The first African Tax Administration Forum (ATAF) and
Commonwealth Association of Tax Administrators (CATA) capacity building session on August 23, 2023, brought together tax authorities and experts from around the globe to address the pressing challenges and opportunities presented by the digital revolution in tax administration.
Drawing from their diverse experiences, representatives from organisations such as CATA, ATAF, the
Zambia Revenue Authority, OECD, and Malaysia's Inland Revenue Board provided a comprehensive overview. The discussions spotlighted the significance of data, the need for global collaboration, and strategies to harness technology in order to bolster tax systems, safeguard economies, and enhance taxpayer services in the digital age.
In his address, CATA Executive Director Duncan Onduru spoke about the evolving partnership between CATA and ATAF, emphasising the importance of staying updated in the rapidly changing landscape of digital transformation. "The digital transformation keeps on mutating, and that means that we've got to keep one another engaged to know what's up in the air and what we can learn from our counterparts," Mr Onduru noted.
Highlighting the varying stages of digital adaptation among countries, he noted the significance of events that facilitate mutual learning. The goal is a digital transformation that bolsters compliance, with a specific emphasis on leveraging technology to pinpoint non-compliance. However, data governance and its utilisation by tax administration remains a concern, especially in light of impending legal and ethical challenges.
"As we move from tax 1.0 to 3.0 and beyond, engagements like this are crucial to understanding pitfalls others have faced and addressing emerging challenges on our journey,” said Mr Onduru.
Safeguard our economies
In his remarks, ATAF Executive Secretary Logan Wort spoke about the critical role of technology in protecting and advancing global economies in this era of digital interconnectivity.
"As the world becomes increasingly interconnected and digitalised, it is vital to use technology to safeguard our economies,” said Mr Wort, emphasising the detrimental effects of illicit financial flows and tax crimes on both developed and developing nations, which he said "impede our growth and erode public trust”.
Mr Wort noted the reliance of African countries on trade-related customs and VAT, with domestic tax bases being notably low. He highlighted the missteps in tax collection practices, saying: "We don't tax high net worth individuals enough. We don't tax politically connected people enough."
To address these gaps and ensure comprehensive revenue collection, Mr Wort stressed the indispensability of technology: “It is technology that makes that possible."
Citing ATAF’s African Tax Outlook (ATO 2022) research, Mr Wort said that despite promising numbers in electronic registration, filing, and payment, there was an urgent need for a more holistic embrace of technology. The goal, as he explained, is to reduce human error and intervention, thereby curtailing corruption and increasing efficiency.
ATO 2022 recommendations, said Mr Wort, including the need for tax administrations to "recognise and embrace ICT and digital technologies in our strategic plans”.
Robust digital infrastructure
Varsha Singh, ATAF Head of Strategy Planning and International Corporations, addressed the transformations brought about by technological advancements.
"As the world has been evolving, technology has taken precedence in terms of business processes, making them more efficient and effective,” said Ms Singh.
The pandemic underscored the importance of a robust digital infrastructure. Tax administrations that were well digitalised could promptly engage with taxpayers, mitigating some of the challenges induced by COVID-19. However, illicit financial flows are still a concern, emphasising the need to further digitalise processes to curb these issues.
ATAF research conducted in 2020 revealed variances in the level of cooperation between tax administrations and parent ministries. The political will to back modernisation varied across countries. Interestingly, many tax administrations showed a keen interest in adopting new technologies, although they might not have had the resources for actual implementation. A prevalent concern was the uncertainty surrounding the execution of e-government strategies and acceptance of electronic signatures to authenticate taxpayer declarations. However, there were also optimistic findings. Many countries have designated government departments responsible for ICT, with a majority already having approved e-governance strategies in place. A significant number also had operational disaster recovery sites. Yet, challenges persist in fully transitioning from a conventional tax administration culture to a knowledge-based, customer-centric approach, reliant on data and intelligence.
Tax official of the future
The role of technology also brings into focus the need to reskill existing staff while simultaneously recruiting new officials with specialised expertise, like data analytics. "The tax official of the future looks very different. Previously, we appointed accountants and lawyers, but today we are looking for skill sets that are data scientists," said Ms Singh.
Addressing the spectrum of taxpayers, she emphasised the importance of accessibility and inclusivity, particularly with the prevalence of mobile devices. They highlighted the necessity of making tax processes user-friendly for different demographic groups, including the elderly and the disabled.Despite the promising strides in digitising various aspects of tax administration, challenges persist. Developing countries, particularly in Africa, grapple with infrastructural issues, which called for a holistic government approach. The costs associated with the integration of new technologies are frequently underestimated, with post-implementation maintenance proving to be particularly expensive.
Ms Singh shed light on the notable rise in taxpayer service websites, which rose "from 50% reported in 2010 to 60% in 2021." "ECOWAS has reported the highest [presence] of websites that manage statistics,” she noted, citing the ATO 2022 report,
Shifting focus to the support provided to member countries, Singh elaborated on the initiatives undertaken by ATAF including actively exploring "the feasibility of developing an ICT tax system that is homegrown" for member usage.
