Over the last 20 years and more we have heard all sorts of political statements highlighting how essential IT is to productivity and economic growth. Countless surveys have shown a clear correlation about factors like IT spending per capita and digital literacy, and growth and competitiveness of economies.
Usually this leads to calls for greater spending in IT, possibly through investments and grant funding by international, national and local government organizations. These programs assume that injecting money that businesses and governments can spend on technology will ultimately improve a country’s situation.
Irrespectively of whether this is true or not, current challenges call for a much more targeted and, to some extent, ruthless use of IT. Recently, I have been involved in a few conversations about the need for a Digital Agenda in Italy, and I clearly expressed my doubts that this may turn into little else than a waste of money.
On the other hand, there are major problems that technology can solve, although I doubt most people would like to see them solved. One that has proven very challenging for several decades is tax evasion in Italy.
Nobody knows exactly how much money escapes the taxman every year in this country, but figures I have seen range between 60 and over 100 billion euro per year. Enough money to significantly reduce public debt and possibly bail out a couple of smaller countries.
There are many reasons for this. Many people in Italy are self-employed, so they are not subject to a pay-as-you-earn system like employees do. They are reluctant to invoice their customers, and lure them by offering discounts if they do not ask for an invoice, or just remind them that if they do, they’ll be charged with a hefty 10 to 20% VAT. Consumer clients, who are unable to deduct many of these expenses anyhow, go for the cheaper option and do not ask for the invoice or accept to be invoiced for a lower amount. Take into account that this applies to builders, plumbers, electricians, small shops, as well as to doctors and specialists, and many more categories, and you get how pervasive this can be.
Add all those workers who are almost invisible, as they work without any regular employment contract (home carers, nurses, private teachers, as well as temporary workers in the agriculture or construction businesses), and you can realize the size of the problem.
If you visit Italy, you will notice that there is disproportionate use of cash with respect to many other countries. Just take a look at the highway toll booths, where drivers queue to pay cash rather than use the very comfortable automatic booths where you can pay by credit or debit card. Or go to a mall and look at how many people pay cash for an expensive plasma screen, a five-people family grocery bill or a 2-week luxury travel package.
This is a very thorny problem, because potentially everyone is an accomplice and because the customer who does not pay the VAT is as much in non-compliance as the supplier. Also, the tax structure in Italy is particularly cumbersome and tax rates are very high, at least if compared to the level of public service we receive. Therefore certain political parties almost justify some form of self-determination in how much small businesses and self-employed individuals pay in taxes, with the excuse that if they paid all their dues, they would probably be out of business.
Therefore this turns to be a classical chicken-and-egg problem. The state cannot reduce taxes due to the huge debt and massive evasion, and taxpayers allegedly cannot pay all taxes without putting their business’ survival a risk. In all fairness, if Italy has not suffered dramatic consequences from the global financial crisis and recession is also thank to its “healthy” black economy and invisible savings coming from untaxed activities.
What can technology do to make you pay taxes? Actually a lot. By answering three fundamental questions:
• Who is not paying taxes?
• How are my taxes being used?
• How can we reduce tax rates?
Who is not paying taxes?
Technology is already being used to fight tax evasion, mostly by mashing up data from different sources – tax files, land and building registry, car and boat registry, and so forth – to identify cases of non compliance. However, given the scale of the problem, the tax agency will never have enough inspectors to investigate suspicious cases.
So why not crowdsourcing this? In 2008 the tax agency published income and taxes for all taxpayers relative to year 2005: while this sparkled privacy concerns and allegations that it may provide useful information for criminals to decide who to target, it also drove quite a few people to report about suspicious cases. I appreciate this is not ideal, but for lack of a better compliance process, there is nothing wrong in asking people to help. This may be done by putting incentives in place for people who flag cases, with concrete evidence that triggers an immediate investigation. Or by allowing people to report about service providers who refuse to invoice (or invoice for a lower amount) giving them immunity in return for their report. People may be encouraged to use devices like smartphones, mp3 players, tablets, to record conversations that prove tax-related wrongdoings, in exchange for tax breaks. Also the application development community could be engaged, by launching contests and hackatons for them to come up with smart apps that use – among other things – open data to help catch non compliant taxpayers.
