Are digital tax initiatives a challenge, an opportunity or a double-edged sword for the profession? Accounting and Business goes looking for answers
This article was first published in the March 2017 international edition of Accounting and Business magazine.
Tax administration and technology innovation have become inextricably entwined. In part, this is because of the much-criticised tax policies and low tax rates paid by some of the world’s most innovative technology companies; and in part, it’s because of the enormous impact that digital technologies can have on how taxes are administered.
Digital tax administration is well 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. As a result, the Estonian taxman can supply taxpayers with pre-populated tax returns that 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 in the country is mandatory for nearly all enterprises, as is use of a prescribed digital format and invoice submission to the tax authority. This approach has helped the Brazilian government to reduce the level of unreported transactions and create a database that can be mined for insights into the national economy. It has also enabled businesses to cut tax collection times and costs.
The Australian Taxation Office has made pioneering use of innovative security techniques, including a voice identification system and hardware-tied security keys. When the ATO retired its legacy online filing tools in 2016, replacing eTax with an updated web-based version of myTax, it also introduced an ATO app, so that taxpayers and agents can access ATO systems any time, anywhere, from any smartphone, tablet or computer.
The accountancy profession’s reactions to such developments tend to be mixed, for a number of reasons – not least, because of the variety of approaches to implementing digital tax initiatives and systems, and the underlying variations in tax regimes across jurisdictions. This can be highlighted by comparing some of the digital tax transformations 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 of documents is no longer accepted for some tax returns and a transition to mandatory electronic filing of tax returns is proceeding. ‘E-filing of tax returns is currently voluntary, but will be made mandatory for all companies in respect of their YA [year of assessment] 2020 tax returns,’ says Ong Siok Peng, tax partner at Deloitte Singapore. This mandatory e-filing is being phased in, with the largest companies (by turnover) 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 initiative for business will pilot quarterly e-filing of income, expenses and profit by self-employed individuals and businesses, along with year-end finalisations. This e-filing will become mandatory from April 2018, beginning with some of the UK’s smallest (by turnover) sole traders and landlords.
Cause for optimism
There are differences in how such initiatives are received by those affected within a single jurisdiction. Various factors, including personal experiences and propensity for optimism, will colour taxpayer responses. ‘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.
Kevin Whitehouse, founder of accountancy firm Prime Entry, agrees. ‘It’s the biggest opportunity to hit the accountancy industry in years,’ he says. However, he accepts that giving transition guidance and support to existing and new clients may be easier for some firms than 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 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.
But this brave new world of digital tax administration and tech innovation may not suit all businesses or accountancy firms. Ong says: ‘In Singapore, concerns have been raised that smaller accountancy 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 working closely together using cloud software for over a decade and he is familiar with the kind of mobile apps needed to digitally capture key data from bills, invoices and receipts. ‘The process is not always as straightforward as it might be,’ he warns.
Capsa says that expenditure isn’t always identified correctly. It can be difficult to get date, amount and supplier on one photo, or to ensure that a single receipt for petrol, a chocolate bar and a newspaper doesn’t lead to them all ending up as motor expenses. Jay Huang, a tax specialist at Tax & Super Australia, says that some tax apps piggyback a phone’s image library, so receipts may be tricky to find among all the other photos and may be lost forever if the phone is lost (and no backups exist).
There can also be a digital divide between firms and 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.’ Many businesses still are.
Firms and clients may find the move to digital tax administration a step-change practically and financially. Chas Roy-Chowdhury, ACCA head of taxation, recently told a UK government committee looking at making tax digital: ‘There will be a requirement to ask your agent to perform work five times a year instead of once a year.’ As a result, some small practitioners may have to drop clients or write off the additional cost of advising them. ‘I do not think this is going to be a business opportunity for accountants,’ he added.
Lesley Meall, journalist
"Dark-age accountancy is exactly why making tax digital for business is such an important change in the industry"