India has taken a big leap ranking 63rd in the world in ease of doing business1, which has a major contribution on account of payment of taxes. Currently, India stands at 115th spot in the World Banks ‘Paying Taxes’ Index. This index helps a Government to understand where they stand in terms of their tax systems compared on the global stage. It also makes available the wonders that digital innovation is doing around the world in tax technology. The report focuses on the technologies that are currently available for tax compliance, how they’re being implemented, and the ways in which they can be used to reduce administrative burdens. As per the latest report, India improved its score by 6 ranks as a consequence of the introduction of GST which led to seamless credit flow and online compliances.
Indisputably, GST has put India on the global stage and made it one of the favorite nations amongst foreign investors. However, to further improve this ranking, the Government is constantly trying hard to further ease the compliances and reduce the average time taken by an organization in complying with tax returns, forms, etc. The move to shift the entire compliances to a faceless schema also adds to ameliorating the compliance experience. It addresses the grass-root problems of red-tapism and corruption.
Further, the E-way bill system, the E-invoicing system, all are classic examples of the intent of the Government to move from paper compliances to paperless E-compliances. In a country, where the Government is shifting towards tech-based compliances, it’s impossible for the taxpayer to avoid using technology while complying with regulations. Therefore, as was anticipated before GST came into play, more and more taxpayers are switching to tax technology every day!
Why Technology Is Needed Now?
In the erstwhile Indirect tax regime, the gamut of Indirect taxes was divided majorly into two administrations – ruled by the Centre and the State. Therefore, the administration task is broken down into two baskets, thereby reducing the burden for anyone’s authority.
Once GST was rolled out, most of the indirect taxes were subsumed thereunder. Moreover, all taxpayers file their returns on a single portal i.e., GSTN which creates pressure on the portal resulting in frequent breakdowns. Technology helps in filing GST compliances in an advanced and automatic manner leading to swift conversion into JSON format (accepted by GSTN) and upload on the GSTN. Without technology, this task would become herculean and create inefficiencies in the system.
The past few years have witnessed strong technology trends globally. Learning from the innovation and tech-propositions, it is worthwhile to know about the next steps on the technical front. While India has just implemented e-invoicing, over 100 other countries have or in process of e-invoicing implementation. Italy has successfully implemented an overall e-invoicing process after a long gestation, leaving a mark of success on the map. The current wave of technology is moving towards e-invoicing, e-accounting, and administration. Nations like Norway, Columbia, Brazil are developing sophisticated tools and software for robustness in accounting and reporting data. Going further, the UK, Australia, and New Zealand are focusing on adopting digital tax administration through extensive use of analytics.
How Technology Has Helped?
This convergence of tax with technology is not new. Globally, the organizations and the Governments are far ahead of India in terms of technologies being used. Though India is late to the race, we are picking up fast. The Indian conglomerates have realized the importance of investing in tax technology and have started looking upon the tax function as much more than a mere back-office function.
The first and foremost pre-requisite in taking 1st steps towards GST compliances is Enterprise Resource Planning or ERP, as commonly called. The ERP function which was earlier used only for accounting function is now also generally used in tax function. Large businesses have mammoth transactions and invoices. Such businesses usually face challenges in manually filing returns or uploading invoices. Here, ERP enablers/connectors have come to the rescue of the businesses. ERP Connectors synchronizes data and converts it into GST supported format.
Further, the role of ASPs and GSPs also has been significant in the transition. These have helped businesses in interacting with GSTN. ASPs and GSPs provide third party applications that act as a connector with the GST filing system via secure APIs. The majority of the GST system functionalities related to taxpayer’s GST compliance requirements are available with these applications through GST APIs. These applications are extremely user friendly and convenient.
GSPs and ASPs provide much-needed support to taxpayers in the IT ecosystem for GST. ASPs take access to the accounting system of the taxpayers from where it extracts raw data of sales and purchases and converts it into GST returns, ready to file. These returns are then filed through GSPs. Further, they help in validating and reconciling the data points
Not only returns but, ASPs\GSPs have multi-functional capabilities which enable them to carry out reconciliations, upload invoices on E-invoicing system to generate e-invoices, raise E-way bills, and assist in the completion of annual GST along with the added advantage of an audit trail and storage of documents on their cloud or On-Premise. Therefore, it becomes hard to imagine the streamlined and smooth flow of GST compliances without the active ASPs and GSPs.
What Does The Future Look Like?
With the tax administrations going digital, the fundamentals of tax compliances are set to undergo an overhaul. Businesses are constantly adopting better technologies such as the Internet of Things (IOT), robotic process automation (RPA), blockchain, and artificial intelligence (AI) to stay ahead. These new technologies are not only impacting the way businesses are conducted, but also the manner in which compliances are carried out.
Another factor that would be imperative in setting a digitized trend in taxation would be the technology wave. The frequent emergence of new technologies is paving the path for a better-digitized world wherein businesses keep technology at the center of their strategies.
Lastly, the tax policies around the world are more reliant on technology than ever before. The policies require greater transparency in compliance. The disappearing borders around the world as far as trade is concerned would also have an important role to play. It will force the businesses to adapt to tax policies not only in their origin countries but also in countries where they expand their operations.
Further, introducing the new wave of automation ‘Hyper-automation’ has been gaining much traction in the global arena. Hyperautomation means creating a digital twin. As per Gartner, Hyperautomation is a process in which businesses automate as many business functions (Finance, HR, Purchase, Vendor Management) and IT processes as possible using AI, Machine Learning, RPA, other types of decision process and task automation tools.
Though to some, the evolving technology may seem like a disruption, however, it can only be called an opportunity. It has myriad benefits that can only be experienced once the technology is implemented and used. It is also essential to have an open perspective towards technology, otherwise, the technology looks like an invader, which it is not.
One thing which nobody can disagree upon is that the future of tax is impossible without technology. The digitization era began a few years back; however, till very recently, not a lot of transformation was seen. In the last couple of years, the wave of technology coupled with e-governance has provided the necessary boost to tech-based compliances. Hence, the only way from here is the way ahead. In the coming years, one can expect a technological revolution in tax compliances which will certainly change the way compliances are done.