A good tax collection system ensures that the method of paying taxes is convenient for taxpayers. Many developed and developing economies around the world are embracing technology to cater to this particular objective. According to a global study conducted by PwC while analysing the tax systems in many countries, 17 major economies have either introduced electronic systems for tax collection or enhanced their existing systems in 2016. This resulted in an improvement in the time to comply with the tax regulations in those countries.
Over a period of time, tax reporting mechanisms have also been evolving. What traditionally used to be period-based tax reporting has slowly evolved to historic data-based tax reporting in many countries. The present trend is to move to more frequent reporting or real-time reporting to tax authorities so that tax collectors can monitor the situation more frequently and take necessary actions. As a result, the cost of compliance is going to increase along with its complexity. While increased cost would impact the cost of doing business, heightened complexity will raise the number of errors, thereby affecting the quality of reporting.
Technology can address both these concerns. Hence, most large global companies are enhancing their tax processing and compliance systems. We also see many governments taking proactive steps to accommodate technology-enabled tax compliance. Over a period of time, the cost of technology adoption will go down and will help in improving efficiency. At the same time, technology will manage the complexity of compliance and will help in the reduction of errors. For example, the average time spent to comply with tax reporting and payments dropped significantly in India during the year 2016, according to a report published by PwC ('Paying Taxes 2018').
Governments in many countries are undertaking tax transformation initiatives, keeping the role of technology in mind. A good case for observation in this regard would be the introduction of the Goods and Services Tax (GST) by the government of India. This initiative is taking India closer to the 'one nation and one market' tax model. With its implementation, companies will be able to focus more on improving their business efficiency instead of focusing on tax efficiency.
Technology is an integral part of the GST administration of India. A common portal has been set up for tax return filings, matching of input credits with the liability declared by suppliers, issuance of notices by tax authorities and the filing of replies. Refunds are expected to be quicker than in the past. The government of India has been undertaking several programmes to educate taxpayers and tax administrators on the new legislation and the technology platform through training programmes, conferences, taxpayer helpdesks and so on. While there were technological problems at the beginning of the rollout, it is expected to stabilise over time and create a 'new normal' of tax compliance. It should be noted that the software deployed by the government for GST administration is expected to process 3.5 billion transactions every month, the highest number of transactions handled by a software program in this category.
While traditional technologies such as portals and electronic filings are enabling emerging countries in their transformation journey, newer technologies are showing a lot of promise in accelerating this. These technologies have the potential to help tax authorities in high-income economies, as well as middle and lower income economies to collect more taxes with lower costs. These technologies also have the potential to create a collaborative environment between tax collectors and taxpayers, helping in the creation of a more trust-based tax model.
Many countries today encourage electronic filing of tax returns, electronic payment of taxes and electronic processing of tax refunds. The National Board of Revenue (NBR) in Bangladesh, for example, offers more than 10 such e-services through its portal. The blockchain—a transformational technology—has the potential to create a collaborative environment between tax collectors and taxpayers by sharing data using distributed ledgers, computing payable taxes at a higher frequency, and processing payments and refunds automatically. The architecture of shared data and shared algorithms for tax computation and compliance will help develop a trust-based model of tax payment and collection.
Most tax computation and compliance reporting software today require configuration based on the tax rules of the jurisdiction. With change in rules, tax rates and the interpretation of the existing rules, the software programs require reconfiguration to comply with the changes. The advent of artificial intelligence is promising to automate such change processes to a significant extent. This will enable taxpaying organisations to reduce their cost of compliance significantly and will also help them in reducing errors. Further, artificial intelligence is also going to help tax collection agencies by assisting in data-driven decision making.
With the global shift in economic power, Asia-Pacific countries, including Bangladesh, are expected to contribute more to the global GDP. In fact, Asia-Pacific countries are likely to contribute more to the global GDP than Western countries by 2030, according to an estimate made by PwC. Tax collection authorities in Bangladesh as well as taxpayers need to get ready for this emerging world order. Technology can help in the setting up of an efficient and friendly tax environment for all stakeholders and improving collaboration among them.
The writer is a partner at PwC. The views expressed here are personal.