Tax Functions frozen in time

Monday, 25 September 2017

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  • 40% of internal tax functions still using excel
  • 68% of tax function effort on compliance
  • 18% make tax return amendments due to human error

The EY 2017 Tax Function survey has produced some worrying revelations about the tax functions of some of Australia’s major businesses. 

The second EY Tax Function Survey: “When compliance processes are automated, what will tax professionals do?” asked a range of qualitative and quantitative questions of tax professionals from 170 private and public Australian companies. The respondents came from a broad range of industries, and included subsidiaries of multi-national groups.

While dramatic changes are sweeping the external landscape, the 2017 survey found many tax functions “frozen in time,” said Geoff Blaikie, EY Oceania Tax Leader.

“Revenue authorities around the world are using technology to review financial records directly with the real potential of making filing annual tax returns redundant, yet we found that more than two thirds of tax function effort is still taken up by compliance – unchanged from our last study in 2014.”

According to the survey, two in five tax professionals are using spreadsheets to calculate and consolidate their tax provisions and almost half (49%) struggle to locate tax related records or documentation.

“This is extraordinary given the readily available bespoke systems that can automate routine tax processes, eliminating the majority of duplicate work and improve accuracy in a fraction of the time,” said Mr Blaikie. “A process that used to require wading through hundreds of thousands of lines of data over several days can now be done in just minutes.”

Despite overwhelming evidence that other stakeholders in the tax universe are digitising their systems, more than half of the respondents are still sourcing data manually and 40% are using excel. More than a quarter spend half their time getting data ‘fit for purpose’ and only 27% are satisfied with the analytics produced.

Other worrying statistics included:

  • 20% of respondents lodged their tax returns late
  • Only 8% of tax function time is being devoted to tax risk management
  • 55% of respondents said their organisations have yet to formulate an approach to the Tax Transparency Code (TTC).

Tax functions are spending just as much time on tax planning (77%) as they were previously. This is despite the fact that boards are increasingly concerned with tax-related risks of adverse media coverage and personal liability.

At the same time, Tax functions are under increased pressure from cost constraints, executive scrutiny and aggressive revenue authorities. 

“The future of tax is largely automated and will be controlled by revenue authorities, so the stark reality is that more than two thirds of tax functions efforts will no longer be required in the not too distant future,” said Mr Blaikie.

“While in the past, tax functions controlled the data, soon revenue authorities will be able to reach into organisational systems, secure data from third parties such as banks and suppliers and automatically populate tax returns and calculate tax obligations. Already in Brazil, the government has cut human interaction out of the entire tax process for both individuals and corporates. In the five years to the end of 2015 this has raised an additional 12.46% in federal taxes without raising the tax rate.”

“Tax functions must accept that a transition is coming. They must start to deliver data in the specific formats that will be demanded by revenue authorities across the globe, and they must plan for what they want to happen and what they want their future to look like when inevitably their systems are automated and their organisations move to digitised operations.”

“Savvy tax professionals will embrace the opportunities that digitisation brings to influence the way financial systems are designed in the future. Perhaps even more importantly, digitisation offers the opportunity to free-up these highly trained and educate tax professionals from the mundane to bring their intellect to bear on more interesting and valuable work,” concluded Mr Blaikie.

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