Governments that increase tax revenue collections effectiveness can improve tax compliance, reduce the tax gap and formalise the shadow economy

January is Deadline month for people in the UK to file their Tax Self-Assessment and pay any amounts due. This got me thinking about what Governments could be doing to improve the experience and effectiveness of tax payments and collections.

In a world where consumer spending behaving is leaning more and more to digital, some governments are hindered by aging technology, outdated policy, funding constraints or a misconception around the true cost of getting money owed into government quickly and efficiently. These may inadvertently drive more costly citizen behaviours when paying taxes, create reconciliation headaches, delays in receipting tax payments into treasury or in cases, finding the loopholes to avoid or delay paying.

Today, People, and businesses, expect the same great user experience from their governments as they receive from the best commerce and banking platforms. Choice, convenience and trust are key drivers to how citizens pay for services. Personalising the process of paying for services based on citizens payment preference. The easier and more trusted the process is, the more likely payment will be made, on time.

Remove any of these and governments could find themselves with additional costs and delays in receipting payments, or in cases lose additional revenue opportunities.

When Governments make it hard to pay or introduce friction, citizens behaviours tend to look to make it difficult for Governments. Introduce a fee to pay by card, and citizens, who already feel they pay enough tax without having to pay for the privilege of paying it by their preferred method of payment, may look to pay by cheque (yes, they do still happen) or delay paying. Cheques cost governments to handle and process, probably far more than the initial cost of the fee being introduced, let alone the delay in processing, clearing and receipting the payment. And this doesn’t include the additional time and cost on increased calls into call centres when processes are not clear and simple or any fines I may receive for a late payment.

Human error is a common issue for governments, whether it on the side of citizens or agents. Like, issues with key information missing or incorrect. An example of this could be citizens (or businesses) not including or mis-typing a “Tax Reference Number” or Banking / Payment details. This would be critical when making a bank transfer to a Tax or Local Authority so they can match the payment to the right Tax / Citizen Account. A mis-matched payment may end up in a suspense account that would require human intervention to investigate, allocate and reconcile the payment. This is a significant overhead, cost and delay in receipting payments and a delay in governments putting those funds to good use.

Government could do much more to streamlining and incentivise citizens and businesses when paying their taxes.

Don’t exclude one payment method over another. Choice, convenience and trust are key to a more frictionless payment journey.

If I pay my Tax (and other government services) by card then Governments could securely store this on file, linking this to my government ID or tax account. Replace sensitive customer payment information with one unified token identifier, saving me from having to re-enter in my card details every time I pay for a service, and include a simple “Click to Pay” option. And if I am lucky enough to get a tax refund, simply pushing this back to my original payment method builds trust in the process and reduces the need for more costly cheque payments and calls in to a call centre for progress updates on my payment.

Where Open Banking and “Pay by Bank” is available, Governments that offer “Pay by Bank” offers a seamless payment process, reduces the risks of errors in payments being misallocated, is processed faster and means government can access funds more quickly and allocate them where needed.

Some Governments have gone further. Creating a Government SuperApp, rationalising many complex agencies into a ‘one stop’ shop and streamlining how government and citizens communicate, interact and pay for Government Services. These SuperApps and Government Digital Wallets allow citizens to declare and pay taxes via the app (linked directly to a Government ID and Tax account), get tax refunds and government benefits paid directly to the wallet, as well as access digital versions of Driving Licenses and other Government documents. Digital Wallets and Government SuperApps are convenient, safe and simple solutions to store and manage payment information. For Governments, they help streamline the process of paying and reduce potential costs and overheads.

The Diia App in Ukraine, which is seen as the gold standard of e-government, or mobile payments in Kenya for Government services or with the introduction of new payment methods, like Open Banking and “Pay by Bank” for Tax payments are changing the way citizens and businesses interact and pay for Government services.

Digital payments are a “driver for economic growth” in their own right, delivering benefits in areas ranging from financial inclusion, efficiency and cost reduction, enhanced transparency, boost consumer spend and help stimulate innovation.

By adopting Digital Payments, offering choice and convenience and incentivising or nudging better behaviours around payment methods, Governments can deliver good policy outcomes, cheaper and better than can be achieved by other methods.