In many ways tax authorities must become disrupters and innovators to keep pace with changing user expectations and the opportunities enabled by adjacent industries such as retail banking, fintech, payments and connected supply chains. Using advances in intelligent industry, digital, data and cloud will make tax much easier to administer for businesses, citizens and tax authorities alike.
As governments scramble to respond to the enormous challenges facing societies, economies and our planet, speed and agility are now essential attributes for public authorities. During the pandemic, national treasuries often had to set aside traditional structures and processes in order to release the huge sums of money so urgently needed to maintain social cohesion.
In turn, many tax and customs authorities are transforming too, embracing new and innovative ways to keep essential tax revenues flowing, that respond to changes in society, and the financial imperatives of the health and climate emergencies, while maintaining security and compliance.
Digital technologies, data and cloud are providing the transformational tools required. Automation and AI are replacing manual processes, producing more agile, service-driven organizations, able to meet customer demands for convenience, speed, and ease of use. Data and analytics are informing decision making and financial planning, as well as nudging citizens towards the right behaviors, while helping with their entitlements and obligations. Skilled tax professionals are becoming active change agents, creating more flexible and technology-enabled tax regimes that help drive key social, economic, and environmental policies.
1. Building trust and security will help transform tax authorities’ place in the economy and society
As tax authorities continue their fightback against cyber criminals by bolstering their defenses with increasingly robust and sophisticated cybersecurity measures, not only are they protecting vital national resources and infrastructure, but they are also building that priceless commodity – trust.
Trust is a critical component in the ongoing evolution of tax authorities, from enforcers to business enablers and active participants for good, providing the resources that deliver governments’ key social, economic, and environmental policies.
Trust can be truly transformational in the tax world. When people trust their tax authority, they are more likely to pay their taxes in full and on time. When citizens feel that their tax system is fair, secure, transparent, and operating in the best interests of society, they are more likely to share their data; more likely to adopt digital processes and modern payment mechanisms; and more likely to use technologies such as cognitive care when they need support.
In these circumstances businesses are more likely to see tax authorities as potential partners, participants in rich data ecosystems, collaborating and sharing information on their tax affairs while bringing benefits to society by tracking ethical practices such as the living wage or adherence to modern slavery legislation. This is a powerful reach far beyond that tax authority’s traditional role.
As these new relationships – and the trust that sits at their core – become established and grow, so that spirit of collaboration can extend throughout economies and societies, driving sustainable economic growth, supporting businesses, and achieving social responsibility goals.
Enhanced cybersecurity has also enabled tax authorities to successfully embrace hybrid working during COVID-19, at a time of unique risk and vulnerability, with criminals eager to exploit any loopholes as public sector organizations scrambled to formulate their responses to the pandemic. This must remain a focus as criminals become more inventive in their exploitation of weaknesses, with great emphasis on supporting and protecting users in their critical tasks through education, new processes and technology enablers.
2. User-centric products and services, combined with technology, will drive participation
Today’s customers, whether consuming services from their mobile phone company, clothing retailer or tax authority, expect a fast, frictionless, and personalized multi-modal digital experience, informed by an understanding of life events and, in the case of their own tax situation, precise information about tax obligations and entitlements.
In 2022, the drive for hyper-personalization will accelerate, with tax authorities adopting best practices from across the economy to apply user-centricity to all stages of the customer journey, to increase trust, confidence and compliance with tax laws and obligations, while also reducing the need for costly agents and accountants.
Digitally native customers will adopt self-sovereign data practices, ensuring that the data that tax authorities hold on them and their businesses is accurate, while also deciding who else they wish to share it with. This will give rise to new forms of data sharing and consent across geographical boundaries, facilitating ease of movement, and also improving overall tax compliance by making pre-populated tax returns and payments an easy process. In 2021 the UK’s HMRC launched the world’s first public sector Open Banking payment initiation system, enabling payments to be made directly from bank payment accounts to payee bank accounts, without the use of cards.
Meanwhile, advances in mobile technology, 5G and edge computing will enable more media and AI-enabled applications for tax administration to become available, serving the needs of all taxpayers, but in particular younger people for whom smart devices are instinctive and the default choice. By providing a feature-rich user experience, new taxpayers can be better informed about the role of tax in society and be confident to manage their tax affairs and share their data from the palm of their hand.
3. Data sharing and data sovereignty will deliver choice and control
Real-time data will drive tax obligations and welfare entitlement at the point of the transaction, driven by closer integration with customers’ third-party applications, and voluntary compliance through integration with their banking and platform lives.
The importance of real-time data will be amplified across Europe as e-invoicing and VAT standards are mandated, enabling both more accurate data capture and AI-driven repayments, based upon risk and provenance. This will promote stronger economic activity with greatly reduced friction.
Combining rich data from Open Banking, payment and other third-party data will allow AI and pattern recognition to enable early identification of business vulnerabilities, allowing customers to declare their risks, seek support and prevent unrecoverable business debt and individual hardship. Early warnings will enable tax authorities to make better decisions about compliance and debt management interventions as early as possible.
Meanwhile the use of common data spaces and ecosystems, driven by standards in Open Finance, will allow tax-related data to be shared, with consent, to recover tax in a more transparent and frictionless manner. There will also be an ongoing focus on closed ecosystems sharing critical, cross-border financial information to close gaps in financial crime and tax evasion.
4. Demographic shifts will produce growth in indirect taxes – and automation and AI
Demographic studies reveal growing social and economic challenges facing industrialized nations, caused by rapidly aging populations. The UN predicts that those over 65 years of age will double from 727 million in 2020 to more than 1.5 billion by 2050.
Among the many consequences of this trend are a reduction in the working-age population, rising healthcare and pension costs, and increased demand in the economy for products and services for older citizens. As a result, 2022 will see governments, through their tax authorities, continuing the trend towards more indirect tax regimes, where citizens will pay for the things they use and the assets they own, rather than contributing to national budgets through income or business taxes.
At the same time, similar effects are being experienced by tax authorities themselves as older, skilled and experienced tax professionals retire, with lower numbers of experts available to replace them.
Here, 2022 will see further extensions in hybrid, more sustainable working models and intelligent industry techniques, using data to allocate tasks to the most appropriate resources, deploying automation, AI and collaboration tools to enhance productivity, reduce errors and enable smaller teams to work on higher value tasks.
5. Tax will be increasingly used to drive consumer behavior
Humanity must achieve the most fundamental change in its behavior, in the shortest period of time in its history, if Net Zero 2050 is to become a reality. Although by common consent we’re starting to fall behind in the race to Net Zero, even at this late stage, all is not lost.
By redoubling our efforts and taking fast, effective and coordinated action, the line on the graph can still be reset to the required trajectory, towards the 2030 targets that we must hit to achieve 2050.
To achieve the mass consumer participation that brings Net Zero into range, more and more products and services produced by sustainable means must be affordable, easy to access and simple to use, for the overwhelming majority of consumers. Currently, uncompetitive prices, lack of availability and perceived complexity are still pushing too many consumers in the direction of high-carbon, unsustainable solutions.
In 2022, tax authorities will have an increasingly important role to play in enabling more and more consumers to contribute to the global effort, deploying a variety of tax policies to encourage citizens to make the vital personal changes in lifestyle and purchasing decisions – electric cars versus petrol or diesel power for example – that are essential if we are to deliver a brighter future for all.
Our look at 2022 trends in tax and customs was compiled in conversation with:
VP, Capgemini, Global Tax and Trade Cluster Leader
Karl Heinz Krug
Principal Public Finance, Capgemini
For information about Capgemini’s tax and customs services, visit here.