The dilemmas of digitalization

Recent technologies have driven what we call digital transformation, a global phenomenon that encompasses companies, governments and individuals. The tax administrations (TAs) are also undergoing this transformation, which generates the need for multiple changes. In 2020, in his report “Tax Administration 3.0 (TA 3.0– – Digital Transformation of Tax Administrations[1], the OECD proposes a new paradigm, according to which tax administrations and other government agencies begin to adapt their processes for integrated work with taxpayers’ natural systems. Thus, the interventions of the TAs simply happen to occur in the lives of taxpayers, which means that they almost do not use time to fulfill their tax obligations. The digital transformation is likely to make TAs more invisible to most taxpayers with taxes that are done in the background and in a non-intrusive and non-avoidable way. This is sometimes described as “compliance by design[2] (Gree, Peter. 2018).

Although TA 3.0 is not a reality for all countries and the path to integration between the systems of the TAs and taxpayers is just beginning, the debate is on the role that the TAs will have in the digital future. If on the one hand digitalization brings efficiency on a large scale, it is also true that it brings new dilemmas. Tax administrations should reflect on the effects of digitalization not only on their work processes, but also on their own identity, their businesses, strategies, values and people. Without wishing to exhaust the topic, we present brief reflections on some dilemmas faced in the process of digitalization of the TAs.

  • Dilemma 1 – Does digitalization preserve the tax administration as an agency of tax collection and tax equity?

    According to Bagchi, Bird, & Das-Gupta (1995), the main products that TAs offer to their citizens are collection and tax equity in accordance with current laws. The first refers to the public revenues that TAs provide to their States so that they make public policies and provide public services. The second deals with the essential role of TAs to apply sanctions to those who do not comply with their obligations and ensuring that everyone effectively pays what the law defines. Although digitalization has promoted the practices of lower costs, more efficiency in revenue collection and greater control, these two products remain being delivered by the TAs to their citizens. However, in a disruptive model due to the effect of digital transformation, the dilemma of the TA will be how to preserve their powers to collect and apply sanctions, considering that these cannot be transferred to private agents.

    In fact, TAs currently include cooperative compliance programs, to promote tax compliance by building a relationship based on the spirit of collaboration, good faith and transparency and thus avoiding penalties for no reason. Actually, the idea is that such programs can improve both equity and collection. However, it is not yet possible to imagine the TAs without sanctioning instruments, since fraud and evasion do not disappear.

    Therefore, the first dilemma of digitization for TAs is to constantly reinvent themselves, that is, to adapt strategically so as not to lose their identity as a state body that collects and controls taxes.

  • Dilemma 2 – Does digitalization change the business model, structures and strategies of tax administrations?

    For the OECD (2001)[3], the main function of any TA is to ensure compliance with tax legislation. Undoubtedly, there is a consensus that TAs should encourage voluntary compliance with laws and tax obligations. However, in the OECD TA 3.0 model, the TA’s effort for voluntary compliance would no longer be key, because taxation is going to occur in every transaction of the taxpayer that is subject to the tax. That would be a new business model for TAs. As a consequence, the action strategies of the TAs would also change. In any case, it is important to measure the challenge that digital transformation imposes on TAs in constantly reviewing their business models, their functional structures and their strategies.

    Thus, digital transformation presents TAs with the dilemma of constantly reviewing the design of their business models, their strategies and performance structures. To the extent that economic changes derive from digitalization, it is possible that tax policy will also change and, consequently, major changes will happen to tax administrations.

  • Dilemma 3 – What values should be emphasized after digitalization?

    Integrity, impartiality, professionalism and transparency are basic values of any TA. Digitalization poses the challenge of maintaining these values, but situations arise that give rise to important debates. There is an intense discussion going on about the ethical values behind the use of artificial intelligence and digitalization. For example, Patrick Lin and Keith Abney (2011) address the problem of robot failures. For them, according to the precautionary principle, a robot must be thoroughly evaluated before being used with humans. The same researchers also address the issue of transparency, informing the concern of those who do not want the knowledge of the technologies used by governments to be relegated to a few industry experts. In other words, the lack of public participation in decisions on the use of new technologies would be undesirable and governments would not be able to rely on companies to regulate the sector. In fact, knowledge of certain algorithms is desirable for some, but it would be unfeasible for the general public, who have no technical knowledge. Another prominent issue concerns liability for failures. Is it possible for a robot to be responsible? Will the courts be able to judge facts derived from the performance of robots? Although there are no clear answers, ethical issues are becoming increasingly important in the digitalization debate.

    Thus, TA must advance in the use of modern technologies that allow them to obtain more efficiency in their processes, which in turn increasingly depend on a large volume of data, but without ceasing to promote internal and external debate on the ethical consequences of automation.

  • Dilemma 4 – What People Management policies should Tax Administrations adopt?

    In its “Going Digital” project, the OECD recognized the need to put people at the center of policy attention to boost digitization. In the ATS, it is necessary to create new work environments to take advantage of the full potential of people and invest in the recruitment and training of people so that their workforces know how to manage recent technologies for a maximum value creation.

    According to Knickerbocker and Hale (2021), organizations must adapt quickly to digital transformation and for that they must put emphasis on teams of multi-skilled professionals. If TAs have valued knowledge of law, economics and accounting, among others, for entry into their professional cadres, they must now review the necessary talents of the professional profiles to include data science, advanced statistics, robotics, artificial intelligence, in addition to other skills and competencies. It is not only necessary to have in their staffs people capable of generating value and amplifying the use of innovative technologies, but also to organize them into teams of multiple skills and exercise leadership to maximize results. In short, the ability to adapt, to manage work in highly qualified teams and to stimulate creativity become keys to the success of organizations in the digital age.

