Which one of us can go without looking at our mobile phone, electronic device or computer for 1 day, or even 1 h? With just the press of a button, one is instantly connected to the digital economy. The rise of the digital economy in the last 20 years means that ‘digitalisation, that is, the growing use of information and communication technologies (ICT) [is] in every area of life [and] has profoundly shifted society, business and personal lives’ (Vuori, Helander & Okkonen 2019:237). Babu (n.d.) summarises Tapscott’s definition of digital economy as:

The digital economy (also referred to as the ‘new economy’) is further defined by Carlsson (2004) as being:

Hojeghan and Esfangareh (2011) specify that the digital economy is where providers and customers transact through the Internet with electronic goods and services only. These goods and services are produced and traded solely through the Internet and web-based technology. Digital technology also has an impact on communication, as digital communication is the most effective and convenient method (Nickitas 2019).

The use of electronic devices and the Internet are changing the nature of products and services, how these products are manufactured and the way the products and services are marketed and sold (Haltiwanger & Jarmin 2002). The Internet also gives taxpayers access to new income streams through virtual transactions. These transactions can be concluded in the form of ‘real money’ or virtual currencies (Switzer & Switzer 2014). Even though these transactions are virtual, take place in the digital economy or are settled in virtual currencies, they still have taxation consequences for participants to the transactions. Taxpayers therefore need taxation knowledge to be able to account for these transactions on their tax returns. Often, the tax consequences of these transactions are neither identified nor recorded for income tax or sales taxes (Cockfield 2002). As stated by Basu (2001), the taxation of digital transactions can be complicated: the server on which the transaction is processed, the city from where the goods are shipped and the destination of the goods are all at different locations – then where will the transaction be taxed? The participants to the digital transactions will therefore need some tax knowledge to identify where and when tax consequences will be triggered. A lack of such knowledge may lead to tax non-compliance for individuals living in the digital economy.

In addition to transactions performed through the Internet and web-based technology in the digital economy, Vuori et al. (2019:237) add that digitalisation ‘enables easier, faster and more affordable interaction among people, companies and governments without the restraints of time and presence’. Goncalves, Oliveira and Cruz-Jesus (2018) explain that these interactions necessitate the use of different types of media that require digital skills in addition to basic reading and writing abilities. Governments have also been extending their services through Internet technology and, in so doing, have increased the effectiveness, efficiency and convenience of interactions with citizens (Chen et al. 2015). The Organisation for Economic Co-operation and Development (OECD) reports that tax authorities are increasingly developing digital applications to support tax activities such as paying, filing and enquiry (OECD 2017a). It can thus be argued that taxpayers may also benefit from having the digital knowledge and skill to effectively interact with the tax authorities in the digital environment.

Academic literature shows mixed results on the relationship between tax knowledge and tax compliance. While the importance of tax knowledge for tax compliant behaviour has been shown to be essential by some researchers, others find a weak correlation between tax knowledge and attitudes towards tax compliance (Cvrlje 2015). An early study by Eriksen and Fallan (1996) supports the principle that attitudes towards tax compliance can be improved through better tax knowledge. Other empirical studies finding a significant positive effect of tax knowledge on tax compliance are those of Ali and Ahmad (2014), Andreas and Savitri (2015), Mukhlis, Utomo and Soesetio (2015), Niemirowski, Baldwin and Wearing (2003), Oladipupo and Obazee (2016), Palil (2010), Palil and Mustapa (2011) and Saad (2014).

One of the complications in interpreting evidence on the role of tax knowledge in tax compliance is the fact that different studies use different interpretations of what tax knowledge encompasses. They also use different measures to determine individuals’ tax knowledge. Some examples of how tax knowledge can be defined are described as follows:

In arriving at a comprehensive explanation of the concept of tax knowledge, some efforts by tax authorities to educate citizens about their tax responsibilities are studied in the paragraphs below and the objectives of such efforts are identified. Based on these objectives, elements of tax knowledge may then be recognised.

