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The way value is transacted and money is earned is changing at a global scale, and so are the risk patterns in compliance behavior.
Many sources predict exponential data growth toward 2020 and beyond and agree that the size of the digital ecosystem will double at minimum every two years. When it comes to taxes, it’s not clear that taxpayers will be knowledgeable (or willing) to comply. By the same token, tax agencies are not currently set up to deal with new loopholes or blurring realities.
Changing risk patterns and an evolving trust balance are changing the game. To manage risk in this new era, a four-fold paradigm shift is required.
Shift with the trends
Tax agencies can achieve a major performance increase – an estimated 30-40% increase in improved efficiency and effectiveness of compliance-related activities – with four key paradigm shifts:
1. Service & Compliance Integration
Everyone in the tax agency should be thinking about how their actions can have a positive impact on compliance, and they should move to fully integrated activities. Better service means better compliance behaviour. That’s why it’s important to view every interaction with a taxpayer as an opportunity to influence compliance behaviour.
With this approach, the Australian Tax Office built a Customer Analytics Record that provides a single source for calculating a taxpayer’s non-compliance risk and predicting their propensity to pay a debt. As a result, it achieved operational efficiencies, reduced complaints, improved compliance rates, financial gains and an increase in community confidence that its tax system is fair and equitable.
2. Artificial Intelligence
Artificial intelligence (AI) is the single biggest technology revolution the world has ever seen. The application of ‘sense, comprehend, act and learn’ combined with automation provides an evolving set of opportunities to transform the core of compliance management. For example, with AI, identity resolution is faster, more accurate and reduces identify fraud; risk identification is more proactive and better at tracking changes in risk patterns; personalization can continually be refined; and processing becomes more accurate, increasing the capacity for agencies to allocate resources to more complex cases.
With an AI-powered social network analysis that can extract relevant information to identify transactions at-risk of VAT carousel fraud, the Belgian government is able to save nearly one billion euros each year.
3. Real-time Ecosystems
Your ecosystem is a real-time extension in communication, data, capabilities and capacity. A network of partners from within and outside government (e.g., tax advisors, software providers, accountancy firms, payroll providers) open opportunities to build trust and increased interactions with taxpayers. They provide access to more detailed, quality and real-time data, helping agencies to prevent and solve errors in communicating and serving taxpayers, which in turn, helps them to detect and address risks at the earliest moment. Ecosystem partners also provide services to taxpayers on top of what the tax agency provides. By improving overall service, you can increase compliance behaviour – and voluntarily.
4. Agile Organization
Change is the new normal, and every aspect of your service and compliance organization must keep pace. Becoming an agile organization enables you to stay a step ahead of the changing world and to prevent non-compliance from going undetected. An agile organization successfully implements an innovation capability, adopts an enterprise-wide agile practice, focuses on value and continuously responds to changing needs in compliance management.
For example, Australia’s Federal Revenue Agency used a scaled agile (SAFe) delivery approach to create innovative digital services that make compliance easier for taxpayers. Its virtual assistant has resolved over 80% of enquiries without any human intervention, and the improved superannuation services helped citizens recover more than 600,000 super accounts.
Make the shift
Navigating the paradigm shift requires several key changes, ranging from defining a compliance strategy to building new assets and capabilities to reshaping the workforce. While making the shift and radically overhauling your tax agency may be difficult, taking the leap is worth it. You open up new opportunities to identify and address risk – no matter what the changing world has in store.
When the world moves, move ahead.