Digital Tax Administration Transformation. An Excerpt from ADB’s Study

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Foreword

In May 2022, the Asian Development Bank (ADB) published a comprehensive study titled “Launching a Digital Tax Administration Transformation. What you need to know.”^[1]

This publication sets out considerations for policymakers embarking on planning and implementing a digital transformation of tax administration. ADB’s approach adds many valuable thoughts and insights to DTT’s Digital Tax Administration Concept.^[2]

In this article we provide a summary and excerpt of the key topics from ADB’s publication based on permissions set by CC-BY 3.0 IGO license.

Introduction and Context

Digital transformation of tax administration is an important part of a country’s larger agenda for mobilizing domestic resource. When policymakers decide on a digital transformation of the tax administration, the main objectives are generally to enhance efficiency, speed, and transparency; to lower compliance and administrative costs; and thus, collect more revenue through better compliance.

The role of tax administration has changed dramatically over the past decade, and the pace of change has greatly accelerated in recent years due to the development and implementation of new technologies and the application of technology to tax administration functions and processes. Tax administrations are not only accelerating digitalization but continuing to explore innovative technological solutions. This helps them meet unprecedented opportunities and generate more revenue through efficiencies, greater scale and increased accountability.

The Organization for Economic Co-operation and Development (OECD) Forum on Tax Administration.^[3] conceptualized a tax administration’s digital transformation journey by sketching the starting point, in-between stages, and aspirational endpoint:

• “Tax Administration 1.0” ― a paper-based tax administration with traditional functions;
• “Tax Administration 2.0” ― an e-administration, where most of the functions are digitized, although the fundamental processes are the same (but faster and more efficient);
• “Tax Administration 3.0” represents a paradigm shift, where the taxpayer and tax administration systems are interconnected, where compliance is automatic and seamless, and where traditional decision functions are done by technology.”^[4]

Figure 1. OECD Characterization of the Evolution of Tax Administration.

The endpoint, as expected today, is a fully digitized and automated data-driven tax administration automatically streamed by the taxpayer, captured, cleaned, filtered, matched and archived for risk assessment, audits, litigation and other processes.

The COVID-19 pandemic and subsequent economic crisis have accelerated both rethinking the role of the tax administration and strategic thinking on how the tax administration can reshape to reach the design of the future. Operating tax administrations faced the following problems:

• sharp declines in revenues due to shrinking economic activity;
• sharp declines in revenues due to stimulus packages that relaxed tax administration, such as through tax filing and payment deferrals, exemptions, and reductions (e.g., value-added tax; pauses in collecting data and documentation (e.g., transfer pricing); and a slowdown in processing returns;
• in Asia, where tax competition is strong, especially in the Association of Southeast Asian Nations (ASEAN) region, hesitance to raise tax rates or implement new instruments during the recovery due to competitiveness concerns and growth; and
• move to remote working, making some traditional tax functions more difficult to execute (especially audit).

In addition, tax administrations were tasked with new assignments, such as creating the gateway for taxpayers to access stimulus programs and benefits. Tax administrations used new technology to trace and track payments, undertake analytics on taxpayer behavior during the pandemic, etc. These new roles have further expanded the scope of tax administrations’ remit.

Evolving Role of Tax Administration

The role and functions of the tax administration have been evolving rapidly around the world over the past decade. Tax administrations are adopting new technologies that manage all aspects of the taxpayer’s life cycle.

The objectives of a tax administration of the future (“Tax Administration 3.0”) build on the traditional objectives of “Tax Administration 1.0” and save the scope extension. One of the key objectives of modern tax administration is to ensure seamless, highly efficient revenue collection through optimized and automatic (streaming) administration of the tax system.

The external and internal drivers effected the expansion of tax administration roles and the change in core focus from taxpayer function to a seamless process driven by data. Let us see what they are.

