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Tax authorities around the world are increasingly digitising tax services. The Australian Taxation Office (ATO) is no exception, having committed itself to a “digital by default” approach to the provision of tax services and information.

However, 2017 research by the United States Taxpayer Advocate (NTA), examining the effects of a similar proposal by the United States Internal Revenue Service (IRS), gives rise to cause for concern over the adverse effects a digital-by-default approach could have on vulnerable taxpayer groups. Of particular concern are the potential impacts on low income taxpayers, the disabled and the elderly.

What are the ramifications of increasingly digitising tax services?

Our paper, recently published in the e-Journal of Tax Research, examines the NTA findings and the potential lessons for Australian tax administrators in moving to a “digital by default” approach to tax service provision.

The NTA work sought to identify the ramifications of any increased reliance by the IRS on web-based tax service provision (over traditional, face-to-face or telephone interaction) on low income earners (those with income below 250 per cent of poverty level income), taxpayers aged 65 or over, and those with long-term disabilities. The NTA surveyed three broad potential issues of concern for these vulnerable taxpayers: access to reliable internet and technology; proficiency and confidence in the use of technology; and concerns about internet security and privacy when exchanging financial information online.

The NTA found that taxpayers in the surveyed vulnerable taxpayer groups had relatively limited and/or lower quality broadband access when compared to the broader taxpayer community. It also found that vulnerable taxpayers were far less frequent users of the internet, and that taxpayers in the vulnerable taxpayer groups exhibited lower levels of digital literacy and confidence in the use of basic technological tools, such as email and internet browsing. The research also found that vulnerable taxpayers were far less confident in the security of the internet for sharing of personal financial information than other taxpayers.

Some of the specific findings were particularly concerning. In terms of equity of access to the internet, all of the NTA research measures showed that vulnerable taxpayers were, on almost every measure, at least more than twice as likely as other taxpayers to be disadvantaged by the digitisation of tax services and information. There were similar stark contrasts on measures of technological proficiency and security and privacy.

Vulnerable taxpayers in Australia

Our research found that, although there has been no equivalent tax-specific research carried out in Australia, general data and research carried out by the Australian Bureau of Statistics (ABS), Australian Communications and Media Authority (ACMA), Australian Human Rights Commission and relevant representative lobby groups –such as National Seniors Australia– point to a number of possible parallels with the United States.

For instance, ABS data indicates that whilst 97 per cent of citizens in the highest income quintile groups are internet users, the figure drops to 67 per cent among people in the lowest income quintile. The ABS has also found that only 51 per cent of those aged 65 or over access the internet for personal use in a typical week. Even more alarmingly, a 2009 ABS survey found that only 57 per cent of those with a disability, aged 15 or over, reported having actually used a computer in 12 months prior to being surveyed.

Another survey in 2009 by ACMA found a strong negative correlation between age and digital literacy levels. The ACMA survey also found that self-reported confidence levels in internet usage and trust fell with advancing age. More recent work in 2017 by National Seniors Australia, the primary Australian consumer lobby group for older Australians, found a general negative correlation between income levels among seniors and their preferences for using government websites for financial information or assistance.

Deeper understanding is needed before defaulting to digital

Building upon and extrapolating from the NTA work and the more general Australian research, our paper proposes that, at a minimum, more research is required prior to the wholesale adoption of a “digital by default” approach to tax service provision by the Australian Taxation Office.

Some of the particular essential insights into the potential effects of such a move on vulnerable taxpayers which are currently lacking include:

  1. the need for insights into how to design online information and support to best cater for the needs and preferences of members of the vulnerable taxpayer groups;
  2. the need for more nuanced understanding of sub-groups of members of the vulnerable taxpayer groups including those with multiple vulnerabilities; and
  3. the potential impact of a shift to online provision of tax services and information on trust and confidence of vulnerable taxpayers in the tax administration system.

This work is not simply important to ensure online services and information are palatable and accessible to the largest possible number and range of vulnerable taxpayers. These types of insights are also important for directing scarce resources to those who are likely to respond most positively and benefit most from the provision of enhanced access and online support.

Ultimately, the analysis can also provide a justification to retain a baseline level of traditional forms of support targeted for those who simply cannot presently (or perhaps ever) be expected to fully embrace and use online tax information and services. At the moment, there is little evidence of a deeper understanding, beyond an assumption that some taxpayers will not be able to engage digitally to attend to their tax affairs.

Vulnerable taxpayer sub-groups

In terms of refining our understanding of vulnerable taxpayer sub-groups, we make a number of recommendations.

For example, potential differences in proficiencies, needs and attitudes between ‘younger old people’ and ‘older old people’ need to be examined. Is there a difference in the levels of digital literacy and confidence with technology between 65-year olds and 85-year olds? Whilst intuitively logical, the validity of such assertions has not been tested by the NTA, nor in any Australian tax research that we have found.

Similar nuanced insights are lacking when it comes to those with disabilities. The nature of a person’s disability may be a strong indicator of their relative willingness and ability to use digital services and support. Useful insights might include a more detailed understanding of how to best cater for those with vision impairments, hearing, mobility and manual dexterity problems, as well as physical or mental conditions that make it difficult to leave the house.

Taxpayers with multiple vulnerabilities

Most significantly, we need a much greater appreciation for the needs of taxpayers with multiple vulnerabilities.

For example, in 2015 the ABS found that 50.7 per cent of Australian seniors were also living with a disability. The ABS has also found a strong correlation between age and poverty, with 67 percent of older Australians reporting household incomes in the lowest two quintiles. Similarly, the ABS found that the median income of those with a disability was approximately half of those without a disability, indicating that the link between low-income status and disability is also strong.

The prevalence and nature of multiple vulnerabilities needs to be fully understood if a “digital by default” approach is to be successful. Without this understanding, it is impossible to determine the dominant cause for a person with multiple vulnerabilities being unwilling or unable to utilise digitised tax services. Consequently, it is impossible for policy-makers or tax administrators to prioritise addressing the challenges faced by a significant number of vulnerable taxpayers.

Effects on trust and confidence in the tax administration system

Our paper also suggests the need for closer consideration of the potential corrosive effects of a transition to online tax service and information provision, on vulnerable taxpayer trust and confidence in the tax administration system. Tax authorities and regulators should be particularly keen to fully investigate these potential effects, as any such erosion may reduce or eliminate economic savings and efficiencies underpinning digitisation initiatives such as those proposed by the ATO and IRS. This is especially the case if increased distrust manifests in the form of greater resistance to voluntary tax compliance.

Increased digitisation of tax services and information has great potential to address inequality and disadvantage of vulnerable taxpayers, by enhancing the independence of the poor, the elderly, those with a disability or others who might otherwise experience isolation or difficulties in accessing assistance via traditional means. None of these potential benefits can be fully realised, however, without first undertaking rigorous  research to ensure that barriers to access, proficiency and confidence in online services faced by vulnerable taxpayer groups are identified and completely understood.

Our paper exposes that there is much more work to be done to develop this necessary level of understanding.

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