While in the field of tax, the Government has taken a lead in digital tax administration, the corporate sector is largely still focusing on Goods & Service Tax (‘GST’) filing as the key technology enabler. However, globally, and some corporates in India, have taken a head start in implementing technology beyond GST filings in their tax function.
The need for technology and automation in tax
Enablement of technology within the tax function has become urgent due to the following reasons:
- High level of digitalisation of tax administration in India e.g., tax authorities are able to apply data analytics to compare voluminous data sets across buyers and sellers’ GST filings.
- Need for corporates to govern their tax function more efficiently e.g., due to multiple entities and multiple tax proceedings in addition to tax team attrition, use of technology becomes critical; and
- Minimise risks arising due to inaccuracies while manual handling of large volumes of data. E.g., it is challenging to validate rates of Tax Deduction at Source (TDS) on dividends paid to lakhs of different types of shareholders
Four areas for adoption of tax technology
The areas of adoption of technology in tax are summarised below.
- There is a significant scope for automation in tax data collation and processing since tax and finance teams spend significant time grappling with ERP data and spreadsheets from multiple systems for tax compliance, statutory and internal reporting and reconciliations.
For example, tax reconciliations can be automated within, or outside
and automated reports generated using appropriate tax and technology skills – Automation of Clause 34a of Tax Audit Report related to TDS within ERP is a classic case and can bring efficiency and accuracy.
- In addition, digital tax governance has become essential to overcome the challenge of tax and finance leaders not having adequate visibility on important areas such as tax and litigation status, tax refunds, tax losses, adequacy of tax provisions, etc. By having access to litigation and compliance management tools, tax and finance leaders could enhance their visibility and control on tax litigation and compliance and also have innovative smart alerts on upcoming deadlines and tax hearings. With GST audit on the anvil, proactive preparation by collating and maintaining back up data and documentation in a digital repository is equally critical.
In fact, implementing such litigation and compliance management technologies on a SaaS model (Software as a Service), would involve minimal cost of ownership by eliminating cost of creating and maintaining IT infrastructure.
- Gathering insights from tax data using data analytics is another area which can 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 data analytics technology on GST and ERP data can help in drilling down on several purchase and sales exceptions, for example, vendors who are being paid beyond 180 days after taking input tax credits causing interest implications; sales invoices with a foreign supply of services to customers with GST; and purchase invoices for materials where tax percentage differs.
Adopting technologies which facilitate 26AS reconciliation for TDS and Tax Collected at Source (TCS) could also greatly help digitalise the process. Such technologies also enable insightful and analytical dashboards which track potential tax leakages due to erroneous TDS /
entries by customers and suppliers, respectively.
- Businesses with a large number of transactions often require spending significant amount of time on repetitive tax related manual actions for such voluminous tasks. Robotic Process Automation (RPA) or bots are process automation software, which can significantly reduce time spent by tax teams on such activities. They can undertake high volume repetitive manual actions across various applications such as read documents or websites and create digital registers of thousands of line items of data in desired formats. One example is reading multiple lines of data from thousands of airline invoices and creating a digital register for claiming GST input tax credits. All this at a minimal operating cost.
The way forward
While ‘off-the-shelf’ tax technology tools can help address some of the challenges discussed above, such as tax governance, our experience indicates that areas such as tax data handling, tax reconciliations and data processing need implementation of highly customisable technology and automation solutions due to:
- the variations in data environments and manner of data recording of each organisation; and
- the variations in outputs expected.
A first step would be to understand various tax processes where technology intervention can add value and as a second step enable technology in the identified tax processes to gain the desired value. Several large organisations are also enabling technology in tax processes through managed tax services (where organisations are not keen to invest and maintain technology due to changing laws and regulations).
One word of caution while evaluating value add and benefits is to give more weightage to improving accuracy and processes in the tax function as opposed to evaluating only costs, as the cost of potential interest and penalties arising from inaccurate compliances can be much more at a later stage.
The writer is Partner, Head – Tax Technology & Transformation, KPMG in India.