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Digitalisation of tax: international perspectives (2019 edition)

Find out how digital technology 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 synthesises 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.

The 12 case study countries

Australia (updated) – A detailed plan of digitalisation supported by some clever identification and cybersecurity ideas such as voice recognition

Brazil (updated) – Unusual reliance on widespread mandatory electronic invoicing

Canada (new) – Advanced digitalisation project that is considering the next steps

China (new) – Leveraging incredibly large data sets on taxpayers to help automate the largest tax system in the world

Czechia (updated) – Less of a focus on digitalisation, and troubles stemming from rapid introduction and perceived overuse of powers

Estonia (updated) – The most advanced digital government in the world, Estonia is an exemplar of what can be done with concerted effort and ambition

Italy (updated) – Completely mandatory online filing leads to many Italians needing to use third party agents to file their taxes, leading to an uneven administrative burden

Nigeria (new) – Starting out with digitalisation as part of an effort to improve government efficiency and fight endemic corruption

Russia (updated) – An impressively rapid rollout of digitalisation achieved with pilot schemes and regional rollouts

Singapore (new) – A largely successful programme of modernisation with some hiccups around changes to authorisation

UK (updated) – An ambitious second-wave digitalisation project, which was originally aiming at changing too much too quickly for smaller taxpayers.  The revised plans are better thought out but may still lead to difficulties for taxpayers.

USA (new) – Digitalisation has been hampered by strong lobbying interests from software providers, on whom the current system relies.

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.

Read the full report here.

This article was originally published in ICAEW.