External Drivers

The external drivers have affected the strategy and objectives of tax administration, as well as the business processes, procedures, and use of technology:

The Tax Transparency Agenda and Big Data Flows

The tax transparency agenda began to accelerate rapidly starting in 2009, when the restructuring of the Global Forum for Transparency and Exchange of Information for Tax Purposes had two profound effects on tax administration:

• the availability of data (need for exchange of information for tax services to prevent profit shifting and to promote transparency), and
• the volume, frequency, and speed with which data are exchanged.

The mainstreaming of exchange of information on request led to the introduction of automatic and spontaneous exchange, requiring the following capabilities from the tax authority:

• to send and receive large data sets;
• to clean, filter, and securely store data; and
• to use the data in the detection and assessment processes.

International Tax Agenda

The international tax agenda also accelerated around 2009, with a renewed focus on the impact of high-speed, globalized (multinational) movements of goods, services, and financial flows, the transfer (mis)pricing issues especially in developing countries, amid the revelation that some large multinationals were paying low levels of corporate income tax. All of these events led to the focus on investment in capacity and audit tools, along with upgrading customer service to be able to keep up with these highly resourced intensive new workstreams.

Digital Economy

New tools were introduced in digital taxation such as tax registration of non-residents providing digital services as well as new digital service platforms were created.

Internal drivers

Internal drivers include the evolution of compliance management and the introduction of a seamless flow of data between the taxpayer and tax administration.

In the transformation between a tax administration of today and one of the future, the relationship between the taxpayer and the tax administration radically changes, from an adversarial approach (the taxpayer is compelled to file and pay and then tax administration ensures it is correct and true) to a collaborative approach (where the flow of taxpayer data takes place in real time and is assumed to be correct at the outset). These factors change compliance management from focusing on tax returns to focusing on analysis of continuous data flows (including return data, along with automatic data flows, and use of third-party data) and result in faster, more efficient tax administration.

In the tax administration of the future, basic compliance is assured through technology:

• A taxpayer’s financial accounting systems would be seamlessly and digitally connected to the tax administration, such that data flow seamlessly and are assessed against transaction/sector/economy norms continually being updated by the tax administration system (machine learning technology).
• Any major difference triggers a red flag, passed on to the taxpayer for explanation.

Figure 2. Comparison of Tax Administration 1.0 Compliance vs. Tax Administration 3.0 Administration.^[5]

How Tax Administrations Use Technology Today

Development of Technology

The rapid development of new technologies has enabled tax administrations to shift from reliance on taxpayer information behavior to data-driven operations. Since e-filing is a first step in digitizing data, tax administrations could use third-party data to match submitted information. Data-intensive methods are now used to close tax gaps and can reveal tax avoidance or evasion without necessarily increasing the level (rate) or extent of taxation.

Waves of Tax Administration Digitization

Three technological waves that have or will impact the digitalized tax administration are:

• Basic
• Consolidated, and
• Optimized

The basic technological wave is a step away from the paper-based processes such as e-filing, automated audit, interrogated quality of data, integrated tax processes. Most countries in Asia and in the Pacific have reached this stage.

Within the next wave of consolidation setting up data handling rules allows for easier automation of processes. This has led to tax administrations being able to offer taxpayers innovations such as pre-filled tax returns, combining personal tax with social security in personalized dashboards.

Regarding the optimized wave there are two significant shifts: control (controlling the direction of the technology, but not the design of the flow of information like in the first two waves) and managerial (reimagining the purpose of operations and processing before the machines optimize the data just within automated processes).

Tax Administration Digitization and Technology in Use

Real-time transaction data is enabling real-time transactions to flow into the tax administration directly. It is applicable for more and more governments, especially in Asia. This would raise compliance rates and significantly reduce compliance and administrative costs. China has been systematically implementing technology in rolling out its Golden Tax System, 1,000 Taxpayers Initiative, and blockchain invoicing pilots.

