Emerging Technologies and their Potential Impact on Revenue Administrations
The 2nd NTO Technical Conference is a three-day conference focusing on the digital revolution of tax administrations and the opportunities and challenges that come with it. The first day will highlight the digital transformation journey of tax administrations with a special attention to the different stages of digitalisation and management. The second day will concentrate on tax compliance and enforcement technology.
Building on the discussion on the digital transformation journey of tax administrations and compliance and enforcement technologies in the first two days of the Conference, the final day of the Conference will focus on emerging technologies and their potential impact on revenue administrations. With the aim of creating a better understanding of emerging technologies and unpacking their potential impact on revenue administrations processes, the Conference will provide a comprehensive overview of how innovative technologies such as blockchain, artificial intelligence, and machine learning can enhance the process of tax administration and enforcement. Further, it will touch upon the pressing need for the tax administrators to acquire a unique combination of skills that will include understanding of dynamic business models, technological competence, and data savvyness to successfully navigate the evolving tax landscape. This article will explore some of the topics covered by the two plenary sessions of the third day of the 2nd NTO Technical Conference.
Blockchain, Artificial Intelligence, and Machine Learning in Tax Services and Enforcement
New technologies can increase the effectiveness of the internal operations of revenue administrations, can reduce costs and improve their capacity to collect revenue with smarter use of the information they collect. Nowadays, the evolution of digital technologies and services is a constant. Some of these technologies and services are disruptive and can promote radical changes in the work methods of tax administrations with a significant potential to obtain better fiscal results, modify the way the tax administration and taxpayers relate to one another, and even to clear the way for modifications of the tax policy.
Emerging technologies give rise to a range of opportunities such as possibility to provide better and more efficient e-services, ability to analyse high amounts of data, improve risk management, automate tax processes, etc. At the same time, they bring some challenges with them. Cryptocurrencies, for instance, are digital assets that are outside of government control, to a certain extent, which may result in the possibility of its use for criminal activities, exchange rate volatility, manipulation and tax challenges. Tax authorities, hence, should consider different factors to choose among the combination of different emerging technologies (i.e., already established processes, quality of data available, technical skills of the relevant staff, to mention some). As tax authorities are in different stages of digitalisation, some of the current technologies should be explored and applied accordingly. The convergence of Blockchain's secure and transparent record-keeping with AI's analytical capabilities emerges as a transformative combination with the potential to revolutionise tax management.
Blockchain
Blockchain is mostly known for being the fundamental technology for the implementation of cryptocurrencies like Bitcoin. It can be defined as a public ledger distributed by computer network nodes that maintains an ever-growing list of registries or transactions gathered in data blocks. The technology, as being totally traceable, is meant to provide safety against any revision or forgery. As the landscape of tax administration evolves, the relevance of Blockchain becomes evident, as its transparent, tamper-proof nature holds the potential to enhance accuracy, security, and efficiency in tax-related processes, a connection that is exemplified by various country experiences. The Brazilian Federal Tax Administration (RFB) currently implements a system based on blockchain to share data from the Registry of Individual Taxpayers (CPF) with different institutions in the three levels of government (federal, states, and municipalities) called “CPF”. It uses a permissioned blockchain based on auditable open-source software in which only authorised institutions can participate. The integrated and cooperative solution promoted greater quality of data from the CPF and rendered greater automation, security, transparency, and traceability of the process.
Artificial Intelligence (AI)
Artificial Intelligence (AI) is “the application of advanced analysis and logic techniques, including machine learning, to interpret events, support and automate decisions and act.” It has been suggested that the characterisation of a system such as AI must be based on the existence and joint use of five abilities – discover, predict, justify, act, and learn. In the context of tax administration processes, AI's significance comes from its capacity to analyse extensive data, automate repetitive tasks, and offer valuable insights, echoing the advantages observed in diverse country experiences. The Inter-American Centre of Tax Administrations (CIAT), seven of its members, and Microsoft developed an open-source solution that allows identifying, selecting, and prioritising cases of taxpayers with unusual behaviour by applying unsupervised machine learning models to electronic invoice, taxpayer registry, and tax return data. The detector works in an automated manner, from data loading to presentation of information for analysis. Some of the benefits of the anomaly detector are a) efficient and effective design and development through an open-source solution, b) improvement of risk management and fraud prevention, c) return of the investment of the electronic invoice, and d) reduction of data processing time.
