of data analytics

Big data analytics is already big business in many fields, but tax authorities can legislate to ensure that they get exactly the data they want, in the format that they want it.  With this high quality data input and a broad set of entities reporting, it’s only natural that countries like Brazil and China are not only making tax compliance more automated, they’re also working to build analytics tools for catching tax evaders and even to analyse and plan their national economies.  In the case of Brazil, this even extends to a comprehensive system of mandatory e-invoicing that ensures that all VAT data is captured appropriately.

The arrow of technology is clearly pointing one way.  Increasing digitalisation is inevitable.  But there are lessons to be learned about how to plan digitalisation projects, how they will affect the tax landscape, and how stakeholders can respond in this new world.

This article was first published by ICAEW. To visit the original story, click here