Many countries in the world are expanding the role of digital automation within their tax compliance systems, and are looking to both realize cost savings and increase the quality of the customer service they provide.

ICAEW has published a second, 2019, edition of its report Digitalisation of tax – international perspectives. In this latest edition, ICAEW synthesizes a holistic review of the processes of digitalization, taking into account the needs of various stakeholders, whether they be taxpayers individual or corporate, the government, tax professionals, or even software vendors.

The report explains how tools such as pre-population and e-invoicing are being used to bring about digital change, and how change management approaches, such as pilot studies and rolling mandation, are making digital administration a reality. It also examines the thorny issues that countries need to consider when making their plans – such as how to keep the “digitally excluded” included, the effect of legacy systems, and the difference that tax morale can make.

The report builds on 12 case studies (up from seven in the first edition) to create an understanding of what constitutes a good digitalization project. It is based on desktop review of published material and extensive interviews with tax experts in the relevant countries, including tax officials, practitioners, and members of professional institutes.

Top Takeaways

Key lessons from the study include:

  • Pre-population of returns can provide substantial benefits, but requires extensive collaboration with third parties and will change the nature of the agent/authority/taxpayer relationship.
  • Relationships with third-party information suppliers and software vendors are crucial to build a system that is efficient and provides good value to the taxpayer.
  • Simplicity drives success: the older and more complex a tax system is, the harder it will be to create an understandable and reliable digital equivalent.
  • Digital exclusion must not be ignored or underestimated; those that cannot or will not use digital methods must be properly considered and catered for.
  • Proper legal support for digitalization must be established – for example, by including the legal status of digital records in court, the necessary powers to require digital filing and a legislative basis for digital identity.
  • There are key factors which make different tax systems variously harder or easier to digitalize. For example, pre-existing universal filing, or high levels of tax morale, or a pressing need to crack down on the grey economy can all work in favor of digitalization. 

Different paths in different countries

The 2019 edition covers twelve countries, which each have unique approaches to digitalization, as outlined below:

Australia – A detailed plan of digitalization supported by some clever identification and cybersecurity ideas such as voice recognition

Brazil – Unusual reliance on widespread mandatory electronic invoicing

Canada – Advanced digitalization project that is considering the next steps

China – Leveraging incredibly large data sets on taxpayers to help automate the largest tax system in the world

Czechia – Less of a focus on digitalization, and troubles stemming from rapid introduction and perceived overuse of powers

Estonia – The most advanced digital government in the world, Estonia is an exemplar of what can be done with concerted effort and ambition

Italy – Completely mandatory online filing leads to many Italians needing to use third party agents to file their taxes, leading to an uneven administrative burden

Nigeria – Starting out with digitalization as part of an effort to improve government efficiency and fight endemic corruption

Russia – An impressively rapid rollout of digitalization achieved with pilot schemes and regional rollouts

Singapore – A largely successful program of modernization with some hiccups around changes to authorization

UK – An ambitious second-wave digitalization project, which was originally aiming at changing too much too quickly for smaller taxpayers.  The revised plans are better thought out but may still lead to difficulties for taxpayers.

USA – Digitalization has been hampered by strong lobbying interests from software providers, on whom the current system relies.

For more information, an on-demand webinar with ICAEW’s IT and tax faculties can be accessed here.

Ian Young

Technical Manager, International Tax, ICAEW

Ian Young is responsible for international tax and tax policy issues at ICAEW. He works closely with a number of international bodies including the UN and the OECD. He is involved with CFE Tax Advisers Europe and Accountancy Europe as well as Global Accounting Alliance Tax Director Group. Ian is particularly involved in work to ensure better collaboration and cooperation between tax administrations, taxpayers and tax advisors.

David Lyford-Smith

Technical Manager, IT & The Profession, IT Faculty, ICAEW

David Lyford-Smith is a chartered accountant. He works as a Technical Manager in ICAEW’s IT Faculty. His work covers the effect of technology on the accounting profession, blockchain and cryptocurrency and spreadsheet risk and best practice.