Use technology and data effectively to get ahead of the indirect tax curve, says new EY report
- Tax administrations are collecting and sharing more taxpayer data
- Tax payers at a technological disadvantage compared to tax and customs administrations
Singapore, 15 May 2014 – Dealing with data is the key to tax transparency and to effective management of companies’ growing indirect tax obligations, says EY’s latest report, Managing indirect tax data: gaining insight and control in the digital age.
Dr. Philip Robinson, EY’s Global Director of Indirect Tax comments: “Tax reporting begins and ends with data – but the variety of indirect tax data required by different jurisdictions and the sheer quantity of relevant data now generated by large organizations can present logistical issues for its effective collection, storage and analysis.”
Organizations’ reporting requirements increase amid data sharing
With the increase in reliance on VAT, customs, excise and other indirect taxes by governments to meet budgetary needs and the “fair tax” debate putting companies’ tax affairs firmly in the spotlight, many multinational organizations are required to report more – both in frequency and quantity.
Tax and customs administrations are requesting more information about companies’ transactions and where and with whom they do business.
Through the use of data analytics, these tax administrators are analyzing and comparing data from different organizations to collect and protect tax revenues. Data extraction is also helping them to perform “smarter” tax audits to identify underpayments and systemic weaknesses, as well as carry out risk-based audits. In-depth reviews that once took from three months to two years to complete can now be done on a data-driven basis in a matter of weeks.
In Singapore, GST-registered businesses are required to file their GST returns electronically. Similar to many countries, there is no requirement in Singapore to submit invoices electronically to the Inland Revenue Authority of Singapore (IRAS). “With electronic filing of GST returns, it allows the IRAS to use data analytics to identify potential errors and irregularities. Such use of data analytics is a growing trend among tax authorities around the world, as it is less labor-intensive and yet more effective for auditing companies,” says Yeo Kai Eng, Partner and Leader for GST Services at EY in Singapore.
Tax data not just for compliance
In the past few years, “big data” has become a key focus in companies and tax administrations on a global scale. Enterprise intelligence is how companies manage and exploit their big data. Until recently, too few companies have been able to meet the challenge in their own tax data management and response times. Taxpayers are still very reactive and this data is analyzed and consolidated predominantly as and when the tax administration performs a tax audit.
“This trend is changing,” says Robinson. “Tax management is increasingly driven by key performance indicators linked to the company’s overall strategy. Tax and trade functions need to protect companies from risk, but they are also being asked to contribute to profitable performance.
“Gaining visibility over the financial impact of indirect tax obligations, risk and opportunities is an important step to establishing an effective indirect tax strategy. As companies begin to outsource tax compliance and run their own data warehousing and dash boarding solutions, their analysis of tax and trade data is becoming much more proactive.”
Taxpayers not keeping up with technology
As tax and customs administrations around the world develop their data analytic capabilities, taxpayers must do the same or they will find themselves at a distinct disadvantage and at risk.
The report indicates that many tax and trade functions often struggle to make the business case for investment in indirect tax technology as it is often seen simply as an overhead cost rather than a vital contributor to reducing risk and improving operational efficiency.
Robinson concludes: “Tax executives want access to the same type of data analysis software used by tax auditors to identify errors and opportunities. But this is often still on the “wish list”. However, given the intention of tax administrations to increase their use of advanced software tools and the intensity of their data-led audits, multinational organizations will have to respond. So what is a ‘nice to have’ today, is likely to become a ‘”must have” for tomorrow.”
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