The world is opening up again. As businesses begin to pick up momentum, tax regulators worldwide are looking at ways to increase their revenues while remaining lucrative.
Tax compliance administrators are not only offering competitive tax rates, they are also rolling out tax efficiency initiatives. These include initiatives that will help streamline compliance processes like creating digital platforms for easier submission of tax returns and tax data. They are also working toward reducing the tax gap by introducing global standards to cut down tax avoidance and tax evasion.
As digital taxation becomes a prime area of focus for compliance bodies worldwide, it becomes imperative to imagine the digitally evolving future of compliance and the trends that will shape its path. Let’s understand what these trends are and how they will change tax compliance strategies across the globe.
Automation and artificial intelligence solutions are redefining tax compliance. But this is only the beginning.
The volume and complexity of regulations make it increasingly urgent to adapt to automation solutions. Time and again, surveys around the world show that CFOs are hesitant about investing in tax technology and digitizing taxation in their organization. However, tax automation and artificial intelligence solutions will be the key to maintaining successful compliance with rapidly evolving tax compliance policies and processes.
Coined as regtech or regulatory technology, these systems are likely to govern taxation systems on home ground and the international front. Manual tax operations are expected to make way for more sustainable working models to reduce the risk of human error. Artificial intelligence solutions will help maintain data transparency and increase productivity. As businesses, both large and small, jump onto the tax digitization bandwagon, maintaining compliance using tax automation systems will become a standard operating procedure in the future. Automation and AI are replacing manual processes, producing better service-driven organizations.
Tax administrators will no longer be perceived as enforcers but as partners.
As tax administrators roll out new tax initiatives to make tax and compliance processes more straightforward, their rather unpopular perception of the ‘enemy’ is steadily changing. New digitally dependent tax platforms to submit tax data and file tax returns are increasingly user-friendly and transparent. Tax administrations are also using data analytics and artificial intelligence solutions to zero down on tax avoiders and evaders. As more businesses start to fall under the tax regime and more revenue is collected, the cost of taxation is likely to reduce. Think of it as rapid horizontal growth instead of vertical growth – the more businesses under the tax net, the higher the opportunity to reduce the tax rates.
Additionally, tax administration initiatives are actively looking to maintain data transparency in an earnest bid to build trust. When the taxation system is transparent and fair, it is only a matter of time until businesses start to view tax administrators as partners.
User-centric tax solutions are likely to drive tax participation.
In a time when we can hyper-personalize something as simple as our shampoo, hyper-personalized tax solutions have the potential to redefine the tax operations game. Today’s tax administrators are adopting best practice tax policies from across the globe, and compliance software providers are quickly adapting their offerings to suit the changes. For instance, when India introduced e-invoicing, tax technology providers like Avalara quickly amended their compliance suite to adapt to the new regulatory requirements.
But that’s not all that is happening. Tax solutions are becoming more and more user-centric. Solutions are being built keeping in mind specific industry verticals including manufacturing-based businesses, organizations conducting cross-border transactions, etc. Because the nature of tax transactions might differ between industries, it becomes vital to cater to such a need. Differing tax and compliance policies for varied industry verticals are more likely to need user-centric compliance systems. Additionally, such tax and compliance solutions are likely to drive tax participation.
Leveraging the power of real-time data using AI
One of the most exciting developments in tax technology in the last few years has been the focus on leveraging real-time data. Enabling tax data capturing in real-time is highly likely to reduce the chances of reassessment and help maintain data integrity and accuracy.
Several taxation systems are starting to mandate the integration of third-party platforms for more accurate data capture, amplifying the critical need to leverage real-time data. It is a popular belief that combining third-party payment and data platforms will allow artificial intelligence systems to recognize business vulnerabilities, help organizations seek support, and easily avoid compliance violations. Real-time data integration will also enable tax administrators to flag off tax offenders and reduce the chances of revenue losses due to tax evasion.
Even though the phrase is currently bordering on cliche, it nonetheless stands true – the future is digital. Digital tax solutions are expected to play a critical role in how tax administrators and taxpayers will deal with tax – in 2022 and the near future.
(The author is Mr. Sainath, Senior Director – Finance at Avalara and the views expressed in this article are his own)