Smaller businesses could be excluded from government plans to make tax transactions digital according to new research from ICAEW, a leading professional membership organisation of chartered accountants.

The accountancy and finance body says smaller companies and many individuals will not have the necessary tools or know-how to make the shift, and will end up incurring costs either to acquire them, or to hire an agent to do it on their behalf.

The report ‘Digitalisation of Tax, International Perspectives' produced by ICAEW examines how digital technology has been harnessed by international tax administrations to reduce costs and improve compliance and tax yields, while crucially assessing the future challenges these economies face.

The report explores the most essential trends in digital tax administration and reviews case studies from seven different countries (Australia, Brazil, Czechia, Estonia, Italy, Russia, and the UK), assessing key influencing factors, goals, tools, change strategies, and issues along the road to help policymakers create a modern digital tax administration.

Commenting on the report, ICAEW technical manager David Lyford-Smith, said: “The largest and most persistent issue in introducing the digitalisation of tax is that of digital exclusion, which is common among small businesses. While government can work to educate and provide resources for many affected by digital exclusion, total compliance is impossible.

"There must be an avenue for those who cannot comply with digital reporting to avoid penalties; this may be through the maintenance of traditional paper-based record keeping and filing or via supporting a network of accessible and affordable tax agents that can keep records and file on behalf of their clients,” he said.

With VAT set to be introduced across the GCC from 2018, businesses and governments can gain valuable lessons from other markets where the digitalisation of taxation is already underway.

According to Michael Armstrong, FCA and ICAEW regional director for the Middle East, Africa and South Asia (MEASA): “GCC countries should take what we’ve learnt from other countries where the digitalisation of tax has been introduced. Digitalisation is a large, complex process. We have seen from other economies that forcing implementation in a short period of time can cause problems. For instance, Estonia’s programme of digital transformation is seen as one of the leading examples in the world and yet digital exclusion is still a common problem among older citizens and in remote areas where internet connectivity is poor.

“While Digitalisation is attractive to governments for many reasons, we believe the move to digital should not be made compulsory and instead should be a matter of choice for business owners based on a compelling business case for change.” - TradeArabia News Service