Digitalisation of Tax Administrations and contemporary issues

Sep 6, 2023 | Uncategorised

5 September 2023 – Find below the keynote address by Mr Edward Kieswetter, Commissioner for the South African Revenue Service (SARS) and vice-chairperson of the African Tax Administration Forum (ATAF), on the occasion of the 2nd Network of Tax Organisations (NTO) technical conference under the theme “Digitalisation of Tax Administrations and contemporary issues” on 5 September 2023 in Cape Town.

I was very excited to learn that the theme for this conference would be on the digitalisation of tax administrations and contemporary issues. My sense though, is that as global tax leadership representatives we cannot talk amongst ourselves, as this is often akin to preaching to the converted. We have to engage the broader stakeholders in the tax eco-system be they:

Policy makers who must ensure that relevant and proactive development of tax legislation and policies appropriately remain relevant to a rapidly changing digital and virtual world, the proliferation of tax crime while securing  the rights of taxpayers in a fair and equitable manner,
National Treasuries – who, if I listen to my colleagues at the OECD and Forum for Tax Administrations (FTA), from around the world – have not made adequate investment in the collection capability of Revenue Administrations. This is a rather unfortunate austerity approach that fails to see the strategic role Revenue Authorities play in the longer-term fiscal integrity and sovereignty of countries,
Political Principals and Senior Budget Administrators charged with the allocation of fiscal resources, to ensure a more effective funding allocation to revenue authorities that will in turn result in an exponential and positive return on investment,
Legal, Tax and Financial Professionals who often shape the advisory and intermediary landscape in a manner that erodes tax morality and compliance, and
The Media, to be more balanced in shaping the national narratives regarding fiscal responsibility and tax morality, whilst holding elected officials accountable for the delivery of social goods and services.

Whatever we may feel about tax, it is still the main source of revenue for governments around the world to finance social programmes and create enabling infrastructure that secures the material and emotional well-being of citizens. These programmes affect particularly the most vulnerable among us who cannot insure themselves from man-made or international disasters (such as we’ve seen during the COVID-19 Pandemic), and who cannot afford private goods or services, such as healthcare, education, housing, nutrition, etc. Poor people have no choice but to look to government for these services, and tax revenues makes this possible. I am therefore a strong advocate for broader stakeholder engagement with the important work of the NTO, hence I welcome the engagement with the media over the next few days. 

The conference theme, digitalisation of tax administrations and contemporary issues, has evolved in an exponential and disruptive manner in the recent past. In many ways, COVID-19 has accelerated to need for rapid modernisation of our work.

When I joined SARS – for the second time – in 2019, it was at a challenging time. The organisation had become a victim of state capture. It had been repurposed to serve the corrupt intention of a self-serving leadership and their narrow interests. Governance and Integrity had deliberately been destroyed and well-established institutional arrangements were dismantled. Mission critical technology modernisation was disrupted.  As a result, internal trust and morale between employees and leadership had eroded. Competent professionals left many organisations. Public trust dropped to well below 50%. Revenue performance and tax compliance declined significantly.

We were confronted with a clear mandate. To turn around SARS and this time rebuild it into a SMART Modern Tax Administration that could be trusted and admired. We had to restore institutional capability and integrity to deliver on its mandate, and improve overall performance. No sooner had we started, when we were confronted with the COVID-19 pandemic that brought its own set of devastating challenges. However, COVID-19 inadvertently took us to the drawing board to think from first principles, and very quickly accelerated our response towards reprioritising our technology investment to enable our employees to work during the hard lock-down and to allow taxpayers to continue to fulfil their tax obligations. We used the pandemic to our advantage and have enjoyed remarkable progress on our modernisation journey, but we still have much to do.

’SARS’ experience is not unique, this is evidenced in the OECD’s Tax Administration 2022 publication which “shows how the pandemic accelerated the shift to digital services with an almost 30% increase in digital taxpayer contacts in 2020. At the time of publishing of the report, digital channels were dominating interactions with taxpayers, with around 1.3 billion contacts via online taxpayer accounts, and more than 30 million contacts via chatbots. This is a rapid shift from the pre-pandemic models which may have depended on channels such as post or in-person visits to the tax office. These new channels are often employing behavioural insights which are becoming more widely used in all aspects of a tax administration’s work.”

I will share some of SARS’ experience during this conference.