    TAs face a management challenge due to the pressures of technological change and the changing structure of their workforce. In addition, the workforce in many tax administrations continues to show, on average an aging profile (OECD, 2019). The task does not seem easy when it comes to the public sector, which traditionally maintains the classic bureaucratic structure. If the expression of order for the digital economy is adaptation to disruptive changes, it is desirable that the TA has more autonomy to change its HR management policies. In Brazil, the recruitment process still depends on authorization from other government agencies, while the functional cadre is shrinking and gets older. The search for greater efficiency has led to a shift from teams that used to work on local processes to national and regional processes. Likewise, adaptive difficulties persist with the formal structure, which cannot be expanded or locate more paid management slots.

    In summary, to meet the challenges of digitalization, tax administrations should review their policies for managing people and business profiles, stimulating work in multi-skilled teams with goals, outcomes and evaluation, promote the creativity of their employees, recruit people with knowledge, skills and attitudes, not only for the business, but also know how to extract the maximum of the new technologies, balancing the remote work with the face to face to maintain the organizational culture in constant evolution, train to the maximum people for the challenges of the future and to obtain a balance between management, strategy, business and technology.

  • Dilemma 5 – How to ensure the data security and privacy of citizens?

    The digitalization of TAs services has been a reality for many years. The roads that we are making, like the TA 3.0 proposal conducted by the Forum of Tax Administrations, OECD, which promotes a seamless integration with the natural systems of the taxpayers, with the least possible intervention of the tax administration, shows that on the one hand, digitalization must expand more and more, but on the other hand, the trust in the administration itself and its digital services must be very high.

    TAs manage sensitive data, subject to tax secrecy rules, which must be protected and pose challenges in terms of data privacy. This data is an invaluable asset, but it also carries responsibilities and significant risk. To maintain trust, TAs must improve data protection, privacy and guarantee taxpayers that their data will be safe.

    There will be no digital services or integration with natural systems if the taxpayer does not have confidence in how the tax administration oversees the data entrusted to it. TAs must have the highest level of quality and transparency in their information security policies. And not only that. With the advent of the General Data Protection Regulation – GDPR- in Europe, or in Brazil with the LGPD – General Personal Data Protection Law, information security gained a partner, the privacy management. Two issues that go hand in hand, each with its importance and bias, and that must be rigorously observed for the future of digital tax administrations.


The new digital technologies that characterize the fourth industrial revolution, such as the internet of things, cloud computing, artificial intelligence, machine learning, automation processed by robots, augmented reality, data lakes and many other innovations are revolutionizing the public and private businesses in the so-called digital transformation. This is a shocking and global phenomenon, without historical precedents. The uncertainty that is approaching people and organizations motivates the preparation to face new challenges, and this is necessary and urgent. This is what governments and their tax administrations around the world do.

However, all this technological progress will not achieve success unless the dilemmas presented to tax administrations are overcome. It is necessary not to lose sight of what we exist for, what we give to society, and our own identity. We are millennial organizations, we went through wars and catastrophes, but digital transformation is something new and disruptive. It is necessary to recognize the values that guide us and also that when new questions arise due to recent technologies, that we know how to find answers. We need to expand our capacity for transparency while continuing to protect the privacy and data (in increasing volume) of taxpayers. It is necessary that our personnel policies change, so that officials include innovative technologies in our work processes and that the human dimension of our tax administrations always remains the most important.


Bagchi, A., Bird, R., & Das-Gupta, A. (1995). An Economic Approach to Tax Administration Reform. Toronto: International Centre for Tax Studies, University of Toronto.
Gree, Peter. 2018. What do we mean by digital transformation of tax administration?. Impact of digitalisation on the transformation of tax administrations –IOTA) – Intra European Organisation of Tax Administration.
Knickerbocker, J. and Hale, A. (2021). Preparing for the future of the tax. Deloitte website, .
Lin, P., & Abney, K. (2011). Robot Ethics: the Ethical and social implications of robotics. MIT Press.
OECD. (2001). Principles of Good Tax Administration – Practice Note. CTPA. Paris: OECD.
OECD (2019), Tax Administration 2019: Comparative Information on OECD and other Advanced and Emerging Economies, OECD Publishing.
OECD. (2020). Tax Administration 3.0: The Digital Transformation of Tax Administration. OECD, Forum of Tax Administrations. Paris: OECD.

[1]  (OCDE, 2020).
[2] As a result of the increased availability of data, the use of “Compliance by design” it is spreading to more complex situations. This is also enabling the pre-filling of tax returns for taxpayers in an increasing number of jurisdictions (OECD, 2019).
[3] The same is said by Bagchi, Bird, & Das-Gupta (1995) and Alink & Van Kommer (2000).


2,117 total views, 1 views today

Disclaimer. Readers are informed that the views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author's employer, organization, committee or other group the author might be associated with, nor to the Executive Secretariat of CIAT. The author is also responsible for the precision and accuracy of data and sources.

Leave a Reply

Your email address will not be published.

CIAT Subscriptions

Browse through the site without restrictions. Consult and download the contents.

Subscribe to our electronic newsletters:

  • Blog
  • Academic offer (Only in spanish)
  • Newsletter
  • Publications
  • News alert

Activate subscription

CIAT Members

Representatives, Correspondent and Authorized staff (TA)