Taxpayer registration and identification is critical for the effective operation of a tax system. This chapter comments on some of the significant characteristics of these processes.
Tax Administration 2024
Comparative Information on OECD and other Advanced and Emerging Economies
Tax Administration
Abstract
A comprehensive system of taxpayer registration and identification is at the foundation of an effective tax system. It is the basis for supporting a wide range of core tax administration work such as self-assessment, value-added tax and withholding tax regimes, as well as third party reporting and matching. This chapter picks out several issues of significance in taxpayer registration and identification, including levels of registration, registration channels and identity management, and how digital transformation affects these services.
The fundamental importance of an effective tax registration system cannot be overstated. These processes need to both manage those taxpayers that are “part of the system” and to help identify those yet to register. Furthermore, they need to be able to monitor and determine actions and interventions to establish any liability to tax for both individuals and corporate bodies, even in systems where filing is not mandatory.
Figure 3.1. provides information on the rate of registered personal taxpayers as a percentage of the total population. This shows a wide range of registration rates, often reflecting the level of integration the tax administration has with other parts of government, as well as income thresholds for tax purposes.
Source: CIAT, IOTA, IMF, OECD, International Survey on Revenue Administration, Table D.19 Registration of personal income taxpayers, https://data.rafit.org/regular.aspx?key=74180900 (accessed on 10 September 2024).
While the majority of administrations are solely responsible for the system of registration for tax purposes within their jurisdictions, previous editions of this series have shown that in many jurisdictions the registration processes can also be initiated outside of the tax administration through other government agencies (OECD, 2019[1]).
In looking at how taxpayers can register, almost all administrations reported they provide more than one channel for taxpayers to use and 97% report that it is possible to register online (see Table 3.1.). Compared to data from the 2017 edition of this series (OECD, 2017[2]), this is a 27-percentage point increase. Although in-person registration continues to be an important channel or element of the registration process (often due to the need to provide physical evidence of identity), it is expected that as digital identity systems become more sophisticated, the dominance of online channels will grow.
Percentage of administrations that provide the respective registration channel
Note: The registration channels may not always be available for all tax types or taxpayer segments.
Source: CIAT, IOTA, IMF, OECD, International Survey on Revenue Administration, Tables A.94 Registration channels: Online, Telephone, Email, and A.95 Registration channels: Mail / post, In-person, other, https://data.rafit.org/regular.aspx?key=74180896 (accessed on 10 September 2024).
While the underlying survey does not allow identification of whether the online registration channel is available for all tax types or taxpayer segments, jurisdictions report that it is being integrated in their ongoing digital transformation process. Indeed, in one jurisdiction (Saudi Arabia), taxpayers can only register online (see Tables A.94. and A.95.). This shift to digital channels may also help drive further efficiencies, though as the shift to digital gathers pace further attention is being paid to those who may not have access to digital services.
Given the pivotal role that registration and taxpayer identification play in underpinning the tax system, having up-to-date tax registers remains a high priority for most tax administrations. As past editions have shown, the large majority of administrations have formal programmes in place to improve the quality of the tax register (OECD, 2019[1]).
Therefore, it is unsurprising that other government bodies may wish to use the tax administration register for their own purposes to provide services or ensure compliance with laws and regulations. This is leading to the creation of cross government databases. As Table 3.2. illustrates, 70% of administrations report the existence of a range of such databases, for example, population or business registers. As noted in Chapter 2, a few administrations also reported being responsible for maintaining cross government databases, such as the government’s population and/ or property register (see Table 2.2.).
Brazil – National Identity Card Project
Brazil has advanced the implementation of a National Identity Card (CIN), a new identification document available in physical and digital formats which aims to provide secure self-identification for its citizens and allows the link up of public services, including on taxation. This has centralised Brazil’s civil identification system, where previously identification cards were issued at the state level and more susceptible to fraud and other illegal activities. As of January 2024, around 3 million CINs have been issued.
The project has relied heavily on input from the Federal Revenue Office (RFB), with each card using the Individual Taxpayer Registry number as its identifying number. Once a physical CIN is issued, the holder can also obtain a digital version through the government’s online portal, which has a single login authentication for all government websites and applications, facilitating citizen access to public services. The CIN comes with a QR Code that can be read easily and quickly, which provides more security for citizens. It makes it possible to identify the authenticity of the card, and to know if it was stolen or lost. The card also allows an easier identification process for people with special needs.
Brazil – REDESIM Business Portal
The REDESIM Business Portal (PNR) has reformulated the traditional interaction model between the Brazilian tax administration and citizens in the processes of opening, legalising and registering legal companies.
