Canada Should Lead in the Digital Economy

Summary

George Farkas is president and CEO of XBI Software Inc. He is a past chair of XBRL Canada and a member of the SBR (standard business reporting) Forum. Previously, he was president and CEO of Dr Tax Software Inc, a premier supplier of tax software to Canadian accountants and tax professionals, and of Dr Tax–UFile.ca Inc, the first company to create a Web–based tax preparation program in Canada.

XBI Software Inc provides consulting services regarding Standard Business Reporting and XBRL and builds user–friendly software applications that use XBRL.

The Government of Canada's commitment to "launch a digital economy strategy to drive the adoption of new technology across the economy" is both important and encouraging. There are many needs for a vibrant digital economy. These include the use of open standards in all spheres to ensure that everyone can participate in the digital economy. These include to reduction of the cost of compliance both to business and to individuals. These include free access to the Internet. These include the availability of help to individuals, non–profits and companies (especially SMEs) that contribute to creating the digital economy. We would like Canada to be a world leader in the digital economy, but unfortunately, we have fallen behind. As it is written in the consultative document, "We must strengthen our focus to make Canada more competitive and prosperous, and ensure that Canadians can thrive in the future economy."

Submission

Standards:

The use of standards to reduce the cost of compliance is a set of programs called Standard Business Reporting (SBR). Standard Business Reporting (SBR) consists of a group of programs initiated by government to reduce the compliance burden for business. It can be implemented in Canada in three years and will result in overall savings to industry alone of over $1 billion dollars annually. (Implementation time and savings are based on similar figures in the Netherlands, Australia and New Zealand.) Government departments, agencies and regulators cooperate and collaborate to create one national definition taxonomy (in XBRL) to contain all the data collected by these bodies. This one definition taxonomy has no unnecessary or duplicated concepts or data descriptions and is used to create reports for each agency taking part in the project. By way of example, in Australia, 9,648 data items were reduced to 2,838, a reduction of 71%. By only asking for the information in the taxonomy, the cost of compliance (also called red tape) is reduced significantly. Without collaboration and standardization, the same information is reported in many ways, using different terms, different standards, different software. This increases confusion and the cost of reporting for business. Business owners and managers spend their own time or they hire accountants and consultants only to accommodate the needs of compliance reporting.

SBR is a better way of doing business because one harmonized standard data set is used. Reporting becomes a by–product of normal business processes and it becomes easier for business to manage its reporting obligation. Less data need be collected, only once, and when ambiguity and confusion are reduced, the business better understands the requirements of regulators and government agencies and departments.

Typically, SBR comes with one single sign–on for all agencies with one digital certificate, one authentication process, and immediate acknowledgement and response. Any errors (there should be few because of automated validation and verification) should be reported back to the company with explicit instructions on how to fix it. Key benefits to business will include:

• Reduced time and effort spent preparing reports for government by business, accountants and bookkeepers
• Reduced need for and use of accountants to file government reports
• Reduced time and effort spent dealing with errors

These benefits come from:

• Collaboration between government departments, agencies and regulators
• One single definition taxonomy
• No unnecessary, duplicate or confusing concepts
• One sign–on with one digital signature and one authentication process

The first country to adopt SBR was the Netherlands. In addition to the Netherlands, there are now also SBR projects in Australia and New Zealand. According to the Guidance Note on Standard Business Reporting, published by the OECD Forum of Tax Administration: Taxpayer Services Subgroup in July 2009, "Studies in the Netherlands and in Australia, backed by early work on SBR in the UK, have estimated that the administrative burden imposed on businesses by government reporting amounts to roughly 2.5% of GDP. The Netherlands and Australian studies estimate that SBR related savings could reduce these costs by at least 8%, reducing the burden by 0.2% of GDP to 2.3%, which represents savings in the high hundreds of millions in both currencies."

By example, 12 agencies participate in the Australian SBR program, ATO (taxation), ASEC (corporate regulator), APRA (banking regulator), ABS (statistics) and the 8 state taxation agencies. With use of this taxonomy, in XBRL, accountants, bookkeepers, tax professionals and software developers will have access to a powerful system which will enable them not only to sent reports to government, but to banks and anyone else that requires business information.

XBI Software Inc is a member of XBRL Canada, a consortium that strongly supports reducing the cost of compliance by introducing Standard Business Reporting.

Using SBR (with XBRL) will also have the additional benefits of reducing costs within government, intra–government reporting and getting the information required by various government departments and agencies including Finance, the Auditor–General and the Receiver–General. It can help significantly reduce what has been called "spreadsheet hell." Another example are where the use of standards can be very important is in medical record keeping. Not only will costs be reduced significantly, but any chance for error will be eliminated.

Free Access to the Internet:

One manner in which Canada can become a leader is by making access to the digital world easier by creating free access to the Internet. Cost of high–speed Internet access has been an impediment to many who would otherwise use the Internet much more readily and learn how to be more active in the digital world. Although there is room for the private sector, the digital highway like the highways for cars should be free.

Help those developing the digital economy:

Many countries have become leaders in high–tech and the digital economy. They have made it an essential part of the educational processes. These include countries where the cost of labour is much less than in Canada like China or India, but also include countries where the cost of labour is higher like Israel. Countries where the cost of labour is higher, which are not competing for low–cost labour need two basic elements, the availability of a good digital education in elementary schools, secondary schools, colleges, CEGEPs and universities, and the availability of capital for new, emerging companies and projects. As a country, which is quite conservative in investments, the government must help spur innovation in this sphere. The government can do so by being a lender or investor. If it does so using the BDC, it should recommend adapting their rules. The Business Development Bank should not look for patents and copyrights because the digital world is based on free and open technology. This does not imply that businesses will not make money, but it does mean that businesses in this sector are often looking at a different business model. Sometimes, it does follow the idea of SaaS or the concept to selling advertising (Google, Facebook) and sometimes, new models will emerge (Orot Virtual Community. (In the interests, of full disclosure, I have a large interest in this company.) The BDC should also invest in seed capital and early–stage technology as well as late–stage technology in this sector. Tax benefits are not a good way to stimulate new companies, but only companies that are already profitable. These are also the companies favoured by traditional venture capital companies. The BDC should favour those companies, which seem to be higher risks for traditional venture capital. The BDC should take positions where others "fear to tread." In so doing, other venture capital firms may be tempted to follow.

Stimulate growth in the cultural sector:

Canada should also stimulate growth in the cultural sector. Whereas the size of Canada's population is adverse to its being strong in traditional cultural sectors and has caused many writers, musicians, actors, etc to venture southwards to the U.S., investing in growth in the virtual cultural sector, the digital cultural sector has a global reach.

For more information, feel free to contact the author, George Farkas at gfarkas@xbisoftware.com.