Indirect Tax Compliance: Think Process Before Technology
How should companies approach tax automation to ensure they realise the maximum efficiency gains?
Bill Gates famously remarked that “automation applied to an efficient process magnifies the efficiency, but automation applied to an inefficient process magnifies the inefficiency.” That principle still holds true in the era of robotics and advanced analytics, according to Vertex Senior Product Manager Aleksandra Bal in her Tax Notes International article “Indirect Tax Compliance: Process Automation or Process Transformation?” Unfortunately, in many companies, the level of knowledge and understanding of sales tax processes is low, she notes.
Indirect Tax Compliance: Process Automation or Process Transformation?
The indirect tax team at any company has three core tasks: tax compliance, tax planning, and audit defense. How can technology improve them?
“Companies may have guidelines that outline standard operating procedures, but frequently the procedures are poorly documented or simply out of date,” Aleksandra writes. For example, a VAT return may require data that’s pulled in from ERP and other systems, but the process for doing so is not well defined, so tax staffers fall back on their own approaches to assembling data the same way they’ve always done. However, sometimes written guidelines are incomplete, or actual processes don’t match the prescribed processes.
The good news is that technologies are available to help companies improve, reconfigure and accelerate routine processes, and Aleksandra describes two that are particularly relevant to indirect tax: robotic process automation (RPA) and process mining. RPA mimics human actions by enabling data flows across multiple disconnected software systems, but at vastly increased levels of speed and accuracy. Process mining analyses records of process events to provide insight into what is actually happening (which may be different from what’s supposed to happen), improve internal guidelines and even detect noncompliance in real-time.
Of course, a perfect tax management process doesn’t exist – and even if it did, it would hardly be advisable to hold off on automation until you get there. But it’s certainly worth taking a closer look at your indirect tax processes before starting a project, and Aleksandra’s article serves as a useful guide on how to do just that.
Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.
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