e-Tax: The Digital Value of the Tax Ecosystem

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Digital services are here to make your life easier; you can do everything online - from shopping to learning, from travel booking to watching TV shows. It is obvious that the public sector also turns to digitalization for making the lives of citizens easier and in order to be accessible always. 

This shift to digital had its impact on the Armenian government as well. A decision was made to automate the local tax ecosystem using digital technologies. 

Thus the story of IUnetworks Company began...

Digital Business Model of the Tax Ecosystem

Today it is safe to say that the digital transformation of the tax ecosystem has a significant effect on the collaboration between the tax authority and taxpayers. It is not only converting paper forms into an online format and reducing the time spent on filing taxes. It is also fundamentally changing the structure of trust, the direction of review and challenging the work of the tax authority. The enhancement of tax data management is not only vital for identifying risky taxpayers for targeted audits, but also for decreasing the number of false positives so that the defendant taxpayers are subjected to fewer unnecessary audits. With proper analysis, the data collected by the tax authorities could be used to detect non-compliant taxpayers for third parties such as vendors. So, in the area of 'big data', automation and data analytics can be used to get a proper view of the national economy.

e-Invoicing, as a part of tax administration, does not only benefit the tax system but also stimulates the use of more efficient methods for private enterprises. It is a stand-alone system that enables for issuing e-invoices for further analysis, validates bulk invoices, and provides cross-checking to avoid discrepancies. Currently, all invoices in Armenia are issued through the system making around 30 million transactions per year.

The option for automatic prompting works to remind taxpayers about their payment obligations, thus helping them to avoid subsequent penalties and help the tax authority to improve the rate of compliance.

The Impact on Stakeholders

In any case, it is essential to accept that there are different stakeholders, and they each have different expectations from the digitalized tax system. Individual entrepreneurs usually treat filing taxes as an unpleasant duty. They are motivated to just pay the minimum amount of tax within the law, and of course, they want to have simple and intuitive interaction with the tax system. So simplicity in the tax system is one of the most critical drivers.

Corporations, like individuals, want to reduce their tax bills and compliance costs, while taking into consideration that record-keeping and other statutory are developed, they have some specific considerations. For example, when tax authorities intend to create pre-populated returns for individual taxpayers, it affects companies as well. If individuals do not provide the tax authority with all related information, it should be done by organizations instead, which can cause additional costs for businesses. So thanks to digitalization all figures are inputted into the system once and can be reused as many times as needed.

Tax agents will only be affected by digitalization if they don’t innovate, otherwise, they will have less compliance work and move towards advisory work.

Digitalization is a new source of revenue for software solution providers, and they play their specific role in the tax ecosystem as stakeholders, fulfilling the function of support for both sides.

In the taxation system, the government is the most complex stakeholder, as it not only has its own interests but also needs to meet the needs of other stakeholders. Digital methods are known to be cheaper for governments in terms of operation than various other analog methods.

The Future of Taxation through Digitalization

In March of 2018 in Munich, Germany the International Tax Conference was held, where tax authorities around the world discussed how to adapt revenue collection models to a global economy that is constantly transforming with the help of digital technologies.

According to the Organization for Economic Cooperation and Development (OECD), more than 110 countries will build a consensus on digital tax by 2020 within the OECD/G20 Inclusive Framework on base erosion and profit-shifting (BEPS).

The OECD in their 2018 report shows how digitalization has already had a positive impact on tax administration. For instance, data recording software adopted by several tax administrations has already increased value-added tax (VAT) revenues by up to 20% in some countries.

Thanks to a high-speed Internet connection and the volume of data transformed across the globe is expected to double each year, and new business models that are working through digital technologies make tax authorities to adapt their tax administrative systems as well as their approach to taxation of digitalized businesses.

We are only at the beginning of a digital revolution; the shape of tax systems will look very different in the coming years as the shape of the world economy changes dramatically,” said Will Morris, Chairman, BIAC Committee on Taxation and Fiscal Affairs; Deputy Global Tax Policy Leader, PwC. “The fundamental principle of taxing profit will change in the future, but we do need to start thinking about it now.''

TaxPayer by IUnetworks

Since 2008, IUnetworks has been delivering and supporting the Armenian tax management system, aiming to modernize it and provide transparent governance. The initial order was implemented in 2009, and in 2010 the Armenian tax system, in the face of the State Revenue Committee, became a full member of the Intra-European Organization of Tax Administrations (IOTA). So the international collaboration with the International Monetary Fund, World Bank, U.S. Agency for International Development, and the European Union in the field of tax administration has begun.

Later, the whole system has extended by adding new functionalities and new business processes adopted by the State Revenue Committee and financed by the World Bank. Additional modernization was aimed to increase voluntary tax compliance, reduce tax evasion, reduce compliance costs, and increase administrative efficiency. The re-engineering of business processes has automated routine processing of returns and calculation of taxes, strengthened analytical capacity for determining risks, augmented skills in audit, enhanced staff capacity for detection of tax frauds, improved taxpayer services, and developed an independent tax structure.

Automated VAT Refund System, Electronic Tax Filing, e-Invoicing, Electronic Cash Register Machines Management System, and Risk-Based Selection System; all these components come together to form a complete B2G product – TaxPayer 3.0 (Integrated Tax Management System).

 

Article by IUnetworks
IUnetworks is a company focused on the delivery of e-Gov and enterprise-based innovative solutions to automate processes and make business smarter.

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