2025 Public Sector Perspectives

Digitized systems also enable countries like Australia to implement policies such as the Single Touch Payroll (STP), a digital payroll reporting system introduced by the Australian Taxation Office in 2018. This system requires employers to report payroll information, including salaries, wages, and withholding, in real-time with each pay run. By providing more detailed reporting, STP data is designed to reduce compliance costs and save time for businesses with payroll tax obligations. This example demonstrates how digitized policies can enhance efficiency and improve tax collection rates for governments. Overcoming challenges There are various methods to improve the enforcement of measures aimed at increasing tax collection and the taxation base; however, all governments and their respective revenue authorities face challenges. It is not just developing countries that encounter these hurdles; efficient, streamlined, and fair tax systems require ongoing work, attention, and adaptation. One significant challenge is mobilizing government revenue in cash-based economies. Such economies often struggle with tax collection because transactions occurring outside the formal economy represent potential lost revenue. This issue arises from several factors, including a lack of paper trails, an informal market structure, limited data and information, and reduced audit effectiveness. Nevertheless, several countries with cash-based economies have successfully implemented policies to address this issue, featuring key replicable takeaways. For example, in Germany, cash remains the most frequently used payment method, accounting for 51% of transactions in 2023. However, the tax-to-GDP ratio is notably high at 39.3% in 2022, reflecting the strength of its institutions and policies, such as extensive tax office coverage, the country’s economic history, and cash-basis accounting for small and medium- sized enterprises (SMEs). 5 Additionally, Federal Tax and Audit Offices receive substantial training and support, with the Audit Office alone operating on an annual budget of €192 million. 6 Germany relies heavily on tax audits to ensure taxpayer discipline, conducting unplanned audits for small businesses and regular audits for larger corporations. Moreover, due to previous periods of hyperinflation, cash is used in the absence of credit to suppress demand and reduce inflation. A strong social safety net discourages tax evasion by showing citizens the positive impact of tax dollars. Finally, by enabling cash-basis accounting for SMEs, small businesses with annual turnovers below €600,000 can simplify their accounting and tax return processes. Similar to cash-based economies, developing markets often have sizable informal sectors that are not captured in the tax system. Governments must take a holistic approach to build systems that incentivize those working in shadow sectors to declare their income through formal channels, such as offering strong insurance and worker benefits. For example, Uruguay has seen a decrease in informal employment by reforming taxes and the social security systemwhile increasing the benefits of formal employment. This underscores the importance of robust social systems and their connection to citizens’ sense of obligation to pay taxes. 5 https://www.oecd.org/content/dam/oecd/en/topics/policy-sub-issues/global-tax-revenues/revenue-statistics-germany.pdf 6 https://www.bundesrechnungshof.de/EN/1_about_us/about_us_node.html 50 Tax Revenue Mobilization, Public Finance Management and Global Best Practices