‘Death to the tax return’: tracking the revolution in revenue collection
Digital technologies are dramatically easing the process of paying tax, while providing invaluable data to finance departments. At the Government Finance Summit, civil service leaders discussed the remarkable progress in how governments assess and collect tax revenues
“Change makes something better – like making cars that go faster. Transformation is about the caterpillar and the butterfly: it’s about making a better something,” said Ruth Kennedy. “And in terms of tax administration, transformation is where we need to go.”
Speaking in the session on ‘Making tax less taxing’ at the 2024 Global Government Finance Summit – held this year in Dublin, where the Irish government played host to top finance department officials from 12 countries – Kennedy, a revenue commissioner in Ireland’s tax and customs agency, championed “natural taxation”. This is the idea that tax systems should fit around businesses’ and workers’ existing practices, rather than requiring them to carry out additional administrative processes to calculate their tax liabilities and report to government. “We’re making tax part of natural events, and getting the data direct from the source at the correct time,” she said.
Marine Khurtsidze, head of the Tax and Customs Policy Department at Georgia’s Ministry of Finance, said her country has spent years simplifying its tax system, reducing complexity and administrative work both for public servants and for businesses. Over the last two decades, she explained, the number of taxes has been cut from 22 to six.
Meanwhile, numerous reforms have been carried out to modernise tax administration – including the creation of personal web portals that support electronic tax returns and allow people to manage all their tax affairs in one place. “We’re trying under future reforms to support less communication between the tax administration and the taxpayers,” said Khurtsidze. “We’re oriented to becoming more digitised and more automated.”
Tax like a mosquito, not a mugger
Similarly, said Kennedy, Ireland’s Revenue agency is working to simplify its presentation and reduce the work it asks of citizens. “What we have to do is transform to hide the complexity, so that those engaged with us have a much more simple type of interface,” she said.
Kennedy cited as an example Revenue’s reform of Pay As You Earn (PAYE) processes, under which businesses automatically deduct employees’ tax payments at source. Previously, she explained, employers would pass tax payments to Revenue on a monthly basis; but they had 12 months from the end of the tax year to provide a full report on exactly what they’d charged each taxpayer – so government had to wait well over a year for a clear, high-resolution picture of its tax receipts. In 2019, Kennedy explained, the agency decided to “understand how employers run payroll, and to make all reporting obligations to the tax administration a by-product of the payroll process”.
Now, Revenue receives all the data it needs via automated data feeds from every employer’s payroll system – giving it an accurate, real-time picture of tax receipts, whilst eliminating the risk of errors as companies produced their annual reports. “Like an iceberg, all the administration is beneath the surface – orchestrated by the computer systems of both employers and Revenue,” she said. “Now, every time someone is paid, we have the information on what they’ve been paid and how much was deducted.”
In the first year, Kennedy continued, Revenue received an additional €70m “purely from getting the data in real time – so we had much more accurate and timely exchequer yield. From the citizen’s point of view, they had absolute transparency that the money withheld by their employer was reported to Revenue. From an employer’s perspective, they no longer had to do anything other than run their businesses. And from the Ministry of Finance’s perspective, they now have real-time information on what is happening in employment in Ireland each and every week – and that produces insights that can influence policy.”
“As a finance ministry, we don’t like spending money,” commented John McCarthy, chief economist at Ireland’s Ministry of Finance. “But one area in which we’ve been happy to spend money is in PAYE modernisation, because it means we get real-time data and better compliance. The information that comes back is so good that we get more revenue from it than we allocate.”
Read more: The ‘four Ds’: Ireland’s chief economist spells out the major challenges governments face
Milking the elusive cows
Such projects save money on several fronts, said McCarthy: the “simplicity of payment and collection” averts administrative costs, both inside and outside government; the automation of transactions reduces errors and drives up compliance; and the generation of real-time data enables finance leaders to “better design tax policies”. Revenue is also gathering data to inform enforcement operations aimed at some taxpayers, noted Kennedy, saying that the agency focuses on “milking the cows that come in to be milked; we need to find the ones that don’t”.
