Tax Administration Digitalisation and Digital Transformation Initiatives

When the OECD’s Forum on Tax Administration (FTA) vision for the future of tax administration – Tax Administration 3.0 – was published in 2020 (OECD, 2020[2]), many tax administrations had already embarked on a digital transformation journey, introducing new digital initiatives and innovations to support tax compliance and reduce burdens. Since then, many more have followed fully embracing the long-term vision and working to make tax become a more seamless experience for citizens and businesses.

Tax Administration Digitalisation and Digital Transformation Initiatives takes a closer look at the extent and progress that tax administrations have made in their digitalisation and digital transformation journeys. Containing a wealth of data, it is intended to be used by tax administration analysts and strategists in their considerations of possible domestic reforms as well as to help them identify where future collaboration might be of most value. While primarily aimed at analysts and strategists, it can also be a useful tool for senior tax administration managers or officials in ministries of finance to understand global trends and to aid them in their considerations of possible future changes in tax system administration.

Using the data from the Inventory of Tax Technology Initiatives (OECD et al., 2024[1]), this report takes a closer look at the technology tools and digitalisation solutions implemented by the 54 members of the FTA. It shows that:

• Most taxpayers are already using a digital identity to access online services offered by the tax administration, a prerequisite to provide certainty regarding the identification of taxpayers and to allow systems to interact so that data can be exchanged in real-time.

• Administrations are integrating tax interactions into third party systems with more than 80% of tax administrations developing application programming interfaces (APIs), and over three quarters of them making their APIs publicly available for third party use. Some tax administrations have also started creating natural systems for taxpayers as they develop software solutions that taxpayers can use, for example, for record keeping or the creation and conversion of electronic files and forms.

• Tax administrations increasingly receive data directly from taxpayer business systems and third parties. Around 80% of administrations reported getting data directly from taxpayer business systems, beyond pay-as-you-earn information, with some data already being sent to the administration automatically from machine-to-machine without human involvement.

• Many taxpayers enjoy a seamless experience through full prefilling of tax returns. The majority of administrations is already in a position to offer the complete prefilling of returns for many PIT taxpayers. Thanks to the availability of technology solutions such as electronic invoicing systems, close to 40% of tax administrations also reported being able to prefill VAT returns and around one quarter prefill CIT returns. Around 30% of those are in a position to provide certain VAT and CIT taxpayers with returns that are totally prefilled with no need for taxpayers to make changes.

• Artificial intelligence (AI) is being used by more than 70% of tax administrations to enhance effectiveness and efficiency within the administration, for example on compliance management, and to improve taxpayer services. The most common use case is the involvement of AI in the detection of tax evasion and fraud, followed by the use of AI in risk assessment processes and as part of virtual assistants.

• Many administrations have started identifying and mapping the skills required for a digital transformation. Slightly more than a quarter of administrations have identified the future skills required for a successful digital transformation for the whole administration, and an additional 45% have done this for parts of the administration. Of those that do, three quarters collaborate with other government organisations and external partners to improve the staff skills required for digital transformation.

• Nearly 80% of administrations have developed a digital transformation strategy. Digital transformation represents a fundamental change in the operating model for an organisation, and to provide for a structured approach, many administrations are increasingly developing digital transformation strategies that set out objectives and plan the timing and priority of the incremental steps. To oversee the relevant processes, provide strategic direction, and ensure the smooth implementation of the digital transformation strategy, close to 80% of administrations have a senior management governance body in place.

The journey to fully digitally transformed tax administration is long and what the data in this report illustrates is that FTA members have already made considerable progress. Given the rapid digital transformation of the wider economy, it will be interesting to see how quickly these changes are progressing within tax administrations when the Inventory of Tax Technology Initiatives and its underlying data is updated in the future.