(photo credit: INGIMAGE / ASAP)
The OECD recently launched a proposal to replace tax officials with robots in “Unlocking the Digital Economy – A Guide to Implementing Application Programming Interfaces in Government,” published March 28. It is largely a technical document for boffins, so, it may not be too clear to us lay folk, but it is on the way.
According to the OECD, new digital technologies are reshaping the economy, leading to the development of new products, services and business models and creating new ways for citizens and businesses to interact in their daily lives.
The new technologies also allow tax administrations to be more data- and service-driven, with increasing use of proactive tools for engaging with taxpayers, greater use of third-party data and increasing use of advanced analytics to better target interventions.
This in turn offers opportunities to make tax a more seamless process, with easier self-service, reductions in burdens and enhanced compliance.
A key enabler of these changes is the use of application programming interfaces (APIs). This is the functionality that connects systems, people and things without facilitating direct access. These tools are what enable mobile and web-based applications to function, whether reading the news, booking tickets, paying bills or chatting to friends.
THERE ARE many opportunities to be realized through the use of APIs. The benefits of creating a digital ecosystem through APIs may include:
• fostering a self-regulating economy, making it harder for people to operate “outside the system”, enhancing compliance as well as simplifying processes;
• streamlining and automating government interactions with citizens; and
• moving beyond the use of electronic forms to true digital real-time interactions.
If calculations are required, this can be built into the API. The data can be validated through the API before being posted to a back-end system. With the correct rules and validations in place, seamless interaction between multiple touch points simultaneously allows tax and other government obligations “to just happen,” according to the OECD.
Security is all important. Authentication and authorization standards should be used to provide a layer of protection against unintentional exposure and control access to APIs.
Encrypted connections are essential for communication, further security can be achieved by avoiding the use of predictable resource locators.
With the widespread use of open-source or royalty-free code, the OECD recommends that tax authorities incorporate license management into their practices. Where tax authorities depend on third-party software, steps should be taken to understand their risk profile.
IT SEEMS we may soon be saying “Many API returns!” as the tax return process gets more automated – monthly, quarterly and annually. The UK has just gone onto a new tax reporting process called “Making Tax Digital.”
In Israel, businesses have faced “detailed VAT reporting” since 2011 which enables the VAT Authority to pounce if reported purchases don’t match reported sales across the country. Also, the Israeli Tax Authority still applies a mixed system of DOS (green print on black background) and Windows which do not always mesh well together. For example, reporting income from foreign securities can be difficult if you don’t know how many transactions there were, or you report what your broker gives you in one go.
The US, of course has e-filing. However, private self-reporting tax return software doesn’t always get foreign tax credits right, they require careful checking, e.g., by US immigrants. International information exchange between banks and tax authorities behind the taxpayer’s back is also moving into higher gear. Bank secrecy is a thing of the past. All this occurs automatically under the US FATCA system and OECD Common Reporting Standard.
And the move to automatic payment systems using your credit card and/or phone apps means that we need less cash. Cash transactions are no longer allowed in Israel above NIS 11,000 usually. Some Israeli bank branches have gone digital, meaning no cash at all, which is no help to retail stores.
What will the human tax officials do? Presumably they’ll fix any bugs and check we are all in compliance. A brave new tax world dawns. It will only be utopian if it enables taxes to be reduced.As always, consult experienced tax advisers in each country at an early stage in specific cases. Leon@h2cat.com. The writer is a certified public accountant and tax specialist at Harris Horoviz Consulting & Tax Ltd.
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