5 minute read 15 Jan 2021
Digital tax administration

How businesses can navigate the new normal of digital tax administration

By Rahul Patni

EY India Digital Tax leader

Passionate about collaborating with clients in their tax transformation journeys. Active participant in professional groups & industry associations. Father of two. Love to experiment in the kitchen.

5 minute read 15 Jan 2021
Related topics Tax

Indian tax administration has taken a lead in ensuring digitalization in tax and businesses should do their best to catch up.

The Indian tax administration has expanded its reach through technology in a major way, starting with implementation of GST, further augmented by incorporating e-invoicing for large as well as medium businesses.  On the direct tax side, the authorities can be seen taking major steps through a comprehensive overhaul of the policies and the supporting infrastructure.

These include a new compliance portal, enabling comprehensive taxpayer profiling through data exchange between regulators and analytics. The depth of this data pool is only expected to deepen, with other data driven initiatives such as amendment to Tax Collected at Source (TCS) law and the new avatar of Form 26AS, which is transforming from a mere income-tax credit statement to a comprehensive tax book capturing significant transactions and GST details. However, the tax administration’s recent shift to faceless assessments and appeals is unprecedented since it is a technology-enabled systems and process driven change in a form never seen before.

The above initiatives in India and overseas are essentially linked by the same set of overarching goals – to expand the tax base and help increase compliance levels. Clearly, the Indian tax administration is bracing itself for an era where sharper and intelligent audits would become the new normal. However, the flight from the past to the future could turn out to be turbulent for taxpayers who find themselves off guard with the new rules of the game. 

  • Creation of comprehensive taxpayer profile > Sharper revenue audits
  • Real time data collation and analytics > reduction in assessment cycle and shorter time frame to respond to queries
  • Data comparison across different regulatory filings > requirement to maintain consistency across regulatory filings made by the tax authorities
  • Information exchange between jurisdictions > Ensuring accurate data compliance filings

These issues may amplify in the current circumstances where work from home is a part of the new normal, and the tax, compliance and finance teams are challenged with additional issues of remote working – a feature which is undoubtably here to stay. CFOs may also need to ensure that the respective teams stay connected, have centralized access to required data including dated documents and maintain digital workflows to ensure consistency in operations.

Captured below is a snapshot of some of the most common problem statements faced by the tax function in the industry, and our experience around how digitally advanced tax teams have handled them.

  • Utilization of team bandwidth in repetitive tasks and manual processes

    This is an age-old issue, further accentuated with increase in compliances and resource crunch due to COVID.

    Smart Tax functions have found a solution in form of robotics process automation (RPA), which involves computer program coded to take on tasks which are repetitive in nature, have a fixed process flow and require processing of a very large number of transactions.

    RPA offers several advantages such as near 24x7 working capability, very high degree of accuracy and confidentiality, with pay back as low as few months in some cases.

    There are also point solutions available which seek to automate the entire life cycle of compliances such as TDS and TCS, and not just return preparation – companies should explore these platform-based solutions and not just quick fix return preparation software.  Another example could be to use specialist platforms for areas such as litigation.

    By bringing in bots to take on human-intensive and repetitive work, we have been able to drastically reduce our tax compliance process period and build efficiencies within the tax team to focus more on analytical and strategic driven activities.
    Pranav Deshpande
    Tax head, Tata Sky
  • A ‘Connected Tax’ function needed in the remote working environment

    Working remotely, juggling through multiple statutory deadlines and co-ordinating with several stakeholders for data are part of the everyday life of a tax executive. 

    Creation of a ‘Connected Tax’ function by integrating critical compliances, deadlines, tasks and data at one place on a cloud-based platform would go a long way. Tax Directors would not need to constantly worry about missing of deadlines, last minute escalations and reduce individual dependencies.

  • Current operating model for Tax Function has not evolved for several years

    Whilst the tax world has evolved fast in the past decade or so, operating model of tax functions, especially in large companies, has not kept pace in many cases. This issue is a rather consistent one, with about 90% survey respondents submitting that they are exploring changes in their current operating model.

    Resultantly, in last 12-18 months, we have seen several large corporates wanting to re-look at the operating model for tax function.  They are looking at creating Tax SSCs and CoEs, either standalone or together with finance function.  Special attention is being given to tax finance transformation and ERP implementation projects.

    These operating model changes are fundamentally changing how tax function is working and delivering value to business. Tax directors, who can manage to create a business case of inclusion of tax in these change events, may reap medium to long term benefits.

  • More connected tax regulators – quality of data is an issue

    Taxpayers would need to create a common data source for compliance filings, in order to create a single source of truth and ensure consistency in filings.

    Leading organizations need to have a vision of a One Tax function, aided by a platform that seeks to achieve this goal – this would include creating a comprehensive leveraged data pool for all compliance and reporting requirements (for example, GSTR 1 and TCS).

  • Building competencies in-house

    Rightly so, many businesses prefer to outsource the tax function to channelize efforts and resources towards partnering with business and adding value. They are increasingly looking towards buying digitally enabled tax services from specialists, vis-à-vis building all capabilities in house. 

    It creates ample opportunities to transform the tax function at a much faster pace, reduce costs and better risk management.

    Our decision to outsource tax compliance to EY on a global scale was driven from the need to free up bandwidth of highly skilled internal resources for partnering with business and leaving the routine compliances to specialists like EY.
    Vikas Aggarwal
    Nokia APAC Tax Head

In a world where the quality of data is supreme and regulators are embracing developments to stay ahead in the digital race, businesses need to step up to the new normal.  With the emergence of complex business models and unprecedented changes in the global tax environment require sharp focus on transparency.

(Sameer Gupta, Tax Markets Leader, EY India has co-authored the article, with contributions from Manoj Rathi, Tax Director and Nishant Verma, Tax Manager at EY India.)

Summary

The digital transformation in tax trend is only getting stronger and the best way to thrive might be to embrace the change and ride along.

About this article

By Rahul Patni

EY India Digital Tax leader

Passionate about collaborating with clients in their tax transformation journeys. Active participant in professional groups & industry associations. Father of two. Love to experiment in the kitchen.

Related topics Tax