Modernizing Tax Administration in Public Sector (Part 2)
Digital Transformation – How We Get There
This blog post is part 2 of a 2 part series. To learn about the benefits of transforming your tax administration processes, read Modernize Tax Administration in Public Sector (Part 1).
To optimize the potential of digital transformation, tax administrations must clearly understand the path they need to follow to get from where they are now to where they want to end up. To this end, there are several actions that tax administrations can take during their journey.
Design a clear vision and strategic focus fit for the future
Most capacity-building efforts focus on tax law, protecting and broadening the tax base, transfer pricing and other technical tax issues. While these endeavors have helped address individual challenges, they miss the overall big picture: how to design and implement a sustainable tax compliance infrastructure. Because of this oversight, many tax administrations continue to struggle with aligning their resources with their priorities. Designing a clear focus and strategy can help them through this process.
Invest in change management capabilities
Modernizing a workplace can’t succeed without employee buy-in. Changing people’s behavior however, can prove challenging. Success often hinges on projecting a clear vision of goals and the transfer of knowledge. One of the popular trends for achieving these tasks comes from establishing co-operative compliance, a supportive attitude in which tax administrators help taxpayers understand their business. This involves employing a professional risk-oriented tax auditor working with real-time compliance data.
Prepare to do more with less resources
Budgetary constraints and a lack of proper resources often pressure tax administrations to do more with less. As administrations continue to accumulate increasing volumes of taxpayer data, they will want to convert that information into actionable insight that helps them increase revenue. In lieu of recent financial leaks, they also need to take actions in relation to money laundering, tax avoidance and tax evasion. In addition, they’ll need to invest in technology to properly manage data growth. This includes attracting and recruiting people with the right set of skills in data analytics/data mining, forensic auditing, risk management and tax technology to be able to generate actionable insight.
An operational framework presents a blueprint for a tax administration’s core processes and compliance procedures. This includes the design of a governance model, organizational structure, guidelines for operational processes to achieve the compliance strategy, management reporting and roles and responsibilities within the organization.
Tax technology and infrastructure
To optimize the benefits of tax technologies as well as manage compliance risks and rising future revenues, tax administrations should consider developing a strategy to guide the direction of innovations and provide a clear picture of the end-state design of a tax technology infrastructure. New technology has its own set of requirements, including a suitable physical environment for installation, continuous support in the day-to-day environment, ongoing maintenance and license costs, new security requirements, monitoring and planning for future improvements and so on. Many of these challenges can be resolved through service level agreements with a trusted cloud service provider.
Change management, training and education
Digital transformation brings substantive change. Tax administration staff will need to receive proper training for the growth and extension of individual skills, abilities and competencies concerning the new operational blueprint and tax technologies. It’s also important to structure tax administration in such a way that roles and functions are clearly defined and differentiated, lines of communication and accountability untangled, and decision-making procedures transparent and functional. A key component of change management is to make people comfortable with technology so that they can use it as a tool to support them in their daily operations
Performance measurement dashboards and reporting present a feasible way to maintain buy-in, ongoing support and strategic guidance from governments and politicians. They also enhance process transparency and accountability. Effectively measuring performance involves periodically assessing set KPIs, relevance, progress, efficiency and the impact of activities with respect to project objectives. The tangible outcome of monitoring and measuring can be presented in periodic progress reports (e.g. semi-annual or annual) to key stakeholders. Sharing successes (and mistakes) with the organization is an integral part of obtaining buy-in and credibility from that organization. It can also be used to inform key stakeholders and the general public, helping to build trust.
How Digital Transformation Sustains Tax Administrations
Digital transformation can significantly improve the lives of tax administrators and taxpayers. For administrators, working with new technology increases their motivation, makes them more productive and optimizes operations and spending. For taxpayers, it enhances the number and types of taxpayer services, engaging citizens in new ways and leaving them more satisfied with their overall experience. There are four pillars of digital transformation:
- Engage your taxpayers. Taxpayers expect new levels of access and connectivity with tax administrations.
- Simplicity. Simplifying tax services for taxpayers means fewer interactions, simpler forms and processes and faster response times to requests. In addition, administrations gain a better understanding of taxpayers.
- Transparency. Taxpayers are more likely to voluntarily comply when tax administrations establish systems regarded as both honest and fair.
- Data management. Taxpayers want assurances that their tax administrations handle their information with the right level of privacy, security and protection to build trust.
Technology is a tool that can enable the vision of the modern tax administration cutting costs, minimizing tax fraud, empowering employees to deliver new higher value services to taxpayers and giving insights on the current status and future evolution of the economy and society. A sustainable tax technology infrastructure benefits tax administrations as well as taxpayers, securing efficient tax compliance, increasing taxpayer satisfaction and voluntary compliance. To achieve this requires a proper holistic vision and strategy with a clear implementation plan and a proper monitoring system in place. Managing technological change is about getting internal and external stakeholders onboard by being transparent on developments, whether they are successful or not.