Figure 3. Use of e-Invoicing Technology in Asia and the Pacific, 2021.^[6]

B2B = business-to-business; B2G = business-to-government

A wide range of technologies are used by tax administrations throughout the life cycle (Figure 4).

Figure 4. Summary of Frequently Used Technology in Tax Administrations.^[7]

Using digital solutions to improve taxpayers’ services helps to reduce time required for tax compliance.

Among the regions of the world that have adopted technology and reduced tax compliance time, East Asia and the Pacific has achieved the lowest average number of hours required per year, beating only countries in the high-income OECD (174 hours versus 162 hours in high-income OECD countries and 325 hours in Latin America and the Caribbean)[8].

Figure 5. Average Time (Hours per Year) for Tax Compliance by Region.^[9]

When it comes to invoice digitalization, the high-income OECD countries have been the main adopters.

Figure 6. Adoption of Invoice Digitalization by Region.^[10]

A Digitally Transformed Tax Administration’s Processes and Characteristics

Armed with the new possibilities created by technological development, tax administrations can reevaluate not just how they undertake their functions but also what existing functions remain necessary and what are the new activities they could undertake in pursuing the goals of tax administration. This section first examines the purposes for which tax administrations are currently using new technologies before attempting to further develop the potential for greater advances.

Current Trends and State of Play

A key target has been to increase the available sources of data and to enable the matching of those data sources with individual taxpayer records. This has generally resulted in the following key processes:

Collection of digital data

Tax administrations around the world focus on the collection of digital data in many different forms, including the promotion of e-filing, the collection of data files, and the collection of digital data from intermediaries and other government bodies. There is a trend in Asia and the Pacific to adopt eXtensible Business Reporting Language (XBRL), which is a standardized international format, in collecting financial statement information.

We see a trend in collecting transactional data for facilitating e-audit, especially from an indirect tax perspective. China has been one of the leaders with its “golden tax system”. The Golden Tax system was implemented with the aim of enabling highly efficient and automated processing of tax data by the State Tax Administration.

Reliance on the tax governance framework

Tax administrations around the world have begun to base the allocation of scarce resources on risk management principles to achieve higher levels of tax compliance. For example, the Australian Taxation Office (ATO) has launched a justified trust program to engage taxpayers in collecting objective evidence that a particular taxpayer pays the right amount tax. The Inland Revenue Authority of Singapore introduced the Assisted Compliance Assurance Program (ACAP) to facilitate general sales tax (GST)-registered businesses to better manage their GST risks. Businesses may opt into ACAP voluntarily.

Extended application of advanced analytics

Tax administrations have begun to apply techniques that identify potentially risky taxpayers or returns by comparing taxpayer data across sectors and segments. Digitized analytical processes are also being used across many tax-administration functions and activities, including tax payment management, revenue management, and taxpayer services.

Leveraging online taxpayers’ service

Tax authorities have made efforts to increase the use of online services for taxpayers. Providing taxpayers with a single platform and/or tax application is more cost-effective and offers a better experience for taxpayers.

Getting to the Future

Operational tax administrations have focused on automating current processes and increasing their reach and efficiency. The processes of a future tax administration will go far beyond and involve rethinking current processes and realigning means to achieve desired goals. Implementation is complex and requires a clear vision of the tax administration’s ultimate objectives, rather than focusing on short-term results.

The processes of such a tax administration would include:

