Tax and finance leaders are facing a challenging tax environment. On the one hand, tax authorities are digitalising tax administration [including sharing and reconciling of data between Income tax, Goods and Services Tax (GST) and Customs] and increasing scrutiny at a transactional data level, while on the other hand, there is pressure to reduce costs within the tax function.
In such circumstances, augmenting technology within the tax function today is now a “must have” rather than just “good to have”. Therefore, it is important to understand how and where technology can add value in a tax function with minimal investment.
Areas for adoption of tax technology
1. Automated tax data collation and reconciliations
Tax teams spend significant time grappling with Enterprise Resourcing Planning (ERP) data and spreadsheets from multiple systems for tax compliance, statutory and internal reporting. There is significant scope for automation in this area.
The data collation could be automated by creating a ‘Tax Data Warehouse’ using Data Ingestion, ETL (Extract, Transform and Load) and OLAP (Online Analytical Processing) database technologies. This provides control to the tax function on its data, enables ease of reconciliation between various data sets [e. g. ERP against Invoice Registration Portal (IRP), 26AS etc.], enables future retrieval and of course saves significant time.
2. Digital tax governance
With the implementation of faceless assessments and appeals, it becomes imperative for organisations to be proactively ready with tax data and documents. Currently, most tax functions maintain tax status on spreadsheets and documents in shared drives. There are minimal insights available to tax and finance leaders on a day to day basis (e.g. adequacy of tax provisions, tax refunds not received).
To deal with the above, organisations can implement a digital tax compliance and litigation tracker. It provides tax and finance leaders visibility on important areas such as tax and litigation status, tax refunds, tax losses, adequacy of tax provisions, etc. With smart alerts, tax leaders could have full control on upcoming deadlines and hearings.
In fact, implementing such technologies on a SaaS model (Software as a Service), would involve minimal cost of ownership by eliminating cost of creating / maintaining IT infrastructure.
3. Tax Data Analytics
Tax Authorities are now able to reconcile and scrutinise tax data across the supply chain and across direct and indirect taxes.
Data Analytics could help tax and finance leaders to proactively identify inaccuracies, inconsistencies and leakages at transactional level and improve tax processes by acting on such data insights.
Using GST and ERP data, data analytical tools can go a long way in helping drill down on several purchase and sales exceptions for example:
- Vendors who are being paid beyond 180 days after taking input credits causing interest implications;
- Sales invoices with a foreign supply of services to customers with GST;
- Purchase invoices for materials where tax percentage differs.
Technologies which facilitate 26AS reconciliation for Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) could also greatly help digitalise the process with enabled dashboards which provide potential tax leakages due to erroneous TDS / TCS entries by customers and suppliers respectively.
4. Automating repetitive and voluminous tasks
Businesses with large number of transactions often require spending significant amount of time on repetitive tax related manual actions for such transactions. Robotic Process Automation (RPA) or bots can significantly reduce time spent by tax teams on such activities.
Bots are process automation software which can undertake high volume repetitive manual actions across various applications and provide outputs in desired formats. For e.g- bots can open websites and check whether thousands of entries of Permanent Account Number (PAN) are linked to corresponding Aadhar details with minimal human intervention.
A single bot can be used for multiple use cases within the tax function to minimize cost of operating
Kickstarting the technology journey for your tax function
Enabling technology within a tax function does not necessarily require long winding implementation projects. Some technologies may be ‘off the shelf’ and others customized interventions. Adopting a modular approach can work well from a budget as well as optimal adoption perspective.
All in all, to summarize the above, technology could be the answer to help reduce manual effort, increase accuracies and enable tax and finance leaders to shift their focus from transactional to value added activities.