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Digital Disruption in Tax and Revenue

Tax and revenue agencies around the globe are telling SAP that digital transformation is opening up immense opportunities to deliver better outcomes. Machine learning, the Internet of Things, blockchain and other innovations have the potential to disrupt the way governments provide services to taxpayers and become an enabler of economic prosperity. The disruption is happening at three levels: within the digital engine of tax agencies, at the business process level and as part of the role that taxation plays for the whole economy.

Three Layers of Transformation

My colleagues and I work day-in and day-out with tax agencies across the globe. Many of them are already SAP customers. Others we are developing a relationship with. All of them are telling us that digital transformation is opening up immense opportunities to deliver better outcomes. The disruption is happening at three levels:

  • IT innovation speed up the rise of tax digital platforms. Analytics embedded in applications, software-defined architectures and service-orientated design will enable tax agency IT departments to: re-use tax capabilities, such as taxpayer accounting, and taxpayer self-service across tax silos; to leverage data from across tax types to build a 360° view of the taxpayer; to embed analytics and artificial intelligence capabilities in business processes, such as e-filing and debt collection.

  • Digitally transformed experiences for taxpayers and tax officers will make compliance easy. Citizens, who are increasingly accustomed to social media and digital commerce platforms, and civil servants, who will soon see a shift from baby-boomers to millennial workers, expect increased responsiveness, transparency and digital omni-channel experiences. Tax agencies that can deliver omni-channel experiences and integrated views of taxpayer liabilities and credits will treat taxpayer as true customers, by relieving the burden of compliance through pre-populated returns, and real-time adjustments of liabilities and credits when their circumstances change. Tax officers will use machine learning to predict risks of fraud and outstanding debt, thus optimize collection and enforcement strategies. Tax commissioners will enjoy an integrated view of revenue-cost ratios and compliance risks across tax types.

  • Hyperconnected digital economy transactions and objects will be captured real-time.

    • Billions of devices, up to 30-50 according to some estimates, are expected to be connected to the Internet by 2030, potentially changing the way value chains, products and services are delivered, maintained, paid for and disposed of. Tax agencies are figuring out how to tap into the vast amount of data that these objects generate; for instance, Slovenia already captures of point of sales transactions through real-time connectivity with cash registers. And a number of US state jurisdictions are trialing or considering car tax programs, where the amount due is paid pay by the mile instead of by the gallon, by capturing data from an in-car transponder, which is intended to tax more fairly for resource (in this case road) consumption and nudge towards virtuous behaviors.

    • Digital native companies, such as Uber and Amazon, are disrupting brick-and-mortar value chains, such as public transportation and retail; that is why countries are designing new schemes to tax the value of digital products and services more fairly.

    • Artificial intelligence promises to make workers’ life easier, but they could also take over jobs over the next two decades; tax agencies will be asked to re-design taxation for a new world where there will be more part-time, self-employed workers.

Of course, in tax digital transformation it is not all that glitters. To build a 360° view of taxpayers and offer seamless digital transactions, tax agencies will have to blur the boundaries across tax programs and reach outside of their organization to collect vast amount of data that they do not own. This will expose tax agencies to increased cybersecurity risks. Understanding how tools like blockchain ancan help them secure taxpayer data will be paramount.

Next steps for Tax Agency Digital Transformation Leaders

Tax agencies must re-imagine taxation. They must think of taxpayers as customers, thus design services that are easy to subscribe to and comply with. They must collect data from an hyperconnected world to provide real-time service. They must ensure integration and consistency of data to deliver insights that drastically reduce the risk of non-compliance, while protecting privacy. To do so, they must invest in digital platforms that deliver tax capabilities in an agile, scalable and secure manner.