As demonstrated above, Blockchain, AI, and other emerging technologies and tools can be applied in many ways to deliver better and more efficient services to taxpayer, to assist in analysing the high amounts of data collected by tax authorities, through the application of data analytics technologies, etc. To maximise the benefits of such technologies, tax administrations should build their capacity and guarantee that they can implement and manage the new infrastructures. This undoubtedly requires tax administrators to stay on top of latest developments and constantly learn and update their skills vis-a-vis the new technologies.
Shaping the Future of Tax: Embracing the Evolving Role of the Tax Person
As technology drives swift changes in the global tax landscape, the role of a tax administrator is poised for significant evolution. This shift necessitates tax experts to cultivate a unique skill set encompassing a deep comprehension of evolving business structures, adeptness with technology, and expertise in managing data.
The advent of technology will trigger several alterations in the responsibilities of tax professionals. These professionals will need to enhance their analytical abilities to effectively interpret and utilise insights drawn from extensive datasets. Through the utilisation of data analytics and AI, tax experts will play a crucial part in dissecting intricate tax matters, identifying opportunities for tax planning, and making well-informed decisions based on data-driven insights. Furthermore, tax specialists will need to attain proficiency in technology to navigate the shifting tax landscape. Familiarity with tax software, data management tools, and emerging technologies like machine learning and robotic process automation will become indispensable. By leveraging these tools, tax professionals can streamline tax operations, enhance efficiency, and ensure compliance with dynamic regulatory requirements. The evolving role of tax experts will also shift towards a more strategic advisory capacity. With technology automating repetitive tasks, tax professionals will gain more time to concentrate on strategic tax planning and advisory services. They will be tasked with offering insights on the tax consequences of business choices, optimising tax positions, and proactively pinpointing risks and opportunities for tax optimisation.
Adapting to this evolving role mandates perpetual learning and adaptability. The swift pace of technological advancements requires tax professionals to remain flexible and continuously update their skills. Tax administrations should foster a culture of ongoing learning and provide avenues for professional growth to ensure tax experts stay current and possess the necessary skills to navigate the shifting tax landscape.
The implications for tax administrations in terms of human resources and optimisation are substantial. To meet the evolving demands, tax administrations must attract and retain professionals with a diverse skill set that blends tax expertise with technological prowess. This might involve re evaluating recruitment strategies, seeking candidates with a robust technological background, and offering competitive compensation packages to entice top talent. Investing in training programs to elevate the technological competencies of the workforce will be pivotal for tax administrations. Providing comprehensive training on tax software, data analytics, and emerging technologies will empower tax professionals to effectively leverage technology. Initiatives for continuous learning, such as workshops, seminars, and certifications, should be implemented to ensure tax experts maintain proficiency in the latest tools and methodologies. Furthermore, tax administrations need to engage in effective succession planning to ensure a seamless transfer of knowledge and expertise. Mentoring programs, platforms for sharing knowledge, and well-defined paths for career development can aid in grooming the next generation of tax professionals and leaders.
Implementing Digitalisation Strategies: Country Experiences
Over the past few years, tax authorities worldwide have effectively executed digital transformation initiatives. The Zambia Revenue Authority (ZRA) launched an integrated tax administration system for its domestic taxes transactions called TaxOnline. The introduced system offers ZRA and its partners a digital platform for electronic services (such as e-registration, e-filing, and e-payment), information exchange, and workflow integration). This allowed for increased efficiency within the ZRA and contributed to taxpayer compliance.
In Slovenia, the Financial Administration of the Republic of Slovenia (FURS), has implemented an IT system called eDavki, which is a multi-tier web application designed to enhance service delivery and streamline daily operations for electronic tax processes. It ensures the convenient, easy, and safe transmission of tax forms and receipt of documents served by the Financial Administration and helps increase compliance.
In summary, the third day of the Conference centres on emerging technologies like blockchain, artificial intelligence, and machine learning, exploring their potential impact on revenue administration processes. This comprehensive overview aims to deepen the understanding of how innovative technologies can enhance tax administration and enforcement, underlining the need for tax administrators to embrace a skill set encompassing dynamic business models, technological proficiency, and data acumen. The conference will also explore country experiences, to demonstrate the tangible benefits of digitalisation strategies in tax administration. These and other aspects of the digital transformation of the tax administration will be the subject of the second NTO Conference which takes place in Cape Town, South Africa, on 05-07 September 2023.
For more info on the conference programme, click here.