1. Connected tax ecosystems: Promoting data exchanges between government agencies and the private sector can reduce the overall administrative burden for businesses and provide a business-friendly environment.
2. Embedding tax into natural systems: Embedding tax into natural systems can help streamline the data collection process for both taxpayers and tax administrators and improve data quality through real-time data validation check. In Asia and the Pacific, the ATO has implemented the single touch payroll, which provides the ATO with up-to-date employer payroll information.
3. Real-time taxpayer touchpoints: Real-time support for taxpayers could be supported seamlessly through online services or even embedded into the reporting cycle of taxpayers. Real-time AI-powered tooltips could be implemented in both government software and third-party tax software to help them stay on top of their taxes.
4. Extended data collection: Tax data no longer comes solely from tax returns and workpapers. In the future, the data could take the form of data file transfer or even embedding into the taxpayers’ natural system. Key players within the ecosystems are social security, insurance companies, financial institutions, land registries, stock exchange and other state authorities.
5. Data-driven tax assessment/tax audits: Currently, most tax administrations rely on professional judgment to enforce compliance, for example, manual desk review to identify tax audit cases. With big data, tax administration could become more data driven, for example, data-triggered tax audits and the course of data-supported administrative actions.
6. Reliance of tax control: The benefits of taxpayers knowing their risk rating include behavioral change and better control of taxpayers, and better focused resources for tax administrations.
7. Data security: Data security, data management, and data governance have become key for future tax authorities.

Characteristics of a Digitized Tax Administration

The digitized tax administration would include the following characteristics:

Driven by data

Data analytics (including artificial intelligence and machine learning algorithms) can address the needs to manage big flows of the data.

Supported by technology

Processing big data flows quickly, correctly, and efficiently is only possible with integrated technology.

Expanded taxpayer service via digital methods

Taxpayer service is becoming a frontline tool of tax administration and its scope is expanded to include more active role in compliance management, guidance on operations and transactions, interface between taxpayer and many government services, as well as enhanced data validation upon submission.

Expanded special services (Large Taxpayer Offices and Transfer Pricing Units)

Special services are becoming core functions of tax administrations. In particular, the shift to data and trust-based compliance management program units, such as the Large Taxpayer Office, has become essential for tax administration functions.

Enhanced transparency and trust

Establishing digitized systems and platforms to conduct the basic tax functions enhances transparency and certainty, provides assurances that tax payments are deposited in an actual government account, and eliminating avenues for officials to abuse their discretion.

Reduced compliance burden

Digital technology is reducing the time spent paying taxes, as well as the total number of individual payments taxpayers must make each year.

Embedded flexibility

Digitizing administrative operations to enable remote working, moving taxpayer functions to virtual execution (registration, filing, auditing and ruling) and redesigning the risk function to fully automate it all provide flexibility for tax administrations.

Future-proofed

Future-proof tax administration requires constant training and upskilling the workforce.

Addressing Risk in the Digital Transformation Journey

In digital transformation of a tax administration careful planning, clear vision, and effective implementation are essential.

The Risks Identified

In transformations of tax administration, the following issues are often identified:

1. Lack of overall digital strategy: Transformation initiatives are sometimes implemented piecemeal where a lack of overall strategy results in systems that are not interconnected to each other, low user adoption rates, insufficient data to support data analytics, etc.
2. Workforce engagement: Successful transformation initiatives have to be implemented with workforce, operating model, capability, and innovative and sustainable design. These are all important building blocks when developing a digital strategy.
3. E-filing adoption rate and data collection mechanism: The e-filing adoption rate impacts the amount of digital data collected by tax authorities. The availability of data is often one of the dependencies for other transformation initiatives, for example, data analytics and process automation.
4. Data exchange: A common way to extend the digital data collection is conducting data exchanges with other monitoring bodies, for example, company house and stock exchanges. Hurdles faced by tax authorities include data secrecy and data protection regulations. Ideally, the legal framework should support a balance between the interests of taxpayers and those of tax authorities.
5. Change management and enabling processes: Without a proper change management process, digital transformation is unlikely to have a full internal support. Hence, the system implemented may not be fully used and adopted by the practitioners. Thus, without a change in the processes, the systems are not used in a way it has been designed. In the end, the impact of automation achieved is less than expected.

