The objective of this blog is to comment on the main points of a truly relevant report on “Tax Administration 2022”, published on June 23, 2022, by the OECD Forum on Tax Administration (FTA)^[1], which was prepared with the participation of 58 jurisdictions representing about 90% of the world GDP.

It provides comprehensive comparative information on the performance of tax administrations (TAs) in 2020 and aims to help them consider where further improvements can be made, as well as improve the broader public understanding of their scale and their changing nature.

This 2022 edition also attempts to highlight the most significant changes they face, using data provided through the International Survey of Tax Administrations (ISORA) as well as over 100 examples received from more than 35 TAs.

The report also uses data from the recently launched Tax Technology Initiatives Inventory (ITTI), which contains information on technological tools and digitalization solutions implemented by more than 75 TAs^[2].

The main aspects are summarized below:

1. IMPACT OF THE COVID – 19 PANDEMIC ON TAs.

By covering the year 2020, it is the first edition showing the impact of the COVID-19 pandemic on the TAs

The pandemic has had a significant impact on revenue with a large decrease in net income (€620 billion) and taxes owed by more than €200 billion.

In addition, significant changes were seen in the way TAs interact with taxpayers, for example, with a 55% drop in face-to-face visits and a 30% increase in digital contacts.

The report highlights that TAs have proven to be resilient in the face of these challenges and, as the examples show, they have continued to innovate and provide high-quality services to taxpayers.

It should be noted that many TAs have initiated new services as part of broader government schemes of support during the COVID 19 crisis.

The innovations highlighted in this edition of the report show how the pandemic accelerated the growth of digital services and digital transformation and led to the consideration of new ways of working.

Many TAs report that they are reflecting on their experiences during the pandemic and considering what this means for the future of TAs, both for employees and taxpayers.

2. MOVING TOWARDS THE DIGITAL TRANSFORMATION.

This 2022 edition shows how the trend towards an electronic TA has continued and been accelerated by the pandemic, with digital contact channels now dominating interactions with taxpayers.

For example, the TAs report that in 2020 there were about 1300 million contacts through online taxpayer accounts, an annual growth of 27%.

Around 75% of TAs have a digital transformation strategy in place. They are driving digital services to become ‘smarter’, enabling taxpayers to complete increasingly complex tasks digitally, more efficiently and 24/7.

This is also helping to lead to major improvements in taxpayers’ tax compliance and there are growing signs that the pace of digital transformation will accelerate further.

Two general themes stand out in the drive towards digital transformation: taxpayer participation and compliance management.

Regarding the participation of taxpayers, it is said that two main factors are driving the effective digital engagement:

• Identity and secure digital verification- As TAs offer more services online, digital security, digital verification and digital identity are becoming the cornerstone of their work.
• Collaboration with third-party service providers: Incorporating services and processes into the natural systems used by taxpayers in their daily lives and their businesses is a growing trend among TAs. While this helps improve tax compliance, it also reduces administrative burdens and frees up time that taxpayers can use to grow their businesses. As these forms of collaboration become more common and sophisticated, TAs are beginning to adopt strategic approaches to managing and supporting service providers. This may include co-creation activities, in addition to allowing direct data exchanges via application programming interfaces (APIs).

With regard to compliance management, it is said that compliance-by-design approaches have been in place for many years for salaried taxpayers on income tax through withholding and reporting by employers. (PAYE-Pay-As-You-Earn)

These systemic arrangements, adopted by almost all TAs, have helped to maximize compliance with this significant part of the tax base.

The increasing availability and exchange of data now allows such approaches to be expanded to cover other sources of income and other classes of taxpayers, including through the pre-filing of corporate income tax returns and VAT returns (draft declarations or pre-filled returns).

Digital techniques are also enabling TAs to take a more advanced approach to risk management. This can be seen in:

• The regular use of large, integrated data sets. The manipulation and management of data is now a central part of the functions of a TA, with the use of analytical tools and techniques that are incorporated in all areas of the tax administrations. About 90% of TAs report that they use analytical and data science tools, and this is making it easier to use data in all aspects of an administration’s work.
• The growing use of artificial intelligence and machine learning. As TAs become more comfortable with managing large data sets and computing power increases, the use of AI and machine learning is opening up new approaches in risk management. More than 70% of TAs are already using highly innovative techniques to exploit data in a way that can uncover previously hidden assets or identify new risks.

continuation….

[1]    https://www.oecd.org/tax/forum-on-tax-administration/publications-and-products/tax-administration-23077727.htm  OECD (2022) Tax Administration 2022: Comparative Information on OECD and other Advanced and Emerging Economies, OECD Publishing, Paris, https://doi.org/10.1787/1e797131-en.
[2] OECD (2022), Inventory of Tax Technology Initiatives, https://www.oecd.org/tax/forum-on-tax-administration/tax-technology-tools-and-digital-solutions/. See also comment Tax Tech new inventory of digitalization practices and initiatives in Tax Administrations. CIAT Blog (12/4/2022). Alfredo Collosa

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