In the world of taxation, the image of tax administrations as sluggish, bureaucratic giants resistant to change is a common one. Often, they are compared to ocean liners, requiring ample space and time to alter their course in the face of the ever-evolving digital landscape. However, the reality of modern tax administration is far removed from this perception. The COVID-19 pandemic served as a catalyst for tax administrations worldwide, as they swiftly implemented complex citizen support policies on an unprecedented scale. What’s less apparent but equally significant is the rapid digitalization occurring within these tax agencies. This transformation has only gained momentum since the pandemic, bringing fundamental changes as digital tools become integral to their core operations. The outcome? Lasting benefits for tax administrations and, ultimately, the taxpayers they serve.
These remarkable changes and innovative practices are unveiled in the OECD’s Tax Administration 2023 report. With ten comprehensive chapters, 135 data tables, and insights from more than 100 countries, this report provides an in-depth look into the workings of a vital government agency and the direction it’s heading.
From Digitalization to Digital Transformation:
For years, tax administrations have endeavored to enhance tax compliance among citizens and businesses, their primary goal being to generate revenue for public services. Technological advancements have been instrumental in this effort, as tax administrations have digitalized processes to simplify and reduce the cost of tax compliance. One notable example is the adoption of e-administration, enabling online tax return filing and payments. Many administrations have streamlined the process further by prefilling tax returns, a practice embraced by over 85% of individuals and 95% of companies. Nearly 90% of tax administrations even prefill personal income tax returns.
As technology’s influence continues to grow, tax administrations are embarking on the next phase: digital transformation. This vision, outlined in the OECD’s Tax Administration 3.0 report, emphasizes the significant strides made by tax agencies in delivering these benefits. Some key highlights include:
- 24/7 Availability: More than 60% of tax administrations now offer virtual or digital assistants, a remarkable increase of nearly 30 percentage points compared to 2018. These digital assistants can respond to taxpayer inquiries and support self-service, offering convenience on the taxpayer’s schedule.
- Decentralization: Tax administrations are integrating tax services into the daily lives and business operations of taxpayers, mirroring the ubiquity of technology in our lives through smartphones, tablets, and computers. The widespread support for apps has become a norm, freeing taxpayers to focus on other activities, including growing their businesses.
- Enhanced Risk Management: Digital techniques empower tax administrations to adopt a proactive approach to risk management. Approximately 95% of tax agencies now leverage data science and analytical tools to analyze electronic data from third parties and internally generated electronic data. This represents a significant increase of over 20 percentage points since 2018.
- Resource Efficiency: Over 80% of tax administrations are utilizing or planning to implement cutting-edge technologies to harness data in ways that reduce the need for human intervention. Artificial intelligence and machine learning are already driving efficiency gains, while more than 50% of agencies are using or planning to use robotic process automation, allowing staff to focus on complex tasks.
What Lies Ahead:
Tax administrations are not merely digitalizing; they are undergoing a digital transformation. The goal is to seamlessly integrate tax processes into the natural systems used by taxpayers daily. This evolution promises to make tax administration smoother and less burdensome over time, potentially reducing administrative complexities significantly. Stay tuned for future editions of the Tax Administration Series as we witness the ongoing transformation of this ocean liner into uncharted waters.
A Closer Look at the Data:
Since 2004, the OECD has been at the forefront of publishing internationally comparable data on tax systems and their administration through the Tax Administration Series. This series is just one aspect of the OECD’s Forum on Tax Administration (FTA), which brings together commissioners and tax administration officials from over 50 OECD and non-OECD countries. It serves as a platform for governments to access internationally recognized expertise, comparative data, and analysis to enhance tax administration, compliance, and certainty.
What initially began as a biennial publication covering 30 OECD members has evolved into an annual report. It now draws upon extensive data sets to highlight key trends, recent innovations, and best practices among 58 advanced and emerging tax administrations. The data for this report is sourced from the International Survey on Revenue Administration (ISORA), a collaborative survey governed by the OECD, IMF, ADB, CIAT, and IOTA. Additionally, the OECD’s Inventory of Tax Technology Initiatives, developed in partnership with eight organizations, contributes valuable insights. As tax administrations across the globe adapt to the ever-changing digital landscape, the OECD stands ready to assist in identifying opportunities to enhance the design and operation of their tax systems.
In conclusion, the course of tax administration is changing. These bureaucratic giants are not only adapting to the digital age but thriving in it. As they continue their journey into the digital frontier, taxpayers and tax professionals alike can anticipate a more efficient and user-friendly tax landscape that benefits us all.
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