The ‘Voices’ in this report cover many facets of taxation and beyond – from tax leaders, policy makers and tax authorities to the tax leaders of leading international companies.
Together, they deliver a wealth of perception, forward thinking and expertise.
Many of the views expressed in this report may be aspirational and personal and may not necessarily represent those of the Voices’ organisations or KPMG.
Foreword
In the world today, and especially when it comes to tax, the blistering pace of change and extreme, unprecedented events make it seem impossible to predict what is around the next corner.
But in some respects, we can glimpse how global forces at work today – from the pandemic and inflation to the energy crisis and war – might be moulding the tax landscape of tomorrow.
What will taxation look like in 2030? KPMG asked 17 of the tax world’s most inspirational and imaginative leaders for their unique views of what to expect in 2030 – and how we may reach that point.
Their ideas differ in interesting ways, but on some things, they agree. Above all, they expect more focus on tax transparency and responsibility on the part of international companies, and more attention to tax morality on the part of governments.
In fact, many of the Voices agree that one of the pandemic’s biggest legacies will likely be a deepening public interest in whether companies and wealthy individuals are paying enough tax and whether governments are spending those revenues wisely.
Many of the Voices also raised the importance of tax policy in creating a more sustainable, inclusive world. Whether the goal is to arrest climate change, meet the United Nations Sustainable Development Goals or kick-start the circular economy, many of the Voices say that a mix of tax levies and incentives is needed to spur broad behavioural change.
The impact of today’s digital transformations is a third area where the Voices are in synch. In 2030, we all hope to reap the potential benefits of the technological revolution that is well under way. Automation, data analytics, artificial intelligence and other advances not yet known are set to irrevocably alter relations and transactions among governments, businesses and citizens.
Of course, not every prediction in this research will come true – and you will have your own views about where we are headed. But that’s the point: KPMG’s aim with Voices on 2030: The future of tax is to stimulate debate — to shed some light on the future without pretending to have all the answers.
So, buckle up! From what the Voices foresee, we’re in for an interesting ride. KPMG looks forward to continuing the conversation with you as the future of tax unfolds.
Predictions for 2030
The tax landscape is changing at a faster pace than ever before, but what does that transformation mean for the future? To consider the potential answers to that question, KPMG asked tax leaders, policy makers and tax authorities from around the world to give it their views of what tax may look like in 2030.
The Voices in this report represent many facets of taxation, from global tax policy makers and revenue authorities to the tax leaders of international companies and investors in a range of industries. Their combined vision of the future provides fascinating insights into where we may be headed.
Their predictions on tax span five areas where they – and KPMG – expect change could be most profound.
Chapter one: The 2030 citizen
Citizens of 2030 are much more aware of the importance of tax than people of earlier eras. The tax transparency movement that began in the 2010s fed a growing appetite for tax fairness and transparency. Then pandemic-related emergency spending and the ensuing financial toll in the 2020s highlighted the importance of governments’ fiscal responsibility and prudence.
Popular attitudes now hold that corporations have obligations beyond their bottom lines to make positive contributions to the communities they operate in. Citizens of 2030 benefit from the way this shift has drawn more focus to the social contract between business and government.
By emphasising a company’s licence to operate, governments have set new expectations for businesses to step in where public services were inadequate. For example, as the pandemic made work-from-anywhere practices routine and the global war for talent intensified, many fiscally challenged governments have put societal pressure on businesses to do more to support education and training with sponsorships, bursaries and other subsidies for learning.
As businesses accepted their side of the social bargain, they also became more forceful in making sure governments fulfil their side of the bargain. As a result, citizens benefit from the more active interest and involvement of businesses in making tax policies that work.
Businesses are more vocal in ensuring governments spend taxes wisely, demonstrate clear policy outcomes, and set a stable playing field for economic activity and inclusive growth.
In the wake of COVID-19, improved health and wellness has become one of the social contract’s top priority outcomes. Governments and companies now prize the role of health and wellness in creating prosperous economies and share responsibility for promoting it across their populations.
Many governments foster business support for innovation around health and wellness; for example, with tax concessions or grants for research and experimentation in areas ranging from pharmaceutical development to financial services, to healthcare.
Meanwhile, citizens find it much easier to deal with their taxes than it used to be. Advances in artificial intelligence and data analytics are allowing tax authorities’ systems to prepare most straightforward income tax returns automatically, with taxpayers simply obliged to review and approve them.
As technology allows compliance to happen in real time, tax authorities no longer focus on verifying tax filings after the fact. They are now more involved in proactively helping taxpayers to avoid mistakes and get tax compliance right the first time.
Many governments have streamlined their tax, benefit and other services within a single organisation. This means the citizens of 2030 have a one-stop shop to access all tax compliance and social welfare programmes. It also gives governments new powers to integrate tax and welfare data for policy development, so their citizens enjoy better-designed programmes and services.
Predictions:
Governments have stepped up direct support for their citizens’ health and wellness;
Tax administrations have morphed into mega-agencies in charge of all financial dealings between governments and their citizens;
Tax policies incentivise the private sector to fill gaps where education, training and other government services are lacking;
Citizens find their taxes easier to manage as tax authorities use data to help them to avoid mistakes and get compliance right; and
Businesses are bolder in holding governments to account as equal partners in the social contract.
