A recent study by PwC India has highlighted the growing difficulties faced by businesses in managing tax functions due to strict compliance and reporting requirements. While advanced technologies and international data-sharing mechanisms have significantly improved transparency and efficiency in taxation, they have also introduced complexities that are making tax management increasingly challenging.
The study, titled “The Three T’s of Tax – Technology, Transparency, and Trust,” underscores the dual-edged nature of technological advancements and international collaboration in the tax domain. “Be it in India or other global economies, tax authorities are leveraging advanced technologies to streamline tax administration and combat tax evasion effectively,” the report states. It notes that international data-sharing mechanisms, including bilateral tax treaties and multilateral initiatives, are facilitating cross-border information exchange, enhancing transparency and efficiency in tax collection.
However, the study also points out that these developments come with their own set of challenges. The stringent compliance and reporting requirements, coupled with incremental operational intricacies, have made the tax function more cumbersome for businesses. “While these developments have resulted in transparency, efficiency, and speed, on the flip side, stringent compliance and reporting requirements and incremental operational intricacies have made the tax function for businesses all the more challenging,” the report adds.
To navigate these complexities and ensure compliance, the study emphasizes the necessity for rapid technology adoption. Advanced technologies, including generative AI (GenAI), are increasingly transforming businesses, reinventing systems, and gradually reshaping the tax ecosystem. “Advanced technologies, including generative AI, are increasingly transforming businesses, reinventing systems, and gradually reshaping the tax ecosystem,” the report explains.
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The study also highlights the importance of building a foundation of trust and credibility to help businesses gain a competitive edge and demonstrate their contributions to government revenue. “A foundation of trust and credibility needs to be built to help businesses gain a competitive advantage and demonstrate the role companies play in contributing to the government coffers,” it states. This trust, the report suggests, is crucial for fostering responsible tax practices that go beyond mere compliance and policing.
Currently, many tax professionals are bogged down by routine and regular compliance tasks, spending a significant amount of time responding to tax authorities. This preoccupation with routine matters often delays the transformation agenda for tax functions, preventing the creation of efficiencies. “The tax workforce is generally occupied with routine and regular compliance, spending a large amount of time responding to tax authorities. Thus, the agenda for transforming tax gets deferred and delayed, and the entire tax function continues to operate without creating enough efficiencies,” the study notes.
To address these issues, the report recommends that the tax workforce continually upgrade their skills to embrace changes powered by tax technology tools. Businesses are also advised to design their tax functions to provide accurate and timely data to tax authorities, aligning with newer compliance requirements such as Pillar Two, e-invoicing, and the Carbon Border Adjustment Mechanism (CBAM).
Sanjay Tolia, a subject matter expert cited in the study, emphasizes that tax disclosures are expanding beyond investor needs. “Previously, tax disclosures centered around investor needs. Tax disclosures are now broadening their audience and scope, and going beyond just reporting the effective rate of corporate income tax,” Tolia states. He adds that transparency in sharing key tax metrics can solidify a company’s credibility and support its commitment to environmental, social, and governance (ESG) standards.
In summary, while advanced technologies and international data-sharing mechanisms have brought significant improvements to the tax landscape, they have also introduced new challenges in compliance and reporting. The PwC India study calls for a strategic approach to technology adoption and skill development, alongside a focus on transparency and trust to navigate the evolving tax environment effectively.