In addition to the above most common issues and risks in digitizing businesses, tax advisers, and tax administrators:

• the inappropriate incorporation of vital data from the legacy systems to new ones;
• the complexity of a tax system which is an obstacle in creation an understandable and reliable digital equivalent;
• limitations in digitalized tax system by the information provided to the government based on the pre-populated returns;
• security and privacy threat due to the valuable and sensitive nature of the information in question;
• project or scope creep;
• penalties for those taxpayers who cannot comply with digital reporting;
• inadequate legal bases for digitalization;
• transition costs;
• reliance on current technologies or web standards that limits the longer-term usefulness of a system instead of focusing on technology-neutral approaches;
• political risk.

An Approach to Risk Mitigation

One of the approaches to addressing these risks has been to consider seven “synapses” of digitization, all of which need to be communicating with each other to facilitate transformation at optimal risk.

Strategy and capability

An enterprise-wide data strategy is a key area for tax authorities to consider. Integrated data planning enables efficient use of data across businesses. Strategies must be supported by top management and be “future proof”. Funding should be allocated for the entire project (best case scenario) or at least for each phase prior to implementation.

A communication strategy and stakeholder management approach should be part of the early stages of a country’s transition.

An enabling operating model

The operating model and process play an important role in all technology transformation. A future-proof operating model should enable the use of knowledge to drive informed decision-making. Design also includes designated administrative support, implanted disruptive tech mindset and cultural, technology-enabled operating model.

Initiative design

Pilots, sandpits and phased approach when building up the technology road map should cover a rich mix of initiatives (e.g., data management, data analytics, case management, internal process enhancement, and taxpayer touchpoint enhancement).

Intervention design

Both internal and external change management is essential for a successful transformation journey. Early engagement of key stakeholders to take part in the road map planning is critical to ensure support throughout the project. Setting up of centers of competence designated to spread the initiatives would justify both internal and external awareness.

Manage workforce

Tax administration should create a talent management strategy in line with the technology implementation road map. IT, statistical, analytical and tax domain skills; and experience would be the skillsets of the future tax administration staff. Messaging around process automation impacts should be considered early.

Manage results

Clear return on investment and business case at planning set the expectation on the foreseen results. Both financial and nonfinancial measures should be used to manage digitalization performance. A proper review would be recommended to evaluate the actual outcome, including analysis of KPIs set at the start.

Learn and sustain

Global good practice is to use actual results and learnings to make decisions for further planning, embed lessons learned across organization and link outcomes to initial policy or guidance, and refine the technology road map from time to time.

Measuring the Digital Tax Transformation Impact

Digital transformation for tax administrations is a key component of a medium-term revenue strategy and domestic revenue mobilization (DRM).

The following major indicators are the measures of impact of digital transformation of tax administrations.

Table 1. Measuring the Digital Tax Transformation Impact.

Indicators	Metrics
Effectiveness
Tax revenue generation	Revenue-to-GDP Real revenue growth Tax instrument revenue-to-total tax revenue
Compliance rates	Number of filers (complete)/registrants (per tax instrument and aggregated)Number of taxpayers paying tax/registrants (per tax instrument and aggregated)Number of tax dossiers completed (assessed and with zero tax balance) / number of registrants, also per number of filers
Tax gap	Using the analytics functions built into the system, tax gap measures can be developed, and the models run as new data flows automatically update the model Tax gap information can be used both as a measure and as an input into policy and process changes
Efficiency and Speed
Taxpayer function speed and efficiency	Revenue Audit productivity (both qualitative and quantitative) Risk-assessment measures Taxpayer satisfaction measures Time to complete tax refunds Compliance cost measures Administrative cost measures
Resolution of tax cases, disputes, and assessments	Duration of audit or assessment casesDuration of dispute casesTaxpayer satisfaction measures of audit or dispute processes
Exchange of information and international tax	Time to complete exchange of information request Transfer pricing assessments International tax operations Enhanced revenue generation from more accurate international tax assessments
Measures of taxpayer satisfaction	Compliance cost measurements Compliance rate measurements Revenues Taxpayer experience surveys

Effectiveness

Tax revenue generation

As the primary function of tax administration, the level and growth of revenues collected would be a key impact measure, and it would be expected that the expansion of tax base coverage, efficiency gains, and data-driven processes would produce a higher level of revenue.