All functionalities have been standardised across Brazil regardless of the state, with automatic validations and the option to evaluate services. All stages of registration regularity, viability, registration, tax registrations and licensing process are carried out in a single, linear procedure and each company has been given a unique identity number. The PNR is fundamental to the implementation of tax reforms on consumption, enabling data sharing, the facilitation and simplification of services, the integration of public agencies and more accurate databases. This in turn will provide a better experience for the user and an improvement in the provision of public services.
Source: Brazil (2024).
Percentage of jurisdictions
Note: The percentages are based on data from 52 jurisdictions that are covered in this report and that are included in the ITTI database.
Source: OECD et al (2024), Inventory of Tax Technology Initiatives, https://web-archive.oecd.org/temp/2023-03-09/618463-data-management.htm, Table DM3 (accessed on 10 September 2024).
This integration across government is further increasing as governments see the potential in using information maintained by tax administrations, such as taxpayer address and bank information, to contact citizens and businesses or to make direct benefit or support payments (OECD, 2020[3]). As a result of this closer collaboration between government agencies, many of them are integrating (parts of) their IT systems to make tax registration part of other actions taxpayers undertake. For example, registering for tax at the same time as registering a company or registering the birth of a child. Further, there is a growing trend that the digital identities that taxpayers create as part of the registration process provides access to services from other parts of government or third parties (see Table 3.3.).
Percentage of administrations that have the respective process in place
Note: The table is based on data from 52 jurisdictions that are covered in this report and that are included in the ITTI database. For the purpose of the ITTI survey, digital identity is defined as an electronic representation of an individual or business which enables them to be sufficiently distinguished when interacting online. The digital identity includes attributes which are bound to a credential that is used to authenticate the individual or business.
Source: OECD et al. (2024), Inventory of Tax Technology Initiatives, https://web-archive.oecd.org/temp/2023-03-09/618377-digital-identity.htm, Tables DI1 and DI2 (accessed on 10 September 2024).
All tax administrations, whether required to by law or as a matter of sound business practice, put considerable effort into ensuring the security of taxpayer information. In addition to internal processes to prevent unlawful attempts to obtain information and to ensure taxpayers’ rights are protected, all administrations have processes to ensure the person they are dealing with is in fact the taxpayer or their authorised representative. Increasingly these approaches, which in many instances have now been extended to multi-factor authentication, are making use of biometric information, unique to the taxpayer.
For example, in relation to online services, Table 3.4. shows that administrations use some type of authentication method to verify the digital identity. The type of verification method varies. As can be seen in Table 3.4., password-based authentication is used by 87% of administrations, followed by multi-factor authentication and mobile app. A few administrations also reported using facial recognition or fingerprint recognition to authenticate the digital identity of a taxpayer. Half of the administrations reported that their use of different authentication methods is based on the level of security required for certain types of interactions.
Percentage of administrations that have the respective process in place
Note: The figure is based on data from 52 jurisdictions that are covered in this report and that are included in the ITTI database.
Source: OECD et al. (2024), Inventory of Tax Technology Initiatives, https://web-archive.oecd.org/temp/2023-03-09/618377-digital-identity.htm, Tables DI5 and DI6 (accessed on 10 September 2024).
Tax administrations face similar challenges to other organisations in dealing with individuals or organisations that may misuse personal information to impersonate taxpayers in order to commit fraud. The rise of artificial intelligence (AI) enabled image and audio generators will complicate this even further. The on-going and, in many cases, organised nature of this activity is requiring administrations to devote considerable effort to the prevention of identity theft.
Chile – Platform for Digital Representatives
Chile has introduced a new system called “Platform for Digital Representatives”. This platform allows users (both individuals and legal entities) to delegate the completion of tax procedures to authorised third parties, known as digital representatives.
The platform has been integrated with broader government digital services and aims to:
Standardise the experience of those engaging with digital services from the tax administration and other government institutions;
Enhance the traceability of government digital procedures;
Create a unified IT system across government to avoid duplication and reduce costs;
Provide citizens with a unique digital identity to access all government services.
India – e-Verification system
India has made it possible for taxpayers to meet all their compliance requirements digitally through introducing e-Verification, an online system that allows users to confirm their identity and perform tasks online.
Users can verify their Income Tax Return (ITR) online, as well as other functions such as submissions, responses and requests related to ITRs. This saves taxpayers from having to physically submit their returns and having to physically go to an office to identify themselves. The identity verification process is also much quicker because it is automated.
