Indirect taxes

Tax agenda 2013

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How to deliver positive and affordable assurance to Audit Committees on GST and other indirect taxes!

Audit Committees (and indeed the ATO) have never put higher demands on finance and tax functions to provide ‘positive assurance’ that indirect tax systems and processes are operating correctly. Yet tax functions are continuing to struggle with very limited systems assurance tools in GST and other indirect taxes. This is a function of budgets, skill sets and internal priorities.

In seeking assurance during a BAS preparation process for instance, a typical taxpayer may limit its testing to comparing summary GST amounts reported in a particular month, with the amount reported last month and perhaps with the same month last year. Yet a systemic error could be distorting all three of these numbers in the same way, masking real and costly errors. In short, what passes for assurance activities in many cases is extremely limited and may in fact convey a ‘false positive’ that all is well.

Large businesses have monthly GST transaction counts with thousands of lines of data and annual GST throughputs (output tax plus input tax credits) in the hundreds of millions of dollars. Even a 1% reporting error can be material to a business’ bottom line. Reaching a level of ‘positive assurance’ in this space obviously needs a lot more than some crude comparisons to prior periods.

The question in the past has been “How can I access meaningful indirect tax analytics, without disproportionate costs?” Fortunately, advances in indirect taxes and systems assurance tools can now deliver this kind of positive assurance in a cost effective manner. In line with these advances, Audit Committees (and the ATO for that matter) will increasingly expect businesses to provide positive assurance around GST and other indirect taxes.

New and affordable software is available to give businesses the tools to conduct meaningful analytics each month on their transaction data. The software identifies patterns in the transaction data that might indicate GST or Customs Duty errors. For instance, the software tools will prompt tax functions to consider the following questions: why did the business issue nine tax invoices to a customer in the month as taxable, and one as GST-free? Why is the business issuing credit notes to customers, but not claiming back GST? What is the late claiming of input tax credits costing the business in terms of working capital foregone? Why is the business paying customs duty where the goods originate in a country with which Australia has a Free Trade Agreement?

EY is at the forefront of advising on the ‘best fit’ of Indirect Tax software for businesses. Our software implementation services ensure tax functions save critical time in preparing and reviewing their monthly BASs, and gives tax functions the analytic tools required to give positive assurance to the Audit Committee or the ATO. Frequently, the software analytical tools also identify substantial savings.

The use of indirect analytics tools as part of monthly return preparation is a major step towards positive assurance. Indirect tax errors that are identified and corrected are an obvious indicator of a well controlled indirect tax environment.

Affordable tools or enhanced BAS return preparation by EY using such tools are now available to help tax functions satisfy Audit Committee requirements in relation to the management of all Indirect Taxes.

Contact your local EY Office to find out more.