23 September 2017
Bo Harald

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Bo Harald - ZEF, Transmeri, Real Time Economy Program

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Innovation in Financial Services

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.

Real Time Taxation

31 October 2016  |  4743 views  |  0

The Real Time Economy program in Finland listed 1. the national income register, 2. automated real time accounting, 3. automated VAT reporting and 4. XBRL general ledger standard as top priorities. All of them have moved forward considerably and continue to progress.

The national income register stands to be launched in 2019. What is it and what will it mean?It will in the first stage make automated reporting of salary payments to tax in real time mandatory. Salary payment systems already do this on a monthly or yearly bases - with small adjustments real time is possible.

Pension etc payments should be on board soon after. This means that a very big next step towards Real Time Taxation is taken (dividend etc investment income is already reported directly) will be taken. Salaries for most citizens are the only taxable incomes and this promote real time reporting of decuctions (for example for household maintenance) where e-invoices already have the needed structured data.

There is a long list of obvious benefits like:

- big cost saving for enterprises and accountanting firms

- no need to send taxation information to employers 

- tax can be adjusted continuously - no surprises in final tax

- real time information automatically available for social security etc - very large cost savings and better service

- tax revenue development visible in real time (less surprises for eg municipalities)

- less grey economy

- incentives to simplify taxation and further transparency are created

On this final point I picked up a rather horrifying example of how complicated taxation can become in an eminent book - Simple Rules by Donald Sull & Kathleen m. Eisenhardt. > The US Tax Code for income tax totalled 3,8 million words in 2010 and is so confusing that even the best experts get it wrong one time out of three. "To navigate this labyrinth, US Citizens employ 1.2 million tax preparers, more than all the police and firefighters in the country combined."

Think of how much productive work these intelligent and educated people could create elsewhere. The same goes for accountants - today in Finland (even) 80% of their time is still being spent on entering data from paper, PDFs and cash register receipts. This all will be automated soon (receipts now in focus as e-invoicing is already dominating) - and then a lot of talent is liberated for much more valuable services - especially for the SME-sector.

Better productivity all over the place + real time data for better decisions = better competiveness.

 

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