How can digitalization ensure greater tax compliance?

My list

Author | M. Martínez Euklidiadas

16% of the global GDP could be lost due to tax evasion, according to the economists Gabriel Zucman and Emmanuel Saez in their essay ‘The triumph of injustice’ (2021). Tax evasion is a mechanism used all too commonly which also consolidates corruption. Could digitalization in banking improve tax compliance, or will it facilitate new forms of fraud?

What is tax compliance and fiscal evasion?

Fiscal evasion, known as tax evasion or tax fraud, is an illegal practice to avoid the payment of taxes to the different tax authorities. Unlike tax avoidance, which seeks to minimize the payment of taxes in a legal manner, tax evasion is illegal and it is pursued with more or less force by the international community.

How is tax compliance ensured today?

Through law and inspections, the respective tax authorities from the various governments audit their citizens and companies. However, the lack of a global tax system (in some federal countries, the lack of national dialogue) makes it difficult to pursue those that evade corporation tax, work-related taxes (black money), value added tax (VAT) or income tax.

At an international level, initiatives such as BEPS pursue “base erosion and profit sharing due to gaps and mismatches between the different national tax systems”. However, the lack of global regulations makes it difficult to put into practice.

What is the digitalization of taxes?

digital purchase -73

Digital taxation and tax digitalization pose a great tax challenge for the OECD, the G20 and the European Council. But the digitalization of physical documents also entails greater traceability of economic flows.

It is this traceability that makes the cooperation between tax authorities possible, or audits with the subsequent taxation for those fortunes that use these non-cooperative jurisdictions in which the flows evaporate almost without a trace.

Future of cash: should it be extinguished?

Cash may be an impediment when it comes to recording illicit money flows, particularly in countries neighboring fiscally opaque countries. Historically, many trips have been made with suitcases full of notes. The digitalization of money could help to cut these black money escape routes, although digitalization also opens the doors to other somewhat illicit practices.

How can the tax system be improved with digitalization and how can it help to prevent tax evasion?

Hiding assets in cryptocurrencies is one of the new subterfuges of tax evasion, which is why countries around the world (such as the case of Korea’s National Tax Service) are increasing their inspections and audits, while looking for mechanisms to prevent companies from using this dark ‘digitalization’ of assets.

However, these practices are not common, and the digitalization of the administration through mandatory tax digital software are not only providing relief in terms of tax fraud: but they are also helping to simplify formalities and bureaucracy, or they help increase transparency which, in turn, helps to identify other types of economic fraud.

It has been proven that ‘the tax morale’, taxpayers’ attitude towards accepting to pay taxes, is related to transparency and accountability. The mere application of digitalization, without waiting for punitive actions, is already helping to prevent tax evasion. This is why many countries are investing in digital tax agencies.

Images | iStock/B4LLS, iStock/Ridofranz

Related content

Recommended profiles for you

Remember to activate your profile to network!
Activate profile
AA
André Amaral
Anis
Owner and business development
Osmar Dalquano Junior
Osmar Dalquano Junior
Retail2Engage
Director - Relationship and Business
PP
Patricia Penalosa
Upm
Student UPM
Ester Abajo Veciana
Ester Abajo Veciana
Barcelona Convention Bureau - Turisme de Barcelona
Association Meetings Manager - Barcelona Convention Bureau
Gerard Guiu
Gerard Guiu
Cercle de Economia
Director relacions institucionals i comunicacio
Ramon Tumiwa
Ramon Tumiwa
Universitas Negeri Manado
Quality Assurance
ST
STEVE TAE TAE
Mastercard
Ron Jaicarran
Ron Jaicarran
Imagine Cities Research Centre
Founder & President
JM
Jose Martinez Artiles
Smart City Infrastructure Fund
Investment Manager
RC
Ruben Chacon
AGGO
CEO aggo services
Sebas  Marin
Sebas Marin
UdeA
Joven investigador
HB
Heideliza Batausa
Cebu Doctors' University, Cebu, Philippines
Faculty Member
MV
Mahfuza V
Tajrupt.ai
AI Academy Manager
Yoottana Booranrom
Yoottana Booranrom
OZEN CO., LTD.
Managing Director
Alfredo Vega
Alfredo Vega
Xtrategas
Director
GC
GIOVANNY CABALLERO
Loyalty Empresas
CEO
PO
Poppy Octavia Octavia
Madre Indonesia
Chief Marketing Officer
Felix Kalkowsky
Felix Kalkowsky
KGCCI DEinternational Ltd.
Head of Market Entry & Expansion
Chei Park
Chei Park
University of Girona
ERASMUS MUNDUS JOINT MASTER'S SCHOLAR IN TOURISM MANAGEMENT
Craig  Nesty
Craig Nesty
NTRC
Executive Director

SmartCity
Thank you for registering to Tomorrow.City. You can now start exploring from your computer, or with your phone or tablet downloading our app!
Only accessible for registered users
This content is available only for registered users
TO: $$toName$$
SUBJECT: Message from $$fromName$$