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Tracing innovation across 7,000 years of taxation

We trace the history of taxation, from clay tablets to real-time information exchange, with many stops along the way.

For much of history, transformation has been a subtle and constant process.

An object or act — recording information, for example — slowly evolves over centuries.

More recently, however, development has gone into overdrive.

“The next big move — a global push by governments to replace the filing of tax returns with real-time information exchange — is well on its way.“

Technology, new laws and increased transparency are thrusting change upon tax each day.

Those who work in tax will need to quicken their pace to keep up.

The expanding world of tax

Governments are always on the lookout for new ways to tax their subjects and businesses — both today and in ancient times.

The first tax collectors, dating to 5,000 BC in Mesopotamia, recorded tax payments and obligations on clay tablets called “burdens.”

British Prime Minister William Pitt the Younger introduced the world’s first direct income tax in 1798, while the US ratified a federal income tax in 1913.

Since then, taxation has developed at a dizzying pace.

France introduced the first value-added tax in 1954, and Finland inaugurated another world first — a carbon tax — in 1990.

The European Union further expanded the tax frontier in 2015, enforcing a region-wide tax on digital products.

The evolution of tax returns

It all started with the Mesopotamians and their clay tax “burdens.”

The Egyptian pharaohs introduced the concept of tax audits around 4,000 BC.

By 500 BC, tax collectors received a technological boost with the debut of the abacus.

With the later introduction of paper, tax collectors could assemble and store tax records.

As the tax universe expanded, so, too, did the rule book.

The 1913 US Internal Revenue Code ran to 400 pages; its 2013 cousin weighed in at a whopping 16,000 pages, including regulations.

Fortunately for all, tax filings have moved online, with companies and individuals submitting them via the internet.

The next big move — a global push by governments to replace the filing of tax returns with real-time information exchange — is well on its way.

Greater transparency

We think of transparency in tax affairs as an invention of the modern world.

It is anything but.

Back in 1814, Norway posted everyone’s full income and tax records in a public place for all to see.

Sweden and Finland later followed suit.

More recently, there has been a global push for tax transparency led by the Organisation for Economic Co-operation and Development, designed to prevent base erosion and profit shifting (BEPS) through increased cooperation between global tax authorities and the introduction of country-by-country reporting for companies.

Real-time information exchange

Governments are big fans of this trend and for good reason.

In 2015, the Chief Financial Secretary to the UK Treasury announced plans to eliminate the tax return within five years.

Rather than filing returns, each individual or institution in Britain would have their own digital tax account that would state how much they owe the state.

Tax authorities from Brazil to China to Singapore have invested heavily in technology to be able to collect tax data in real time.

It allows them to respond faster and more effectively to compliance risks, and promptly address taxpayers’ concerns.

But this development is tempered by concerns that hackers could break into state databases and tamper with financial records.

This article is included in Tax Insights issue 17 – Transformation and innovation (pdf)

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