Other parts of this series:
- Avoid the storm: what Europe needs to know to enact a new public services model
- What public leaders need to know to make a decision for change
- Turning ambition into action: How to launch the future of public service
- Tax compliance in the age of Ultron
- Preparing for the possible: the public service transition to a post-digital era
- Why has the civil servant been forgotten?
- Is singularity the end of the world as we know it?
Tax organisations across Europe are under significant pressures to adapt to radical changes in the economy. With the rise of new types of non-compliance driven by the digital society, it is now even more critical for them to become “digitally-driven”. Mature agencies know “what” they need to do to modernise – new technology, user experiences and agility. The challenge – and key to stable operations – becomes the “how”.
An area of compounding challenges
The digital platform economy is growing fast. In Europe alone, revenue has doubled over the last three years. The landscape is complex and extends beyond the large, well-known and, mainly American businesses like Airbnb and Uber. It encompasses a long line of small providers of aggregated online services, most starting as local providers that expand regionally. As more and more enterprises contribute to this new economy, tax compliance is not necessarily a given for this new breed of business owners.
Many businesses in the digital economy don’t naturally comply with tax regulations. Some find it difficult to understand and navigate tax legislation. Accenture’s 2017 Taxpayer Survey revealed that 18 per cent of taxpayers ages 18-24 didn’t think these new businesses should even pay taxes, especially when it relates to private assets like renting a room. One European tax agency recently evaluated the risk of income shortfall by as much as 10 per cent due to reduced compliance from platform earners compared to well-established pay-as-you-earn processes. What does this mean for the future of taxation?
Creating a natural system
It’s time that tax organisations eliminate the “choice” for businesses to be compliant. With a natural system, compliance is built into the system. It naturally syncs to the customer based on their activity and behaviours.
Many European cities have decided to forgo waiting on stronger compliance legislation from central policy makers as their budget deficit continues to deepen. Instead, they are embracing this natural system and thinking of the taxpayer as a customer. Open platform data can also be used to identify possible heavy users of a service, giving tax agencies insights to proactively contact and engage the taxpayer. However, this is seen as a risk by platform providers who are aware that their users do not want to be easily identified by the tax agencies.
Agencies using this open data tactic will yield benefits in the short-term but will also need a long-term platform service agreement strategy. This is why some tax agencies are considering extending their API platforms to offer services to platform providers to increase compliance. For example, some of the authentication services and automated accounting could be provided as a service by an ecosystem platform between payment services providers and the tax agencies.
A lesson from the playbook of car manufacturers, Netflix and Disney
Natural systems are becoming the norm for successful private companies, and tax agencies can find interesting lessons on how they do it. For example, car makers have embedded software into vehicles and updates so that the engine adapts to the way you drive. Netflix uses a complex set of algorithms and metrics to rank what movies you’d like to watch. And Disney monitors your kid’s favourite character to make sure it’s there to greet them when checking into one of their resorts.
These companies have learned how to use today’s digital technologies, including machine learning and artificial intelligence, to focus on the individual preferences of their customers, responding to and even predicting their needs. Good maintenance and management are standard. Now it’s all about creating experiences. Agencies can improve compliance by adopting some of these same customer-centric measures.