Ladies and gentlemen,

The progress reported is impressive, but it would not have been possible in the absence of a common vision, clearly defined strategic objectives and measurable results. Most commentators agree that the most crucial elements to the digital transformation journey are:

Leadership in terms of the centrality of providing a clear digital transformation strategy, organisational culture, and change management for internal resistance;
Building digital skills and workforce agility;
Appropriate budget allocation and funding certainty; 
IT security and dealing with the challenges posed by legacy issues; and
Lastly, to me personally, in the context of driving voluntary tax compliance – addressing the customer needs, expectations and meaningful service experiences.

I will deal with most of these elements over the next couple of days.

However, I want to pause here and focus on one element as a critical enabler of the digitalisation journey – and that relates to funding. Before state capture, SARS was a leader in digital modernisation for many years. However, partly due to financial constraints, but also a short-term approach, budgets were then frozen for a number of years and SARS fell behind in driving technological innovation. We have now managed to restore some additional funds to continue our modernisation, but we are still substantially underfunded to move at the necessary speed in an environment that is changing exponentially, business models are being disrupted, and tax crime proliferating at an alarming rate.  I am sure many of you can report the same.

The challenge now is that we not only have to play catch-up after many years of under-investment, but we have to accelerate modernisation simply to remain relevant. We are at a point where we can again focus on innovation. The important lesson here is that the digitalisation journey is not a finite project, but a new way of being. It is an ongoing journey. Once you suspend funding, the end result will always be the suspension of innovation and regression against the progress of other administrations.

This goes against the intrinsic value of digitalisation in improving tax compliance and detecting tax non-compliance. As more financial transactions are taking place digitally, more 3rd party data sources are shared with tax administrations, and central bank digital currencies are emerging, the importance of digitalisation and consequently the use of data science, and artificial intelligence have become central to revenue collection, compliance and trade facilitation. So, in short, whenever budget cuts are required, National Treasuries – Budget Offices are advised to avoid across the board cuts and ensure a more prudent approach to invest to build enabling and productive economic capacity, create employment, and thus expand the tax base. This secures fiscal integrity and sovereignty in the long run. Tax Administrations should be excluded from across-the-board austerity measures. The investment in digitalisation should not be disrupted.  The cost of recovery is simply too high in every respect.

Going digital through enabling technologies and increased reliance on data science and artificial intelligence has had global benefits worth reflecting on for a moment:

Making it easier for compliance. It takes you approx. 5 seconds to unlock your phone using facial recognition. Today, you are able to receive your tax assessment within 5 seconds or less at the click of a button (at SARS we issue 94% of assessments in 5 seconds and we auto-assess almost 4 million taxpayers.  This involves the act of computing a multiplicity of data points and algorithms in a matter of seconds through the power of big data and enabling technologies (such as machine learning & artificial intelligence as well as cloud computing).
Exponential growths in the expanded and increased use of data – for example, Automatic Exchange of Information (AEOI) has doubled since its inception, from some 47 million accounts in 2018 with assets totalling of EUR5 trillion, compared to the recent exchange period that had 111 million accounts in 2021 with assets totalling EUR11 trillion.
Evident support for digital transformation – Tax Administration’s Investment into ICT (Information & Communication Technology) has doubled since 2018,  representing only approx. 2% of Tax Administration budgets to now being 4% in 2020.

I wish to turn to what I believe is a matter for urgent attention. The question of a higher purpose and common objective for members of the NTO, which has just increased to 10 regional organisations representing the interests of its respective constituent tax administrations and/or revenue authorities. I frame this as my challenge to you.

In the context of digital transformation and modernisation journeys, a really transformative common purpose objective would be to leverage efforts towards a single digital identity. Countries like Chile, Sweden and Norway have used a single unique digital identity for the whole of government as well as subscription to the financial services. This has enabled them not only to serve citizens better, but also for more effective detection of tax and economic crime, and law enforcement. Generally, its proving to be a defining enabler towards improved delivery of social services and greater social cohesion.  The achievement of a single digital identity is well beyond the scope of tax administration, but I believe we can lead the way given our dependence on it for more effective administration, though it will require strong political will and competent institutional leadership. The advocacy role, convincing,  influencing, and global networking of the NTO, positions it well to set a single digital identity as a global and clear common objective for its members.

Heads of Tax and Revenue Authorities like myself have to challenge their leadership teams to think differently and to challenge conventional thinking. So, in this vein, I want to challenge all the members of the NTO to become vocal advocates and promoters of a single digital identity. 

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