The OECD recently reported that tax administrations around the world are investing significant resources in the development of e-services and digital solutions to improve their services, reduce burdens, and improve tax compliance. This includes electronic e-filing of tax returns.
The OECD publication “Tax Administration 2021” sets out key performance indicators for 59 tax administrations (including the Israeli Tax Authority) from the OECD and other advanced and emerging economies which together collect €12.3 trillion of revenue annually.
The report highlights a further shift to digitalization and the provision of digital services, something that has proven to be important for tax administrations during the COVID-19 crisis as governments introduced thousands of emergency tax measures.
“Tax administrations’ efforts to move more of their processes online has not only enhanced service delivery, reduced burdens and improved compliance, but it has also made us more resilient,” said Bob Hamilton, chair of the OECD Forum on Tax Administration and commissioner of the Canada Revenue Agency.
According to the OECD, electronic filing of tax returns and the electronic transfer of payments are becoming the norm, with over 9 out of 10 business taxpayers filing their returns electronically in 2019. For personal income tax return filers, this figure exceeded 80%.
“With over 1.1 billion contacts via online taxpayer accounts in 2019, we can clearly see the impact that the increasing e-administration of tax is having on the efficiency and effectiveness of tax administrations globally and their interactions with taxpayers”, said Pascal Saint-Amans, director of the OECD Center for Tax Policy and Administration.
The report also shows that tax administrations are increasingly using large and integrated data sets, with more than 80% using analytics tools and techniques to improve risk management and help design-in compliance.
Artificial intelligence and machine learning are increasingly supporting tax administration processes and services, with close to 75% of tax administrations reporting on the use of cutting-edge techniques to exploit data in ways that free up tax administration resources to be deployed to other areas.
These technologies are also allowing tax administrations to run services close to 24/7, often driven by the use of digital assistants such as “chatbots,” tools already used by around 50% of the administrations covered in the report.
Israel according to the OECD:
The OECD report cites two examples from Israel relating to VAT on tourism.
First, VAT refunds for tourists. The previous refund process for tourists required manual filling out of forms at the business and additional checks performed at the departure stage (including filling and entering data of all purchase data manually) which sometimes caused congestion at the airport and denial of refunds due to errors. Now the system enables a smart cash register at the business to connect to the Tax Authority’s web service and sends the transaction details. Inspection time and payment of the refund has been reduced from an average of approximately 9 minutes to less than a minute. There was also a decrease of 99% in errors.
Second, zero VAT on hotel accommodation services. Tourists pay zero rate VAT on various services consumed in Israel, such as hotel accommodation services, car rental and more. For example, hotels can now enter the details of the transaction (including passport number and country of origin) and receive an indication of whether the tourist is entitled to a zero rate VAT.
On the income tax side, there is room for improvement in Israel. The online tax system of the Israeli Tax Authority (ITA) is known as “Shaam” (Hebrew initials for Data Processing Service) and is an awkward mixture of DOS (green print on a black background) and Windows.
E-filing of tax returns became necessary due to COVID-19, mainly for businesses. It is still difficult to register and file electronically for non-business taxpayers – such as private investors, retired people and trusts.
Accountants rarely get copies of correspondence sent to taxpayer clients. Accountants have to monitor which clients have been fined and figure out why. Two-way communication is limited. Instead, the accountant asks a question and usually gets a reply “referred for treatment,” necessitating later follow-up.
Data security and encryption procedures are tight – a higher priority in Israel than at the OECD.
Tax can be paid online with a credit card if the amount is up to NIS 35,000, otherwise other procedures are generally necessary.
If real estate is sold, the income tax system does not interact well with the land tax system.
What works too efficiently sometimes is electronic freezing of bank accounts if tax is unpaid, even if the relevant tax demand is still in the post.
As always, consult experienced tax advisers in each country at an early stage in specific cases.
The writer is a certified public accountant and tax specialist at Harris Horoviz Consulting & Tax Ltd.