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.
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 revenue 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.
Real time VAT submission directly to tax authorities
Globally, tax authorities are moving towards the use of sophisticated platforms that require taxpayers to be able to submit VAT transactional data in real time. This is already in effect in Latin American (LATAM) countries as well as many European countries such as Italy, Hungary, Greece, Poland and Spain with others following suit. In addition, they’re deploying powerful data analytics tools to increase tax collections and identify compliance risks.
Making-Tax-Digital in the United Kingdom
On 1 April 2019, the HMRC rolled-out Making Tax Digital (MTD) for VAT. 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.
Compatible software is a software product or set of software products that between them support the MTD obligations of keeping digital records and exchanging data digitally with HMRC through the MTD service. If more than one application is being used, data that flows between those applications must also be exchanged digitally.
Most revenue authorities globally are moving towards the digitisation of tax administration by implementing VAT requirements for mandatory:
- 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
Bringing it home, 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.
Should SARS make a move to paperless invoicing, by choosing live invoicing or e-invoicing, we would need to evolve the electronic data exchange to mitigate tax fraud, errors and other issues. This would require a step into redefining the law around requirements for a valid tax invoice. Imagine a time when SARS will no longer issue verification requests or audits that start with the request for an input tax schedule, output tax schedule or sample of invoices to determine if they meet the requirements of the VAT Act for a valid tax invoice or calling upon suppliers and customers to confirm that invoices match actual supplies made. This will all be already answered.
The Daring question
Organisations are continuously asking how technology can improve the way they do business by increasing efficiencies, accuracies and reducing costs. The most daring question, and one people tend to avoid, is how should an organisation be using technology to handle and highlight inaccuracies and irregularities as they happen rather than a year later after an audit team or external consultant has identified it. Given the financial impact of tax inaccuracies such as fines or interest, this question is unfortunately a mandatory one that all tax professionals should be seeking answers to.