Supermarket or Atelier: Two Main Ways to Implement Digital Tax Solutions

Implementation of IT systems and digital tax solutions provides tax administrations with the two primary options:

• Go to the “supermarket”, buy something ready-made, and get the result as quickly as possible after making settings and configuration; or
• Go to a “tailor’s studio”, take measurements, order something special, and receive a custom-made product but over a longer period.

Making the right decision requires a thorough understanding of the fundamentals and procedures of the tax administration.

When speaking with IT vendors and service providers, it is critical to keep composure and avoid making snap judgments based solely on their assurances. Consider a few suggestions for practical solutions.

Examine the functional architecture of the tax administration information system and determine for which blocks it is essential to select the optimal technical solution. For supporting IT systems (for example, finance or HR), a ready-made solution is appropriate in some situations, but customers must think twice before approving it for the use in the core tax information system.

The tax administration is constantly amending the tax code on its own initiative, on the advice of political leaders, or under pressure from lobbyists. From a technical point of view, core information systems (other than supporting systems) accurately reflect the tax code as a corresponding set of functions and processes. It would be strange to believe that you can buy an off-the-shelf product that is perfectly consistent with a tax code that existed and evolved before you had any idea about the product. Be prepared that a ready-made product will require significant reworking to comply with the tax code requirements.

There are far fewer people who specialize in reworking and deploying of-the-shelf products than people who specialize in custom software development. That means that the tax administration will eventually spend more money and become dependent on the supplier of the off-the-shelf product.

Updating an off-the-shelf product could be difficult because of the limitations of its technologies, features, and the capabilities of suitable development tools. This forces the customer to adapt its requirements to the system’s capabilities, but it should be the other way around for effective work.

There is a theoretical possibility of adapting the tax code to the capabilities of the off-the-shelf product, but we have not seen before such an example in the history of tax administration automation.

To make an informed choice, we recommend the following process:

• Identify the functional block for which you should choose a technical solution. There is no universal solution or one size fits all. There is no universal solution, and you must look for individual options for each block.
• Prepare detailed functional and non-functional requirements for the functional block.
• Get budget and timing estimates for implementing two options to meet functional requirements—custom development vs. adaptation of the off-the-shelf product.
• Determine the cost of licenses (including licenses for the system software) and maintenance services (technical support, version updates).
• Get a cost estimate for the team, which should be responsible for the further development and support for both an off-the-shelf and custom-made solutions.
• Assess the implementation team’s qualifications. It is especially important that the team has previous experience in the digitalization of tax administration in the relevant functional areas.
• Prepare a list that compares risks for the off-the-shelf solution versus custom development.
• Select the best option by assembling all the information into a final comparison table.