Digitalisation of economies.around the world has been underway for more than two decades and, particularly since the COVID-19 pandemic, it has accelerated.

Tax authorities have been considering the implications and opportunities that this process presents for some time, notably through the OECD’s Forum on Tax Administration (FTA), which brings together officials from more than 50 countries to share knowledge and develop a vision for the future of tax administration. In 2020, the FTA published an important piece of thought leadership: Tax Administration 3.0: The Digital Transformation of Tax Administration, framing the issues that tax authorities face as they digitalise their operations and start to take advantage of the key digital technologies of the coming decades, including artificial intelligence and machine learning (AI/ML), and process automation.

This paper represents a contribution to the debate over how to digitalise tax administration. As such, it sets out and explores several of the key ideas that underpin this process, with chapters that examine questions of technology architecture, digital tax systems and the application of AI/ML in tax administration.

It also draws on interviews with senior officials from Australia, New Zealand and the USA who are directly involved in leading digital transformation or data and analytics projects in national and state tax administrations. These five interviewees are: Patrick O’Doherty, enterprise leader, strategic architecture, Inland Revenue Department, New Zealand; Erin Botelho, chief information officer, Department of Revenue for the Commonwealth of Massachusetts in the USA; Ben Taylor, assistant commissioner for data insights, Australian Taxation Office; Cullen Smythe, commissioner of state revenue for New South Wales, Australia; and Dan Bowes, executive director of taxes and grants at Revenue New South Wales. We are grateful to each of them for sharing their insights on many aspects of the transformation process and hard-won lessons based on recent experience. Their experiences are especially valuable, as it’s often impossible to know when you embark on a multi-year transformation project what your destination will look like.

“Where we are now is quite different to what we would have been able to imagine even six or seven years ago,” says Patrick O’Doherty, acknowledging the many unexpected discoveries made along the way. The main lesson Erin Botelho offers to others is in a similar spirit:

“Understand that it’s a learning curve, give yourself grace not to be an expert, and know that you will feel such a bug of creativity and innovation from this.”

A further lesson many of our interviewees emphasised is that transforming the technology tools that their organisation uses to carry out its role inevitably means transforming the way
it works, as well as its culture. They describe seeing their organisations become more focused on the needs of customers, improving collaboration between teams and departments, and delivering higher-quality services more quickly and efficiently.

In the chapters that follow we explain why digital tax should be thought of as a system of systems, how moving to the cloud can open the door to the digital economy, and how the adoption of a modern data architecture allows tax authorities to start to capture the benefits of AI/ML.

Finally, we offer a series of key lessons from our interviewees for any tax authority planning or working on its own digital transformation.

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