Worldwide, tax authorities have realised that tax knowledge will lead to better tax compliance. Consequently, they have embarked on various taxpayer education projects to improve tax knowledge (OECD 2015a). The OECD has combined these projects in a ‘Global source book on taxpayer education’ (OECD 2015a). This publication notes that it is difficult to change perceptions of older taxpayers, and therefore many countries like Rwanda, Jamaica, Kenya, Mauritius, Morocco and Peru start their taxpayer education projects at school level (OECD 2015a; Rwanda Revenue Authority 2019). Malaysia and Costa Rica try to make tax fun with tax speech competitions and junior tax offices to teach children the tax cycle, starting with the government’s expenditure and how to use the collected taxes (OECD 2015a). Mexico and El Salvador seek to improve the tax culture of students. In Brazil and Burundi, students are trained to assist low-income taxpayers and small businesses with their tax affairs for no payment. Small informal businesses and rural areas are also being targeted in Korea, Mozambique and South Africa, with special classes, campaigns and mobile units (OECD 2015a).

The OECD (2015a) further reports that many countries acknowledge that the new technological tax filing era requires new training. Therefore, Colombia, Estonia, El Salvador and Chile provide online training and web portals for students and educators. Uruguay even has a special ‘Plan Ceibal’ which aims to provide every child with electronic tax activities on a laptop. Many countries such as India and South Africa air television advertisements during their tax seasons, while Nigeria promotes the payment of taxes through a soap opera on television (Alakam 2013; Income Tax Department 2019; Sharp 2015).

In Zambia, where only a few people own televisions, a weekly radio programme is aired every Wednesday where tax matters, including changes in the legislation, are discussed (OECD 2015a). The Mauritius Revenue Authority takes technology even further by using a social networking site (Twitter) to inform taxpayers of changes in legislation (Mauritius Revenue Authority n.d.).

Some countries seek to build a culture of tax compliance by raising awareness of citizens’ tax obligations and inspiring citizens to pay their taxes (Faizan 2018; Gaber & Gruevski 2018; OECD 2015a; Rwanda Revenue Authority 2018). For example, Bangladesh, Rwanda and Senegal have national tax days. In Rwanda, the best taxpayers are rewarded by the president on this day (Rwanda Revenue Authority 2018). In Guatemala, residents can obtain information at tax stands during the annual citizen culture festival (OECD 2015a). In South Africa, two media companies have two independent tax days where employees of the South African Revenue Service (SARS) assist the companies’ employees with tax issues. Almost 6 million people are reached by these two initiatives (OECD 2015a).

Countries like Bhutan not only build a culture of tax compliance but also conduct training to encourage taxpayers to take part in the tax payment process (OECD 2015a). In South Africa, SARS aired various advertisements to show how tax money is used for good to inspire taxpayers to pay their taxes. One example is where a man receives a successful eye operation and is able to see (Mbatha 2015).

From the above, it is clear that the following main objectives form the basis of taxpayer education:

Taxpayer education seemingly pursues three dimensions of knowledge about taxes, namely, a dimension of general awareness of why and when we need to pay taxes, a dimension of knowing how to interact with tax authorities and a dimension of knowing how we are taxed. There appears to be value in identifying the knowledge requirements of taxpayers in specific contexts or industries, as this may assist tax authorities in educating taxpayers.

Bornman and Ramutumbu (2019) proposed a framework of tax knowledge that provides a structured approach for assessing tax knowledge requirements in various contexts as a factor influencing tax compliance. The framework suggests that tax knowledge is discernible in three categories: (1) general tax knowledge, (2) procedural tax knowledge and (3) legal tax knowledge. This study applies this framework to identify and categorise the unique tax knowledge requirements of individuals functioning in the digital economy. It is suggested that an identification of knowledge requirements in a specific industry may not only assist tax authorities in developing targeted education strategies but also highlight risks of non-compliance resulting from gaps in tax knowledge of the participants to that industry.

This article is structured as follows. In the next sections, the objective and method are presented, followed by a brief review and rationalisation of the conceptual framework. Thereafter, the results of the study are presented, together with the tax knowledge requirements and problem areas for taxpayers in the digital economy. The risks relating to tax knowledge in the digital economy are then highlighted, followed by the study conclusion.

