Numerous wooden tools of different shapes tied to a piece of string.

Tax has relied on technology from the earliest recorded historical times. The latest advances in digitalisation of economic activity bring challenge and opportunity for tax administrations.

For centuries, tax administrations have looked to the latest technological developments to assist in the task of fairly collecting taxes from the population. The current shift to digitalisation of the economy is no different in the opportunities it presents directly to tax collectors.

The shift from physical to electronic records

Historically, one thing all the tax tools had in common was that they originated in an environment where information was recorded in physical form and duplication was a comparatively expensive process. The system of tax administration was built around physical data stores, relying primarily on paper technology-based operations.

Since the turn of the century, however, we have seen the start of a shift to a whole new world of tax, and business more generally, based on electronic records.

Digitalisation

The crucial point about digital records from an administrative perspective is that they are infinitely reproducible. Thousands of lines of information can be shared at the push of a button. The same data can be interrogated automatically by software in a tiny fraction of the time it would take to review the physical records.

There is an increasing recognition that digitalisation and the exploitation of digital data have the potential to revolutionise the operation of economies well beyond the minor disruption seen so far. Digitalisation is affecting not just how we produce and consume goods and services but also the very goods and services that are required. That in turn has implications for the shape of the tax systems of the future, and how administrations should implement them.

Tax and the local economy

One of the key things about technology is that its adoption is rarely universal or instant - and it does not follow the same linear path of progression everywhere it appears. Tax administrations need to be sensitive to the local environment, and to other factors in the local economy, before seeking to implement costly measures.

ACCA author, Jason Piper

Further reading