How will taxpayers interact with tax authorities in the future with technology disrupting the nature of conventional tax administration?

Currently, technology trends such as blockchain, artificial intelligence, edge computing, machine learning, virtual realities, and augmented realities, the Internet of Things (IoT), cloud computing, and 5G internet have changed how the world operates and tax administration is one of the sectors that have been affected.

Having been exposed to rapid technological changes in the digitalized economy, tax authorities have taken note of the power and impact of new technologies, new data sources, and increased international cooperation in enforcing compliance, targeting tax evasion, reducing administrative, and cost burdens and understanding taxpayer’s behavior, all of which will highly likely increase tax collections.

Pascal Saint-Amans, Director of the Organisation for Economic Co-operation and Development (OECD) Center for Tax Policy and Administration, noted the same in the OECD Tax Administration 2019 report, when he commented that, "Tax administrations, much like tax policy makers, are exposed to rapid change through the digitalization of the economy and the emergence of new business models and ways of working. The data and examples contained in Tax Administration 2019 show how the availability of new technologies, new data sources, and increasing international cooperation are providing new opportunities for tax administrations to better manage compliance, protect their tax base and reduce administrative burdens."

In the future, tax administration as we know it may hardly be recognizable. For example, the emergence of complex analytical software and accessibility to taxpayers’ financial and commercial data through innovations such as e-invoicing and utilization of interlinked data processing centers may give rise to new forms of self-assessments, where automated tax systems issue e-assessments through verification of information and computation of taxes.

Under such regimes, taxpayers may no longer have direct roles in tax compliance, limiting their roles to either accept or object to e-assessments upon receipt and review of the same. These regimes will require a robust tax-dispute resolution system to address the numerous disputes that would stem from conflicting interpretation or application of tax laws or calculation of taxes. It is also predictable that such systems will face challenges such as cyber security threats, data protection and privacy issues, technical glitches, and technical skills gaps.

In the next technological phase of tax administration, tax authorities will have sufficient data-driven technology to significantly improve tax administration through digital systems, which will require limited human participation by both tax administrators and taxpayers.

The automation of tax administration is already moving speedily in various jurisdictions. For example, Japan, through the National Tax Agency (NTA), announced a ten-year plan to digitally transform its tax administration, under its ‘Future Vision of Tax Administration’ project that will use artificial technology and data centers to conduct tax investigations. India, on the other hand, has introduced an e-assessment scheme where income tax assessments are conducted electronically through a taxpayer’s registration account. Mexico’s ‘Servicio de Administración Tributaria’ (SAT) system, leverage on complex algorithms and different data sources to profile taxpayers, predict potential tax risks, and send out ‘early warning signals’ to non-compliant taxpayers. Such systems have effectively promoted voluntary tax compliance and sealed tax leakages.

Edwin Wanjau is tax consultant at Deloitte East Africa and he can be reached at ewanjau@deloitte.co.ke. The views expressed represent those of the author and do not necessarily represent those of Deloitte.