“We’ve been looking at the ‘online influencer’ community, because that’s a new industry and maybe the individuals involved aren’t traditional people who set up businesses and have tax advisers,” she added. “We’re able to get information from online platforms on who they’ve paid” for attracting large audiences: Revenue then contacts influencers, and asks them to declare all their earnings.
Another senior finance leader also provided an example of using data to boost compliance. “We can see in our systems when people own second properties, but quite a lot of them didn’t declare any income from them,” they recalled. So a couple of years ago, their ministry added a pop-up to its online tax return system: nowadays, “if you don’t declare income from a property that government knows you own, a chat box appears when you’re finalising your income statement, saying politely that we know you have another apartment, and telling people which processes to follow if they’re renting it out”. The results were dramatic: “We went from about 20% of apartments appearing to generate an income, to 80-something percent,” they said.
Read more: The tAIxman: how AI is transforming Ireland’s revenue collection
Reshaping tax policy
So there is huge potential to transform the ways in which governments assess and collect taxes – making life easier for taxpayers, while cutting public spending and boosting revenues. In the longer term, however, governments face difficult decisions around what they tax; and here, there are fewer win-wins and more difficult trade-offs.
For some decades we have, for example, seen the amount of national income directed to capital – investors and owners – rise, while the proportion going to labour has fallen. Meanwhile the value of assets has shot up, while in many countries earnings have flatlined since the financial crisis. If elected leaders wish to use the tax system to slow or reverse these dynamics, they will face heavyweight opposition but if they do not, they’re storing up social problems for the future. And there’s another issue, now growing in strength: as governments act to disincentivise carbon emissions and foster green industries, they whittle away at long-standing revenue streams such as fuel duty. Unless they find new sources of taxation, the public finances face a serious squeeze.
“I work in the realism department, i.e. the finance ministry,” commented one participant of the challenges around carbon taxes. “We’re not officially thinking about these things, but unofficially we know they’re coming.” However, as another finance leader pointed out, “the challenging thing about the political economy isn’t the economics; it’s the politics”.
This applies to the issues around data use as well as the fiscal challenges involved in decarbonising economies. Right now, the “natural taxation” agenda championed by Ruth Kennedy hasn’t encountered political headwinds – but it’s not clear how far tax administrations can go in introducing automated data transfers before they encounter resistance.
For the moment though, countries such as Ireland are forging ahead. “We now have digital footprints everywhere,” noted Kennedy. “Shares are transacted online: why should I have to tell the agency, 18 months after I sold my shares, how much I sold them for? Why can’t the platform that sold my shares tell the Revenue? Rather than me having to declare my income, my house, my car, it’s not a far stretch to think that all that data could come systematically to a tax administration.”
“Then there would be no need for a tax return anymore, because we get all the data in real time,” she concluded. “Ultimately, the Nirvana is: death to the tax return!”
The invitation-only Global Government Finance Summit is a private event, providing a safe space at which the civil servants leading finance departments and national treasuries can debate the challenges they face in common. We publish these reports to share some of their thinking with our readers: note that, to ensure that participants feel able to speak freely, we give all those quoted the right to review their comments before publication.
The 2024 Meeting will be covered in five reports, covering the various sessions:
– John McCarthy, Chief Economist of Ireland’s Department of Finance, analyses the structural challenges facing advanced economies
– How finance ministries can use artificial intelligence
– Making tax less taxing: using technology to improve assessment and collection
– How to improve public sector productivity
– Using ‘just in time’ insight in government finance and service delivery
For information on the next Global Government Finance Summit, which will be held in June 2025, visit our dedicated website.
About Matt Ross
Matt is Global Government Forum's Contributing Editor, providing direction and support on topics, products and audience interests across GGF’s editorial, events and research operations. He has been a journalist and editor since 1995, beginning in motoring and travel journalism – and combining the two in a 30-month, 30-country 4x4 expedition funded by magazine photo-journalism. Between 2002 and 2008 he was Features Editor of Haymarket news magazine Regeneration & Renewal, covering urban regeneration, economic growth and community development; and from 2008 to 2014 he was the Editor of UK magazine and website Civil Service World, then Editorial Director for Public Sector – both at political publishing house Dods. He has also worked as Director of Communications at think tank the Institute for Government.
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