The tax function in an organisation is transforming, from being just a compliance role that essentially filed returns, to evolving into the value-adding role of supporting businesses and having a say in the formulation of corporate strategies. The extensive use of technology and automation in compliance is leading to this paradigm shift, and the work from home revolution pursuant to the COVID-19 pandemic is fuelling this change.
Historically, the tax department in a company has only been viewed as a compliance division. Tax departments typically filed returns, pulling out data for tax compliances, reconciliations, etc., most of which was done manually.
Automation in the tax division started with TDS compliance, which was thrust pursuant to TDS process automation by the government. Things gradually changed thereafter, and tax departments started looking at off-the-shelf tax solutions to meet compliance requirements, especially around tracking and reporting. While these solutions were useful in meeting some of their needs, over time the realisation is setting in that customisation is needed to meet specific compliance requirements, which is leading tax departments to opt for Robotic Process Automation (RPA) and for significant usage of BOTs.
The COVID-19 pandemic has not only changed the way we live but has also revolutionised the way we work - it is the catalyst for the tax function moving up the automation ladder. Due to remote working, it is imperative to have digital tax governance to help in workflow management, ease in assigning responsibilities, alerts and notifications for tracking compliance, maker-checker concept to ensure data integrity, and tracking status on a real-time basis. The pandemic has indeed forced people to think and do things differently.
A typical tax function in an organisation spends a significant portion of time on data extraction, collation, analysis, reconciliation, validation, etc., followed by creating and maintaining reports and dashboards.
There is always the risk of errors creeping in when all these activities are done manually and it also involves a significant amount of time and effort. Today, there are several state-of-the-art technology solutions that can help tax functions automate repetitive and mundane processes, which eases the burden of the tax function and allows it to focus on value-added activities. Technology is helping the tax function achieve accuracy, speed, efficiency and transparency in tax processes, compliances, and reporting, and also acts as a game-changer in the transformation of the tax function.
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It is interesting to note that technology is one area where, broadly speaking, tax administration is ahead of taxpayers. On the direct tax side, the automation journey started with TDS returns and graduated to tax returns, and we are now in the midst of faceless assessments and appeals.
The introduction of GST has elevated automation and technology to a higher level altogether on the indirect tax front.
The administration is making use of analytics majorly - (i) the Central Board of Direct Taxes (CBDT) launched Project Insight under which an integrated data warehousing and business intelligence platform is being rolled out, and it includes the Income Tax Transaction Analysis Centre (INTRAC); (ii) the Central Board of Indirect Taxes and Customs (CBIC) set up the Directorate General of Analytics and Risk Management (DGARM) in 2017 to further the automation foray.
Overall, the efforts of the tax administration have changed the tax compliance culture in India. It would be fair to say that today, technology, automation and analytics are the backbones of tax administration.
To sum up, automation and technology are changing the tax compliance landscape. Taxpayers have historically been reacting to changes brought about by tax administration but are now starting to have a more proactive approach around tax technology.
The COVID-19 pandemic has speeded up the transformation of tax compliance processes and highlighted the need for digital tax governance.
Although the present focus of automation and technology is on compliance in a big way, it is only a matter of time before technology and analytics support the tax function in making strategic decisions, which is eventually "the future of tax". In tomorrow's tax world, analytics would be a sine qua non, BOTs would be an integral part of the tax team, and artificial intelligence/machine learning and blockchain, the new norm.
(Pritin Kumar is Partner, Deloitte India; and Dilip Sutar is Senior Manager, Deloitte Haskins & Sells LLP.)
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