With the changing tax landscape and government regulations becoming more stringent, remaining compliant with the VAT returns process is becoming all the more difficult. There could be various possible reasons for this such as different source systems, nature of operations, etc. The data required to prepare VAT returns are also completely different from the data found in the financial statements, and thus the businesses will not simply stumble upon the relevant VAT data in their accounting systems. The systems need to be designed to capture the tax identification number of the vendors and the customers at source, as well as retrieval of data for the returns from various sources to include the tax liabilities, VAT credit claims, suppliers and recipients VAT ID, and such other details as may be required. Managing a large volume of data on different systems and compiling them together for returns comes with complicated processes making it difficult for organizations to deal with.
Coping with these complexities without technological intervention is no longer sustainable for companies with widespread operations. For the companies using the industry standard ERP systems, a shock comes with the realization that they aren’t always equipped to manage the complexities out of the box and often leave the role of providing up-to-date changes on tax legislation to either the customers or third-party solution providers.
To overcome these risks and challenges organizations have started the use of automation using emerging technologies that will help to aggregate, validate, and report for compliance purposes while using the analytics on the data gathered to help identify irregularities and mitigate risk. These emerging technologies have the potential to improve operating efficiency and uncover insights that can drive fact-based decision-making and change the value tax brings to the company’s bottom line.
How automation can help in VAT compliances
Compliance with the tax regimes usually involves high volumes of data extraction, population, and reconciliation processes that are routine, repetitive, and administrative tasks – a target-rich environment for RPA. The use of RPA applications in conjunction with cognitive technologies can automate the processing and analysis of the data to identify relevant data points from thousands of transactions to help surface potential inefficiencies, exposures, and non-compliances that plague many indirect tax compliance systems.
As more transactions are fed into the cognitive system and more tax determinations are corrected, the repeatable pattern emerges and the system becomes efficient in its ability to review the data and make decisions.
For tax departments, the time that is gained is invaluable to shift focus to analyzing the data for insights and opportunities to refine compliance processes, and the anomalies found are important to prevent tax exposures. Once the data has been collated, such data can be transferred to the compliance platforms, such as the R7 platform through integration to process and use it for the return filing process. The R7 platform further performs validations and applies business logic to ensure the sanity of the data used for the preparation of the VAT returns.
Getting business audit ready!
Tax organizations are challenged to gather, maintain, archive, and retrieve data from multiple source systems to assemble transaction-level detail for responding to the queries from tax authorities and providing the data for audit. Big data tools can help meet these demands by automatically accessing, combining, processing, and analyzing large volumes of disparate structured and unstructured data. The tools such as dashboards, interactive tables, and charts transform the data into well-designed, big data-enabled visualizations that present the insights effectively and enable interaction with the data like never before.
Historically, taxpayers had been reacting to the changes brought by the tax administration, but now, aided by these technologies, tax teams have started taking a more proactive approach to using data for predictive and prescriptive analysis, tax modeling, and decision-making to optimize tax across the breadth of their operations and speed up planning, reporting and compliance processes.
Author
Kadam Chokhawala
Senior Functional Analyst
Kadam Chokhawala, a Chartered Accountant, having over a decade of experience has expertise in the field of tax technology and Process Outsourcing domain. With a proven track record in optimizing tax processes through innovative technology solutions, Kadam has played a pivotal role in transforming financial operations for multinational corporations across multiple regions including Europe, GCC, and India. He has a rich background in tax consulting and outsourcing domain as well. He navigates complexities with finesse, optimizing processes and enhancing efficiency.