Making Tax Digital

The Internet, in essence, is simply a protocol for different computers to talk to one another. The Fourth Industrial Revolution goes beyond the internet and into the world of Artificial Intelligence and Machine Learning. This is transforming the business world; subsequently, the taxation laws are influenced as well. The World Economic Forum published a report in 2015, outlining the tipping points that the world will reach by 2021.The report notes that there is a 73.1% chance for tax to be collected via blockchain technology and a 45.2% chance of having the first AI machine on a corporate board of directors. The various stakeholders in the changing technological landscape include tax authorities in different countries, individual tax payers, corporations and the tax professionals.

The evidence for the impact of digitisation ranges from portals and chats used by the taxation authorities to the corporations deploying digital process automation to make data collection easier. Corporations are also moving towards deploying AI to enable data mining and deep learning, internet to minimise paperwork, blockchain for real time data analytics and identification of anomalies, and big data analytics for predictive analysis.

The personal interaction that tax payers have with tax authorities has significantly reduced globally. Currently, over 94% of Estonian personal tax returns are filed electronically utilising pre-populated data, which takes less than five minutes on average for completion. Government services aim to never ask the user to provide information that is already available to the government through one of its databases. On the other hand, the IRS in the USA does not currently follow a system of data collection with a 360 degree view of the tax payer’s information. So when a taxpayer calls for assistance, or signs into the rudimentary online account, little information is available. The IRS is now finally planning to implement an Enterprise Case Management System that will adopt a 360 degree view of the taxpayer to increase interactions and make them more effective. Thus, the digital interaction across countries vary depending on the system of data collection, accuracy of the pre-population process and the level of data the public is comfortable entrusting to the Government.

Regarding the changes in the digital world, other relevant aspects include changing laws towards taxing the digital economy and laws on taxing cryptocurrencies. Countries like the United Kingdom and organizations such as the European Union intend to impose a digital services tax on tech giants such as Facebook Inc. The measure is estimated to bring in 1.5 billion pounds over four years, according to the government. The digital services tax was first proposed by the U.K. government in a report on taxing the digital economy, published in November 2017. Similar version of digital taxation proposed by the European Union is being blocked by countries like Czech Republic under the grounds that the cost of collection will be far higher than the revenue. If UK were to unilaterally impose the tax, it would add on to the impact of Brexit on businesses in the country. With respect to cryptocurrencies, the laws in different countries ranging from incentivising their usage to imposing Vat on crypto transactions, capital gains on trading. Countries like India are still contemplating on the rate of taxation. These laws when imposed will have impacts on the portfolios handles by the tax professionals and affect the system of taxation.

The services that taxpayers expect from tax advisers are no longer mainly oriented towards help in compliance but they also expect help that is advisory in nature. Repetitive, high-volume tasks will be performed by a virtual workforce of software robots that can work faster, in a more inexpensive and accurate fashion than human beings. AI will be loaded with such information as tax code, case law and administrative guidelines, and AI will make certain decisions on this basis. Tax professionals will be redeployed to higher-value activities that require subjective judgement and strategic decisions, says EY’s Richard Suhr, Global Digital Advisory Leader. They will be supported by real-time data aggregation, data visualisation and predictive forecasting, thereby allowing more tax professionals to focus on unlocking value within accounting, finance and tax. New tax professionals will require a holistic skill base with IT skills, great strategic and analytical thinking, business acumen, rounded knowledge about the digital economy and the ability to anticipate future issues and initiate the process of change. Hence, it is important to realise that times are changing when it comes to taxation policies.

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