While tax is ultimately all about paying money, a critical element of tax collection is the communication between the taxpayer and the Revenue Commissioners to ensure the right amount is paid at the right time. The traditional method of achieving this is by the taxpayer sending in a tax return.
It’s a process which has been streamlined using technology and even delegated, as happens with the Paye system where an employer is largely responsible for the employee’s tax affairs. That at least has been the case in this country, but not everywhere.
In France, a full Paye system operated by employers was only introduced this year. Even in developed high-tech economies, electronic filing is not universal. In Hong Kong, for example, I’m told only 2% of companies file tax returns by electronic means.
Revenue authorities across the world are now looking to see if they can integrate business accounting systems more closely with their own systems thereby eliminating, as one observer put it, “the tyranny of the tax return”.
The same business systems which manage the monies at the tills, issue invoices, and register receipts would talk directly to the Revenue authorities’ own information systems and eliminate the need for any type of separate tax return. The tax authorities would know what was going on in a business almost in real time.
The UK Revenue authorities, HMRC, have already made a concerted effort to integrate wider aspects of business automation and tax collection processes. Brexit planning for the collection of customs duties has temporarily put a halt to that particular march, yet HMRC has already achieved close integration of the taxpayer’s accounting systems with their own Vat collection systems.
There are signals that a similar approach could be on the horizon in this country. It is easy to see why such an approach would be attractive to the tax authorities here, but just because something is attractive doesn’t mean it is the correct approach.
At a time when there is a lively debate about an individual’s right to privacy, we should not overlook the right of business to autonomy within the law. Where a business is acting to collect Paye or Vat, which in effect is done on behalf of Revenue, it seems to me there are legitimate grounds for Revenue insisting that the systems used to collect those taxes should be integrated with Revenue’s own collection systems.
Such linkups should ultimately reduce tax compliance costs. But a direct link-up with the records of the transactions and investments of the business itself is an entirely different matter.
It is questionable on the grounds of good governance whether any state agency, Revenue or otherwise, should be given routine direct access to the accounts, books and business records of any industry operating in their jurisdiction. Good governance considerations aside, there is also a practical challenge.
Any state authority which has complete access to such records may find itself in possession of data which it is simply impossible to control, if only by reason of its volume.
We now see almost on a weekly basis leading organisations with the most sophisticated technical expertise falling foul of systems hacking from the outside, or unauthorised internal access or inappropriate data usage by staff. Already this year the Data Protection Commissioner has announced statutory enquiries into household names like Google, Facebook, and Twitter.
Generally speaking, public bodies are outside the remit of many of the data protection laws and business information would often fall outside the most challenging General Data Protection Regulations.
This, however, does not remove the obligation on them to keep tabs on the volumes of sensitive information available to them. What kind of assurances on security and confidentiality would be available from the State if there is a full integration of business records with Revenue systems?
Brian Keegan is director of public policy and taxation at Chartered Accountants Ireland