The many faces of digital tax

This article considers digital tax in Australia, Ireland, Kenya, Nigeria, Singapore and the UK – all of which take different approaches – to provide a useful comparison of what governments around the world want to know, when they want it and how much of the burden falls on SMEs.

Under the UK’s Making Tax Digital for VAT system, all VAT-registered businesses must keep certain VAT records digitally and submit VAT returns using compatible software. However, unlike other countries moving towards real-time transaction reporting, the UK system focuses on digital record-keeping and regular reporting, rather than requiring businesses to send every invoice to the revenue authority (HMRC) as they are issued.

Real-time transactions

Kenya has gone further, with its Electronic Tax Invoice Management System (eTIMS), which allows businesses to issue electronic tax invoices and send the information to the Kenya Revenue Authority in real time.

The system is designed to work with different levels of technology, accessible through online portals, mobile apps or directly through invoicing software. Businesses can also use Unstructured Supplementary Service Data (USSD), which lets users enter short codes on their phone to access services without an internet connection.

Kenya has also introduced buyer-initiated invoicing, allowing a registered buyer to create an electronic invoice for a smaller supplier that cannot issue one itself. The supplier can then approve or reject it, including through USSD. In theory this gives the tax authority earlier sight of business activity while offering smaller businesses a practical way to comply.

E-invoicing

Singapore is taking a similar approach to Kenya. Its nationwide e-invoicing network, InvoiceNow, based on the Peppol standard, allows businesses to exchange invoices in a structured digital format, with invoice data increasingly sent to the tax authority.

All GST-registered businesses will progressively join the system between April 2028 and April 2031. The first phase covers new, compulsory GST registrants, and existing GST-registered businesses with annual sales up to S$200,000 (US$157,000).

The invoice can provide the information needed for tax reporting, reducing duplicate work. But it also means businesses need to keep their invoices and accounting records accurate.

Multiple systems

Australia has taken a different approach by developing several connected services rather than a single digital tax programme.

Its Standard Business Reporting framework connects accounting and business software with government systems. Single Touch Payroll lets employers report salaries, tax withheld and superannuation directly from their payroll software as employees are paid.

The idea is that when tax reporting is built into the software that businesses already use, there is less need to enter the same information separately. The important technology is therefore not necessarily the tax authority’s website, but its connection to the accounting, payroll and invoicing systems a business already relies on.

Direct connections

Nigeria is moving in the same direction as Australia. Its TaxPro Max platform provides online registration, filing and payment, while its System-to-System Tax Filing Gateway lets businesses and software providers submit VAT and withholding-tax returns directly to the Nigeria Revenue Service.

The gateway uses APIs to connect different software systems so they can share information automatically. This means a business using compatible accounting software can prepare its tax information as part of its normal accounting work and send it directly to the tax authority.

For SMEs, this could make compliance easier, but it also means the underlying accounting data needs to be accurate.

Interfaces in Europe

Ireland takes yet another approach. Its VAT modernisation programme, being developed alongside the EU’s VAT in the Digital Age initiative, will introduce e-invoicing and real-time VAT reporting in stages.

From 1 November 2028, large VAT-registered companies in Ireland will have to issue structured e-invoices for domestic business-to-business transactions and report specified invoice data to the Revenue service.

Smaller businesses will also be affected. From the same date, all VAT-registered businesses will need to be able to receive structured e-invoices. An SME may not initially have to issue e-invoices, but its accounting or invoicing software will need to receive and process them.

In other words, digital tax can affect businesses through their customers and suppliers as well as through their own obligations.

Shifting burden

The global move towards tax automation could reduce the duplication of data entry and reconciliation for SMEs, thus shrinking the admin burden, but it also makes accurate record-keeping more important. The compliance burden is therefore shifting rather than disappearing. SMEs will spend less time preparing submissions but more time making sure the information behind them is correct.

This means the adviser’s role will increasingly involve interpreting data, spotting problems and challenging assumptions, as well as supporting clients in choosing suitable accounting and invoicing systems to improve bookkeeping and prepare for new reporting requirements.