The user can use any one of the following modes to verify their identity:
Digital Signature Certificate using Hard Token.
One-Time Password (OTP) issued by the Unique Identification Authority of India, shared via text message.
Electronic Verification Code using a verification service enabled by the taxpayer’s bank or a Bank ATM (offline method).
Since the introduction of e-Verification, compliance levels have significantly increased, from 13% in 2014-15 to 93% in 2022-23. The average processing time of ITR has reduced from 84 days in 2019-20 to 10 days in 2023-24.
Netherlands – Company Passport
The Dutch Tax Administration has collaborated with the Dutch Blockchain Coalition, the Chamber of Commerce, Notary Association and the banks in a public-private initiative to investigate how introducing the Company Passport can simplify the process of both founding a company and enabling that company to trade with other businesses and consumers.
The Company Passport is a trust framework setting the rules for an online interface that allows entrepreneurs to share and verify data with relevant parties such as banks, insurance firms and the tax administration. It can be set up through an online appointment with a notary. The interface, consisting of guidance app, a wallet and digital identity for a legal entity, allows the entrepreneur to store and receive information in one place, such as a VAT number. This information can easily be shared with third parties, such as banks when requesting a bank account.
This has significant benefits for the customer, such as legal certainty of the identities of business partners, a reduction in duplicate paperwork requests from the various parties and the ability to securely share data with business partners.
Sources: Chile (2024), India (2024) and the Netherlands (2024).
As the importance of digital identity grows for the operation of the tax system, so does the need to create digital identities that can be:
Shared across government,
Are interoperable between governments, and
Can be used between government and third parties.
Creating these common approaches will increasingly allow new services to be developed which can reduce burdens on taxpayers as well as allowing third parties to supply information direct to tax administrations, providing richer and more accurate pools of data to tax administrations.
For example, once the domain of multi-national businesses and those involved in international trade, small and medium-sized enterprises and individual taxpayers are now increasingly earning income sourced outside their jurisdiction of residence. As a result of the proliferation of online market-places and sharing/ gig economy platforms, it is now easier than ever for example, to rent out holiday homes or sell goods and services abroad through online platforms.
Tax administrations and businesses are facing a raft of issues in supporting and responding to this which is centred around a platform and a tax administration agreeing the identity of a mutual customer. As a result, work is currently ongoing under the Tax Administration 3.0 umbrella (OECD, 2020[4]) to explore how co-operation between administrations and platforms can be deepened by integrating a tax administration’s digital identification systems into the applications used by the platforms. Through this, greater confidence can be placed in the identity of a mutual customer, which can support tax compliance by platform sellers as well as reducing burdens for business.
HMRC is investigating using Distributed Identifiers (DIDs), an innovation in web technology that allows individuals and organisations to generate and store their own unique identifiers using a system they trust, and then use these to verify their identity. This allows simpler, more direct access to services by, for example, allowing sign-in to a service without the need to provide a username, password, or other details. This has major implications in the field of data security and privacy.
DIDs are currently an exploratory piece of work to understand and demonstrate potential opportunities and implications for HMRC, should this technology become more widely accepted and used.
HMRC plans to test a concept that would allow external individuals and organisations to use DIDs to sign in and gain access to government services. This will focus on identity, but they are looking at other tax use cases as well. Multiple frameworks that enable distributed identity already exist.
This is a fast-developing landscape, with rapidly developing open source as well as proprietary software. At the end of this exercise, HMRC will better understand the capability DIDs offer.
Source: United Kingdom (2024).
References
[4] OECD (2020), Tax Administration 3.0: The Digital Transformation of Tax Administration, OECD Publishing, Paris, https://doi.org/10.1787/ca274cc5-en.
[3] OECD (2020), “Tax administration responses to COVID-19: Assisting wider government”, OECD Policy Responses to Coronavirus (COVID-19), OECD Publishing, Paris, https://doi.org/10.1787/0dc51664-en.
[1] OECD (2019), Tax Administration 2019: Comparative Information on OECD and other Advanced and Emerging Economies, OECD Publishing, Paris, https://doi.org/10.1787/74d162b6-en.
[2] OECD (2017), Tax Administration 2017: Comparative Information on OECD and Other Advanced and Emerging Economies, OECD Publishing, Paris, https://doi.org/10.1787/tax_admin-2017-en.
[5] OECD et al. (2024), Inventory of Tax Technology Initiatives, https://web-archive.oecd.org/tax/forum-on-tax-administration/tax-technology-tools-and-digital-solutions/index.htm (accessed on 10 September 2024).