Historically, tax administrators relied primarily on individual or corporate income tax returns to fight economic crimes and collect funding for critical public needs. But seeing a full picture of today’s taxpayers requires accessing data from new sources and combining it with traditional information. Embracing the demands of digital tax administration also requires constant adaptation to economic fluctuations, citizen expectations, tax regulations, reporting requirements and digital technologies.
How can tax administrators manage the nuances of this environment? SAS experts point to five trends that are shaping the future for digital tax administration.
Trend 1. It’s still a struggle to manage the deluge of data and transform it into insights
Some of the biggest challenges tax agencies face start with the data. Agencies must link records for the same taxpayer across disparate data sources, despite the lack of global standards on formats and tax data definitions. Data protection laws constrain how tax data can be used – which is top of mind for tax authorities. And there are multiple sources of data across diverse applications from internal legacy systems and external sources – with some duplicated records. Plus, data sometimes needs to be captured in real time or near-real time.
Adding another layer of complexity, some tax rules were established long before today’s digital technology existed. For example, today people can conduct a quick, cross-border transaction from a cellphone – no one would have imagined this in years past.
Trend 2. Innovative tax agencies are adopting a single, integrated platform for analytics
The marketplace has changed drastically since the century-old origins of brick-and-mortar-based economic rules. To overcome this issue and other complexities of digitalization, many agencies are adopting a single, integrated solution for analytics.
Uniting data and analytics silos across departments and divisions provides a common method for collecting and integrating raw data, cleansing it to ensure data quality, and preparing it for analytics. Prepared data can then consistently feed analytics processes across the agency – reducing the cost of model creation and deployment while reinforcing governance and data security.
Trend 3. The gig economy and internet-based business are disrupting traditional tax administration
It’s difficult for governments to enforce tax, labor and employment laws amid new internet-based businesses and a growing gig economy – where independent workers are paid by the job. For starters, most gig economy transactions happen in app-based technology platforms. And from a taxation standpoint, gig workers have to be evaluated differently than traditional employees. This raises many questions.
For example, how can tax agencies verify that each gig employee is legitimate? How do they know each gig worker is paying taxes appropriately? What are the tax ramifications for cross-border transactions in the gig economy?
The burden to understand these taxpayers and educate them about filing requirements is on tax administrators. To keep pace with the rapid changes, tax agencies are turning to data and analytics. Some countries have started using digital IDs to authenticate each gig worker. For gig employees, this “digital DNA” works regardless of which platform they use – automatically linking tax information (income, expenses, etc.) back to the correct individual.
Trend 4. Sophisticated taxpayers are creating complex corporate tax structures to evade taxation
As always, some sophisticated corporate taxpayers try to evade taxation. And it’s harder than ever to identify complex corporate structures and follow the trail of money through them. For example, some taxpayers create tax havens with unclear locations, which leads to confusion about the legal entity and how to tax the profits. Plus, corporations in different parts of the world are structured in different ways. Some corporate structures are even set up intentionally to obfuscate who owns the business.
The more steps away the owner is from the company, the harder it is to figure out who is ultimately accountable, then pursue cases of tax evasion.
Analytics software helps unravel these complex connections by examining multiple data elements – businesses, attorneys, tax preparers, bitcoin addresses and bank accounts. Innovative tax agencies now use link, network and social network analysis as well as artificial intelligence techniques to understand taxpayer networks.
Trend 5. To know the customer, tax agencies must rethink the way they engage with taxpayers
For many years, financial regulators have required banks to understand the background of each customer. This helps to fight money laundering and enforce sanctions. These days, regulators apply the same “know your customer” standard to tax agencies that they apply to banks. In response, tax agencies have started to adopt the same types of techniques banks use.
But tax auditors can’t rely solely on the data from traditional tax documents to get a 360-degree view of the customer. So, tax auditors now review social media accounts and other sources to supplement information on the tax return. Then they enrich their traditional data with new types of information.
The value of a unified analytics foundation
To accommodate the demands of today’s digital tax landscape, tax administrators need a new approach. A unified analytics foundation can meet these demands in a way that older, disjointed technologies cannot.
Such an approach can improve revenue collection to support government spending. It can reveal the changing nature of global and national economies and the impact on laws, policies and administrations. And it helps tax agencies provide more efficient services at a lower cost. Ultimately, an integrated, sophisticated analytics platform helps tax administrators effectively counter the economic crimes of tax evasion, fraud and noncompliance.Watch a webinar about the top 5 trends for tax administrators