Success and failure of global attempts to digitalise tax

The Government’s response to the Making Tax Digital consultations, published yesterday, included several helpful announcements for small businesses. Not only was it good to see that Government is listening to the concerns of small businesses in the implementation of Making Tax Digital, but it is also good news that it is allowing time for further consultation on two major areas, namely what the exemption limit should be for small businesses and what the implementation timescale will look like.

On the back of these announcements, I’d like to draw attention to a report published by our IT faculty a few months ago, which looks at the international story of tax digitalisation, starting with the goals of taxation right down to the specific tools used to administer it.

International approaches to digitalisation of tax

The report is designed to help policymakers create a modern digital tax administration. The UK Government can learn a lot from the case studies in our report, which provide an insight into different countries’ experiences and the problems they have faced.

One interesting example is Russia, where the rapid pace of change has meant that government departments are not joined up and that information is being requested before the authorities are ready to deal with it or answer any questions. Estonia’s programme of digital transformation is considered one of the leading examples in the world and yet digital exclusion is a common problem among older citizens and in remote areas where internet connectivity is poor.

Small businesses at risk of digital exclusion

The risk of digital exclusion is also the largest and most persistent issue in expanding the digitalisation of tax in the UK. As I have reiterated a number of times on this blog, ICAEW believes that the move to digital tax should not be made compulsory, but that it should instead be a matter of choice for business owners who can see the benefits of it. We have seen from other economies that forcing implementation in a short period of time can cause problems, and pressing ahead with mandatory digital compliance would result in more regulatory burdens for small businesses.

I am also concerned after yesterday’s announcement that the Government has given stakeholders only four weeks to respond to the draft legislation, as opposed to the usual 12 weeks. It is vital that Government continues to consider comments on these provisions and refine them as part of the Finance Bill and make changes as necessary.

The research for our report drew heavily on interviews with ICAEW members and tax specialists around the world. Our Tax and IT faculties are working jointly on the implementation of digital tax and ensuring that the UK learns from international best practice. If you would like take part in the continuing discussion, please contact our IT faculty or Tax faculty.