Making Tax Digital – The driver behind tax technology investment
Steve Smith looks at which types of tax technology accountants are investing in, and whether businesses are using bridging software to meet compliance rules such as MTD, or being more strategic about their investments.
Thomson Reuters' recent 2019 Tax Technology Survey found that 76% of senior tax executives have seen an increase in attention on tax compliance and planning at the board level, primarily driven by Making Tax Digital (MTD) for VAT.
The annual poll of tax professionals found that 98% plan to invest in tax technology over the next 12 months, compared with only 54% in 2018. Of those who plan to invest, 28% plan to increase spend significantly while the remainder expects spending to increase slightly (32%) or remain stable (38%).
The report findings show that the main driver behind the anticipated investment is the rise in digitally capable tax authorities. Almost half (45%) of respondents said that they had started or have plans to implement digital tax filing and compliance for new standards such as MTD and Standard Audit File for Tax (SAF-T), the international standard for the electronic exchange of reliable accounting data.
What’s crucial is the report indicates that many corporate tax departments are looking to centralise and manage compliance across multiple jurisdictions in response to the continued globalisation and digitalisation of tax – and businesses should get ahead of those changes now.
The need to keep up with new regulations and processes was also cited by respondents, with a 20% year-on-year increase to 36%. Furthermore, 30% of departments recognised the need for increased efficiency for internal processes and workflow, a 12% increase from 2018.
The results also show an appetite within tax departments to adopt in-house technology, rather than outsource, which suggests a desire to take control of digital tax transformation.
In addition, the survey shows a year-on-year leap of 20% in the interest of new technologies to gain competitive advantage and stay ahead of tax authorities. Looking at the increases on the technologies being investigated, implemented or already live, specifically, big data analytics is now up to 60%, artificial intelligence (AI) and machine learning 50%, robotic process automation (RPA) 56% and blockchain 39% (up from 16%).
As practical notions for AI become more apparent for businesses at large, it is becoming easier for organisations to conceive the benefits for finance and tax. Especially as they are environments of increased complexity, have higher risk profiles, and where it is perhaps becoming not humanly possible to stay on top of the volume and detail.
The anticipated trend towards time-saving and more streamlined systems is becoming more pronounced. Notably, there is an increased interest in automation as people recognise that manual processing offers little intrinsic value and are starting to replace it by adopting better, faster, and more accurate data collation systems. A clear win for both the organisation and highly skilled staff in the long run.
Coupled with big data analytics, the notion of both managing and reporting on the available data plays well to a department looking to meet its objectives and deliver additional value to the rest of the business.
But in order for these new technologies to work in the future, a coherent approach is required and there is a significant challenge around technology selection and implementation which could be at odds with the current adoption of point solutions aimed at fulfilling short-term requirements.
Businesses will need to make some careful decisions on how suppliers are chosen and evaluate whether or not present choices live up to the potential and futureproof them for further tax changes.
Understanding whether or not the tax team is able to scale and adapt across multiple jurisdictions and still meet the objectives of an increasingly attentive board is a challenge that needs to be considered carefully. Put simply, the digital world is expanding and the tax department cannot afford the risk of being left behind.
The wider acceptance of cloud technology and re-prioritising to a single platform approach will provide the flexibility to change in a consistent and manageable way without the big-bang transformation projects of the past.
Compliance is in the midst of a revolution and forward-looking data governance practices will be increasingly important – rather than the end number. In a digital world, tax authorities will have all of the data needed to determine tax payments.
That means assurances that the base data is accurate and correctly derived will need to be in place, reducing the risk of error. That level of scrutiny means tax teams need to shift their focus, determine and enforce those processes now.