The first objective of this study is to identify the tax knowledge requirements of individuals functioning in the digital economy and to categorise these requirements as general, procedural or legal. The second objective is to point out risk areas in terms of knowledge requirements that may impede tax compliance among individual taxpayers. An awareness of these risk areas may assist tax authorities in devising targeted strategies for improving taxpayer knowledge for the digital economy on different levels.

A qualitative approach was used in the study by means of a thematic search of appropriate literature. The OECD comparative information series (OECD 2015b, 2017b) on tax administration was largely used to report on the digitalisation of the interaction between taxpayer and tax authority. Other literature, in the form of articles, reports, blogs and media releases, was sourced using keywords such as ‘tax knowledge’, ‘digital economy’, ‘digital disruption’, ‘electronic commerce’, ‘e-commerce’, ‘tax awareness’ and ‘tax literacy’ on academic databases (Scopus, Taylor & Francis, EBSCOhost and OECD iLibrary) to find information on tax challenges resulting from the digital economy. Refined searches were performed within results to limit the subject field to ‘tax’ or ‘accounting’. The result lists were scanned for relevance according to inclusion criteria, and documents were then either retained or rejected. The inclusion criteria specified that the article should contain information on economic transactions that are facilitated through the Internet or information on the digitalisation of communication between taxpayer and tax authority (or tax administration). Data were collected during January to October 2018, and new documents were added until theoretical saturation was reached in terms of the broad themes identified for further analysis. This process of data collection and sampling can be described as theoretical sampling, which Saunders, Lewis and Thornhill (2012) describe as a form of purposive sampling designed to pursue theoretical lines of enquiry rather than to achieve representativeness.

The documents were then systematically reviewed to find evidence of transactions or situations in the digital economy (or themes) which could require specific tax knowledge. The broad themes that were identified included virtual transactions and currency, Internet-based transactions, online platforms, tax administration and digitalisation of accounting records. Three codes of general knowledge, procedural knowledge and legal knowledge were used to categorise text according to themes identified in the data. This can be termed an interpretative approach, whereby predefined codes are assigned to portions of text according to the meaning attached to it by the researcher. Saunders et al. (2012) indicate that an interpretative approach involves subjective meaning-making of the details of a situation and the reality behind those details.

A limitation of this study is that it is not an exhaustive investigation but rather an exploratory account of new tax knowledge requirements, resulting from new situations and transactions because of the digitalisation of the economy. Given the rapidly evolving nature of the digital economy, new transactions and events may come to light on a continuous basis, which may result in additional tax knowledge requirements that are not recognised in this study.

The analysis that follows aims to determine whether there are unique requirements for ‘tax knowledge’ in the digital economy categorised as general, procedural or legal tax knowledge.

The three areas of general, procedural and legal tax knowledge may pose obstacles, which hinder the tax compliance of individuals. These obstacles are discussed in the following sections.

An individual’s tax compliance is influenced by social and environmental factors that vary in different contexts. It is argued that specific tax knowledge is needed by individuals to effectively comply with their tax obligations in the digital economy. To this end, the elements of general, procedural and legal tax knowledge, as identified by the framework proposed by Bornman and Ramutumbu (2019), were used in this article.

The first objective of this study was to identify the tax knowledge requirements of individuals functioning in the digital economy and to categorise these requirements as general, procedural or legal. Our findings suggest that there are unique tax knowledge requirements in the digital economy. To be ‘tax-knowledgeable’, one needs to be aware of these challenges to make informed decisions concerning one’s tax obligations. Furthermore, in terms of the digitalisation of interactions between people, organisations and governments, it was argued that being skilled in ICT might enhance effective interaction between taxpayer and tax authority.

The second objective was to point out risk areas in terms of knowledge requirements that may impede tax compliance among individual taxpayers. Taxpayers and tax authorities alike should take note of the risk areas identified in each knowledge area (general, procedural and legal). Our findings are summarised in Table 1.

Tax authorities will need to devise strategies to deal with tax on transactions in the digital economy, and indeed, many tax authorities have already implemented creative solutions to address these compliance risks. This study’s contribution lies in the identification of risks in the different categories of taxpayers’ knowledge that may cause taxpayers functioning in the digital economy to be non-compliant. It is proposed that further research build on the findings of this study to identify additional knowledge requirements in the digital economy and also investigate possible strategies to address taxpayers’ knowledge deficits.