At the moment, I'm again spending every spare minute after work at my desk putting together my tax return. I spend hours looking for information on my income, my insurance and my expenses. The fact that such a thing is still necessary in our digitalised world annoys me more with every receipt I turn over.
But salvation is at hand. There are already plans for how the digital tax return could look in the future and also examples of how it already works in other countries.
Anyone who is concerned with digital tax returns in Germany cannot avoid ELSTER. ELSTER is the free online tax portal for private income tax returns provided by the Federal Ministry of Finance, which I can use to submit my details digitally. Unfortunately, it is very tedious to understand where which data has to be entered and then to find it. If all this becomes too much for you, you can fall back on one of the numerous (fee-based) tax return software programmes that elegantly guide me through the process. To help you find the right programme, we have tested a few for you.
In future, however, this process is to become even easier. In 2016, the German government introduced a law that will allow tax returns to be submitted completely digitally from 2022. A first step towards this is the abolition of the obligation to submit receipts, which will be replaced by the obligation to retain receipts. As of the 2017 tax return, I no longer have to send my receipts in paper form, but only upon request from my tax office.
In the long run, most of my information should be automatically inserted into the form. This way, I no longer have to enter my income or social security contributions manually, but only have to check them quickly. Today, it is already possible via the proxy database to conveniently copy the data or make it available to my tax advisor, as tax advisor Dieter Albrecht explains: "This way, I can already enter the data into the tax return without the client having to search out the necessary receipts or documents for it." In the future, this step will happen automatically.
I went to Estonia to see how this can work. Since gaining independence in 1991, the country on the Baltic Sea has relied on consistent digitalisation. Estonians can already use their mobile phones to identify themselves, pay at the cash register or call up prescriptions. For a long time now, there have been more mobile phone contracts than inhabitants at the northern end of the Baltic. It is hardly surprising that in this society 90% of the population also submit their tax returns digitally.
The great advantage of the Estonian tax authorities is that they are not lone wolves. Almost all interactions between the state and its citizens run digitally via one platform: X-Road. With X-Road, the tax authority can merge data from companies, insurance companies and banks and thus automatically fill out the tax return for its citizens. Afterwards, it only needs to be confirmed. What is special about this system is that the data is not collected centrally, but is generated decentrally by the banks, companies and authorities and may only be accessed by the tax authority for the tax return.
I was very impressed by the whole system in Estonia and I am curious to see what innovations digitalisation will bring forward there, even if there are some pitfalls, as tax advisor Albrecht explains to me: "Of course, there is a risk that I won't claim certain income-related expenses for tax purposes because it is convenient if everything is already entered and I just have to press ok".
In Germany, however, a similar development seems unlikely to me in the short term, as we are still much less digital. Just one figure: more than 50% of retail sales in Germany are still paid in cash. In Estonia, paying by mobile phone has long been the standard.
But to get a better idea of what digital tax returns in Germany might look like in the near future, I next turned my attention to the UK, which has a similarly complicated tax system to Germany. The country on the island is characterised economically by a strong banking and service sector that is already very digitised. On this basis, over 95% of business tax returns are already completed online. The next step is to now reach this figure for income tax returns.
For this purpose, the government has made available 1.3 billion pounds (approx. 1.49 billion euros) until 2020. As a first measure, companies are obliged to submit information on their employees' salaries on a quarterly basis. In this way, the tax offices can calculate and adjust the tax rate for the individual in advance, thus significantly reducing the number of back-payments and repayments. The automatic transfer of data between the authorities is also essential in this case.
However, the UK also shows which additional conditions have to be taken into account. For example, the current tax system cannot be digitised one-to-one because it is too complicated and requires too much evidence. For this reason, the simplification of tax legislation is an important milestone on the road to digitalisation.
Overall, the digital tax return seems to be possible only through large-scale data exchange between a wide range of institutions. Estonia has shown with the X-Road Programme that this is possible without permanently centralising personal data. Whether this is the future remains to be seen.
What must always be taken into account when introducing digital tax systems is the mood of the people. What works great in Estonia may not work for us. Brazil, for example, has made its digital tax return popular for businesses by giving entrepreneurs tax breaks for each registered transaction.
For this year, I will definitely still have to fill out my tax return manually. And for next time, too, it probably makes the most sense to simply sort through my documents properly. But my excursion into the various tax systems has shown me that it is possible to stop poring over files for hours on end. The question remains open as to how much networking and centralisation of our data is worth making our work easier.
If you have more questions about the electronic tax return and how you can best use your fileee account for this, then take a look at our tax return page.
