Summary: Legal simplification of the tax code and pro-active communication with taxpayers must be embedded in the simplification and digitalisation of tax systems; Clarity in the language of legislation is crucial while retaining necessary technical complexities with a focus on user-friendly design is one of the key tenets of tax simplification.
The inherent complexity of tax codes: the language used to frame tax laws has generally been complex and tends to become outdated with time. Tax codes, by their very nature, are complex, fraught with legal jargons, exemptions, provisions and technical terms. This affects clarity in the law and in turn its interpretation which result in complex processes. Ultimately, it increases the compliance burden on taxpayers especially for individuals and small businesses, with limited resources. Even willing and compliant taxpayers struggle to navigate such codes and fail to comply with the processes. This creates dependency of the taxpayer on intermediaries /agents adding to their costs and time taken for compliance.
A common approach to simplification is through rate rationalisation, reducing exemptions and deductions to help achieve horizontal equity, to the extent possible, and ease the return filling process to drive better compliance. Tax authorities have targeted redundant /sunset clauses, replaced jargons and complex lengthy text with clear and shorter explanations. Mauritius has successfully brought down the number of deductions from about 30/40 deductions to one single deduction, which made tax return filing more efficient.
There is a risk of oversimplification of the tax code and while complex tax language could be replaced with simpler language, tax authorities should exercise caution and retain the technical details and nuances of legal aspects, where necessary, to avoid future interpretation issues. Oversimplification can be counterproductive in the long run, increasing litigation. This will eventually result in transferring lower compliance costs to higher litigation costs, instead of bringing down the costs for tax administrations and taxpayers alike.
Achieving this balance was the focus of India’s large-scale exercise to simplify its tax code in 2024-25. Through this, India targeted simplification of language through 50% reduction of provisions and 30% reduction in volume of tax code, getting rid of redundant provisions; leveraging advanced technology such as AI linguistic models and cloud computing for faster processing, to simplify the process and bring in efficiencies. Simpler processes were introduced through introduction of new forms for Self-employed and Individuals (i.e. 75% of taxpayers was targeted). Jargon was removed to enhance understanding, and data was incorporated in tables simple for an average taxpayer to understand. Another key focus while simplifying language was bearing in mind the judicial precedence on sections and sub-sections to ensure simplification does not lead to higher litigation possibilities.
Pro-active communication with taxpayers is vital. Academia and the private sector emphasised the need to focus on simplifying the user experience for the taxpayers at the front end though the legislation may remain complex where necessary at the back end. To achieve this including taxpayer perspectives, where possible at the design stage itself is helpful. As an example, using customer friendly language for communication and introducing apps that can pro-actively send reminders, such as prompts on the top five common errors of the taxpayers. This could also include flagging penalties due or approaching timelines to the taxpayer early to facilitate easy compliance.
The perspective of treating taxpayers as ‘customers’ was acknowledged by tax authorities as they develop their respective engagement strategies and have seen the benefits of reaching out to taxpayers early and through targeted outreach for remote taxpayers. The UK has achieved this, to a large extent, by treating taxpayers as customers. HMRC work with experts from all fields technical and communication to run programmes on taxpayer engagement through simple user-friendly language that includes diverse examples, a sense of humour for better awareness and communication with taxpayers. Jamaica engages with taxpayers, the private sector including accountants on many fronts such as seeking their views on forms before rolling out and organised educational training programmes on filing returns for their taxpayers. Kenya reaches out to its taxpayers in remote areas through mobile tax clinics to provide information and collect taxes. Malaysia cited that a strong and sustained engagement with its corporates undertaken before the roll-out of the new tax regime proved beneficial.
Driving a stronger consensus on simplifying language for the taxpayers viewed as customers is key. This change in perception could help prioritise and provide better user-friendly experience for the end-user and thereby enhance compliance, help build trust and morale of the taxpayer with positive longer-term impacts.
Recommendations: Language and communication with taxpayers
- The Indian example is a good case study at scale for the Commonwealth to deliberate on lessons learnt, challenges faced and track its success over the years and share information on this with peers.
- Useful case studies from the UK and Australia’s approach to customer design and engagement, including experiences from recruitment across fields.