The future of tax compliance - technology driven?

Artificial intelligence (AI), Automation, Robotics - it is not unusual to come across these words in the current business era. Technology is growing at its highest speed revolutionising business models as well as the behaviours of today’s tech-savvy consumers. 

Business organisations also need to consider how technology solutions best enable them to meet their tax compliance obligations. There is no doubt that “excel” is a tool used by the majority of organisations in Tanzania for managing their tax compliance processes, but imagine having a tool to compute your taxes just by uploading a trial balance, or having a software connected to the TRA systems that is able to submit your tax returns at the click of a button. This is the future of tax compliance. Through the use of AI, it will be possible to compute your VAT, withholding tax, corporate income tax and other tax liabilities in no time. 

If technology will take over the tax compliance business, what will be the role of tax consultants or the inhouse tax teams of businesses? Although there is a bit of concern that technology will replace tax consultants - I would rather say that it will ease the role of the consultants by  reducing the time spent dealing with filing obligations - and thereby providing more time to add real value to organisations. For example, tax consultants can study the business trends or carry out an industry analysis using data analytics, and thereby gain a deeper understanding of the business and an insight into the industry as a whole. 

Tanzania was ranked 165 (prior year 167) in the “Paying Taxes” indicator, being one of the indicators considered in the latest (2020) World Bank Ease of Doing Business study conducted on 190 economies across the world. This indicator looks at the total taxes and contributions in a year including the administrative burden of paying those taxes and contributions. Greater adoption of technology to facilitate tax filings and payments will always have a positive impact on a country’s overall ranking as it will reduce the time to comply with the tax filing and payment obligations. By way of example, Kenya which has implemented more electronic filing systems ranks 94th. 

So the question arises as to the speed with which the tax administration systems of the Tanzania Revenue Authority (“TRA”) are adapting to the opportunities offered by constantly evolving technology. Although Tanzania lags in terms of the number of electronic filings for taxes (as currently only VAT returns are filed online), there have been some developments - for example, the withholding tax certificates are now processed online. In addition, there is some integration between the systems of banks and telecommunication companies with the TRA systems so as to transmit information regarding sales/turnover to the revenue authority in real time for the purpose of determining the VAT liability - this reduces the time spent in resolving future disputes. 

Another emerging feature of digitised tax compliance processes, admittedly in more developed economies, is the increasing use of systems that prepopulate tax returns based on historical information - thereby allowing the taxman to prepopulate the information from various sources (for instance salary data shared by employers, property data provided through real estate agencies) and share with the taxpayer for confirmation. One example of pre-population that could potentially work in the Tanzanian context would be that of withholding tax credits available to a taxpayer based on the TRA online portal. The overall objective of pre-population is to reduce the preparation time of the taxpayer as they only need to verify the information, add missing information, amend discrepancies and submit. However the availability of third party information will also depend on the level of reporting obligations in the country. 

One of the findings of the “Paying Taxes 2020” publication revealed that “most OECD high-income economies — which have annual compliance time of 159 hours on average — provide prepopulated tax returns. In contrast, nearly one-third of sub-Saharan African economies do not use prepopulated tax returns. As of Doing Business 2020; the region’s average compliance time is 281 hours”. This is a clear indicator of the advantages of implementing prepopulated tax returns (and electronic filings). An added advantage of online filing is that it facilitates a revenue authority to use data analytics in assessing risks and deciding which entity should be audited by comparing industry and historical trends more easily.

For the forthcoming 2020/21 budget, I would certainly like to see some initiatives around investment in technology for easing tax compliance processes - perhaps, the online submission of income tax returns. One thing which is clear is that investment in technology is increasingly important for tax administration. This point was aptly captured in the Paying Taxes 2020 publication whose findings included that “Technology is changing how taxes are administered. More and more companies are using tax software, and more and more tax authorities are creating easier-to-use online portals that can simplify tax compliance.”

By Kunj Sinai is Manager, Tax Services at PwC Tanzania.