Metrics: revenue-to-GDP, real revenue growth, tax instrument revenue-to-total tax revenue.

Compliance rates

Compliance rates in a digitized tax administration would be expected to rise dramatically, as filing and reporting would be automatic for income, VAT would be e-invoiced, and customs and VAT data would be matched automatically.

Metrics: number of filers (complete)/registrants (per tax instrument and aggregated), number of taxpayers paying tax/registrants (per tax instrument and aggregated), number of tax dossiers completed (assessed and with zero tax balance)/number of registrants, also per number of filers.

Tax gap

With continuous data flows, the tax gap can be measured, and the parameters (sources of the gap) monitored in real-time to help identify potential tax revenue shortfalls.

Metrics: using the analytics functions built into the system, tax gap measures can be developed, and the models run as new data flows automatically update the model. Tax gap information can be used both as a measure and as an input into policy and process changes.

Efficiency and Speed

Taxpayer function speed and efficiency

Taxpayer functions are automatically submitted and processed by the system. The efficiency gain, combined with the decline in compliance and administrative cost, should be a benefit, feeding into both revenue and compliance rates. Predictive technology feeding into risk and e-audit mechanisms should increase audit productivity. This, in turn, should generate more revenues and lower the mistakes.

Metrics:  revenue, audit productivity (both qualitative and quantitative), risk-assessment measures, taxpayer satisfaction measures, time to complete tax refunds, compliance cost measures, administrative cost measures.

Resolution of tax cases, disputes, and assessments

Fast filing, assessment, and audit processes due to digitization should lead to faster resolution of outstanding tax cases and disputes.

Metrics: duration of audit or assessment cases, duration of dispute cases, taxpayer satisfaction measures of audit or dispute processes.

Exchange of information and international tax

Dispute resolution processes (MAP) can benefit from the analysis of big data.

Metrics: time to complete exchange of information request, transfer pricing assessments, international tax operations; enhanced revenue generation from more accurate international tax assessments.

Measures of taxpayer satisfaction

A digitized tax administration should have positive effects on the taxpayer experience. It should reduce compliance costs, reduce tax administration mistakes, and provide more enhanced access to taxpayer service.

Metrics: compliance cost measurements, compliance rate measurements, revenues, and taxpayer experience surveys.

The Digital Transformation Process

Digital maturity and development

A country could determine where it is on the digital maturity scale at the beginning of the project and plot where it would like to be at the end, using a “digital maturity” model, developed by the forum on tax administration.

Figure 7. Digital Maturity Index.^[11]

Budget allocation and disbursement

The government’s commitment to digital transformation can be measured by the level of budgetary commitment for each phase of the project. Under or slow, disbursement is often a sign of either procurement issues or problems with government commitment.

Application of Digital Tax Transformation in Developing Countries

For developing countries, the benefits from undergoing digital transformation in tax administration are potentially powerful; however, there are challenges as well.

Factors and Challenges Affecting Digital Tax Transformation Baselines

Capacity

On the government side, limited capacity affects the ability to conduct day-to-day tax administration operations (including audit). On the one hand, digital transformation solutions are designed to automate or digitize systems, reducing the need for human intervention; however, on the other hand, higher levels of competence are needed to run systems (e.g., for big data management, risk and taxpayer service).

Lack of capacity on the taxpayer side is also an issue resulting in low levels of compliance (especially with more complicated instruments, such as VAT).

Technological depth and absorption

Even if the tax administration decides to undergo a digital transformation, the source of the data (the taxpayer) may not be equipped to participate. Therefore, it is important to ensure that taxpayers could participate in the data streaming process.

