On June 25th, we launched our new book at this year’s EMEA Global Relationship Partner (GRP) Conference held in Lisbon.
The rise of value-added tax (VAT) in the last decades is stunning.
Source: OECD (2018), Revenue Statistics 1965 – 2017, p. 29
I ask myself what the long-term impact of digitalisation will be. My guess would be that it becomes even more important and its share of total tax revenue further increases. On the one hand, VAT can easily be extended to the sale of digital products and services. On the other hand, I observe that tax administrations unroll digital technology first and massively in the area of VAT (it’s less complicated than corporate tax, for example). This makes control cheap and efficient, especially in the area of digital services, and will help a lot improving taxpayer compliance and increasing revenue.
Maybe I am wrong, but I have the impression that the European General Data Protection Regulation (GDPR) is contradicting both the principles of the European proposal for Digital Service Tax (DST) and the principles of the strongly pushed blockchain technology. The GDPR requires you, for example, to delete a lot of (personal) data you collect. The DST in contrast requires you to collect a lot of data (e.g. geo-localisation of users) for accounting, record-keeping and other obligations intended to ensure that the DST is effectively paid. The GDPR tries to grant privacy and the right to erasure. The blockchain tries to grant that records are transparent and cannot be changed.
Every function does it’s own thing, that is common. But from time to time some coordination and a consistent overall digital strategy could be useful.
Societal benefits of the widespread use of digital technologies by the public administrations will be huge. Equally huge will be the potential of misuse. This potential will unfold incrementally and therefore hardly noticed or almost irreversible. But rejecting the use of digital technologies is no (smart) option. Rather (digital) institutional design is key.
India‘ Aadhaar ID system may serve as a good example what I mean by unfolding incrementally and irreversibly. In 2009 established on voluntary basis to help the poor get welfare benefits, it quickly became the world’s largest biometric ID system. Modi made it de facto mandatory to fight corruption and inefficiency. 99% of India’s 1.3 billion total population are now enrolled in Aadhaar. As a result the Aadhaar ID is de facto needed for a mobile contract, credit card, insurance, social allowance, or even for train tickets… And of course, every transaction linked to Aadhaar is tracked by the Unique Identification Authority of India (UIAI).
For a full story on Aadhaar see https://www.nytimes.com/2018/04/07/technology/india-id-aadhaar.html
The HRMC may serve as a good example for the digital transformation efforts public administrations are quietly but resolutely making. Their current investment plan includes expenditures on digital transformation in the amount of GBP 332m in 2016/17, GBP 221m in 2017/18, GBP 194m in 2018/19, GBP 172m in 2019/20 and GBP 134m in 2020/21. This adds up to an investment of more than GBP 1 billion over the next five years – just in digital technologies. Not even included are the accompanying investment costs for estates, supporting compliance and so on. The overall costs of the transformation process add up to more than GBP 2 billion in five years.