Digital Life

Of the deadly sins, I think that vanity is the most insidious. It’s everywhere. In the UK, we think we are doing well in our growing use of all that the internet offers: we watch the iplayer, more of our shopping is done online than almost anywhere else, and we interact with the government online. Surely we are in the vanguard of enlightened digital development?

That’s vanity, I’m afraid. If we lift our eyes above the horizon for a moment, we will see that other countries are well ahead of us – and it might surprise you to know that Russia is one of them.

Take, for example, tax collection. It is a truth universally acknowledged that the more accurate information a government has on our finances, the more likely it is to collect the correct amount of tax that is due and collect it on time.

The Russians know this; they have been overhauling their elderly and corrupt tax collection system, moving it online. They have started by revolutionising the collection of VAT in the retail industry.

In the UK, most shops submit quarterly VAT reports and pay the amount of VAT due at that time. Frequently there are mistakes, delay and muddle; occasionally there is fraud.

Not in Russia – at least not now. Every shop has been obliged to buy electronic tills that are connected, via the internet, to Russia’s Federal Tax Service. These tills report every transaction, however small, as it happens, to the government.

This means that assessing the amount of VAT due is done instantly, and it is collected immediately, rather than anyone waiting for a quarterly VAT return.

The overall effect has been remarkable. Government cashflow has been improved and mistakes, evasion and fraud have been greatly reduced. As a result, the government’s VAT income has increased by about 20 per cent – a huge amount.

There’s all that data, too; using sophisticated computer analysis can identify likely frauds, and which tax inspectors are suspiciously ineffective at collecting overdue tax.

It also means that retail trends can be spotted at once and the rate of inflation calculated as it happens; the price of everything can be seen all the time.

The growing number of Russian self-employed and their clients are now being encouraged to join the system. This will make it more difficult for traders to do jobs for cash, off the books. If a Russian employs a window-cleaner and reports the payment through this system, their conscience is clear, and the windowcleaner pays the right amount of tax. Even Uber drivers in Moscow are connected, through the central Uber database.

There are concerns, inevitably, about privacy; do you really want the government knowing what you spend all your money on? Perhaps not but, when you think about it, this is a natural development. For many years, our salaries have been reported to the government by our employers and tax is deducted before we see the money. This expansion of the world of VAT and the self-employed, made possible by the internet, is only to be expected.

Indeed, I suspect it is inevitable. HMRC has already implemented a Making Tax Digital plan, which requires Vat-registered businesses to keep digital records. In October 2019, the Office of Tax Simplification issued a policy paper, recommending that HMRC work towards something similar for individuals, initially for the self-employed – but the rest of us are sure to be embroiled in it one day.

Politicians are always casting around for ways to increase their income from tax without increasing tax rates, and this sort of thing will be too tempting for them to ignore. Like it or not, the future of tax is digital.