Covid-19 Showed Why Tax Administrations Need to Be Proactive

Over the last two years in a Covid-19 world, tax administrations globally have assumed new roles with ingenuity and skill. From launching digital platforms for struggling businesses to partnering with social services to deliver benefits, they’ve dramatically increased the pace of digital transformation.

However, the pandemic also proved that tax authorities around the world still have plenty of work to do. Anxious taxpayers overwhelmed call centers, forcing tax administrations to transform faster. In OECD countries, slightly under half shifted more than 75% of their communications from paper to digital.

Tax administrations need to do much more than fight fires and solve problems. They need to change from being reactive, passive recipients of tax returns into proactive partners that improve how businesses operate and people live.

Meeting the Taxpayer Where They Are

To truly transform, tax administrations need to put taxpayers at the center of their evolution and integrate their plans into wider digital government programs.

Traditionally, the burden of filing accurate tax returns has fallen on taxpayers. But too often, individuals struggle to understand, properly document, and process their tax liabilities. What if filing tax returns could be as convenient as banking online rather than an unpleasant interaction with the government?

Many tax administrations have already made substantial progress along this path by designing services around the customer. According to the OECD’s 2020 International Survey on Revenue Administrations, more than nine in 10 businesses and eight in 10 individuals now file their taxes online. But more should still be done to simplify tax regulations.

This is a chance for governments to streamline these processes for their citizens. For example, as part of the French government’s effort to streamline tax collection for the country’s four million small businesses, the Directorate General for Public Finances has set up an online portal to help small business owners, start-ups, and the self-employed.

Advanced Analytics for Speed and Security

Next, tax administrations must apply advanced analytics and behavioral incentives to simplify and improve compliance. Many tax authorities are already using advanced data modeling, artificial intelligence (AI), and machine learning to provide a more holistic view of taxpayers. Brazil is currently using AI and geoprocessing to identify anomalies where individual taxpayers log earnings, assets, or expenses that are outliers from the rest of their communities. The system can help identify people at risk of avoiding tax.

Advanced analytics can help tax authorities develop and personalize new services further by better segmenting tax cohorts. This allows tax collectors to more empathetically and proactively support lower-income households and struggling businesses—making sure they get refunds first, giving them more notice of assessments, and deferring payment schedules.

Also by using real-time data exchanges to speed up processes, administrations could improve compliance and mobilize revenue. Currently, many leading tax authorities use an application programming interface (API) to exchange tax data between two parties in a secure environment. Under the UK’s Making Tax Digital framework, more than one million businesses have used API interfaces to supply business data directly to the Her Majesty’s Revenue and Customs (HMRC).

Advanced analytics lay the groundwork for tax administrations to upgrade cybersecurity so that adopting cloud technologies becomes cost-effective, scalable, and secure. For example, Mexico’s Tax Administration Service has used cloud services since 2012, saving 20% in estimated investment costs. It now processes an average of over 180,000 e-invoices per minute.

Optimizing the Human Element

The explosion of data, technologies, and analytical models is only helpful if tax administrations and their people have the skills and working practices to use them effectively. The rapid shift to remote work is only one aspect of a broader public sector talent strategy that must embrace new knowledge and skills. Tax administrations also need to invest in upskilling their workforce, which could mean tapping into private-sector talent pools and recruiting top digital talent into government service.

By automating manual tasks, tax administrations can free up time for tasks that require more empathy and complex decision-making. For example, using chatbots to answer process questions allows staff to help taxpayers experiencing hardship to navigate entitlements and obligations. By using advanced technologies alongside skilled tax professionals, tax authorities can give taxpayers tailored support, including quicker access to refunds and payment options that meet their circumstances.

In addition, technology frees up time for deeper thinking on long-term initiatives such as harnessing tax data to improve environmental, economic, and social policy. One example of such an initiative comes from Australia. During the height of the pandemic, the Australian Tax Office shared accurate payroll data on 92% of the country’s working population with the Bureau of Statistics. This provided critical and near-real-time insights into the state of the economy when traditional employment surveys were falling short due to pandemic restrictions.

The Road Ahead

It’s clear that digital technologies can revolutionize the taxpayer experience, but as the biggest holders and processors of public data on citizens and businesses, tax administrations can also help their governments improve economic and social policy.

A tax administration can’t transform on its own. To be effective, its digital strategy must link to the broader vision for a digital government, both domestically and internationally. Looking ahead, tax administrations can also share their data with the wider government to support various public policies and ESG objectives. Examples include identifying issues like forced labor in supply chains, using blockchain to track and validate the sustainability of goods, and deploying AI and machine learning tools to identify trends and spot risks from the source to the port of entry.

The department also needs to understand the latest advances in technology and analyze the economic and social changes that may lead revenue forecasts to change. And, of course, it needs to build in significant time for consulting with taxpayers and the private sector. However, we have seen from the Covid-19 pandemic that one of the best way for governments to help citizens through times of crisis will be to digitally transform to make operations as smooth as possible.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Arnauld Bertrand leads EY Global’s Government & Public Sector consulting services. He also serves state modernization departments, United Nations agencies, World Bank, OECD, and international organizations on their development aid programs and internal performance.