By N Balaji & Upendra Sai

In many organisations, finance and tax functions have joined the digital transformation later than other functions like marketing, sales or supply chain; this is leading to a situation where tax functions need to do a significant catch up to bridge the gap. Today, digital transformation is one of the top priorities for CFOs and tax heads. Unlike other functions in an organisation, the tax functions are facing challenges from multiple sides:
From the regulation side: Tax returns are picked up for scrutiny based on some pre-configured algorithms that highlight risk factors, the numbers under different statutes or different returns are being compared or auto populated, and discrepancies are being challenged;

From the organisation side: New business models leading to newer transaction types with ambiguous compliance requirements, increase in volume of data that needs to be used for filing, granular reporting requirements that warrant transaction level reconciliations, as with the rest of the organisation tax teams are required to do more with same or less resources.

EY’s Tax Finance Operate survey indicated that 88% of the respondents believed that the workload is going to increase due to tax policy changes. Finance and tax functions need to move forward in their digital journey to keep pace with both the external and internal environments.

Tax specific technology and data analytics are two levers that can help the tax functions address some of the above challenges. The two are interlinked because the tax data flow and processes have changed in the light of digital disruption with technologies by Robotic Process Automation (RPA) and Artificial Intelligence (AI).
The days of invoices being entered manually in the ERP are becoming history. Today there are either QR coded invoices which are simply scanned or invoices are read using Optical Character Recognition (OCR) and fed into the ERP through RPA and AI. A Machine Learning (ML) model can be deployed within the invoice accounting automation for tax determination, and the model would have access to all past data to learn from them.

With real-time monitoring of performance and periodic interventions to keep up performance, tax planning cannot be a once-a-year exercise. Tax technology and analytics would help in computing tax projections more frequently and with simulation modelling one can evaluate the impact of various interventions. A repository of all past tax returns in analysable form would help in planning and simulation. To facilitate this, one needs to have tax specific technology to manage the tax returns and both the downstream and upstream processes associated with tax returns. A layer of analytics on this technology would really help in synthesising the data from multiple returns and help in interactive analytics. Data analytics can be a significant strategy in helping the tax function handle current set of challenges.

Data analytics journey within a tax function needs to be a carefully planned exercise with clear articulation of expectations and timelines associate with them. Analytics is not a magic bullet, but when approached with the right of strategies, it can really be a game changer for the tax function and for the entire organisation.

N Balaji is partner – Analytics, Advisory Services, EY India while Upendra Sai is director – Analytics, Tax Technology and Transformation, EY India