Why Should You Care About Tax Automation?

According to Thomson Reuters, the number of tax rates changed from 787 in 2014 to 1,292 in 2016 in the USA alone, whereas the number of tax rates changed from 60 in 2014 to 171 in 2016 internationally. The number of tax rules globally changed from 772 in 2014 to 2607 in 2016. Additionally, governments may issue amendments very frequently. Many businesses who tried to put a tax determination onus on standalone ERP system went through nightmares.

If your suppliers/customers are global or if you have global operations, new tax regimes and rules will need to be continuously incorporated. Many countries are trying to simplify their indirect tax system. The government of India had gone through the most significant indirect tax reform by implementing GST on July 1st, 2017. The Middle East (GCC) is going through VAT reform, expected to come into effect from January 2018.

Tax determination does not mean just knowing the tax rates. Tax determination depends on many factors. In the USA, there are more than 10000 tax jurisdictions. On top of that tax rate in each province or territory depends on products, services, and many other factors. Now think about changes happening every day somewhere, as per the statistics provided by Thomson Reuters. For organizations doing business globally, they may have to deal with more than 14000 worldwide tax jurisdictions. By no means, organizations can maintain tax contents in their standalone ERP and get the tax determination done accurately during the selling and buying processes.

Some businesses start with one ERP system like SAP, or Oracle to support their business functions. With digital transformation, businesses need to keep adding other customer and vendor facing systems like CRM (Customer Relationship Management), SRM (Supplier Relationship Management), Salesforce, Hybris, Ariba, and so on. More complex the IT landscape, more is the complexity to handle tax determination within the standalone systems in real time.

This is where having a centralized tax technology solution brings value to the table. The centralized instance assures that the same rates and rules being used by the various systems. It also allows tax compliance and reporting out of one system rather than extracting and reconciling the tax data from multiple systems. The tax technology solution also becomes organization’s auditing system since it keeps a record of every detail, tax determination data elements and inbuilt rules used for tax determination. An advantage of tax automation is shifting the onus on tax technology vendor to provide changes in tax rules and regulations before it comes into effect. It assures that at any given point of time your business systems are determining the tax accurately.

Many governments such as India, Poland, Spain are asking for real-time or periodic transaction level business and tax data for the audit purpose. Robust, reliable, and scalable tax automation is the need of the hour for many companies now. In India, the GSTN (GST Network) reconcile the tax and business data submitted by sellers and buyers. If there is any data mismatch, buyers cannot get the input credit until the data mismatch is corrected

Indirect Tax Life Cycle consists of initiating buying or selling transaction, determination of taxes, recording those in the appropriate journal ledger accounts, reconciliation of business and tax data, reports, and compliance. Tax digital transformation not only automates this process but also enables RPA (Robotics Process Automation) and Tax Data Analytics.

IoT and Machine Learning Technology | Tax Automation

If you are still managing your tax determination in ERP, it is the time for you to integrate your ERP with an appropriate tax technology depending on your business requirements.

NLB Services offers technology advisory in the tax automation by providing tax technology experts, tools, and agile framework bringing time-to-value and optimized cost for their client, resolving challenges around determination, reporting, and compliance.

About the Author
Sushil Nema

Practice Leader, Americas, Indirect Tax Digital Transformation