Executive summary
This 2023 edition of the OECD’s Tax Administration Series (TAS 2023) continues to highlight the scale and complexity of tax administration. Figure 0.1 shows that together the tax administrations participating in TAS 2023 collect net revenues of EUR 13.4 trillion and employ around 1.7 million staff. They deal with the tax affairs of more than 900 million personal income tax and corporate taxpayers who together contact tax administrations in excess of 450 million times via telephone, in-person, e-mail or paper and generate more than 2.3 billion contacts through online channels. That tax administrations do this on a combined operating budget amounting to around EUR 95 billion, equivalent to 0.7% of total revenues collected, reflects their efficiency and effectiveness.
A constant theme through previous editions of this series, as well as this edition, has been how tax administrations have increased and maintained their efficiency and effectiveness by looking at the opportunities to take more proactive approaches to influencing taxpayer compliance. This has frequently been driven through the increased use of technology, responding to the evolving expectations and needs of taxpayers. For example, tax administrations were rapid adopters of e-administration, enabling the online filing of tax returns as well as online payments and the full or partial prefilling of tax returns. These are now commonplace with more than 85% of individuals and 95% of businesses filing their returns electronically. As Figure 0.1 shows, digital contact channels dominate interactions with taxpayers and the number of administrations using or developing mobile applications continues to grow as illustrated in the examples in Chapter 5.
During the COVID-19 pandemic, tax administration’s abilities to use technology to manage connections to citizens and businesses, their long experience of operating at scale and skills in handling extensive data sets led many governments to turn towards tax administrations to assist in the provision of wider government support measures. The pandemic also led to rapid changes in operating models, accelerating many new practices and developments, which has created lasting benefits for administrations and taxpayers. It is important to remember, though, that the primary purpose of a tax administration is to generate the revenue needed to fund public services. Previous editions of this series, have also noted the revenue impacts of the COVID-19 pandemic, and it is a sign of the resilience and adaptability of tax administrations that these impacts were temporary. For example, following the significant increase of the total year-end arrears to net revenue ratio in 2020 – the first year of the pandemic – this ratio decreased between 2020 and 2021 in almost 70% of the jurisdictions covered in this report.
With the participation of 58 jurisdictions that together account for around 90% of global GDP, TAS 2023 provides a comprehensive overview of the state of tax administration in 2021 in three ways. Firstly, comparative information covering a range of tax administration performance indicators and data is set out in 135 tables based on the information provided through the International Survey of Revenue Administrations (ISORA). Secondly, this edition draws on data from the Inventory of Tax Technology Initiatives (ITTI) (OECD et al., 2023[1]) which contains information on technology tools and digitalisation solutions implemented by tax administrations globally. Thirdly, it contains more than 100 examples of innovations and leading practices received from 34 tax administrations. Combined, these data sources and examples highlight the wide range of issues that tax administrations are dealing with, and can help assist tax administrations in their consideration of where further improvements might be made, as well enhancing wider public understanding of the changing nature of global tax administration.
As the sophisticated use of technology grows, tax administrations are now investigating how their operating models can be digitally transformed, often using the learnings from the pandemic, in order to further build-in compliance and reduce burdens. This digital transformation is described in the OECD’s Tax Administration 3.0 vision (OECD, 2020[2]), and many tax administrations are now taking the concepts and ideas of Tax Administration 3.0 and are using them to drive their digital transformation strategies.
The Tax Administration 3.0 vision identifies a series of core building blocks that are at the critical components of digital transformation. Using a combination of data and examples, TAS 2023 explores the significant progress that has been made against those building blocks as well as some of the challenges. Despite the challenges of digital transformation, the benefits to taxpayer compliance and reducing taxpayer burdens are significant, and this report highlights the significant progress that tax administrations have made to deliver these benefits.
Supporting taxpayer compliance
Creating positive attitudes to compliance, by making it as easy and as seamless as possible to meet tax obligations, are central to a tax administration’s task of raising vital public funds. Among the initiatives being taken by tax administrations are:
Creating a 24/7 tax administration: Tax administrations are continually looking to improve their reactive processes, be they online, in-person or by telephone, to make it easier for taxpayers to contact the tax administration. For example, more than 60% of administrations offer virtual or digital assistants to help respond to taxpayer enquiries and support self-service, a change of almost 30 percentage points compared to 2018. In turn, this helps taxpayers understand their obligations and how to meet them. This is increasingly being supplemented by proactive outreach through education campaigns, including through the use of a wide range of social media.
Leveraging digital identity and verification: As tax administrations deliver more of their services digitally, the importance of digital verification and digital identity is growing. Tax administrations are leveraging their expertise and data sets to not only give taxpayers access to tax administration services, but also wider government systems.
