2024 key trends in tax administrations

Here, at the start of a new year, we’re taking a step back to look at the big picture. In the space of a few years, tax authorities have transitioned from relying heavily on paper, to a primarily digital system. The speed and efficiency unleashed by this change have been incredible, and have opened the door to a world of possibilities. So what lies ahead? Which technologies will tax offices take advantage of in the coming year, and which will have to wait? Here’s what tax authorities and taxpayers can expect.

Tax process modernization for a user-friendly future

In a world of smartphones, same-day delivery and personalized e-commerce, citizens’ expectations are changing. Tax authorities around the globe are thus constantly looking for ways to keep pace with the demand of the new digital age.

One pioneer in tax process modernization has been the Swedish tax authority, Skatteverket. In addition to Skatti, a digital chatbot using AI, Skatteverket has also implemented several other innovative tax process modernization initiatives. For example, it has developed a 360° system that automatically matches taxpayer data from different sources, such as employers, banks, and investment firms. This system reduces the tax declaration burden on taxpayers, ensures higher tax compliance and makes taxation just easier for taxpayers by eliminating the need to manually enter the same information on multiple tax forms.

In some European countries different institutions are exploring the use of blockchain and Distributed Ledger Technology (DLT) for tax-related purposes. Businesses might adopt these technologies as a secure and transparent way to record and verify transactions, which can be particularly useful in areas like transfer pricing and supply chain management. Tax offices could then use this information to assess taxes, which saves time on both sides. Blockchain can also be used to store sensitive information and define who has access and in what circumstances. For example, a citizen’s income might be completely transparent to a tax authority, while a taxpayer’s bank might see a simplified version which helps determine credit worthiness.

Last, but definitely not least: GenAI has taken the world by storm, and it may soon play a role in tax offices as well. GenAI can be used to draw inferences, autofill forms based on past declarations and employer forms, and answer questions better than a simple algorithm-based chatbot.

Each of these changes has the potential to substantially modernize the experience of paying taxes. However, they all depend on a well-funded workforce – the next trend we’ll explore.

Workforce availability and tight budgets

Tax authorities are stretched. This is in part due to demographic shifts, coupled with a limited pool of available talent, made worse by competition from other sectors. In 2024, we can expect this problem to reach a tipping point. We’re going to see staffing shortages, increased workload for existing employees, and potentially even a risk to tax agencies’ ability to deliver services efficiently. These challenges are coming at the worst possible time, coinciding with a budget crunch.

As a result of limited funds and due to efficiency reasons, many tax agencies are strategically adopting package-based solutions, so called components-off-the-shelf (COTS). Their progression to the cloud unfolds with a deliberate approach to Software as a Service (SaaS), Platform as a Service (PaaS), and Infrastructure as a Service (IaaS).

Other agencies have begun to re-prioritize some activities, which may reduce the scope or quality of services. Budget constraints may also impact the agency’s ability to implement new initiatives, invest in modernizing their systems, and enhance taxpayer support. How do you do more with less? This is where transformative solutions come in with new efficiencies. We expect a greater convergence of business and IT, bringing IT “up to the business,” in other words, ensuring that IT strategy actively contributes to the success and growth of the overall administration. At the same time, many efficiencies can be found in day-to-day operations through modern workplace tools, such as AI-copilots and videoconferencing.

Legacy systems modernization and taxpayer experience

Legacy system modernization is still an important part of modernizing the overall tax experience for taxpayers and the tax administration. By updating outdated systems, tax authorities can reduce the time, effort and costs for processing within the tax administration and provide taxpayers with a more streamlined, secure, and efficient filing experience. These improvements lead to a better overall experience, as well as improved compliance with tax regulations.

At the same time, the modernization of legacy systems presents some challenges. It can be cumbersome and costly, and requires a significant amount of time and effort to ensure that the new systems are properly integrated and secure. Additionally, some taxpayers may have difficulty adapting to the new systems, and may require additional support and training to understand how to use them.

Nonetheless, the benefits of modernization are overwhelming. In the last few years we’ve worked with the tax authorities of Norway and the UK to run full-stack modernizations to the cloud, and the savings are already accruing. One such benefit is the role of modern systems in risk management, as the know-how of legacy technology dilutes over the time. The strategies used to evade taxes are more complex than ever, and the right technology will be crucial.

Combatting fraud and tax gaps

In a challenging economic context, it becomes more critical than ever for tax authorities to increase yield by clamping down on the deliberate underpayment of taxes. International tax havens are an ever-present challenge and a source of deep public discontent. Losses in the form of Non-VAT Compliance will soon exceed 100 billion EUR per year, caused in part by legal exploitation of loopholes in the tax systems, and partly by evasion or organized large-scale tax fraud. Tackling tax evasion and the most aggressive forms of tax avoidance are a priority for tax authorities and core to their remit. Reeling in these losses will require data tools and strategies that are at least as sophisticated as those currently employed by tax evaders. As an additional benefit, stronger data tools will also help efficiently identify and correct innocent mistakes of ordinary taxpayers. 

Combatting tax gaps puts tax authorities in a difficult spot, as the solutions often lie outside the remit of tax authorities. This makes close coordination with other parts of government essential. When this coordination is lacking, tax authorities are often left with mandates that – without the necessary tools – which may be difficult or impossible to fully carry out. It’s thus crucial for policy makers to have some understanding of the types of the challenges tax authorities face, and the solutions they have access to. Alignment on this scale is not easy, but the potential savings make it a priority.

Taxation through e-invoicing

One more way for tax authorities to improve taxpayers’ experience is through e-invoicing. In the LATAM and Middle East, e-invoicing has been practiced quite some time. Now, e-invoicing is finally top-of-mind for the European tax authorities. The following predictions come easily, as we’ve already seen the benefits of e-invoicing play out:

Throughout 2024, e-invoicing will have a profoundly positive impact on tax authorities. It will reduce the amount of time and money spent on manual processing. It will provide a more efficient and accurate way to collect taxes from businesses, leading to increased revenue for governments. In addition, the EU currently has an EU VAT gap of approximately 61 billion euros. E-invoicing will help authorities better monitor business transactions and identify any potential irregularities, reducing fraud and increasing compliance with tax laws.

Finally, e-invoicing will make it easier for businesses to stay compliant with tax laws. By automating the process of tracking and reporting taxes, businesses will be able to save time and money by avoiding costly fines from non-compliance.

Cause and effect

The trends we’ve discussed above are closely related. In order for tax authorities to provide citizens with simpler, more modern experience, they need resources. But when workforce and budgets are stretched, where do those resources come from? First, tax authorities can create new efficiencies by upgrading legacy systems. Second, by finding ways to reduce tax fraud, they can dramatically increase the revenue coming in. The greatest gains will thus come from holistic transformation, all based around a clear, future-focused strategy.

2024 will be a challenging year. But with the right tools and strategies, tax authorities have the opportunity to make significant strides forward.

Further reading

For information about Capgemini’s tax and customs services, visit here.