Modernizing Tax Administration in Public Sector (Part 1)
Currently, certain technology trends, including Big Data, analytics, artificial intelligence (AI), machine learning, the Internet of Things (IoT), mobility and cloud computing are all having a huge impact on tax administrations in the public sector. Taken individually or together, these trends have the power to increase taxpayer satisfaction, empower tax agency employees, optimize operations and modernize services. This is where digital transformation comes in.
With cloud computing services and adoption becoming increasingly mature, many different entities of all shapes and sizes are turning to the cloud as a core engine of their infrastructure. For many local and state entities, however, the process within public sector environments tends to be somewhat slow. This is in large part due to historic regulations that require updating plus a lack of digital skills and understanding of the benefits the cloud brings.
Confidence in cloud computing tends to build gradually but data governance can help develop trust, improving and simplifying the management of growing data volumes and data extraction while maintaining regulatory compliance. There are many aspects to data governance, such as data classification. This enables public sector authorities to assign relative values to the data they maintain and then manage that data based on its value.
There are also stewardship models, change-control mechanisms, enhanced encryption, and increased identification, identity and rights management. These factors will improve the level of confidence required to consider moving tax applications and data into the cloud. Hybrid cloud also helps with this transition. In this instance, the data to be processed is in the public cloud while the personal information related to tax data remains in a private cloud.
Over time, as the confidence in cloud computing grows, administrations can gradually move content from private to public clouds.
With digital transformation, tax administrations can turn data into a business asset using predictive modeling and the analysis of macroeconomic trends and policy changes that help develop workforce capabilities. This can simplify compliance and help prevent tax errors and fraud. It can help improve taxpayer services by facilitating payment methods, issuing faster refunds and giving easier access to relevant information.
For tax administrations, digital transformation can reduce operation times, decrease costs, improve risk management techniques and audit efficiency and better incentivize (inter)national priorities. Digital transformation can help tax administrations with the following primary areas: 10 Transparency Research shows that increased transparency of strategy, processes and investments, through extremely structured and/or visually-supported data, can increase taxpayer satisfaction and voluntary compliance.
This opens the door to enhanced data analytics and governance. An increased number of countries have adopted cooperative compliance models and soft law instruments such as engaging taxpayers more in revenue management.
Tax gaps remain a big problem for many countries. The NGO, Global Financial Integrity, estimates that developing countries lose nearly $1 trillion a year to illicit financial flows. The most recent IRS gross tax gap projected a loss of $458 billion in the U.S. in one year. Filling these spaces relies mainly on the state of the economy and the ability of tax administrations to get taxpayers to voluntary comply with paying their taxes.
Taxpayer engagement can be significantly enhanced through a deeper understanding of citizens, what they do and how they engage with government. By making taxpayers’ online and offline interactions personalized, simple, consistent, intuitive and delivered in real-time, tax administrations can build a 360° view of taxpayers and their needs, helping them customize e-services and open omni-channel communications.
Connected tax stakeholders
Tax administrations and taxpayers expect the same easy access and real-time sharing of tax information that they get with other data holders such as banks and consumer facing businesses. Such capabilities increase the connection and collaboration among tax administrations and taxpayers (businesses and individuals). It also helps tax administrations to securely exchange relevant data with banks, employers, stock exchange committees, chambers of commerce and more. A new trend within the finance industry is tax administrations automatically exchanging taxpayer information across jurisdictions.
Data-driven decisions and automated processes
Taxpayers want assurances that their personal information receives the right level of privacy, security and protection. At the same time, they expect to receive personalized, real-time, reliable services. To balance both demands, tax administrations look for ways to effectively collect, secure, analyze and manage structured and unstructured data, This helps to maintain compliance, empowers tax policymakers to make decisions that drive growth and improves their public image by enhancing transparency and accountability.
To learn what actions to take to transform your tax administration processes, read Modernizing Tax Administration in Public Sector (Part 2),