The objective of this blog is to comment on the main points of a truly relevant report on "Tax Administration 2022", published on June 23, 2022, by the OECD Forum on Tax Administration (FTA) , which was prepared with the participation of 58 jurisdictions representing about 90% of the world GDP.
It provides comprehensive comparative information on the performance of tax administrations (TAs) in 2020 and aims to help them consider where further improvements can be made, as well as improve the broader public understanding of their scale and their changing nature.
This 2022 edition also attempts to highlight the most significant changes they face, using data provided through the International Survey of Tax Administrations (ISORA) as well as over 100 examples received from more than 35 Tas.
The report also uses data from the recently launched Tax Technology Initiatives Inventory (ITTI), which contains information on technological tools and digitalization solutions implemented by more than 75 TAs .
The main aspects are summarized below:
By covering the year 2020, it is the first edition showing the impact of the COVID-19 pandemic on the Tas.
The pandemic has had a significant impact on revenue with a large decrease in net income (€620 billion) and taxes owed by more than €200 billion.
In addition, significant changes were seen in the way TAs interact with taxpayers, for example, with a 55% drop in face-to-face visits and a 30% increase in digital contacts.
The report highlights that TAs have proven to be resilient in the face of these challenges and, as the examples show, they have continued to innovate and provide high-quality services to taxpayers.
It should be noted that many TAs have initiated new services as part of broader government schemes of support during the COVID 19 crisis.
The innovations highlighted in this edition of the report show how the pandemic accelerated the growth of digital services and digital transformation and led to the consideration of new ways of working.
Many TAs report that they are reflecting on their experiences during the pandemic and considering what this means for the future of TAs, both for employees and taxpayers.
This 2022 edition shows how the trend towards an electronic TA has continued and been accelerated by the pandemic, with digital contact channels now dominating interactions with taxpayers.
For example, the TAs report that in 2020 there were about 1300 million contacts through online taxpayer accounts, an annual growth of 27%.
Around 75% of TAs have a digital transformation strategy in place. They are driving digital services to become ‘smarter’, enabling taxpayers to complete increasingly complex tasks digitally, more efficiently and 24/7.
This is also helping to lead to major improvements in taxpayers’ tax compliance and there are growing signs that the pace of digital transformation will accelerate further.
Two general themes stand out in the drive towards digital transformation: taxpayer participation and compliance management.
Regarding the participation of taxpayers, it is said that two main factors are driving the effective digital engagement:
• Identity and secure digital verification- As TAs offer more services online, digital security, digital verification and digital identity are becoming the cornerstone of their work.
• Collaboration with third-party service providers: Incorporating services and processes into the natural systems used by taxpayers in their daily lives and their businesses is a growing trend among TAs. While this helps improve tax compliance, it also reduces administrative burdens and frees up time that taxpayers can use to grow their businesses. As these forms of collaboration become more common and sophisticated, TAs are beginning to adopt strategic approaches to managing and supporting service providers. This may include co-creation activities, in addition to allowing direct data exchanges via application programming interfaces (APIs).
With regard to compliance management, it is said that compliance-by-design approaches have been in place for many years for salaried taxpayers on income tax through withholding and reporting by employers. (PAYE-Pay-As-You-Earn)
These systemic arrangements, adopted by almost all TAs, have helped to maximize compliance with this significant part of the tax base.
The increasing availability and exchange of data now allows such approaches to be expanded to cover other sources of income and other classes of taxpayers, including through the pre-filing of corporate income tax returns and VAT returns (draft declarations or pre-filled returns).
Digital techniques are also enabling TAs to take a more advanced approach to risk management. This can be seen in:
• The regular use of large, integrated data sets. The manipulation and management of data is now a central part of the functions of a TA, with the use of analytical tools and techniques that are incorporated in all areas of the tax administrations. About 90% of TAs report that they use analytical and data science tools, and this is making it easier to use data in all aspects of an administration’s work.
• The growing use of artificial intelligence and machine learning. As TAs become more comfortable with managing large data sets and computing power increases, the use of AI and machine learning is opening up new approaches in risk management. More than 70% of TAs are already using highly innovative techniques to exploit data in a way that can uncover previously hidden assets or identify new risks.
Budget constraints continue to affect the TAs. While most of them report an increase in operating expenses in absolute terms, this may not show the full picture, as they face increased responsibilities, the pressures of technological change and the changing structure of their workforce.
There is also a significant variation in the amount of operating and capital expenditures on information and communication technology.
Technology is helping TAs respond to these budgetary challenges, and an emerging trend that is showing remarkable results is the increasing use of Robotic Process Automation (RPA), where machines are used to complete repetitive tasks.
The examples provided in the report have highlighted that RPA is not only significantly increasing operational efficiency, but the personnel satisfaction is increasing, as they can concentrate on the most interesting and challenging tasks.
One of the biggest changes caused by the pandemic was the growth of remote work, and TAs are now considering how to adjust their work practices to take advantage of the benefits that more flexible working modalities can offer.
The report is part of the knowledge-sharing programme at the OECD Forum on Tax Administration (FTA), which is helping TAs to learn from each other.
Practical tools such as the OECD FTA maturity model on digital transformation are helping jurisdictions identify their strengths and weaknesses, which in turn provides a greater focus for collaboration.
International cooperation has also helped to support the national trend towards the sophisticated use of data, by providing access to datasets provided by initiatives such as country-by-country reports, information exchange and the OECD/G20 CRS.
These have provided large volumes of data on cross-border activities to the TAs, which is adding a new dimension to existing national activities, including risk assessment processes.
TAs have also gained significant experience of working together to effectively implement complex international initiatives such as the OECD/G20 BEPS action plan and the OECD International Compliance Assurance Programme, where taxpayers and TAs work cooperatively and multilaterally in near-real conditions, and they conduct risk assessment and assurance of major international tax risks.
As TAs go through their own digital transformation processes, the next challenge will be to determine how this national learning can be applied across borders, hot to use new technology to support real-time cross-border information exchange, and provide smoother results for taxpayers, by granting tax certainty.
I find the reports that the FTA has been preparing since 2004 regarding TAs especially useful, since they not only reflect the trends of the topics but also have countless cases of practical application.
This is the first report where, based on the year 2020, the trends and consequences of the COVID 19 pandemic are glimpsed.
It is clear that we are witnessing a historic moment in terms of digital transformation, not only of the TAs, but of society as a whole.
I am convinced that the pandemic accelerated these processes and, in many cases, demonstrated their efficiency and effectiveness, allowing to provide services and even provide other functions, in addition to the traditional collection at those times of closure of the TAs’ offices.
Of course, in other cases it has exposed the deficiencies of countries in issues such as digital connectivity, digital literacy, excluded groups, etc., which requires urgent attention.
I believe that today this digital transformation is no longer an option but a necessity.
The trends reflected in the report, in terms of more personalized services with digital contacts, increasing use of new ICTs (AI, Big Data, Blockchain, etc.), new ways of working, increasing use of information exchanges, as well as the gradual advance towards compliance models by design, among others, will also be enhanced in subsequent reports.
In my view, this digital transformation of the TAs and governments in general should drive further collaboration in the simplification of tax systems, the rules, the procedures and services, by placing citizens at the center of this process.
In short, the path is not easy, but it promises great results. There are different realities in each country, but the important thing is to know where we want to get to in order to take the first step, and in this sense, reports such as the one analyzed here provide broad guidance on many of these issues.