This article was first published in the April 2017 China edition of Accounting and Business magazine.

Tax administration and technology innovation have become inextricably entwined. This is in part due to the much-criticised tax policies and effective tax rates paid by some of the world’s most innovative technology companies; in part because of the enormous impact that digital technologies can have on how taxes are administered. Australia, Brazil and Estonia are just a few of the countries where governments have exploited digital technologies to innovate and improve tax administration.

Digital tax administration is advanced in Estonia. There is a central shared platform for all government agencies and large banks; data on taxable events is collected from employers and other third parties; and citizen identification is secure and robust, enabling the Estonian Tax and Customs Board to provide pre-populated tax returns, which take just minutes to approve and submit with a digital signature. However, there is some digital exclusion among older citizens and in remote areas with poor internet connectivity.

Innovation in tax administration has taken a different path in Brazil. Electronic invoicing is mandatory for nearly all enterprises, as is use of a prescribed format and invoice submission to the tax authority. This approach has helped the government to reduce levels of unreported transactions and created a database that can be mined for insights into the national economy; it has also enabled businesses to achieve quicker collection times and lower costs.

Mixed reactions

The accountancy profession’s reactions to such developments tends to be mixed, for a number of reasons – not least the variety of approaches to the implementation of digital tax initiatives and systems and the underlying variations in tax regimes across jurisdictions. This can be highlighted by comparing some aspects of the digital tax transformations that are under way in Singapore and the UK, where approaches to timescales, phased introductions and a great deal more are markedly different. 

For example, in Singapore paper filing is no longer accepted for some returns and the transition to mandatory electronic filing (e-filing) for tax returns is under way. ‘E-filing of tax returns is currently voluntary, but will be made mandatory for all companies in respect of their YA 2020 tax returns,’ says Ong Siok Peng, tax partner, Deloitte Singapore. This mandatory e-filing is being phased in, with the largest companies (by turnover) being required to e-file earlier.

In the UK, e-filing of some statutory tax reports, such as annual corporation tax returns, has been mandatory for some years and the government wants a fully digital tax system by 2020. From April 2017 a ‘Making Tax Digital for business’ initiative will pilot quarterly e-filing of income, expenses and profit by self-employed individuals and businesses, plus year-end finalisations. This will become mandatory from April 2018, beginning with some of the smallest sole traders and landlords.

There are also differences in how such initiatives are received by those affected within a single jurisdiction, as this is coloured by various factors, including their personal experiences and propensity for optimism ‘The transformation of the UK tax system to fit the digital and mobile age presents an unmissable opportunity for accountants,’ says Ian Rodgers FCCA, director at The Profit Key in the UK. 

Kevin Whitehouse, founder of accountancy firm Prime Entry, agrees: ‘It’s the biggest opportunity to hit the accountancy industry in years.’ However, he acknowledges that providing transition guidance and support to existing and new clients may be easier for some firms than for others. ‘For those firms embracing available technology, this won’t be a step change. They will already be working closely with their clients digitally.’ 

Rodgers and Whitehouse are hoping to simplify the transition for their firms and clients by using cloud software and mobile apps. ‘Having the app and giving them access to it from mobile devices is really going to help our clients,’ says Rodgers. Whitehouse urges more firms and clients to eschew spreadsheets and the seasonal carrier bag parade. ‘This type of dark-age accountancy is exactly why Making Tax Digital for business is such an important change in the industry,’ he says. 

Unrealistic expectations 

Of course, this brave new world may not be for all businesses or firms. Ong says: ‘In Singapore, concerns have been raised in parliament that smaller accounting firms, in particular sole proprietorships helmed by older professionals, may be unable to keep pace with technological advancements. Nevertheless, we are not aware of any plans to defer the implementation of mandatory e-filing.’

Even tech-savvy firms are concerned that governments may have unrealistic expectations of small businesses. At Capsa Accounting, Ray Backler and his clients have been using cloud software for over a decade and he is familiar with the kind of mobile apps that are needed to digitally capture key data from bills, invoices and receipts. ‘The process is not always as straightforward as it might be,’ he says.

Capsa says that expenditure isn’t always identified correctly. It can be difficult to get date, amount and supplier all in one photo, or ensure that a single receipt for petrol, a chocolate bar and a newspaper doesn’t mean that they all end up as motor expenses. Jay Huang, a tax specialist at Tax & Super Australia, notes that some tax apps piggyback a phone’s image library, so receipts may be tricky to find among all the other photos taken and may be lost forever if the phone is (and no backup has been done).

Echoing the issues in Estonia and Singapore, Backler notes a digital divide between his firm and its clients. ‘You couldn’t get more computerised than we are,’ says Backler. ‘But we still run clients’ payrolls and do their statutory returns and payments. They use online accounts software to create invoices, but if we hadn’t come along and said that doing this would make their lives easier and keep their accountancy fees down, they’d probably be producing invoices and recording expenditure using Word and Excel.’

For many firms and their clients, the transition to digital record-keeping and mandatory e-filing can be a step change practically and financially. Chas Roy-Chowdhury, ACCA’s head of taxation, recently told a UK government committee: ‘There will be a requirement to ask your agent to perform work five times a year instead of once a year,’ Some small practitioners may have to drop the client or write off the additional cost of advising them. ‘I do not think this is going to be a business opportunity for accountants.’ 

Lesley Meall, journalist