December 5, 2016 | Written by: Terry Lutes
Categorized: Tax & Revenue Management
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Much has been written about digital government recently, appropriately lauding the concept of bringing government services and use of technology to the level of the private sector. But concern has been expressed about the potential for the investment in this area to simply be e-government on steroids. It would be sad if this was the result. Parts of government, with tax administrations being among the pioneers, began offering forms and publications online and even e-filing 20 years ago with e-paying coming shortly thereafter. It is unfortunate that many government departments are still behind in this regard. One government department to which I regularly make payments only began to allow online payments in the past few months. Such services are relatively easy to provide and departments that have not done so should deploy them quickly.
But this is e-government; traditional processes and services enabled through an electronic channel. Traditional brick-and-mortar stores selling online is not digital transformation. Amazon, Uber and Airbnb are the commercial transformation examples. Likewise, for tax administrations e-filing and paying, no matter how well done, do not constitute digital transformation.
Tax administrations don’t create transformational change very often. These are sometimes policy driven such as the movement to VAT as a core revenue source beginning in the 1950’s. The technology of the day has driven some of these. Perhaps the best example is the emergence of pre-populated tax filing in the Nordic countries. Pre-populated tax filings totally changed the relationship between the tax administration and the individual taxpayer, making other countries want to replicate the change.
New technologies such as cloud, big data, cognitive computing and blockchain create significant opportunities for tax administrations to not only to improve traditional processes, but to also drive transformation. To be clear, transformation is not easy and in government policy and politics create more challenges than the technology. Most government policy was made in and for a different age. But technology enables new approaches and make it possible for government officials to drive the policy changes that make transformation possible.
Transformation in government does occur and can occur in tax administration again. There are several areas with potential for such change. One example would be to transform the relationships between corporations and tax administrations which are largely still operating in the century old “file and audit” paradigm. Interestingly, corporate tax departments are making significant systems changes to be able to address new requirements including the country by country tax reporting mandate. At the same time, accounting firms are modifying systems to stay relevant and tax administrations are modernizing systems to increase flexibility, efficiency and compliance levels. But these efforts, while in the larger tax ecosystem, are largely independent of one another and within the context of the file and audit paradigm. They have the opportunity together to make tax compliance activities real time, less invasive and reduce costs for everyone. But this can only occur through cooperative ecosystem modernization.
It is not my purpose to propose a design here but to emphasize that cloud technology, cognitive computing and blockchain offer great potential. They provide the tools to go beyond e-enablement. Together they make it possible to reinvent tax compliance enabling greater tax certainty for the corporations, doorways for new opportunities for accounting firms and lower cost with higher compliance for tax administrations.
This will happen. The tax administration that leads the way will be view as best in breed for corporate tax administration in the way the Nordics have been viewed as best in breed for individual tax administration.
And this is only one example of the digital government potential for tax administrations. Let the transformation begin!