To use an analogy from the OECD Tax Administration 3.0 report, this would be akin to the development of automated, self-driving cars. Today, car safety is a combination of set requirements, such as vision standards, driving tests, traffic rules and speed limits, coupled with enforcement processes such as the installation of cameras to detect speeding and other moving violations, patrolling by the traffic police and the imposition of parking fines. Despite these set conditions and controls, in essence, there is still an expectation that drivers will voluntarily exhibit responsible behavior and comply with the relevant rules.
In a world of driverless cars, however, the vehicle is an integral part of a wider system which builds-in safety through the use of algorithms and features for the vehicle to make complex decisions such as sensors picking up information from road conditions and other cars. As such, driving will be largely based on compliance by-design systems with drivers freed-up to undertake other activities.
Similarly, the future in tax administration systems is in increasingly embedding compliance by design outcomes as well as possible step-change reductions in compliance costs for taxpayers.
The core features of digital tax administration systems are:
1. Tax will be embedded within taxpayer natural systems, such that paying taxes will become a more seamless and automated experience over time, integrated into daily life and business activities
2. Many digital platforms will become “agents” of the tax authorities carrying out tax administration processes within their systems, and
3. Tax authorities will no longer be the single point of data processing and tax assessment. Instead, tax administration is conducted within a resilient network of seamlessly interacting trusted actors without one single point of reliance. The tax administration processes will therefore be increasingly in real-time or close to real-time
The use of technology has the potential to address various areas and identify players within the shadow economy, therefore creating the opportunity to recover lost tax revenue, improve taxpayer morale, and restore trust in the system. At full capacity, technology solutions can significantly drive down the level of informal activity and revolutionize the operations and organization of the tax authorities, and their interaction and relationships with taxpayers. Mandatory e-invoicing and the increase in the use of electronic payments are just two digitization options that can help to curb the loss of tax revenue arising from the shadow economy.
What has been described above is not an imaginary future state. It is already taking place. The digital revolution, particularly with the internet of things, is already transforming tax administrations around the world. In Russia, data from many checkout terminals feeds directly into the country’s Federal Tax Service. The Russian tax authorities have a comprehensive view of the entire Russian economy. With minimal human involvement, their system tracks and matches transaction data from buyers and sellers across the country. They receive the receipts of every transaction in Russia within 90 seconds. The information has exposed errors, evasion and fraud in the collection of its consumption tax, VAT, which has allowed the Government to raise revenues more quickly than the general Russian economic performance.
Russia is just one example, and perhaps the most advanced. Many other jurisdictions such as Mexico, India, Brazil, to name just a few, have also gone digital. These countries have all introduced some form of digital tax administration, such as e-invoicing, that results in transactional data being posted to the tax authorities almost in real-time.
This is the future of tax administration — digital, in real-time and with probably no tax returns even needing to be submitted. In other words, remove the “voluntary” aspects and make tax just happen.