The predictions in this article have been pulled out from the collective views of the participants.
To find out more on the insights behind this vision, click on the contributors below.
Chapter two: Globalisation and geopolitics
While there are forces at work leading to fragmentation in areas such as trade, supply chains and energy security, globalisation remains a success as far as international tax co-operation is concerned.
In the 2020s, a number of forces converged to move geopolitics from adversarial ‘wars of manoeuvre’ to ‘wars of position’ to win power by gaining influence. Success in the new arena requires the parties involved to be more transparent, collaborative and open to a diversity of ideas.
This innovative approach was key to the OECD’s ability to forge breakthroughs in tax co-operation among over 135 countries. From automatic exchange of information to the multilateral instrument, a common approach and, most importantly, the agreement on global tax regulation via pillars one and two, the OECD was able to get all parties to agree on minimum standards that each party must meet, while giving them room to tailor the rules for their own jurisdiction’s needs.
By maintaining a forum that regularly brings together the world’s tax administrations, the OECD helps to keep the playing field level and opens more tax certainty for today’s international companies. The tax policy solutions being put in place now are vastly improved by the democratic consultation and engagement that goes into them.
As a result of this international co-operation, jurisdictions have largely recovered their ability to tax large multinationals. Aggressive tax planning and double non-taxation are things of the past, and there is a will to improve taxation on the part of taxpayers and tax administrations alike.
Of course, the global tax regime is still new, and lots of wrinkles still need to be ironed out. Unintended consequences abound, and so do cases of double taxation. Tax authorities and tax functions have their hands full with a new wave of tax disputes, but in a different environment than in the past. New, highly effective cross-border tax dispute mechanisms were agreed on as part of the OECD-driven package of tax proposals, and international tax disputes are now generally easier and faster to resolve.
Nevertheless, as governments and businesses work through the kinks, the current surge in tax uncertainty and tax disputes seems inevitable. A variety of measures, including co-operative compliance arrangements and mediation programmes, were implemented to help businesses to understand and predict the tax effects of their international activity.
Meanwhile, developing countries such as Jamaica are taking new approaches to tax policy – using it to help to restructure their economies by better mobilising domestic resources and improving how they manage public funds. Since nations can no longer use headline tax rates to compete for foreign business and investment, tax incentives are playing a bigger role in location decisions. Many countries are also taking steps to eliminate impediments by consolidating and streamlining tax laws, getting rid of red tape, and improving interactions with the tax system in general.
Predictions:
Geopolitics have shifted from ‘wars of manoeuvre’ to ‘wars of position’, requiring more transparency, collaboration and diversity of ideas on all sides;
As the complex rules under BEPS 2.0 are put in place, tax certainty is more important than ever;
Governments have recovered their ability to tax large multinationals, largely because of breakthroughs in tax cooperation facilitated by the OECD;
Developing countries are relying more on tax policy to help to restructure their economies, mobilise domestic resources and improve the management of public funds; and
Aggressive tax planning and double non-taxation are things of the past.
Chapter three: Data and transparency
The past 20 years saw a sea change in social attitudes toward corporate responsibility and tax responsibility alike. As non-governmental organisations, the media and activist investors increasingly called out corporate misbehaviour, the amount of tax that companies paid, and where they paid it, drew more and more attention. The risk to corporate reputations mounted, especially as many jurisdictions made country-by- country tax reports public and other tax transparency measures came on stream.
Today, stakeholders of international companies inside and outside acknowledge that corporations have obligations beyond their bottom lines to make positive contributions to the communities they operate in. They also recognise that transparency makes people more accountable and that data drives behaviour. Now, ESG priorities are embedded in organisational cultures. Corporate tax strategies are geared towards paying a fair share of tax, giving back and doing the right thing when it comes to tax incentives.
Tax compliance used to consume huge amounts of time and resources, and the risks of errors and omissions were hard to control. Now, international tax rules are converging around common data sets for both income and indirect taxes, and data-driven tax compliance management systems are widespread. Tax teams can download tax-sensitised data from their general ledger into completed tax returns within seconds. This means tax teams spend only minimal amounts of time on routine compliance and more time supporting the business.
Tax audits have been changed by technology as well. Today’s tax authorities have become very good at risk-assessing taxpayers by analysing the reams of data they gain from sources such as automated tax filings, country-by-country reports and benchmarking information. They apply analytics to target their attention and develop specific issues. Instead of a flurry of queries, tax auditors are more likely to ask focused questions on potential problems that they have detected in the data.
These new capabilities are vastly increasing the powers of tax authorities to enforce compliance and raise collections. Good governance is needed to ensure they use these powers as intended. Tax administration processes need to strike the right balance between collecting the right amount of tax under the law versus a target of tax that the government wants to collect to finance its agenda.
In this environment, tax functions need to be just as good at managing and analysing data as the tax authorities. Now that tax functions have been equipped with company-wide systems for handling tax data, as well as the financial and scenario analysis skills to understand it, they can do their own stress testing to find potential trouble spots, document facts and positions – and often pre-empt tax authority questions before they are asked.
