Digital Transformation by Tax Authorities

Revenue authorities around the world are digitally transforming their engagements and interactions with taxpayers and other stakeholders. These tax authorities are now remodeling their tax administration functions, technologically enabling the filing of tax returns and reporting requirements, as well as digitalising their auditing functions and procedures. The exponential growth of the digital economy and the challenges posed by the intangible and elusive nature of digital activities have all made the need for digital transformation indisputably critical. The importance of digital transformation of tax administration cannot be overemphasised for developing countries’ revenue authorities because the enhancement of domestic revenue mobilisation and increasing tax compliance is crucial for these nations to fund public expenditure. Tax revenue constitutes a large share of the total national revenue of most developing and emerging economies. Digital transformation by its nature, speaks to technologically transforming processes and operations. Accordingly, for tax administration, it signals the need to embrace digital tools in delivering tax administration functions of assessing tax liability, communicating with taxpayers and other revenue authorities as well as facilitating tax compliance. Therefore, this has implications for tax administration responsibilities and functions, the resources required for digitising and digitalising the functions, change management, and the requisite digital skills of tax administrators. Through an integrative literature review, this chapter sought to give an insight into digital transformation in taxation in developing countries by explicating the opportunities, barriers, and possible externalities of digitally transforming tax administration. The review established that digital transformation plays a fundamental role in tax administration and tax compliance. It can help tax authorities to reduce administrative and compliance costs, enhance tax revenue mobilisation, minimise corruption, increases the efficiency of processes as well as improve transparency in service provision to taxpayers. Digital technologies can also be exploited for risk identification, management, and mitigation. The challenges include complexity, technological biases, poor digital infrastructure, the digital divide, digital and financial illiteracy as well as system failures among other constraints.