Income agencies are increasingly aware that yesterday's taxation models are unable to keep pace with the technological revolution. These seven keys to success can help tax agencies to prepare for the future.

KNOWLEDGE economy. Sharing economy. Gig economy. Cryptocurrency exchanges. Virtual transactions.

These aren’t just buzzwords—they are modern-day realities that the world’s income and tax agencies face. In a world of accelerating digital and economic disruption, many income agencies recognise that yesterday’s taxation models—and the systems that support them—can no longer keep pace with the technology revolution reshaping our world.

While many income agency leaders understand the importance of taking digital transformation seriously, few have cracked the code to unlock a long-term, “future-proof” model for mission success. Random acts of digital adaptation won’t help. Income agencies must shift from doing digital to being digital.

So what can income agencies do to successfully keep pace with rapid technological change and evolving citizen expectations? Seven keys can guide their journey to digital transformation: three internal shifts, three external shifts and one strategic “mindset” shift.

1. Get digital to the core

Income agencies can start by making internal fixes, including transforming the core functions of tax administration.

Many tax agencies have taken a piecemeal approach to digital-based operations, building stand-alone digital products atop legacy foundations, which has challenges related to cost, ease of use and incompatibility with emerging technologies.¹ Building a truly digital core will require a multipronged approach that can include automating tax submission review workflows and adopting modular, flexible approaches to systems architecture to respond to changing policy mandates.

2. Unlock the power of data

Digital economic transactions—salaries, sales, natural language and much more—give what income leaders want: data. The bad part? They generate plenty of it. While it is imperative that income agencies make sense of these vast amounts of data, many of them are unequipped to make the best use of it—especially when data is trapped in silos and legacy systems.

A foundation of digital transformation is getting the data right. Income agency leaders can then unlock the power of new types of data while protecting the privacy of constituents and serving the public good.

3. Reimagine the workforce

People are an organisation’s biggest strength. However, sourcing the right talent with the ability to work with complex data, manage digital platforms and lead effective teams is becoming increasingly difficult.

Income agencies need to reconsider how competitive their value proposition is to prospective and current employees and reimagine every aspect of talent management, including recruitment, hiring, skills development, advancement and career transitions. They may also need to tap into human resources from outside the traditional employee base, including gig workers, crowdsourced solutions, creative partnerships with other players in the tax ecosystem and digital labour, which can actually extend the capabilities of human workers.

4. Elevate the tax experience

Taxation may never become citizens’ favourite interaction with government. The easier that experience is made for them—whether through reduction in manual calculations, better access to information, or user-friendly design interfaces—the greater their tax compliance.

The clearest path towards elevating the tax experience is by meeting citizens where they are: on their mobile phones, in their email inboxes, or via clever home devices. However, implementing these changes will require serious digital capabilities—the kind that can only be built through deliberate investment.

5. Tax new stuff fast

Income agencies are being asked to hit a fast-moving target, guided by laws and regulations that were not designed with this digital reality in mind. What is the right way to tax a never-before-seen business model?

One way could be to approach taxation with the same focus on dynamic agility that drives software development and systems engineering, addressing emerging patterns of risk by implementing systemic, responsive cultures and operating models. Income agencies must enhance their ability to understand, track and “tax new stuff” both quickly and correctly. This stuff ranges from jewellery sales via Instagram, to flat rentals via Airbnb, to various forms of short-term “gig work” delivered via virtual global platforms.

6. Embrace the end-to-end tax community

Not only do income authorities deal with citizens, government agencies, private companies and other members of civil society, they also coordinate with income agencies of different jurisdictions, locally, regionally and globally. Therefore, they need to understand how to best be a part of this ecosystem.

Steps that they can take in this direction include mapping the economic processes driven by members of the end-to-end tax community and partnering with private industry, government agencies and international organisations.

7. Balance competing priorities

Income leaders often find themselves walking a tightrope of paradoxes. They are asked to increase data accessibility while ensuring data security, drive innovation while minimising risk and become fully digital while retaining a human touch.

Income agencies can respond to these paradoxes by shifting from an “either/or” mindset to a “yes and” mindset. One way to do this is by viewing technology as an enabler instead of a blocker.

To find out more about how income leaders can unlock successful digital transformation, read the full report Building the digital income agency of the future: Seven keys to transformation.

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