Predictions:
More stakeholders recognise that transparency makes people more accountable and that data drives behaviour;
Data and analytics have vastly increased tax authorities’ powers to enforce compliance and raise collections;
Collaboration among tax authorities has brought more transparency and consistency to income and indirect tax rules;
Good governance is needed to ensure tax authorities use these powers as intended; and
Corporate income tax systems have moved towards a globally common, data-driven approach.
Chapter four: Promoting innovation
The past decade saw rapid development among the emerging economies in Southeast Asia and sub-Saharan Africa. The telecommunications sector has been central to this transformation, with service providers and their supply chains innovating new technologies to increase communication, provide better access to resources, and deliver new services.
Now that a reliable internet connection is considered essential, luxury taxes and other tax deterrents have largely disappeared, making mobile technology much cheaper for lower-income citizens to buy and use. In turn, these citizens now have more open access to education, training and job opportunities.
Meanwhile, innovations in fintech are bringing greater financial inclusion to lower-income individuals and smaller businesses around the world. In developing countries, new types of financial products, credit lines and short-term loans are making financial services more affordable and accessible.
This support has been especially valuable in helping smaller, entrepreneurial businesses to scale up, resulting in stronger economies overall. It has also been instrumental in bringing many previously unbanked smaller businesses into the formal economy.
Having seen first-hand how technology can lift incomes and living standards, developing countries are now seeking to further develop and expand their jurisdiction’s capabilities.
As part of this, governments now recognise the importance of attracting patient capital; that is, long-term investments in start-up and smaller businesses that give scientists, engineers and entrepreneurs the resources they need to develop opportunities and deliver sustainable long-term growth.
In addition, tax breaks promoting more traditional investments in infrastructure are increasingly supplemented with new tax measures to facilitate innovation and research.
Additional measures aim to help to recruit and retain skilled workers who might otherwise be tempted by prospects offshore. Tax policies to deter any brain drain are now common across the developing world, with incentives for people to stay where they are and invest their time, energy and money into improving their own economies.
As a result, many of these countries are set to become net innovation exporters themselves, raising the living standards and economic prospects of their citizens.
Predictions:
Innovations in telecommunications, fintech and other technologies are accelerating economic development in emerging markets;
Governments recognise the importance of patient capital investments for sustainable long-term growth;
Luxury taxes on smartphones and other tax deterrents to connectivity have disappeared, making mobile technology affordable for people of all income levels;
Innovations in fintech are creating more financial inclusion and supporting entrepreneurial growth; and
Developing countries are enriching their tax incentives for innovation, research and skilled employment, and becoming innovation exporters themselves.
Chapter five: Building a sustainable world
In 2030, ESG concerns have moved from the fringes to the centre of corporate cultures and strategies, especially when it comes to tax. Virtually every company has a clear ESG policy in place, and many boards communicate them broadly, including their frameworks for tax strategy and governance.
For large strategic investors, ESG policies are now especially important. Industry leaders recognise that the performance of real estate assets is tied to how well asset managers navigate ESG challenges. Now ESG and return on investment considerations are aligned to the point where following an ESG programme usually leads to better returns.
Now that a global corporate minimum income tax is in place, tax competition no longer exists to drive businesses to seek the lowest possible rate. This has eliminated the tension for asset managers resulting from the need to manage ESG risks and the desire to maximise investment returns. Instead, tax planning has evolved towards accessing tax and non-tax incentives offered by governments to encourage green investments and innovation.
Many of these incentives are intended to develop more circular economies. For decades, people had realised the need to shift the tax burden away from labour and on to natural resources and pollution, but it was not until the events of the 2020s that business began developing an interest in creating more sustainable, circular business models.
Following on from the Green Deal, and similar initiatives, almost every nation developed an integrated road map to establish a sustainable, circular economy, investing in the skills and sectors that needed it most. Tax policy was central to these plans, and a hybrid carrot-and-stick approach has proven the best way to get industries of all types to mitigate damage and change the way they do business.
Unlike linear business activities, circular business models are far more intensive in terms of the amount of labour, knowledge and energy required. Moving off labour taxes reduced the cost of labour and thus improved the business case for work on renewable resources, retro-fitting homes, repairing appliances and other circular activities.
The move away from taxing labour had benefits beyond the private sector, slashing hiring costs in the public sector across the board, from healthcare and education to law enforcement, to the judiciary. We now enjoy safer, more inclusive economies as a result, with greater wealth and well-being for all.
Predictions:
ESG and return on investment considerations have aligned so that ESG programmes usually produce better returns;
Every nation has developed an integrated road map to establish a sustainable, circular economy;
Safer, more inclusive economies are resulting, with greater wealth and well-being for all;
The end of tax competition has shifted corporate tax planning towards accessing incentives; and
Hybrid carrot-and-stick approaches to tax have proven the best way to get companies to mitigate damage and change the way they do business.
Read the original version of the article on KPMG’s website.
Click here to access more KPMG Future of Tax content.
