In the background, however, tax authorities have been digitalizing their IT systems in ways that could revolutionize taxation.
Those administrations in the vanguard, such as Brazil, Mexico and Russia, are said to be well ahead of even some of the biggest global businesses in digitalizing their operations. Almost every government in the world, however, has achieved at least some level of digitalization.
Indirect taxes such as VAT and customs duties have been first in line, with direct income taxes falling subject to similar treatment over time.
“Advanced governments are beginning to look at your data in a way that I’d say 99% of corporations do not,” says Carolyn Bailey, EY Americas Digital Government Tax Transformation Leader. “If tax departments wait to catch up, it’s going to be really hard, and the tax authorities are going to be in the driver’s seat.”
The upside for governments could be increased tax collections. Russia’s Federal Tax Service has reported that its tax digitalization efforts led to a 12.2% increase in VAT collection in 2015.
With these kinds of results, and with tax administrations across the world sharing leading practices and capacity building in addition to tax information, the momentum behind digital taxation is growing.
However, many tax authorities face steep challenges. In more established tax administrations, such as the US, complex legacy systems, multiple jurisdictions and entrenched bureaucratic processes have proved a hindrance.
If tax departments wait to catch up, it’s going to be really hard, and the tax authorities are going to be in the driver’s seat.
Building the future of smart
Another big disruptor to the tax department is framed by one of our identified megatrends for 2016 and beyond, “the future of smart.” As defined by EY, “smart takes a transaction, ensures it is connected, analyzes its data and makes it more autonomous and effective.”
The sea change for taxation is that smart tax is real-time and even forward-looking — where tax has traditionally been historical.
Multiple smart technologies are colliding and hitting their critical inflection point at the same time:
- Business process robotics will help automate data collection.
- The internet of things will minimize paperwork.
- Artificial intelligence (AI), which is becoming more prevalent in such day-to-day settings as web searches, weather forecasting and voice recognition applications, will enable data mining and deep learning
- Blockchain, most simply described as a secure, distributed digital ledger, is not only poised to break into the world of business and finance, but is also tipped to merge its transactional capabilities with AI’s cognitive capabilities for autonomous transactions that can self-initiate, self-manage and self-retire.
- Big data analytics is already enabling better decision-making through data storage, aggregation, cleansing, integration, consolidation and analysis — including predictive analytics.
The disruptor: digital governments
In the future, traditional accounting, finance and tax functions will be revolutionized by robotic process automation and new systems that offer real-time collaborations, scenario planning, cost modeling and risk simulation tools.
Repetitive, high-volume tasks will be performed by a virtual workforce of software robots that can work faster, more inexpensively and more accurately than a human being.
AI will be loaded with such information as tax code, case law and administrative guidelines, and AI will make certain decisions on this basis.
“Tax professionals will be redeployed to higher-value activities that require subjective judgment and strategic decisions,” says EY’s Suhr. They will be supported by real-time data aggregation, data visualization and predictive forecasting — allowing people to focus on unlocking value within accounting, finance and tax, rather than being burdened by their compliance or reporting function.
Clearly, the tax world is going through a daunting transition. But EY’s Flynn summarizes the situation simply: “Technology is enabling tax authorities to become more efficient and robust at assessing and collecting tax, and technology can also help companies get ready for that.”
A version of this article was originally published as Disruption puts corporate tax on an uncertain path on Tax Insights.
Summary
By embracing innovation, tax teams can help their businesses seize opportunities in an increasingly digital and borderless world.
