In the first of a series of short articles, KPMG’s Darren Anton looks at how digitalisation will impact the world of tax as we know it.
When you hear talk about digitalisation, you’ll also often hear terms such as ‘disruption’ and ‘revolution’ – and it’s true that tax is undergoing its own ‘revolution’ as governments assess and respond to the impact of digitalisation.
The implications of digitalisation are definitely game changing for both tax collection and policy. On one hand it provides opportunities to greatly improve compliance, allowing tax authorities to close the tax gap. On the other hand, many governments increasingly view digitalised business models as a threat to their tax base because value can be derived from a market remotely with little physical presence – giving them no ability to tax it.
With transactions becoming increasingly digital they are also becoming increasingly traceable and this is allowing for improved international co-operation and automatic exchange of information between authorities. With this increased access to information, plus new technologies, it is allowing tax authorities to boost their analysis capabilities, which in turn allows for better identification of fraudulent activities. For jurisdictions with high levels of fraud and corruption, digitisation has proved to be invaluable in improving compliance and increasing tax yields.
We do now see most tax administrations gradually digitalising and this is reflected in Gibraltar. This can range from providing a set of online tools and portals to let taxpayers file returns online to introducing ‘bridging’ between the financial systems of the tax authority and the taxpayer allowing real time data analysis, liability calculation and finally collection.
It seems a no brainer for digitalising the administration of a tax system to produce a more efficient tax authority that narrows the tax gap, whether it be due to mistake, negligence or fraud and there are many benefits both for the taxpayer and the administration in reducing the compliance burden. Inevitably though, concerns will be raised over the power and reach of the authorities, and any automated system will rely on public trust in the capability of tax authorities to develop systems that are reliable and secure but also in the way in which the resulting data is used
Elsewhere digitalisation will also bring many changes for in-house tax departments by transforming the finance systems needed and the skills required within the department. But while the days of staff undertaking a line-by-line analysis of spend may soon be gone there will still be the need for tax expertise. For there will always be some transactions that need human intervention, both by the taxpayer and the tax authority. So getting the balance right between systems experts and tax technicians will be essential in this new digitalised era and so this could slow the pace of change but from the developments we have seen so far I would hold on to your hats!
Next week Darren Anton looks at the impact of tax digitalisation in an international context.
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