Improving Tax Compliance With Digitization

Over 60 countries now use e-invoicing for tax compliance, and investment in the technology to carry out real-time exchanges of data and tax funds is enhancing the interconnectedness of national and global economies.

While America hasn’t embraced e-invoicing to the same extent as Europe, Asia, and South America, US government investment in technology is improving the digital experience for its tax customers.

Federal and international compliance with tax laws is necessary for any organization. Around the world, increased digitization, including the use of specialized tax tech and AI, is making this easier for both businesses and individuals.

Digitization Is Boosting Tax Compliance Globally

While estimates for a lifetime’s tax burden may vary from region to region, every individual is liable to pay tax on income over a set amount. Digitization can help to ease this burden by making tax returns easier and, in some cases, lowering tax bills.

AI Banking Systems Help Customers Reduce Tax Bills

In Canada, the Digital Adoption Program offers funding and advice to small businesses to increase their use of technology, while in the UK, the ‘Making Tax Digital’ initiative aims to help companies and individuals to handle their tax matters more easily. 

In the US, a tax system powered by AI and working in conjunction with online financial platforms could help bank customers save on their tax bills.

Through their everyday banking apps, users can access personalized information about their tax affairs, check if their tax account is currently in debt or credit, and ensure they are taking the appropriate steps to optimize their financial situation.

Implementing Digital Tools To Close Tax Gaps

In European countries that impose indirect taxes, including value-added tax (VAT), governmental digitization is aiding their collection. Digital tax instruments such as continuous transaction controls (CTCs) have been in place for over twenty years in Latin America. As more of Europe adopts their use, specialized tax tech is increasingly required

Tech Can Help Boost Tax Compliance

Tax tech helps make compliance with e-invoicing requirements, tax reporting, and the VAT regulations of individual countries much easier for businesses that operate internationally. Connections to essential governmental infrastructure, including procurement systems, are also facilitated.

As Europe increasingly normalizes digital VAT invoicing, governments are able to increase the transparency of transactions for their customers. At the same time, they can increase revenue collections by identifying and closing long-established gaps in VAT.

Increasing Digitization Of US Government Processes

Compared to businesses in the private sector, the US Government has been slow to embrace digitization and upgrade its IT processes and systems.

Although the 21st Century Integrated Digital Experience (IDEA) Act was passed in 2018 to improve customer transactions and interactions, implementation of the law has not been consistent. 

An Increase In Filing Taxes Online

One of the remits of the act is to require updates from various government agencies on how their digital services, such as interactive websites, are being upgraded and modernized.

While only 2% of government forms are currently in compliance with the 21st Century IDEA Act, progress has been made in digitizing tax returns. In 2021, 95% of Americans filed their taxes online in contrast to only 30% in 2001. 

As well as making life easier for the millions of US taxpayers, strengthening governmental systems with increasingly data-driven infrastructure will allow government agencies to be better informed and more responsive to any issues.

The Advantage Of Tax Tech For The Future

As interactions between national and international governments, businesses, and their individual customers are increasingly digitized, real-time tax compliance and transparency are enhanced.

In addition, as well as helping individuals to reduce their tax bills, tax tech can allow businesses to meet international requirements and enable governments to increase revenue collection.

Lavanya Rathnam

Lavanya Rathnam is an experienced technology, finance, and compliance writer. She combines her keen understanding of regulatory frameworks and industry best practices with exemplary writing skills to communicate complex concepts of Governance, Risk, and Compliance (GRC) in clear and accessible language. Lavanya specializes in creating informative and engaging content that educates and empowers readers to make informed decisions. She also works with different companies in the Web 3.0, blockchain, fintech, and EV industries to assess their products’ compliance with evolving regulations and standards.

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