Digital versus paper: Can you file electronic tax returns?

Go right ahead, says IRD, but take as much care as you would with paper documents

The Computerworld In Depth special on document management (August 28) painted a good picture of the business drivers behind the increasing use of electronic documentation.

I’ll leave the “value add” side of the equation to others but in terms of cost, Inland Revenue is seeking to make it as easy as possible for New Zealanders to comply with their obligations, and one strand of this strategy is its approach to electronic documents.

I get plenty of regular questions from people worried that Inland Revenue won’t accept their electronic records. The simple message is: go right ahead, but take as much care as you would with paper documents; they will not be rejected simply because they are digital.

For many years “tax records” have included virtually any way of recording information. This means that businesses have many options for complying with record keeping requirements. The traditional approach has been to require that documents can be reproduced in their original form, with the exception of allowing a coding mark related to the storage process (for example the addition of a bar code at the time of scanning for indexing).

This approach is valid, but has been superseded by the move to records of transactions where the original form is electronic. For example when you use an Eftpos network the original record is in magnetic form on a server somewhere. The issue in this situation is not one of ensuring a paper original can be reproduced, but that the integrity of an electronic record can be confirmed.

This required a re-think, including links to information system security. The upshot has been a standard for records management, adopted by the International Standards Organisation. This has found its way to New Zealand as ISO 15489 (closely linked to ISO17799 for information systems security). When viewed as a whole, the integrity of a business process, supported by the assurance of the integrity of an information system, becomes sufficient to ensure the reliability of the transaction.

Don’t be put off by all these standards. As with most good systems, they are just a matter of common sense and routine. I mention them because they are a good starting point when thinking about “reasonable care”.

The government recognised that some foundation work was needed to reassure people that electronic records were acceptable, and in 2002 the exotically entitled Electronic Transactions Act was passed with cross-party support. The easiest way to identify the key purpose of this legislation is simply to quote from it:

“To avoid doubt, information is not denied legal effect solely because it is

(a) in electronic form or is in an electronic communication,

(b) referred to in an electronic communication that is intended to give rise to that legal effect.”

This means there is still a need to demonstrate that a transaction is sound, but it makes it crystal clear that a record cannot be voided solely because it is in electronic form.

To sum up, integrity of the process of storage as a whole is more important than form in considering whether a record is valid. Inland Revenue will simply evaluate a record on its overall integrity — is it a true and fair view of the event it records?

There can be no doubt that Inland Revenue would not function in an efficient manner without electronic systems. If you apply the same diligence to keeping electronic records as you would for paper ones, you can take advantage of all the opportunities that come with digital business.

E-documentation is one of many areas falling within the broader government strategy to transform government services and participation through the use of information and communications technologies. The E-government Strategy, last updated in 2003, is currently being revised to take into account the progress agencies like Inland Revenue are making in opening up the internet channel for business-as-usual transactions, and to incorporate the new business models emerging under the Web 2.0 label.

The use of electronic documentation is clearly a means to advance the goals of improving New Zealanders’ satisfaction and convenience with government services — one that will see ongoing development well into the future.

Useful references:

• For full details (including technical definitions and reference to legislation) refer to Standard Practice Statement IR-SPS GNL 430 at www.ird.govt.nz/technical-tax/standard-practice/general/sps-gnl-430-retentionofbusinessrecordsbyelectronicmeans.html (or just go to www.ird.govt.nz and search for “GNL430”)

• BSI publication PD008 Code of Practice for Legal Admissibility of Information stored on Electronic Document Management Systems. This document arose from a British working group primarily targeted at document management techniques in the late 1990s.

• I would urge you to read the excellent plain English explanation of the Electronic Transactions Act 2002 on the Ministry of Economic Development website.

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