More about gaps

In the excellent post “The Digital Gap and the Tax administrations“, Marcio Verdi  raise awareness about the threat of the growing digital gap between Tax administrations, also in the context of the growth gap between countries, raising questions and suggesting courses of action to alleviate the problem.

On this opportunity, I would like to raise a few other aspects.

With regard to the modernization of internal management processes, Tax administrations generally have full autonomy to adopt information and communication technologies (ICTs) depending only on their own resources. This is the case for modern human resource management systems, cost control, etc. Other internal systems in the business areas follow the same line, such as automation for the management control in the administrative area.

However, the modernization requires a strong interaction with taxpayers and other organizations of society, and in this regard the broad use of ICTs, considering also the legal aspects, is essential.

In this case, in a general perspective, the broad and effective use of ICTs by the tax administration would be inevitably linked to the availability and extended use of these technologies by the society in general.

For the provision of digital services to taxpayers, Internet connectivity is essential. Based on information disclosed by LACNIC (Latin America and Caribbean Internet Address Registry), 40% of Latin Americans would have an Internet connection. However the distribution of this connectivity is not standard among countries and, despite the availability of services, its high cost would be the biggest inhibitor factor for expanding the access. The information and technology unit of ECLAC presented in 2012 a tariff review for broadband Internet access (1 Mbps) in different countries, creating an index of average price according to the percentage of the monthly GDP per capita. Bolivia and Paraguay in this evaluation have the highest values, being the lowest-cost country in Latin America (Uruguay, 1.23%) has a higher-cost value than countries in Europe (Spain, 0.18%).

Additionally, based on the document “United Nations E-government Survey 2012“, the six countries of Latin America best positioned in relation to the main indicator, “e-readiness“, which assesses the availability of e-government services are [i] Chile, Colombia, Uruguay, Mexico, Argentina, and Brazil, which are situated between 39 and 59 positions with relation to all 190 countries evaluated. For the same countries the communications infrastructure availability index (which is part of the composition of the index “e-readiness“), ranks them in positions range from 59 to 90.

However, we know that Tax administrations of these six countries use technologies and offer a range of services to taxpayers much more extensive and differentiated that most countries best placed both in the general ranking and in communications infrastructure.

Some factors may explain this higher rating of tax administrations compared with the governmental average ratio:

1) Scope of performance of tax administration in society (clients).

Especially in developing countries, the tax administrations clients, the taxpayers, are on a higher level of income in relation to society in general. And in a society with ICTs average rates, this group is surely among those who have access to the Internet and thus can easily use the services provided, both for individuals and companies. Thus, considered in isolation, the Tax administrations would have clients with better access to communication infrastructures and digital services than the average of the society in general, providing Tax administrations with a potential user base.

2) Tradition of incorporating technologies

Tax administrations, especially those in Latin America, are traditionally vectors that drive the adoption of new technologies in society. Certain technologies are proposed to taxpayers as optional, in general they are attractive for their easy use, automation of procedures and cost reduction, sweeping some already prepared ones. Others, still not prepared, are attractive and are equipped to take advantage of the benefits offered, thus changing the market.

In the same line, Tax administrations also have been able to establish effective strategies to promote the use of digital services: segmenting taxpayers, promoting a compulsory membership, as in the case of large taxpayers; seek partnerships with strategic organizations, such as the accountants’ boards.

However, other important aspects of the modernization of Tax Administrations by means of ICTs depend on technological and legal support provided by other institutions, as shown below.

Taxpayers ‘ ability to gain access to the Internet presently only includes a set of effective basic services. To expand them, the availability of other technologies is necessary, empowering some without direct intervention of the Tax Administrations.

Being the tax information subject to confidentiality and its processes legally and constitutionally regulated, the feasibility of identifying a taxpayer on the network by following the precepts of public faith would be a prerequisite for qualitative expansion of services. In this context, the availability in the country of a public key Infrastructure (ICP) is important, making available digital identity certificates. With them, the implementation of services such as electronic tax domicile, online access to the information under tax secrecy, etc.

Another important aspect refers to the digital process of tax administrative proceedings (“e-process”), extremely powerful tool for streamlining and reducing costs for the parties, and that may be the Achilles heel of the whole modernization process. Although in the administrative field, internal to the tax administration, the digital process taking place is already an effort; a greater challenge would be the integration of the judicial sector to the digitalization process, in order to maximize the benefits of modernization. For this, the Judiciary should be computerized, at least in instances specialized in tax processes. Some Tax Administrations, when necessary, support initiatives of this order in the Judiciary, by providing resources and/or technological support.

Tax administrations have been important agents for the dissemination of ICTs in society, however, to have governmental plans for improving communication facilities and their access, provision of legal support to digital services, implementation of broad-spectrum technologies, in particular a public key Infrastructure, are all essential. Tax administrations have the institutional capacity to influence prioritization of these issues within the Government.

[i] This index is the result of the composition of five other indexes, such as the availability and scope of the communications infrastructure and human capital (training).

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