The digital economy is in high growth. It’s getting hard to find anyone who hasn’t used Uber, Lyft, Airbnb, eBay or myriad other digital platforms. For every product or service purchased through a digital platform, someone on the other end of the transaction is earning income. And, digital earners are growing right along with platforms. According to Accenture’s 2017 Global Taxpayer Survey, in five years more than 40% of taxpayers expect to start earning income or to earn more income from the digital economy than they do today.
A growing digital economy introduces compliance risk for revenue agencies. Digital earners are reliant on the platform for their income, yet they are typically not employees. Their income may or may not be transparent to the platform, and nearly one in five digital earners are unsure if they need to declare this income on their tax returns. About half find it difficult to understand their tax obligations on income earned from the digital economy. This can be frustrating for digital earners and for revenue agencies, accidental noncompliance can be time-consuming and costly to resolve. So how can revenue agencies get ahead of compliance and service risks as the digital economy rises?
Right now, there’s little incentive for platform companies to help taxpayers report income. After all, they are under no obligation to assist non-employees in this effort. And, many operate outside of the physical jurisdiction of the tax agency where their earners reside. However, it is in the platforms’ best interest to be part of the solution. Because if noncompliance escalates, it could alter their ability to expand, change the regulatory environment in which they operate, or reduce the supply of individuals willing, and able, to earn income through their platform.
The key to addressing this issue is to “keep it easy”. Platforms are popular and powerful because they are accessible, easy to join and easy to use. So, we want to use the same principles to help build compliance by making it easy for taxpayers to report income with minimal interference with how the platform’s processes work. Done right, there’s no reason why all parties can’t participate to everyone’s benefit.
The best way for revenue agencies to get ahead of the digital economy is to create deeper partnerships with platform providers and, together, design solutions that help citizens to comply. Since different platforms have different business models, each platform may need its own approach. But by starting with the platforms most impacting their jurisdiction, revenue agencies can create solutions for the largest number of digital earners. How the solution is designed is critical. “Keeping it easy” will necessitate an inclusive and immersive service design approach that is collaborative and brings users voices into the process from the very beginning. The design scope should span all aspects of the solution from who will use it to what problems it must solve (e.g. platform, agency, citizens and third-party partners such a banks).
With the right approach, and working in partnership, I believe revenue agencies and platforms can construct new and engaging ways to reduce taxpayer errors and foster voluntary compliance without huge investments of time or money.
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