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The digitalization of tax administration functions can be translated into: (i) electronic filing services – for tax declaration, invoices and accounting information, thus reducing scope for fraud; (ii) a reduction of time for tax payments (thus increasing a country’s overall “doing business” score and decreasing unnecessary bureaucracy that might be conducive of mistakes; (iii) the electronic registration and filing of indirect taxes (such as VAT and GST type taxes), through e-filing systems, thus reducing the scope for tax evasion and avoidance; (iv) it may allow tax administration to withhold taxes on digital activities, even when the entity engaged in economic activity does not have enough substance in the country to constitute a fixed presence (through a branch or permanent establishment); (v) would allow tax administrations to cross-check taxpayer information, verifying whether the information provided voluntarily is consistent with the level of economic activity it is engaged in the country; (vi) increases transparency in the administration of taxes, to the extent both taxpayer and tax administration activities are documented in an electronic system and are verifiable; and (vii) will allow tax administrations to comply with new international tax standards, such as country by country reporting, and beneficial ownership registries, by creating pre-made registries, that would be apt to be automatically exchanged with other tax administrations, as required under the standard.
Country case study: Armenia’s tax reform brings more public revenues and a fairer tax code
Faced with a slowing economy, sinking remittances, and taxpayer discontent, the Armenian government was eager to reform its tax systems. The World Bank was requested to assist in creating a more service-oriented and efficient tax administration. The result has been the increase in public revenues for the government and a fairer tax code for the people of Armenia.
At the start of the project in 2012, Armenia faced many adverse conditions. The country’s tax-to-GDP (16.3 percent) and tax productivity were persistently below regional averages and other lower-middle-income countries, even during periods of high growth. Administrative deficiencies, including weak capacity to detect and penalize tax fraud and corruption, undermined compliance and contributed to widespread informal business activities. At the same time, taxpayers faced high compliance costs, including onerous tax filing requirements, with an average taxpayer spending 581 hours annually to file taxes.
In order to create a cutting-edge revenue generating agency for the government and excellent public services for the Armenian taxpayers, the World Bank worked with the government to upgrade the physical (IT) infrastructure, streamline business processes, and train tax officials.
By the latest project evaluation in spring of 2016, about 35,000 tax inspectors had been trained. About 96 percent of tax services and documents were provided and filed electronically, and there had been a significant reduction in time for tax payments (268 hours). The tax administration is now collecting more taxes (20 percent of GDP, up from 16.3 percent). The ratio of tax collected to operating costs has increased from 74 in 2012 to 111 in 2015. The reforms offer taxpayers a more efficient tax administration, including electronic filing of tax returns instead of time-consuming and unpredictable interactions with tax officials, and a fairer tax code, especially for the poorest parts of the population and small businesses.
Source: World Bank Group.