5 minute read 14 Aug 2019
Female Potter working in studio with pottery wheel

How tax can shape transformation

Digital technology and regulatory changes are changing the future of tax and challenging regulators, tax professionals and businesses alike.

Rather than just keeping pace with the changes, companies should seize the opportunity to shape their tax functions to drive value and innovation beyond compliance and reporting.

Digital technology is a double-edged sword. While it can enable tax functions to be smarter and better, tax administrations too are increasingly sophisticated and agile, and this can create more risks for businesses that lag behind. Consider how governments are harnessing digital tools to improve their administration of tax, where they are now interacting with taxpayers at source, simplifying and automating tax filing processes and requiring submission of source accounting and transactional data in digital format.

Increasingly, governments are demanding real-time or near real-time information from businesses. This changes the way taxes are reported, filed and collected, disrupting the traditional compliance process and accelerating reporting and filing obligations for businesses. Countries are at very different stages of digitalizing tax administration.

State of digital tax administration map
Digital tax administration life cycle diagram

Singapore is at Level 1, characterized by the e-filing of various tax returns, including withholding tax returns, certificates of residence and e-payment of taxes. In particular, the simplification of electronic filing of individual tax returns and submission of employees’ records has been made less burdensome and makes compliance easier. The fact that Singapore is at Level 1 does not mean that it is “business as usual.” The opposite may be true – that Singapore could move far and fast when the time comes to automate its tax compliance regime.

This is already seen in how the Singapore Infocomm Media Development Authority is the first Pan-European Public Procurement On-Line Authority outside of Europe – and the first in Asia – to launch a nationwide e-invoicing framework in January 2019.

Importantly, tax professionals should ensure the tax department is “audit-ready” from a digital perspective. This is because going forward, virtually every company will be “digital” in some way.

The Singapore government is committed to realizing its digital vision, and this further supports the digitization efforts of the tax authority. More widely, tax authorities are leveraging data collected and using data analytics tools to mine for errors, inconsistencies, anomalies and systemic frauds, enabling them to identify tax audit targets and controversies. In Singapore, the use of analytics and forensic tools has possibly helped in contributing to an increase of approximately S$53 million in taxes and penalties recovered through audit and investigation for 2018, an increase of 15.9% from 2017.

Technology is also facilitating the sharing of information by tax administrations globally. The digitization of country-by-country reports filed by multinational companies enables tax authorities to share them to assess risks, trends and anomalies, thus enhancing their efficiency.

Tax professionals are evolving too

Increasingly, traditional accounting, finance and tax functions are transformed by robotic process automation and new systems that offer real-time collaboration, scenario planning and risk simulation. Repetitive, high-volume tasks and low-value processes can now be performed 24/7 by robotics and artificial intelligence (AI) faster, cheaper and more accurately.

This leaves the tax professional with more time to pursue tax value creation, by using digital and automation tools earlier in the tax life cycle, instead of focusing purely on reporting. However, robotics and AI cannot replace tax professionals completely, particularly in the more technical and subjective areas where human experience, insights and judgment are needed.

Importantly, tax professionals should ensure the tax department is “audit-ready” from a digital perspective. This is because going forward, virtually every company will be “digital” in some way. Further, there is intense global debate about the taxation of companies that use digitally enabled business models to “reach into” a country with no physical presence that supports digital revenue streams. It is important that such digital businesses, typically running on razor-thin margins, are confident of assessing, quantifying, planning for and complying with a myriad of new laws that aim to levy tax on the profits generated by fast-growing electronic transactions.These are all contributing to a reshaping of the talent landscape, where hiring multi-disciplinary tax talent has become the de facto standard. The tax profession now competes with other sectors in hiring from the science, technology, engineering and mathematics (STEM) or other STEM-related disciplines. Thus, the recruitment, reward and retention of tax professionals require an entirely different strategy from the past.

Board and management to take the lead

Given the rapid shifts in the tax landscape, companies must now assess their digital readiness and whether their people, legacy systems and processes can support change. For example, businesses should understand the data requirements of the tax authorities in each of their operating jurisdictions, have the appropriate tools to prepare digital tax submissions, “sensitize” the data for tax purposes and check for errors before filing, and be prepared for clarifications. The close coordination between tax, finance and IT departments is crucial, and is not always a smooth relationship to manage.

In addition, businesses should have the appropriate tools and processes to monitor the company’s global tax compliance and reporting obligations, so that they can respond in a timely manner to tax authorities’ demands and provide periodic briefings on the tax risks and controversies to management and the board. What this means is that investments will be needed to enable the tax function to be robust and nimble. It also means that business strategies and revenue creation activities must be viewed with a tax lens during the design stage.

To that end, the board and management must take a proactive role in supporting the tax transformation journeys in their companies, which now have a critical decision to make: do they want to be reactive to regulatory demands and leave little time for value-adding activities, or be proactive with change and better enable their tax professionals to drive value, innovation and, ultimately, contribute to profitability? The answer is clear.

This article was first published in the Q3 2019 issue of the SID Directors Bulletin from the Singapore Institute of Directors.


One thing is certain – technology is disrupting “business as usual,” and the pace of change will only continue to accelerate. Regulators are innovating – and so should business.

About this article