Availability and accessibility of data

Tax administrations of the future will be powered by data, and an important driver of efficiency is the ability to use different sources of data as they relate to taxpayers. The scarcity of data in developing countries is a common problem due to compliance issues, administration issues, and even technological issues (the inability to receive, store, and/or protect data).

Governance and transparency

Transparency and good governance are essential for a successful digital transformation journey. In developing countries, poor governance is one of the most serious challenges to tax compliance. Digital transformation aims at increasing transparency and strengthening governance through “seamless” compliance.

Getting Ready for Digital Transformation

For successful implementing and benefiting from a digital transformation tax administrations in developing countries should have a strong vision and commitment to DRM (it needs to start by being clear (as for all economies) how far it wants to go on the digital transformation journey), mindful scope and timing.

The digitization journey should begin with a deep and wide assessment of the current (baseline) situation, and coupled with the strategic vision (endpoint), the policymaker can build out the implementation plan (the digital road map). The basic assessment framework includes the following areas:

• statistics and data gathering (economy and tax administration KPIs);
• policy framework: legal reform needed (access rights, information exchange, data protection, etc.), institutional reform, and institutional maturity assessment;
• governance assessment;
• process framework;
• technology inventory;
• capacity assessment; and
• resources planning (budget and people).

Road Map for ADB Members

The purpose of a digital transformation road map (DTR) is to provide organization, coordination, and a structured planning tool for digital transformation. It provides a mechanism to ensure that the various workstreams are coordinated, especially as they move at different speeds.

A Digital Transformation Road Map is a blueprint for transformation, and looks like this:

Figure 8. Digital Transformation Road Map.^[12]

Principles of Design

1. Technology strategy and road map: To achieve the vision, it is important to map out the current technology landscape and formulate the technology strategy for the coming 2−5 years. This will help direct the resources to focus the right initiatives at the right times. It also helps map out the dependencies at each stage. Without a clear road map, technology will be implemented in silos (see the Road Map section).
2. Future skillsets: It is important for tax authorities to plan ahead to build capacity to be deployed to support the future operation of the digitalized tax administration, for example, data scientists for analyzing the data collected by tax administrations. New talent with an innovative mind enables catalyzing new ideas and embrace the latest emerging technology. At the same time, capacity building, in general, is a major component of a digital transformation journey. It is critical to provide sufficient education and training, thus enabling the existing staff to be ready to move forward to the next stage.
3. Stakeholder involvement: All transformation initiatives require intensive user involvement. In this connection, the earlier the involvement of the stakeholders, the earlier they understand the reason for change, contribute their vision and requirements to the changes and get prepared to embrace the initiative upon rollout.
4. Change management: Usually, the vast majority of taxpayers would be affected by a robust transformation, and hence, internal change management and public support are equally essential for success.

Workstreams

Construction of a DTR involves sequencing the main interconnected workstreams to ensure that all reach the launch level simultaneously. The main interconnected workstreams are as follows:

• People stream (determining skills needed to operate the various systems and ensuring that the staff have sufficient capacity);
• Procedures and Process stream (defining the data journey and customer journey);
• Content stream (understanding what information needs to be collected and made available, in what form, and in what context);
• Technology stream (the technological underpinnings of the tax administration: the engine of all activities).

Steps along the Road

Asian Development Bank proposes following steps along the digital transformation road:

1. Understanding the endpoint (strategic, data concept, taxpayer assistance concept, performing functions);
2. Mapping and understanding the baseline. As a first step, it is important to undertake a digital maturity assessment to capture the baseline and articulate the “To-Be” objectives.

To map accurately, a thorough analysis of the baseline is essential:

• For the People stream, assess current skills and capacity, and then compare state people needs and qualifications with the “To-Be” model.
• For the Procedures and Process stream, assess and map the current business processes and procedures, compare the baseline both to the outputs (current and “To-Be”) and determine which must be changed or updated, discarded, or recreated based on the “To-Be” model.
• For the Content stream, categorize the current inputs (e.g., taxpayer registration information) and outputs (e.g., risk assessment).
• For the Technology stream, inventory the current technology, hardware and software, system specifications, and add-ons.

