This article was originally published as part of the 2018 IOTA book “Impact of Digitalisation on the Transformation of Tax Administrations”. You can read the first part here.
Large platform companies, like Amazon and Apple, condition customers to expect convenience and efficiency, and now taxpayers are looking to their tax authorities for the same types of experiences. Tax administrations have been investing in automation and other digital technologies for quite a while, and now the capabilities of technology combined with the digital expectations of taxpayers are beginning to challenge tax agencies’ existing organisation structures.
Dissolving traditional boundaries
Many longstanding ecosystems currently support taxation such as the ecosystem shared between taxpayer, employer, bank and payroll company for processing employee withholding tax. I have found that these ecosystems typically involve a combination of manual and automated processes completed across siloed organisations, and they often subject taxpayers to uncoordinated, time-consuming tasks. Fragmented processes also raise accuracy and compliance concerns.
New technologies within digital ecosystems can offer an entirely more personal and convenient experience for the taxpayer while also improving compliance. They can coordinate activities between organisations to remove complexity, eliminate unnecessary reconciliations and complete processes in a much more efficient and cost-effective way. They also make it possible to integrate services, such as an online identification capability that gives the user access to different domains and platforms without needing to remember several different passwords.
The digital world offers the opportunity to remove traditional boundaries in taxation ecosystems as technology supports the sharing of data and processes by tax administrations with ecosystem partners, accurately, in real-time. Speaking with clients, it seems that artificial intelligence and blockchain, in particular, open up collaborative opportunities within broader ecosystems by automating tasks, offering virtual assistance, and keeping immutable records.
Transforming tax organisations
To take advantage of the potential of digital ecosystems, tax administrations must consider a variety of perspectives while focusing on the taxpayer experience and assuring compliance. Administrations will also need to carefully balance their system design objectives with those of their ecosystem partners. Newly integrated ecosystems should support services that ensure taxpayer compliance and ease of use while also accommodating the needs of partners to serve their customers and promote their brand.
I have no doubt that customer-centric design is at the heart of all successful digital ecosystems. Ecosystems supporting taxation are particularly complex, involving many organisations besides the tax administration. The design of such ecosystems involves considering many perspectives: the taxpayer, consumer, business owner, and service provider. Tax administrations serve many different types of taxpayers from large businesses to students working while on summer vacation. Designing a digital experience to successfully meet the needs of any one type of taxpayer requires an in-depth understanding of that segment’s needs and context.
Both business and technology functions in an administration must collaborate to direct the strategy for the ecosystem. While they share common concerns, they will bring different perspectives to addressing those concerns, each of which should be considered.
Current tax agency structures limit the effective management of the end-to-end taxpayer experience. They simply are not set up to manage and support accountability for the entire experience of a taxpayer segment. In addition, it is usually unclear who in a tax agency is responsible for coordinating with private sector third-party providers to create seamless experiences for a segment. Who will oversee this transformation and be responsible for monitoring and improving the customer experience over time?
Customer-centricity at the core
The necessity of designing and managing the end-to-end taxpayer experience, covering both service and compliance in a digital world, raises fundamental questions about the ability of existing tax organisation structures to meet this need. While every agency has a unit responsible for large businesses, the evolution of similar units for other taxpayer segments seems necessary if agencies are to successfully take advantage of digital technologies to personalise and more fully automate engagement with the various types of taxpayers they serve.