Developments in technology impact every aspect of our daily lives from how we communicate with each other, how we travel, how we work, how we pay for goods and services. A natural consequence of this is that technology will continue to impact on how taxes are calculated, collected and reported to tax authorities. As demonstrated in the following international examples, tax authorities are increasingly using technology as a means to efficiently collect taxes from taxpayers and to tackle tax evasion.
In Finland, a photograph is taken to identify a person making a withdrawal at an ATM. The images are available to the tax authorities as required.
Hungary introduced an online cash register where data is recorded with a fiscal control unit. In the first year of introduction (2014), VAT revenue increased by 15% in the sectors for which it was introduced.
In Sweden, 135,000 cash registers have been connected to a fiscal control unit since 2010. This has increased tax revenues by an estimated EUR 300 million per annum.
The introduction of mandatory electronic invoicing in Mexico brought 4.2 million micro businesses into the formal economy
Source : OECD Technology Tools to Tackle Tax Evasion and Tax Fraud
Clearly, automation and technology enablement will play a key role in how tax authorities operate. Tax authorities are increasingly leveraging new technologies that can quickly analyse millions of records to accurately identify issues, thereby reducing the resources and time required to conduct an audit. Similarly, the ability to conduct targeted sampling of taxpayer data or to create more accurate controls for identifying potential errors has allowed tax authorities to focus their efforts on ‘‘higher risk’’ areas and taxpayers. In many cases, the tax return itself is no longer the sole focal point of an audit. Instead, taxpayers are increasingly requested to share the underlying data behind those numbers and a tax authority can compare the tax return to the underlying workings that support it.
From an Irish perspective, the Revenue Commissioners have increasingly become a data driven organisation, using advanced analytics to mine multiple data sources. Revenue continue to enhance online and self service facilities for taxpayers. This includes the recent pilot of a voice bot, which automatically responds to phone queries regarding tax clearance certificates.
From 1 January 2019, employers will be required to report payroll tax information on a real time basis under Revenue’s PAYE Modernisation project. This is likely to be the beginning of the end of the tax return as we know it and the first step on the road to real time reporting of all taxes
As demonstrated in the international examples above, tax authorities are seeing clear benefits from leveraging technology and this trend is set to continue. Real time reporting requirements for VAT have recently been introduced in Spain and Hungary, where detailed purchasing and sales information is shared with tax authorities. Poland has recently announced that they will abolish the VAT return in January 2019 as the tax authority already has the data that supports these returns. The first phase of the UK’s Making Tax Digital regime comes into force in April 2019, requiring an automated electronic audit trail to be maintained between all VAT relevant data. Other taxes are due to follow in 2020. Tax authorities will also continue to take advantage of technological developments in fields such as artificial intelligence, robotic process automation, blockchain and machine learning.
The changing nature of tax authority compliance requirements and interventions presents a significant challenge for businesses. With the increased use of technology by businesses and individuals, we are seeing increased digital footprints and electronic audit trails. As tax authorities become more sophisticated with their analytics capabilities, the reality is that, without a change in the way compliance is managed, businesses may have to deploy significant resources reacting to these changes. Businesses are increasing their investment in tax compliance technology to create a robust electronic audit trail in their day to day business processes and finance systems. In addition to improving compliance audit trails, companies are also realising benefits from these investments through the reduction of manually oriented tasks such as validating, adjusting and/or reconciling data to ensure the accuracy of our tax returns.
Big Data is about recognising the power and value in harnessing data and it is not difficult to foresee its impact on both taxpayers and tax authorities when it comes to managing both opportunities as well as risks.
This article appeared in the Sunday Business Post, and is reproduced here with their kind permission.