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Prospects of VAT Administration Improvement in Digitalized World: Analytical Review

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  • Oksana N. Harkushenko

Abstract

In conditions of integral digitalization, governments may face a shortfall in VAT revenues due to tax avoidance and frauds. Here arise two opposite hypotheses: 1) digital technologies can solve problems with VAT; 2) digital technologies are not capable to do so. The purpose of the study is to conduct an analytical review of the main problems and ways to improve the administration of VAT in the context of the digitalization of the economy. To achieve this, literature on digital technologies in VAT administration was analyzed. The literature sample consists of 25 sources on e-invoicing and 27 sources on blockchain in VAT administration. The main criteria for literature selection are: accessibility and significance of source; time horizon (last 10–15 years); keywords (“e-invoicing”, “blockchain”, “VAT”, “taxation”, “tax administration”); interdisciplinary approach (literature set represent standpoints of experts from different fields). It was established, that there is no consensus about e-invoicing and blockchain in VAT administration. These technologies have both shortcomings and advantages. The main result of the review is this: digital technologies are not a panacea for solving all problems with VAT administration. That is, both hypothesis of this paper is not proved, but not refuted. Digital technologies can simplify and reduce costs on VAT administration, provided there is a developed ICT infrastructure and consistent regulatory framework, a high tax culture, a low level of “shadow” economy. Interaction between countries in terms of the tax information exchange is also crucial. If these conditions are met, digital technologies in taxation can be effectively employed in the next 5–10 years in the most advanced countries; less developed countries will need much more time for this.

Suggested Citation

  • Oksana N. Harkushenko, 2022. "Prospects of VAT Administration Improvement in Digitalized World: Analytical Review," Journal of Tax Reform, Graduate School of Economics and Management, Ural Federal University, vol. 8(1), pages 6-24.
    • Handle: RePEc:aiy:jnljtr:v:8:y:2022:i:1:p:6-24
    DOI: https://doi.org/10.15826/jtr.2022.8.1.105
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    References listed on IDEAS

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    1. Lee,Hyung Chul, 2016. "Can electronic tax invoicing improve tax compliance ? a case study of the Republic of Korea's electronic tax invoicing for value-added tax," Policy Research Working Paper Series 7592, The World Bank.
    2. James Alm, 2021. "Tax evasion, technology, and inequality," Economics of Governance, Springer, vol. 22(4), pages 321-343, December.
    3. Rosalie Wyonch, 2017. "Bits, Bytes, and Taxes: VAT and the Digital Economy in Canada," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 487, August.
    4. Asatryan, Zareh & Peichl, Andreas, 2016. "Responses of firms to tax, administrative and accounting rules: Evidence from Armenia," ZEW Discussion Papers 16-065, ZEW - Leibniz Centre for European Economic Research.
    5. James Alm & Joyce Beebe & Michael S. Kirsch & Omri Marian & Jay A. Soled, 2020. "New Technologies and the Evolution of Tax Compliance," Working Papers 2009, Tulane University, Department of Economics.
    6. Olbert, Marcel & Spengel, Christoph, 2019. "Taxation in the digital economy: Recent policy developments and the question of value creation," ZEW Discussion Papers 19-010, ZEW - Leibniz Centre for European Economic Research.
    7. Sung,Myung Jae & Awasthi,Rajul & Lee,Hyung Chul, 2017. "Can tax incentives for electronic payments reduce the shadow economy? : Korea's attempt to reduce underreporting in retail businesses," Policy Research Working Paper Series 7936, The World Bank.
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    Keywords

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    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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