How to Prepare for Taxation in a Digitalized Economy

Author: Helena Strauss, CISA, CA(SA)
Date Published: 9 September 2019

While IT professionals and auditors are not required to be tax experts, they do need to have a certain level of mindfulness with regard to taxation within the digitalized economy going forward as tax collection is slowly but surely becoming part of the natural business ecosystem where taxation happens by default.

IT professionals and auditors should consider the following to better address taxes within the digitalized economy:

  • Regarding the client’s business structure, does it deliver highly digitalized services and does it have an international economic presence?
  • Does the client have sufficient IT controls in place to identify the origin of its users of digitalized services provided? Controls such as bank account details, IP addresses, customer addresses might suffice, although they can be changed or anonymized. This information should be used to bill the client and apply the correct Value Added Tax (VAT)/Goods and Services Tax (GST) rates, which is a fully digitized process.
  • Does the client make use of freelance or contract workers within the gig economy? If so, payments to them should be made after withholding taxes (dependent on the jurisdiction in which the worker resides). This is also a digitalized process in most instances.

The following IT internal controls questions should also be answered:

  • Do the current IT internal controls ensure accurate tax reporting?
  • Does the current point-of-sale system or accounting software identify the location of the customer buying digital services? If so, does the software make provisions for the specific tax requirements in the country of the customer?
  • Is the accounting software set up in such a way that would enable withholding taxes for payments made to temporary/contract/freelance workers?
    Though the previous points are not an exhaustive list of considerations, they do provide guidance to illustrate the holistic approach of professional services required by Industry 4.0 and beyond.

Read Helena Strauss' recent Journal article:

"Digital Transformation of Taxation," ISACA Journal, volume 5, 2019.