Reforming tax with help of technology
The government of Bangladesh has been building technology infrastructure and systems to deliver services to citizens online. The National Board of Revenue (NBR) has introduced a new website for VAT registration, payment of tax and filing of returns. This move aims to not only ease multiple tax processes but also to help the government leverage digital interaction with the taxpayers. Successful rollouts of these websites will be a positive move towards transforming Bangladesh into a digitally empowered country. Along with setting up websites, the government should also focus on providing superior digital experience to improve the overall stakeholder satisfaction.
The government interacts with two groups of stakeholders while conducting revenue collection activities -- taxpayers and government employees. While undertaking a technology-led transformation, the government needs to ensure that both groups of stakeholders are able to use the technology effectively and there is an overall improvement in the effectiveness of the system.
By setting up different websites, the government has started interacting with taxpayers. While the government might develop separate websites for different types of systems such as income tax and VAT, its underlying objective must be to provide speedy, consistent and high-quality services. Each service should also have a target duration for delivery to taxpayers, and failure to do so should result in the matter being escalated to high-ranking officials.
Adhering to service levels while delivering services to citizens is the responsibility of a government. The performance of various tax departments in a country can be measured through various metrics. These metrics reflect the complexity or simplicity of tax rules, speed and quality of tax assessments and the ease of dealing with the different tax departments. While tax rules are largely related to the policy decisions of governments, technology helps tax departments in improving the speed and quality of tax assessments to a great extent. The time required to file a tax return, the time taken to process a tax refund and the accuracy of tax refund computation are some of the key indicators that help in understanding the performance of a particular tax department and the overall performance of all the tax departments in a country.
This necessitates the enablement of government employees of the different tax departments with technology. For example, a taxpayer may submit a new registration application online but the official responsible for reviewing the application may work manually to complete its verification and approval. This causes the speed of processing a registration application to slow down, thereby reducing the benefit of technology to a significant extent. The true power of technology will be realised when tax officials of the respective tax departments are able to process applications through computer systems. Computer systems should be able to perform the initial verification of all supporting data. Today, computer systems are capable of storing information about millions of commercial transactions and reconciling them for the purpose of calculating tax liabilities for each taxpayer.
Computer systems should also be able to gather additional supporting data relevant to taxpayers' application forms through integrated interactions with other systems, such as banking transactions obtained from banks. Once all the required information is in place, a tax official has to review all the available data online to complete the processing of the application form. In case the official requires more information from a taxpayer, s/he should be able to contact the taxpayer through the same computer system via an email or any other type of electronic message. The computer system should also be able to store the copies of such communications for reference.
Effective computer systems and sufficient trainings on the use of these computer systems will be essential for government employees working in the tax departments. There also need to be proper motivation and rewards frameworks to expedite the digitisation of tax processes. To that end, senior officials should start monitoring the performance of their respective departments through meaningful performance metrics. Moreover, a computer-based dashboard should enable them to track these metrics on a daily basis.
One way to measure the tax collection performance of a country is calculate its tax to GDP ratio. According to World Bank data, the tax to GDP ratio of Bangladesh is much lower than that of its neighbouring countries and other developed economies. At the same time, tax rates in Bangladesh are comparable to those developed and emerging countries. A technology-enabled tax assessment and collection process is more effective in improving the speed and quality of tax assessment, thereby leading to timely tax collection. An efficient tax collection process improves a nation's overall tax to GDP ratio.
The tax departments of many advanced and emerging countries have adopted technology to perform model-driven data analysis of their taxpayers' data. They have developed statistical models based on certain hypotheses and test the same by applying tax data and relevant technology. The objective of such data analysis is to identify leakage of tax due to unreported economic activities. While the practice is still under development, the initial results across many countries indicate improvement in tax collection. Tax departments in Bangladesh should also explore the use of advanced technologies to improve tax collection and tax governance processes and systems.
Tax officials will have to familiarise themselves with sophisticated technologies. The ministry responsible for developing such skills should take proactive steps to train and enable tax officials to adapt to this new way of working. This will also change the profile of a typical tax assessment official. The tax official of the future will be relying more on technology and statistics, in addition to tax and financial knowledge.
The writer is a partner at PwC. The views expressed here are personal.