This does not sound like a nice approach, does it? But when a problem is so huge and so hard to solve, radical measures may be the only option.
How are my taxes being used?
I still have vivid memories of the first letter I got over 15 years ago from the city of Brussels , where I was living at the time, with a very simple local tax form. On one side the amount of local tax I owed, with a couple of fields to fill, and on the other side a detailed breakdown of how that money would be used for various city services. Actually, it does not take rocket science to print the budget breakdown on the back of your tax form, and yet this does not happen in Italy.
Technology can help visualize that information in a much more meaningful way. Think about turning your taxes into how many antivirus shots can be paid, or how many millimeters of a bridge you are helping with, or how many students get a free book, or how many kilos of waste get recycled.
Creating a clear line of sight between what you pay and what you get can go a long way in explaining people that taxes are not just to fund an extravagant lifestyle by certain politicians, but are the fuel for any public service.
How can we reduce tax rates?
After compliance and transparency comes participation. Many people feel strongly about the fact that there are too many taxes, and they are too high. As they start paying them and having a better appreciation of what they are for, they may contribute their ideas about how to simplify the tax system.
Traditional participation techniques, including idea collection and rating, blogs, wikis, fora, could be blended with more innovative ones, such as serious games, i.e. the use of a gaming paradigm to solve real problems. Given the overwhelming success of social games like Farmville, why not something like a Taxville, where participants collaborate to develop a better system?
Beyond Italy, and taxes
We are way too used to consider government 2.0 as something that improves the way citizens access government service and information, and cannot easily conceive its use to make people comply with laws and regulations. Sure, we accept that law enforcement authorities use social media to fight crime, protect our kids from pedophiles, prevent acts of terrorism. But we would probably invoke privacy and personal freedoms, should government start spying on us or – equally – encouraging others to do so.
Unfortunately many of the issues that governments have to face going forward will be unpleasant in nature, dealing with spending less and asking more to citizens: more compliance, more taxes, more involvement in service delivery. The signs are clear: defaulting sovereign debts, declining budgets, shrinking workforce.
There is no more time for complacency and for looking at government 2.0 as a nice to have rather than a must have. There is plenty of application areas, but very few will be about better services and greater participation: most will be about helping government become more efficient and effective, and compliance will be an important part. This will go well in countries where people are used to play by the rules, but less so in countries where there is traditional distrust for government, often combined with ways to cut the red tape in ways that are not always entirely legal. The same approach described above for Italian taxpayers could be used to fight corruption, negligence, low productivity. For how uneasy moving from the “wisdom of the crowd” to the “snitching of the crowd” might feel, it may become a necessity.
Some will claim that this may lead to social unrest or even some new form of civil war. Recently I debated on Facebook with a few folks who support the idea of slashing taxes. My point was that compliance with current tax laws should prevail over an attempt to bail out repeated tax offenders and reduce their tax bill: they had quite a vocal reaction, suggesting that my attitude would be conducive to excessive animosity between employed and self-employed people.
Let me be very clear here. I am all for personal liberties and civil rights, including the sacrosanct right to privacy. However, just to quote what an Italian rocker said at a concert I attended yesterday night, “freedom is not for granted, we need to earn it every day”.
Those who leveraged their own freedom to the detriment of others (be it by evading taxes or making reckless investments or risking somebody else’s money) may have to feel the pinch of a new flavor of government 2.0, if we want things to get any better.
Also, those who fell in love with the idea of open government and a wonderful new economy powered by petabytes of open data, may have to accept that the most immediate value of those great ideas may be realized by government themselves, rather than citizens.