Building the road map steps.

Build the road map steps by undertaking a gap analysis between the current baseline and the “To-Be” state and identify processes and milestones along the way.

Figure 9. Steps toward a Digital Transformation Road Map.^[13]

Conclusions

Improving the functions of tax administration is an essential pillar of a government’s domestic resource mobilization (DRM) plan and should be a key component in implementing a medium-term revenue strategy (MTRS).

Most tax administrations have embraced the idea that adopting a “tax administration of the future” approach, (based on big data flows, continuous access to taxpayer and transaction-based data, and use of advanced technology to make all functions faster, more efficient, and more effective), will enhance taxpayer compliance and satisfaction while realizing MTRS and DRM goals.

At the same time, each administration in the region differs in their digital transformation journey to date and their appetite. Although there are common overall objectives and standardized phases and endpoints, each transition is different due to a multitude of factors, including the baseline, availability of infrastructure to support a digital transformation, capacity of the tax administration, and taxpayers.

Although the path and endpoints in a movement from today’s tax administration to the tax administration of the future may differ, there is a clear set of steps and issues in planning, designing, and executing a digital transformation journey, including:

• strategic planning and visioning, bearing in mind the gap between goals and what is possible at the outset;
• decisions on design and phasing (how far and how fast);
• translating planning into implementation: the construction of a digital road map that contains all components of change management, including building capacity; and
• implementation, review, and redesign.

The process described in this study is one of the important components of achieving MTRS objectives, along with a tax policy reform strategy and road map. Digital transformation of tax administration would also necessitate rethinking of tax policy design—in particular, the interfaces used to transmit data (e.g., transmission of VAT data at the transaction point via a digitized cash register or online record of the transaction). This demonstrates that digital transformation of tax administration spills over into the entire DRM system.

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[1] ADB. 2022. Launching a Digital Tax Administration Transformation. What you should know. Manila: ADB. © ADB. URL: https://www.adb.org/publications/digital-tax-administration-transformation. CC-BY 3.0 IGO.

[2] Digital Tax Technologies. 2022. Concept of Effective Tax Administration in the Digital Era. URL: https://taxtech.digital/2022/05/01/digital-tax-administration-concept/

[3] The Forum on Tax Administration (FTA). URL: https://www.oecd.org/tax/forum-on-tax-administration/

[4] OECD. 2020. Forum on Tax Administration. p. 7

[5] Source: Christopher Sanger. 2020. Ernst & Young Global. URL: https://www.ey.com/en_gl/people/chris-sanger  

[6] Source: Christopher Sanger. 2020. Ernst & Young Global. URL: https://www.ey.com/en_gl/people/chris-sanger

[7] Source: Christopher Sanger. 2020. Ernst & Young Global. URL: https://www.ey.com/en_gl/people/chris-sanger

[8] PwC. Paying Taxes 2020. URL: https://www.pwc.com/gx/en/paying-taxes/pdf/pwc-paying-taxes-2020.pdf

[9] OECD = Organisation for Economic Co-operation and Development. Source: PwC/World Bank. https://www.pwc.com/gx/en/paying-taxes/pdf/pwc-paying-taxes-2020.pdf

[10] OECD = Organisation for Economic Co-operation and Development. Source: Doing Business Database. PwC/World Bank. https://www.pwc.com/gx/en/paying-taxes/pdf/pwc-paying-taxes-2020.pdf

[11] Source: Ros Barr. 2021. Ernst & Young UK. URL: https://www.ey.com/en_uk/people/ros-barr

[12] Source: Asian Development Bank. URL: https://www.adb.org/

[13] IT = information technology. Source: Christopher Sanger. 2020. Tax Authority Approaches to Digital Tax Administration. EY Global Presentation. 30 October.