GST: How tax professionals can tap the digital goldmine
Regulatory developments, corporate priorities of becoming a ‘digital’ enterprise and the imperatives of ‘managing more with less’ have launched companies in India on a transformational journey of the tax function as well. And the goods and services tax (GST) is the inflection point of this journey, wherein tax professionals are witnessing how a new tax can lead to business transformation.
Here are some thoughts on how the tax function in a company can contribute better through technology enablement.
Insights from data: The GST initiative is generating a goldmine of big data for both the tax administration and companies. Indian tax administration will have access to multiple data sources such as GST Network (GSTN), the income tax portal, the Registrar of Companies (RoC) database and the Reserve Bank of India (RBI) database; and using advanced data analytics technologies, they would ask pointed questions to taxpayers.
Companies need to be ready to answer unconventional questions such as, Your Transfer Pricing filing (CbCR or Country-by-Country Reporting) shows disproportionate profit allocation ratios—for example, profit per employee is higher in low tax rate jurisdictions—why?
There is a gap between the purchases as per year-end financials and purchases as per GSTR2 (that is, input credit register)—provide reconciliation. Why is your Effective Tax Rate (ETR) lower versus the industry average? Please reconcile your wage bill with personal tax returns filed by your employees.
The Central Board of Direct Taxes (CBDT) has already embarked upon this exercise through ‘Project Insight’, which would enable such insights for tax officers. Firms need to act swiftly to pre-empt data-enabled enquires and be ready to answer the authorities. This would call for a greater scrutiny and analysis of data on a contemporaneous basis, for instance, by using analytics/visualization tools routinely to monitor Transfer Pricing (TP) positions and structures, review of positions on tax deduction on larger data sets and identifying GST credit leakages/ blockages using data analytics tools.
Bringing efficiency and accuracy: Robotic Process Automation (RPA) has already found scalable use cases in taxation in Western markets. Companies in these markets have started to reap several benefits such as increased bandwidth, accuracy of work and significant dollar savings.
Taxation being a rule-based and compliance subject, there is an opportunity for companies in India to implement RPA and realize the benefits in the short term. We have started to see large companies and Global In-house Centres (GICs) beginning to apply RPA in tax processes such as tax deducted at source (TDS) compliances. GST seems to be a good use case: steps such as GSTN number validation, rate validation and mismatch reconciliation could potentially be done using RPA.
The logical next step would be to use cognitive technologies in decision making, and a potential use case could be deciding the rates of TDS and GST; one should not be surprised to see this happen in 6-12 months.
Governance and compliance: Use of manual processes for governance and compliances for tax is a common practice even in large companies in India. However, the external world has evolved and, in the tax world today, there is increased transparency, self-regulation and stiffer penalties for non-compliance.
Automation of governance and compliance-tracking can easily be achieved through off-the-shelf workflow and compliance management solutions—which would reduce the risk of missing compliances and create better awareness/accountability in the organisation. Also, the dashboards (created from automation) would give assurance and a bird’s-eye view to senior management on the state of affairs. This is an easy fix solution to governance and compliance quality problems.
Partnership with business: It is important for the tax function to look at the manner of interaction and response with business and opportunities to create efficiency. Some ‘low-hanging solutions’ to achieve this could include replacing emails with workflow and collaboration solutions, global compliance trackers, specialized apps to give inputs (e.g. tax rates on contracts) and hiring tax technologists in the core tax team. John Chambers (executive chairman, Cisco Systems) in a campus talk on digital disruption as part of the MIT Sloan 2017 iLead series said one should “…go digital or go home”—something that might well be a reality for tax professionals soon.
Rahul Patni is partner, tax technology and transformation, EY India. Ridhi Gangar, senior tax professional, EY India, contributed to the article. Views expressed are personal.