Cloud-Based Solutions Offer Greater Efficiency and Performance for Tax Administration

When it comes to the effective storage and management of data, it should be recognised that security, flexibility, and efficiency are key. Increasingly, governments, businesses, and organisations around the world are exploring cloud-based computing options as a complement – or alternative – to more traditional, on-premises hardware and software solutions. For tax administrators, the ongoing shift presents both opportunities and unique challenges.

The enormous growth of cloud computing solutions for both public- and private-sector applications has been well documented. In July 2020, international research firm Gartner reported that ‘the worldwide public cloud services market is forecast to grow 6.3% in 2020 to total $257.9 billion.’ In the United States, major federal departments like Health and Human Services (HHS) and Defense (DOD) are actively pursuing cloud-based solutions to ‘store, optimise and protect data in a modernised fashion.’ In a highly cited report from 2018, Cisco estimated that, by the beginning of 2021, ‘94% of workloads and compute instances will be processed by cloud data centres, while 6% will be processed by traditional data centres.’ In the past six months, the growth of cloud infrastructure has been further accelerated by the COVID-19 pandemic, which has created the urgent need for immense capacity to support communications, telework, remote learning, business operations, and more.

In research reported on earlier this year by CIODive, 40% of businesses reported accelerating cloud adoption in response to the impact of COVID-19. GovernmentCIO (a Washington DC-based company dedicated to helping transform government IT services) has reported on how the US federal government is leveraging cloud-based tools to connect workers made unemployed as a result of the pandemic with healthcare systems, as well as to support vital payroll, hiring and human relations functions that have been forced to become remote.

The growth of cloud computing solutions, not surprisingly, mirrors the exponential growth in the amount of data being handled by governments, business, and individuals. This shift has profound implications for tax administrators.

In a 2018 white paper, Microsoft and PWC wrote, ‘more and more taxpayers today want government transparency as well as a simplified taxation system. This has driven policymakers worldwide to re-evaluate and adjust their government’s tax structure, resulting in a series of new measures such as those enacted by the OECD, the EU, and Group of Twenty (G20) leaders. A major by-product of these transparency initiatives has been the availability of increasing volumes of information in the public domain. For tax administrations, this change means having to handle a vast and rapidly expanding amount of data, which can dangerously impact the vital role they play in ensuring the socio-economic cohesion of society.’ Cloud-based solutions are a key tool in the effort to safely and effectively store and access such enormous amounts of data.

Many of the same benefits that have motivated rapid public- and private-sector adoption of cloud-based solutions – both before and during COVID-19 – are also relevant to tax administration. Especially in government settings, where IT and personnel budgets are already stretched, cloud-based solutions provide a cost-effective option that can reduce the staff burden and attendant cost of procuring, managing, and securing physical data infrastructure.

In addition, cloud computing provides tax administrators with greater ability to tailor their computing and data needs according to peaks and valleys in usage; more capacity can be easily deployed during periods of high usage – like tax filing days – while capacity can be ramped down in periods when it isn’t needed. And in instances when physical access to hardware is limited – like during COVID-19 – the cloud can help ensure the continuity and accessibility of data for critical functions.

Despite the opportunity for cost savings, greater flexibility, and increased computing power, however, the adoption of cloud computing solutions for tax administration remains relatively nascent. Part of this slow adoption are persistent concerns about security, although modern cloud solutions – including those used by the military and other federal government agencies – incorporate increasingly robust security features.

Another challenge is the logistical and regulatory hurdles, which can be pervasive, particularly in government IT. Existing IT policies and regulations designed for the procurement of more traditional, on-premises data management solutions can inadvertently stand in the way of the timely and efficient adoption of cloud-based solutions.

At SICPA, I work with taxation agencies on data processing, storage and management solutions that are cost-effective, secure, and implementable – partnering with existing IT and security organisations to find solutions that effectively balance cloud-based and on-premises architecture.

For example, the SICPA Excise Tax System (SETS), a comprehensive system for the tracking, collection, and administration of excise taxes, can be deployed in cloud-based environments or on-premises, thereby offering critical flexibility for many officials and agencies still navigating the transition to the cloud.

Microsoft and PWC write, ‘a sustainable tax technology infrastructure benefits tax administrations as well as taxpayers, securing efficient tax compliance, and increasing taxpayer satisfaction and voluntary compliance. To achieve this requires a proper holistic vision and strategy with a clear implementation plan and a proper monitoring system in place. Managing technological change is about getting internal and external stakeholders onboard by being transparent on developments, whether they are successful or not.’ The private sector can provide vital support to help local, state, and federal tax administrators develop and implement secure solutions that leverage the cloud, while remaining cognisant of existing policies and regulations.

Data storage and management is not the central mission of any tax administrator, but secure, reliable, and accessible online services and data is vital to enabling taxpayer and tax administration functions. Cloud-based solutions that solve stubborn data management challenges offer enormous potential to help make tax administration functions more secure, more cost-effective, and more efficient.