Decentralising tax administration services: Embedding services and processes in the natural systems used by taxpayers in their daily lives and businesses is a growing trend among tax administrations. While this helps to improve tax compliance, it also reduces administrative burdens and frees up taxpayers’ time for other activities, including growing their businesses. As these forms of collaboration become more common and sophisticated, tax administrations are starting to take strategic approaches to managing and providing support to service providers, including allowing access to tax administration internal systems through application programming interfaces (APIs).
Reducing taxpayer burdens
Compliance-by-design approaches have been in place for many years for salaried personal income taxpayers through pay-as-you-earn withholding and reporting by employers, often built into payroll software. These systemic arrangements, adopted by almost all tax administrations, have helped maximise compliance for this significant part of the tax base. The increasing availability and sharing of data is now allowing such approaches to expand to cover other sources of income and other classes of taxpayers, including through the prefilling of corporate income tax and value-added tax returns in some cases.
Digital techniques are also allowing tax administrations to take a more preventative approach to risk management. By seeking to intervene at earlier stages in taxpayer processes, they can prevent non-compliance happening rather than having to uncover it after tax returns have been filed. This can be seen in:
The sophisticated use and manipulation of data: This has fuelled a significant increase in the use of analytics tools and techniques to improve risk management and help design-in compliance. Close to 95% of tax administrations report using data science and analytical tools to manipulate electronic data from third parties, including other tax administrations, as well as internally generated electronic data to guide their compliance work. This is an increase of more than 20 percentage points compared to 2018.
Harnessing leading-edge technologies: More than 80% of tax administrations report that they are using or that they are in the implementation phase for the future use of leading-edge techniques to exploit data in ways that reduces the need for human intervention. Although still at an early stage in general, artificial intelligence and machine learning are already creating efficiencies, freeing up resources to be deployed into other areas.
More personalised interactions: The power of data analysis is allowing tax administrations to create more tailored approaches to their interactions with taxpayers. This may be through one-to-many channels or for managing specific groups of taxpayers such as large business taxpayers, or High Net Wealth Individuals (HNWIs). Examples provided by tax administrations now show increasing segmentation in other areas, helping to guide more focused compliance and service actions and interventions, including at the individual level.
The transformation of operating models requires consistent and long-term funding. The task of delivering digital transformation is made more challenging by budgetary constraints which continue to impact tax administrations. While most of the administrations report increasing operational expenditures in absolute terms, this may not show the whole picture as many administrations are dealing with increased responsibilities, the pressures of technology change and the changing structure of their workforce. Further, a significant part of the budgets is needed for salary costs, accounting for on average 73% of operating expenditures annually. There is also significant variation in the amount of operational and capital expenditure on information and communication technology. While this may often be due to different sourcing and business approaches, it also raises the question as to whether expenditure levels in some cases may be somewhat low to support the demands for more sophisticated services and the ongoing digital transformation.
An additional challenge reported by tax administrations is the need to prepare existing staff for the challenges ahead as well as seeking to recruit highly skilled staff in a very competitive job market, something which has led to a number of innovations in staff recruitment and staff training.
Whilst much progress has been made domestically, this report demonstrates that international co-operation and the sharing of knowledge between tax administrations has never been more important as jurisdictions undergo significant changes and as the digitalisation of the economy increasingly transcends national borders.
Tax administrations have a long tradition of working together; for example, in effectively implementing key OECD/G20 agreements such as the BEPS actions and the Common Reporting Standard as well as in the development of the OECD’s multilateral International Compliance Assurance Programme, where taxpayers and tax administrations work co-operatively and multilaterally in close to real-time to undertake risk assessment and assurance of key international tax risks.
This track record of effective collaboration will continue to be essential as tax administrations both share knowledge to accelerate their individual journeys, and also meet the challenges of cross border economic activity. This spirit of co-operation will also be essential as tax administrations ensure the effective implementation of new initiatives such as the ‘Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy’ (OECD, 2021[3]).
References
[3] OECD (2021), Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy, OECD/G20 Base Erosion and Profit Shifting Project, 8 October 2021, https://www.oecd.org/tax/beps/statement-on-a-two-pillar-solution-to-address-the-tax-challenges-arising-from-the-digitalisation-of-the-economy-october-2021.pdf (accessed on 22 May 2023).
[2] OECD (2020), Tax Administration 3.0: The Digital Transformation of Tax Administration, OECD, Paris, https://www.oecd.org/tax/forum-on-tax-administration/publications-and-products/tax-administration-3-0-the-digital-transformation-of-tax-administration.htm (accessed on 22 May 2023).
[1] OECD et al. (2023), Inventory of Tax Technology Initiatives, https://www.oecd.org/tax/forum-on-tax-administration/tax-technology-tools-and-digital-solutions/ (accessed on 22 May 2023).