The tax function faces constant pressure to meet increasing tax compliance and regulatory demands in shorter time frames requiring continuous improvement. Increasingly, tax professionals are looking to technology for help to manage these challenges. From data collection, analysis, compliance and audit reporting, tax technology solutions may hold the key to managing and optimising the entire process. Below we explore some of the emerging or topical technologies and consider how tax professionals and functions are influenced or affected by them.
Big data and automation
To ensure accurate reporting and maintaining compliance, companies/corporations are relying on management systems to provide all the data. However, how does a tax professional ensure that the data provided meets all its regulatory requirements, and once regulatory understandings are realised, how does they then take advantage of automated data to ensure seamless accuracy? Also, does a tax professional now need to become a data analyst or automation expert? Are there other ways to leverage data and automation?
Digital transformation of finance
In the current information age, we are seeing a significant and rapid digital transformation within the world of finance; Data Analytics, AI, Fintech, Blockchain and automation. Some of these technologies are already changing how finance operates such as RPA and business intelligence reporting. More and more of these technologies will become a normal part of the finance landscape. A few years ago, Cloud was a concept thought to only affect the IT department. Then SAP and Oracle began offering their accounting and ERP software on Cloud and now finance needs to at least appreciate what Cloud means for their data and systems. The world of finance is evolving and with it, so inevitably is the world of tax.
The Organisation for Economic Co-operation and Development’s (OECD) stance on tax digitisation
A task group was set up by the OECD consisting of national tax authorities, software developers and accounting bodies to provide guidance for developers of business and accounting software concerning tax audits. The OECD’s aim of this is to simplify tax compliance and tax audit requirements as they relate to information required for tax purposes from business and accounting systems. The principles outlined cover:
- integration of effective tax protection controls;
- production of audit trails;
- enabling audit automation;
- production of Standard Audit File for Tax Purposes (SAF-T);
- allowing users to file returns electronically;
- archive procedures to ensure integrity and readability; and
- provision of comprehensive documentation.
Tax authorities’ digitisation initiatives
Globally, tax authorities are moving towards the use of sophisticated platforms that require taxpayers to be able to submit VAT transactional and other tax data in real time. In addition, they’re deploying powerful data analytics tools to increase tax collections and identify compliance risks. Generally, most revenue authorities globally are moving towards the digitisation of tax administration by implementing mandatory VAT requirements such as:
- detailed digital transactional level data (on a daily invoice level)
- B2B e-invoicing
- Live invoicing
- Standard Audit File for Tax (SAF-T)
- The use of analytics
The use of technology by tax authorities can significantly enhance collection and therefore such initiatives will become commonplace. Here are some examples of tax authorities and their digitisation initiatives.
Making-Tax-Digital in the United Kingdom
On 1 April 2019, the HMRC rolled-out Making Tax Digital (MTD) for VAT. Further requirements come into force in April 2020. This initiative will revolutionise the UK tax system by making tax administration efficient and far more effective. MTD requires VAT registered businesses to keep digital VAT business records and submit returns using MTD-compatible software. Their goal is a tax filing-free process with live real-time submissions.
Russia’s Automatic VAT control system
The Russian Federation is an impressive example of tax authorities embracing digitization. They implemented a real time VAT tracking and submission system three years ago whereby all VAT from a sale and matching expense is tracked and matched in a digital system that requires very little human intervention. The VAT gap has decreased from 9-10% to under 1%.
Mexico’s technology mission
One often thinks the digitisation of tax authorities is a relatively new development but the tax authority in Mexico specifically embarked on a daring technology mission already ten years ago. With this mission they have collected and maintained detailed databases on taxpayers that significantly enhance tax audits, provide targeted insights on taxpayers and assist in validating VAT submissions.
Investment in digital administration systems in South Africa
The South Africa Revenue Service (SARS) has been under immense pressure following the reduction in tax collections, the decreasing levels of compliance and a bad reputation. Filing compliance, with respect to VAT, dropped from 79% in 2008/9 to 61.7% in 2018/19. However, new leadership at SARS definitely sees the significant opportunity for automation and for the use of technology to be used to SARS’ advantage. As such SARS has recently invested R225 million into new eFiling infrastructure alone.
The popular question that organisations ask themselves is how technology can improve the way they do business by increasing efficiencies, accuracies and reducing costs. However, given the above technology considerations for tax functions, they will have these additional
Questions to consider:
- How can technology lessen tax-related inaccuracies and irregularities in the organisation in a more pro-active manner?
- And, how can their organisations use technology to keep up with technology-based initiatives of the tax authorities?
There could already be a financial impact in penalties, interest and incorrect tax treatments if these questions remain unanswered. Although these may not be the popular questions to be answered, tax professionals should be constantly seeking to answer them.