Adopting technology could enable effective and long-term tax changes, assure proper taxation of the digital economy, and minimize compliance barriers.
Fremont, CA: Paying taxes is one of the most difficult and time-consuming contacts individuals have with governments worldwide. Improving tax compliance and collecting enough income has become a priority for many governments in order to support public goods and services.
That's why tax administrations are currently undergoing digital transformation and system automation. Adopting technology could enable effective and long-term tax changes, assure proper taxation of the digital economy, and minimize compliance barriers. The COVID-19 pandemic, which increased the usage of digital commerce, made this transformation even more pressing for tax authorities.
Over the last decade, the shift has accelerated as the expense of digital technology has decreased and sophisticated tools for developing apps have grown more user-friendly. One example of cost reduction: cloud storage is currently more than 50 percent cheaper than a few years ago.
The emergence of big data is a crucial aspect of the move since it allows for easier cross-checking of information, which improves taxpayer compliance. Between 2020 and 2024, worldwide data volume from mobile payment providers, electronic cash registers, online marketplaces, and other digital sources is predicted to nearly treble.
The fast expansion of e-commerce, expected to rise 24 percent from 2020 to 2025, is also driving digital transformation, rendering it an increasingly essential element of the tax base.
The growing usage of cashless payments via Smartphones and other devices is also driving the shift. Tax authorities can quickly evaluate such payments and frequently leave a digital trail that may get scrutinized.
Digitalization simplifies authorities by reducing administrative burdens, allowing officials to devote more time to higher-value operations. However, it enables authorities to streamline processes and minimize the regulatory burden on taxpayers. According to research, digitalization lowered compliance costs in South Korea by up to a 19percent between 2011 and 2016.
Despite all of the advantages, this change faces significant hurdles. According to research, most digital transformation attempts fail—an estimated 900 billion of the 1.3 trillion dollars spent in 2018 got squandered.
To achieve the intended outcome, the digitization of tax systems must mobilize a wide coalition of stakeholders to implement the required legal reforms and provide the necessary money.
The transition should also emphasize generating value by streamlining procedures and bringing taxpayers permanently into the e-filing, e-payment, and e-document ecosystem. Reduced compliance costs, better tax certainty, and higher compliance all give a benefit.
Finally, tax administrations must create scalable and interoperable technologies that can get utilized across departments.
