Tax agencies are increasingly using advanced data analysis tools to detect tax non-compliance and to ease the administrative burden on taxpayers.
Examples include agencies' use of purchase data to ensure the correct amount of value-added tax is collected, and to detect potential tax evaders by cross-checking their declared income against their expenditure. Many tax agencies, such as the French administration, have confirmed that they also trawl social media, and many countries have newly introduced reporting obligations on online marketplaces.
Tax agencies are using the information at their disposal to detect higher risk taxpayers and areas of the economy to target their enforcement efforts.
This use of data is good news however for compliant taxpayers with simple tax affairs. Increasingly tax agencies are pre-filling taxpayers' tax returns with the information available to them.
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The Inaugural IOTA Forum on Tax Debt Management
For the first time, tax agencies from 31 countries gathered to discuss the ways they are using data analysis tools to improve tax enforcement and administration, at the first meeting of the IOTA Forum on Tax Debt Management, held in Prague, Czech Republic, on October 1-3, 2019.
60 delegates along with the representative from the European Commission's Directorate General of Tax and Customs Union (DG TAXUD) came together to discuss innovative techniques and best practices of using data from national and international sources to improve the management of tax debts.
The plenary sessions of the Forum involved countries sharing their experiences and successes with deploying new innovations to enhance collections.
According to IOTA, representatives from the Czech Republic explained how the agency monitors arrears and the technical infrastructure for its systems, Ireland discussed big data in debt management, Italy discussed its systems for debt collection and recovery, and Russia provided an overview of how it has automated collection procedures and mechanisms.
Delegates also discussed newly entering into bilateral or multilateral cooperation arrangements to support the collection of tax from foreign nationals resident in their territory that owe tax to their home state.
IOTA said following the event:
"All in all, the Forum offered a great variety of numerous sessions, delivering first-hand experiences, group discussions as well as interactive peer-to-peer sessions,"
"The very positive feedback from all parties proved the need for a dedicated platform for senior debt collection/recovery experts to identify, develop, and disseminate good working practices in the area of tax debt management."
What Can Taxpayers Expect n the Future?
Tax agencies are already discussing the potential of blockchain technology as a panacea to ensure the proper administration and enforcement of value-added taxes in particular.
In short, a blockchain is a digital ledger – a continuously growing list of records, or "blocks," which are linked and secured using encryption. These blocks include the complete history of all the transactions that have occurred along the chain.
The nature of blockchain is such that it is highly secure, and its decentralised nature is key to this. There is no central database within which records of transactions are held. Each "node," or computer on the network, receives a copy of the blockchain. Therefore, tampering with the information held on the blockchain is very difficult, if not impossible.
Blockchain's inherent incorruptibility could be the key to improve how tax agencies track taxpayers' taxable income and could considerably simplify income reporting for individuals and businesses alike.