1. Taxation 2.0: Does your tax function need a makeover? Here’s how technology can help

Taxation 2.0: Does your tax function need a makeover? Here’s how technology can help

Tax teams of companies today are witnessing change all around them at a pace faster than even before—both in their internal and external environments.

New Delhi | Published: May 13, 2017 4:45 AM
Tax authorities are solemn in their endeavour to keep pace with changing business models and technology trends. (ICAI).

Ask any stunt double who has jumped off a moving train onto a platform and he will tell you the only way to avoid a fall is to run as fast when your feet hits the ground. Tax teams of companies today are witnessing change all around them at a pace faster than even before—both in their internal and external environments. Physics would predict a tumble if tax teams do not run as fast. To add to the need for speed, tax has now become a board-room agenda and the role of tax teams is moving away from ‘just complying’ to ‘value delivery’ and being ‘business partners’. Changes in the external environment are also constant and quick. Legislations are evolving every day and it takes a specialist to keep up—the sun is slowly setting on the generalist.

Tax authorities are solemn in their endeavour to keep pace with changing business models and technology trends. The technology engine at the core of GST and other projects of the tax administration that are under way are great examples of government’s issued digital mandates. So yes, it’s not business as usual for tax teams today. But adaptation is a primal instinct, and if history is any indication, tax teams will adapt. So, how do tax teams plan to transform to keep up with the transformation around them? Three trends are at the tip of most tax tongues today as potential solutions—tax technology, tax process improvement and outsourcing.

Tax technology

As the old adage goes…‘fight fire with fire’. Technology is transforming the environment around tax—so, tax should answer with appropriate technology. The potential value that technology can bring to tax is immense. For instance, technology enables data analytics which greatly improves decision-making. Imagine if you could know your effective tax rate and compare it with the competition’s, skim through tons of data to identify deductions that you have been missing or anomalies in tax filings, understand litigation trends across your industry to stay prepared proactively and do all of this without employing a single extra person—your computer would do it for you!

Moving to the more mundane but highly critical space of compliance and litigation management, technology can be used to improve accuracy, stay on top of the multitude of matters, save administrative costs and just generally make the tax team’s workday better by managing ‘data and workflow overload’. Improving data architecture in ERPs to capture data needed for tax compliance and litigation can sometimes greatly increase accuracy and reduce efforts. Technology can enable real-time information storage and retrieval as well, answering that question which haunts tax folks all the time—‘do I have all the data?’

CFOs and tax heads may also have a lot to gain at a more strategic level from technology. In addition to tax-cost savings enabled by data analytics, technology can be used to create dashboards and reports capturing compliance and litigation updates, cash-flow projections, financial statements impact of tax adjustments, upcoming and overdue tasks and almost anything else a CFO or tax head would like to know. Companies are starting to see the value in this transformation of tax getting tech-savvy!

Tax process improvement

Companies are expressing that tax processes are archaic and often inherited from predecessors. While a lot of time is spent on getting the job done, far too little is spent on taking a step back and reflecting on whether processes are optimal and efficient. Companies have now started re-visiting their assembly lines to identify gaps, misses and opportunities. This is done with two objectives—reducing risk of non-compliance and increasing efficiency. Process introspections undertaken so far reveal some startling findings. It has sometimes been found that there are pieces of data not validated by any team (finance or tax) but relied on for making filings. Tax processes are also not currently designed to pick up tax planning opportunities or risks at the right time. Far too much time is spent on co-ordination, interaction and pulling out data for tax needs as processes are not well defined. Companies have found that these are symptoms of a larger malady—tax process re-design to fill the cracks pro-actively is emerging as the antidote of choice.

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Tax function outsourcing

Companies have realised the importance of building a ‘top in class’ tax function to manage their biggest expense in their profit statements (i.e., taxes). But it clearly takes a lot to do this, in terms of time, effort and competence. So ‘Outsourcing’ is an inevitable choice that companies are exploring. Professional tax firms have started taking up this mantle—similar to IT firms 10 years back. This involves outsourcing the tax function to third-party experts whose core business is tax.

With tax function outsourcing, companies get access to industry best practices, efficient data management, reducing people dependencies, process improvements, specialised skills, technology tools, etc, without having to make a continuous investment in these areas. The overhauled technology-driven compliance landscape under the upcoming GST regime is another driver compelling tax payers to think of fresh investments in people, process and systems and therefore rethink in-house investment vs outsourcing. But, of course, while there are several problems solved with the outsourcing option, companies often have apprehensions as well around data protection, flexibility to later in-source, consultant dependency, etc. Needless to say, tax function outsourcing is not a ‘one size fits all’ solution. Companies will need to strike the right balance with their outsource partners to ensure they reap the benefits of outsourcing while addressing these challenges. The overhauled compliance landscape under the GST regime would in any case mean changing the way data is managed and compliances are undertaken—this is therefore a good time to start thinking ‘outsourcing’.

In conclusion, tax function ‘makeover’ is the need of the hour. How companies achieve this would depend on their objectives, philosophy, comfort levels and a number of other intangible elements. But it is surely time to hit the gym—Aamir Khan’s ‘fat to fit’ makeover for Dangal is good direction and welcome inspiration!

– By Jitesh Bansal, Tax Partner, EY. Views are personal.

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