A technology revolution is coming to the world of tax. This was clear from a recent conference co-hosted by Common Vision’s Responsible Tax Lab at Wilton Park.
This revolution is likely to the benefit of tax administrations and taxpayers alike if the changes improve transparency and accountability (of both taxpayers and tax authorities) and simplify the reporting of taxes.
Amongst international delegates present at the conference, there was a lot of enthusiasm for the benefits that technology could bring and some interesting discussions around whether technology provided jurisdictions with an opportunity to “leapfrog” over some of the stages of the tax technology revolution. Around the world, technology has already been successfully used to enhance tax collection, from simplifying and streamlining the reporting of tax, to improving the level of compliance through behavioural change.
That being said, the dialogue on technology needs to go hand in hand with a discussion about tax policy. Care needs to be taken to ensure technology isn’t the sole driver of tax policy, and consideration given to the existing tax regime and whether it is fit for purpose today and in the future. Understanding where the tax gap is and what drives it is also key to understanding how to develop a tax policy that can meet those challenges. These considerations must also account for changing business models and whether the tax system is capable of meeting the jurisdiction’s social and economic needs. Technology can then be used as a tool to assist with implementing a robust tax policy and ensuring the engagement of taxpayers.
From the perspective of businesses, who ultimately want certainty and stability with regards to their tax affairs, the ideal would be to operate in a jurisdiction with a tax regime that is based around a clear and transparent tax policy. One in which changes to the system are communicated through effective consultation with taxpayers and phased in over a reasonable timeframe.
Tax regimes are inherently complex, and it can be difficult for businesses to react quickly to rapid change across multiple jurisdictions. There is therefore an inherent risk with a “leapfrog” approach where it results in rapid and unpredictable change in a tax regime.
Therefore, in realising the opportunities of the digital revolution, my hope is that tax administrations have an open and transparent dialogue with businesses about their future plans for tax policy and how technology fits into them. This sort of responsible approach to change will ultimately result in tax regimes that are better equipped to deal with the multitude of different operating models and help businesses to manage the changes efficiently and effectively.