Ms Singh stressed the overarching goal: to aid in "modernisation processes so that they can boost revenue collection" and make tax administrations more efficient using advanced technology and automation.
Political will is key along with an ICT strategy, stakeholder management, robust infrastructure for data exchange, and ensuring data integrity are paramount.
Ms Singh highlighted the complexity of tax administration collaborations, saying: “Tax administrations cannot operate in isolation. They have to operate...with the cross-border movement of receiving and sharing of data."
In line with insights provided in the Africa Tax outlook release last month, the next critical step involves an exhaustive feasibility study which will not only cover legal, technical, and operational feasibilities but also scheduling and economic aspects.
Transformation journey
Harrison Chapu, who is the Information and Technology Manager at the Zambia Revenue Administration, took participants through the entity’s transformation journey from traditional methods to modern, efficient solutions.
Before 2004, ZRA grappled with fragmented systems, making it challenging to integrate various functionalities. A significant shift occurred in 2004 with the adoption of the ITAS system. By 2009, a notable effort to further modernise took shape with the development of an in-house system, supporting previously existing platforms and aiming to automate certain processes.
The Tax Administration and Refunds Processing System, or TAPS, was then introduced. Designed by ZRA's ICT team, TAPS aimed to efficiently handle previously manual tax types, like turnover tax as well as provided automation of the refunds process for both Domestic taxes and Customs By 2013, ZRA integrated a comprehensive system, "tax online," also in use by countries like Uganda and Rwanda. This system's limitations, notably the expensive maintenance costs due to the absence of a source code, led to the development of "tax online two" by 2019.
Looking ahead, Mr Chapu announced ZRA's aspiration to roll out an "electronic invoicing system" by 2023, inspired by a successful model in Rwanda.
Highlighting the strategic move towards local, in-house solutions, Mr Chapu said: "The scenarios that we have in Africa... are very different from other jurisdictions." He underscored the challenges of external systems, citing issues like the costly three-year customisation of 'Tax Online one'.
Data is at the forefront of ZRA's vision, with Mr Chapu emphasising: "You cannot do data analytics if you don't collect data."
As ZRA navigates its path, the pressing need for adaptability in a rapidly evolving economy stands out. Mr Chapu shed light on the hurdles of integrating systems without access to source codes and emphasised the importance of harnessing local talent: "They have learned Java, they know Python."
Integration of tax processes
Vegard Holmedahl from the
OECD's Forum of Tax Administration ( FTA) Secretariat introduced the Digital Transformation Maturity Model (DTMM) which is a free tool available for tax administrations. The model allows for internal self-assessment within tax administrations to have "frank and open discussions on the current maturity level in the field."
Holmedahl pointed out that if discrepancies are found between current standings and desired goals, the model suggests areas of improvement.
Expanding on the evolution of tax administration, Holmedahl clarified: "Tax Administration or TA 1.0 is the previously analogue way of doing things. TA 2.0 is the digitalized tax administration. And then we get to TA 3.0 which offers seamless taxation." This progression represents the integration of tax processes into regular financial processes used in society.
Holmedahl also differentiated between digitalisation and digital transformation. "We understand digitalisation as converting data to digital formats and converting manual processes to processes supported by or performed by computers," he said, while "digital transformation is moving taxation processes into the taxpayer systems... as close to taxable events as possible."
The Digital Transformation Maturity Model is based on Tax Administration 3.0 vision from the FTA. It, is structured along the building blocks from that vision, like digital identity and Data Management and Standards. The model has been adopted by over 55 administrations globally.
User-friendly
Speaker Mohamad Shahrul Bin Mohamad Padely from the Malaysia Revenue Administration outlined the digital transformation journey of Malaysia's Inland Revenue Board (IRB). He noted that it underwent three major phases of digital improvement. In the early days, they built a basic information management system. As they progressed, the focus shifted to developing a more efficient tax system.
"We updated our tax system around the year 2000 to make it more user-friendly,” he noted.
By the third phase, the IRB had embraced advanced technology to improve its services.
Mohamad Shahrul Bin Mohamad Padely said: "The way we handle taxes has changed, adapting to the modern digital world." He highlighted the importance of data analysis, stating they began "using the data from tax returns to make better decisions."
He emphasised that the IRB is continuously looking for ways to use the latest technologies to improve including focusing on analysing large amounts of data to offer better services to taxpayers. He also covered challenges in order to improve the digitalisation of tax administration such as data security, data accuracy, change of law and change management.
Collaboration between countries
The session ended with Oliver Petzold of the OECD presenting the inventory of tax technology initiatives a database that offering insights on how tax administrations globally have embraced digital transformation.
"The inventory is based on a comprehensive survey that to date has been completed by 80 tax administrations globally,” he noted, adding that the tool's aim is to assist tax administrations in their domestic reforms and to promote collaboration between countries.
Speaking on its importance, Mr Petzold noted: "We developed this inventory... to try and fill this information gap on the extent and progress of digitalization and digital transformation by tax administrations."
Mr Petzold told participants that going forward the database will include detailed case studies, the first case study on with New Zealand's business transformation already available
