Technology is enabling significant transformation of taxation systems around the world. Taxation can be described as a compulsory levy imposed on income, profits and general goods and services by a taxing authority, usually a government, both at local and national levels.
The history of taxation dates back to the early stages of civilisation where taxes were paid in kind to feudal lords and other aristocrats who generally owned the lands that others worked and lived off. Over time, taxation evolved as society made progress in all areas.
Today, technology and digital tools are playing a key role in how taxation is being managed both at the level of tax collection authorities and persons and individuals who pay those taxes.
The first area which is seeing the application of technology is tax administration. Tax authorities all over the world are investing in technology and real-time systems to enable them to collect taxes effectively and efficiently.
This ranges from the use of technology in back-end administration of taxes to end-user systems which enable taxpayers not only to file their taxes but also make payments without visiting a tax office.
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In Estonia, for example, people are able to file their taxes online in three minutes using e-Tax, an electronic tax filing system set up by the Estonian Tax and Customs Board.
In recent years, robots and other forms of artificial intelligence have been introduced into the taxing industry, helping especially businesses and high turnover tax outlets such as retail shops and huge businesses to complete tax returns which are not only time consuming but mundane and sometimes complicated.
Taxation in the digital arena
Sales and income taxes are examples of major types of taxation, with sales taxes collected at the point of sales while income is taxed at the location it is earned. In our fast-growing digital economy where e-commerce is becoming the order of the day, collection of such taxes online is not straightforward.
For instance if one sits in Nigeria and orders an item online from Ghana, which will be delivered to Nigeria upon payment, the question is, which taxing authority has earned the right to tax? This issue is further complicated by some online stores who are not formally registered, making it difficult to trace their transactions.
Furthermore, some persons are no longer working in formal office settings but are service providers working from home or elsewhere to deliver work online. This also creates issues for tax collectors. This situation is further compounded by the sharing economy where individuals are able to trade among themselves with no middleman.
For example, persons are now able to rent spare rooms in their house to prospective lodgers and there is no clear taxation model for this increasingly new type of transaction.
Mobility and the intangible nature of digital transactions and work means tax authorities are struggling to tax these activities in a cost-effective manner.
Some argue that the solution is to use technology which records all digital transactions to a central database accessed by tax authorities who are able to assess tax liabilities and apply regulation and systems that will impact how taxes are collected.
But this suggestion is fraught with challenges such as how to invest in a computing system big and powerful enough to monitor the millions of electronic transactions that happen daily.
e-taxation in Ghana
Ghana is taking baby steps when it comes to e-taxation. Some advancement has been made at the port of entry with the introduction of the paperless system and online payment portal to enable taxpayers to make payments online.
However, many gaps exist in the larger economy. Taxpayers are not also able to file annual taxes online, nor do we have in place an end-to-end electronic taxation system.
Also, there is no clear-cut regulatory provision on how to deal with electronic commerce taxation locally and internationally.
In conclusion, technology is having a significant impact on the taxation industry. There is an urgent need for tax professionals to invest more in learning and understanding the interrelationship between technology and taxation and how they can innovate while ensuring effective and efficient tax collection.
Taxes can be a pain, especially for the taxpayers. Technology, when utilised, can make the process less painful at least in terms of making it less time-consuming and cost-effective as well.
Given this background, it is vital for organisations to map out strategies of digital transformation of their overall operations in general and taxation in particular. These strategies could include skills development, development of new operational and process techniques and investment in relevant digital systems.
The writer is the Executive Director of Penplusbytes.org
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