Tax administrations around the world looking to turn digital advances to good account face a major challenge from varying levels of technological development
This article was first published in the April 2019 International edition of Accounting and Business magazine.
Taxes have been part of human life from the earliest recorded times – and so too has been the battle to find an efficient and fair way of collecting them.
The advent of digital technology is seen as the ultimate opportunity for societies to transform the tax system for the better, making both the calculation and the collection of taxes simple and more accurate. A new report from ACCA, Technology tools and the future of tax administration, looks closely at the practical implications for the tax system worldwide, discussing the main issues for policymakers and decision-makers.
The application of technology in tax is by no means new. Throughout history, attempts to improve the calculation and collection of tax have triggered repeated innovations. Trigonometry, for example, has its roots in techniques used by ancient Egyptian tax inspectors to measure irregular areas of land.
Changing nature of data
The modern world, though, brings one crucial difference. Since the turn of the millennium, the emphasis in information records has shifted from physical to electronic storage. As a result, the ACCA report declares: ‘The character of information is changing – its cost and, perhaps, its value too are in a state of flux.’
The difference, from the point of view of a tax administration, is that digital records are infinitely reproducible. Thousands of items of data can be shared at a click, and vast volumes of data can be interrogated automatically by software almost instantaneously. ‘Tax administration is just starting to grasp some of the potential of this development,’ says the report. ‘The future is already here; it’s just not very evenly distributed.’
Digitisation, of course, is not just transforming business and the way that information is stored and accessed; it is also changing the very goods and services we produce and consume. That, argues the report, also has profound implications for the shape of the tax systems of the future.
Taxing profit vs consumption
In the digital economy it is increasingly difficult to point to the stage in the supply chain at which value is created. The report suggests that current models of profit taxation may retreat and be replaced with a broader reliance on consumption taxes, ‘which is the area where digital tools may perhaps have the biggest impact on our daily experience’.
While tax administrations are keen to explore technology, its adoption varies widely between – and within – countries, even when the technology in question is available.
‘The range of individual experience and capability is probably the most diverse it has ever been in many workplaces,’ says the report. The success of a digitally driven tax solution depends entirely on the willingness of individuals and businesses to adopt integrated solutions – and that is by no means guaranteed.
‘One of the key things about technology,’ concludes the report, ‘is that its adoption is rarely universal or instant – and it does not follow the same linear path of progression everywhere it appears… Approaches that work well in one market might not work at all in another, and external factors can completely change the dynamic within which the tax system operates. Tax administrations need to be sensitive to the local environment, and to other factors in the local economy, before seeking to implement costly measures that may not repay the investment.’
In short, the linkages between business and economic activities, the shape of the tax system, and the capacity and priorities of the society they inhabit are so intimate that a significant change in one inevitably affects the others. Entirely new taxes may be needed, but governments must remain open to exploring the best local fit so as to balance the costs of implementation with the returns from it.
Liz Fisher, journalist
"Tax administration is just starting to grasp some of the potential of digital data"