The rapid advancement of technology has brought about significant changes in various sectors of the economy, impacting the way businesses operate and how services are delivered. Economies are being continuously challenged by cross-border data flows, agile supply chains and mass digitisation. Around the world, tax administrations are leveraging various new technologies to digitise tax processes, from tax filing and payment systems to taxpayer communication and education.
Tools and Technology for Improving Tax Compliance
The use of information and communication technology is not a choice but a necessity for many tax administrations. Embracing technology allows administrations to improve tax compliance, streamline operations, reducing operational costs and provide a better experience for taxpayers.
The adaptation of new technologies such as big data and advanced analytics allows tax administrations to identify patterns and anomalies in taxpayer data, enabling more targeted enforcement actions. While blockchain technology offers secure and transparent record-keeping, making it a viable and valuable solution for tax administrations as it can provide tamper-proof audit trails, facilitate secure transactions, and streamline compliance processes.
Artificial Intelligence (AI) powered solutions can automate routine tasks, such as data entry and document processing, freeing up resources for more complex tax enforcement activities.
Moving Forward in Digital Environment
While the adoption of new technology in tax administration brings numerous benefits, the reduction of manual processes and the use of digital tools to facilitate communication and engagement, results in an improved customer experience for taxpayers. There are challenges in creating a digital culture among taxpayers.
Not all taxpayers have equal access to technology, such as smartphones or internet connectivity. This digital divide can hinder the adoption of digital tax services and create disparities in compliance rates. Some taxpayers may lack the necessary skills and knowledge to navigate digital platforms and use technology effectively. Tax administrations also need to invest in education and training programs to ensure taxpayers can fully utilise digital tax services.
Taxpayers may also have concerns about the security and privacy of their personal and financial information when using digital tax services. The transition from traditional paper-based processes to digital tax services may face resistance from taxpayers who are accustomed to traditional methods. Furthermore, realising ambitious transitions of shifting to digital processes needs to also be accompanied by tax administrations internally recalibrating business processes to integrate digital workflows.
Tax administrations must also prioritise data protection, communicate and implement robust security measures to build trust among taxpayers.
Bold Transformation in Tax Administrations
Many tax administrations have successfully embarked on bold transformations to embrace technology-driven services. These success stories serve as inspiration and provide valuable insights into the potential impact of digitalisation on tax compliance.
Tax administrations can learn from each other’s experiences and identify strategies that yield transformational results. In Plenary Session 3 of the Conference, case studies involving countries like Hungary, Italy, Benin and Liberia will be used to provide a better understanding of tax administrations’ digital capabilities to forge deeper relationships with taxpayers and to elevate the tax experience through advanced technology-driven customer services.
Electronic Invoicing Systems
Value-Added Tax (VAT) accounts of around 20% to 30% of worldwide tax revenue. In Africa 46 out of 54 Countries on the continent impose VAT.
Despite its popularity of implementing VAT, the self-enforcement regime in is vulnerable to fraud, mostly because of misreporting on sales or inputs. Electronic invoicing systems have emerged as a powerful tool in minimising tax fraud and improving tax control, especially in the case of value added tax (VAT). E-invoicing systems automate business transactions, apply correct taxes, issue accurate invoices, and report sales data in real-time. The embrace of this technology leaves little room for irregularities.
Country Success Stories in E-Invoicing
In Mexico, e-invoicing was first introduced in 2011. At the time of introduction, the tax authorities (Servicio de Administración Tributaria, SAT) reported that over 10% of all VAT invoices in Mexico were fraudulent. By 2021, the SAT reported that e-invoicing was responsible for lowering that number to less than 1%. Moreover, Mexican businesses report that e-invoicing makes it easier for firms to comply with VAT regulations.
While in Chile, a similar story has unfolded, where e-invoicing for VAT purposes was introduced in 2018 and led to increase compliance, improved efficiency, and enhanced taxpayer service.
In Africa, countries are also successfully embracing e-invoicing. Specifically, in Rwanda, the Rwanda Revenue Authority (RRA) first adopted e-invoicing in 2013. The Electronic Invoicing System (EIS) requires all businesses registered for VAT to issue electronic invoices, produced by physical devices, the so-called Electronic Billing Machines (EBMs). Since 2021, businesses can also opt to use digital e-invoicing methods that range from electronic billing software to web applications and mobile solutions. Promising early results indicate increasing compliance rates and increased VAT revenues.
No Benefits without Risks
Country case studies show that e-invoicing is a striking example of how the digitalisation is transforming how tax administrations operate.
However, the embrace of e-invoicing also comes with risks. If taxpayer compliance costs increase faster than any gains in productivity, the overall revenue effect of the adoption of the technology is dampened. Especially where smaller taxpayers may face practical difficulties and high charges in adopting e-invoicing technologies. Undesirable spill over effects on businesses’ supply networks may occur by which suppliers who have not adopted e-invoicing are shunned.
To prevent e-invoicing becoming a ‘white elephant’ in tax technology, tax administrations need to understand the benefits and pitfalls of e-invoicing. Plenary session (4) of the Conference will discuss the experience of countries and best practices in the field of e-invoicing.