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How Is Technology Influencing Various Dimensions Of The Taxation Process

The tax landscape has been changing drastically together with tax payers and tax authorities looking ahead for more technological advancement and innovation in the field of taxation system which is basically used in order to make the taxation process more effective and relevant. The technological advancement in the various dimensions of taxation process has led to a great influence and impact and can be considered as the next wave in business transformation.

It is believed that the fourth Industrial revolution is more of a technological expansion. The technological advancement has led to an evolving role for stakeholders involving businesses, tax consultants etc. The tax authorities also use the power of these technologies like big data to improve tax administration, facilitate tax payer by e filing and many other facilities. This drastic change has been also keenly observed due to the lockdown where the technology was used extensively for better and effective functioning.

India has been said on top of technological advancements in upbringing the tax technology solutions to the country. In layman's language tax technology is referred as technological solutions in catering tax. This research paper will deal with the importance the implications of recent development based on some data with respect to other countries followed by pros and cons and challenges being faced along with remedies to rectify followed by conclusion.

Introduction:
During this era of modernization the technologies have taken a pace in almost every field in current world. The wide spread of technological advancement has also affected the tax function in a very higher pace. Tax administration been digitalized has been emerging as a transformation in the business in a large scale since year 2017, being GST as one of the tax reform which is technologically led.

Now a days tax authorities not even in India but also worldwide introduce new tax laws in order to deal with the digitialized business models and tackle issues related to disclosure of transparency and seamless exchange of taxpayer information between authorities. Technologies these days address the changing requirements related to tax administrations and business with more efficiency and accuracy, which will directly or indirectly help the tax technology in order to mature and grow at a greater pace.

Tax Technology:
Technology is playing a vital role in all the businesses at every field along with tax,rapidly.Technological solutions which cater tax is defined as tax technology. People every day expect a newer and a better technology which started with the introduction of robotic process automation and goes upto 5 G bots and never ending list of the technological advancements.

This has been a new concept but highly appreciable within a short span because of its significant benefits been provided to the tax consultants, enterprises, government including stakeholders too. The tax authorities basically began with the IT enabled e filing of returns, dealing with the digital technologies related to submission of source data.

Mainly technology is needed when the government use the submitted source data in order to assess tax where the tax forms are required no more. Digitalized technologies are basically used in generic sense in matching data from other sources, generating e audit assessments and analyzing the tax payers across.

The Trends Affecting Digital Tax Administration And Tax Functions:

  1. Tax authorities getting digitalized and technically advanced being IT enabled.
  2. Emerging new technologies which is considered as helpful in adoption of several digital tax policies being transformed.
  3. Bringing and amending legislative landscape in order to increase the demand in transparency in the tax administrations.

Indian Tax Authorities (Governmental Approach)

The Indian tax authorities are also IT equipped.They have also helped the tax payers in filling the form online, doing the registrations, e payment of taxes, e filing of tax returns, reconciliation and e viewing of tax credits, refund by authorities. Because of the digitally equipped the tax payer are given the choice in order to participate in tax assessment online and saving time by not visiting the tax office offline,thus pacing up the speed.

The Government also leverage digital platforms in order to assess the taxpayer data. Not only this Goods and Services Tax for the indirect tax are been administered online.The IT systems are being used as risk management tool to pick up the returns for scrutiny as per the case of customs.

Some Technological Advancements In India:

The gap between the current scenario and the expected technology state related to implementing the tax functions was shown in the EY TaxTech India Survey 2016.To have a tax technology strategy is a necessity in the digital world for the business organizations. Here businesses have to have the strategy in order to have a clear overview of business insights which can help in increasing governance and business dealing with the tax authorities.

Presently, basic software like standalone etc are being working these days as are considered as non integrated tax software.Due to the lack of integration the tax department faces a lot of problems on manual working.

As per the survey of EY TaxTech India 2016:
  1. Around 45% of business organizations use the infrastructure that is basic for consolidation and tax accounting.
  2. Over 90 % voted related to non automation or partly automated tax reporting compliance system
  3. Around 24% business organizations use no integration ERP system as for tax software.[1]

Some Global Implications Are:

  • The IT equipped platform of Goods and Services Tax Network (GSTN) acts a common platform related to registration, e filing.It helps in providing IT infrastructure to all stakeholders. Basically GST portal helps in integrating tax administration systems within centre and states.

    This technical platform helps us in many ways:
    1. Helps in understanding the analytical methods related to analysis and linkage of unstructured and structured data.
    2. Helps in diagnostic analytics, descriptive analytics
    3. Includes a collaborative approach related to knowledge and information sharing etc.
       
  • The Ministry of Corporate Affairs (MCA) and the Central Board of Direct Taxes (CBDT) as per an agreement share information such as tax return, PAN details. Financial statements filed in Registrar of Companies will also be shared along with bank related financial transaction.[2]
     
  • The CBDT announced the limited scrutiny, complete scrutiny and manual scrutiny which are related to computer aided scrutiny selection for the assessment of return cases that require scrutiny in July 2017.
     
  • There was an increase been noticed at GST revenue collection from October 2020.
     
  • In order to bring the class tax technology solutions for the private firms India is considered to be on the top.Covid 19 has also played a crucial role in adapting the technological solutions as it helped in working remotely by using digitalization being in home in lockdown and use the technology in order to work effectively and smoothly.
     
  • GST annual returns, assessments, were not obstructed because of the B2C business to consumer code due to which departmental audits of GST were not hindered in any way which have all been possible because of the technological advanced platform of GSTN.
     
  • Because of the cloud based solutions deployment,maintenance cost has been low where transparency with tax authorities have become more paramount

SOME GLOBAL IMPLICATIONS ARE:
  • According to EU and Latin American countries, India has also started its e -invoicing. Indian market has also brought several technological solutions like generation of e-invoices,e-way bills.
  • A digital VAT reporting system is being launched in order to file requirements and also takes the digitally submitted copies if invoices.
  • VAT of the Gulf Cooperation Council was added to the list where taxes are being made digital which helps in accelerating taxation in digitalized form.
  • The UK VAT was being changed because of the MAKING TAX DIGITAL drive which helps in making a seamless journey related to VAT businesses from 1st April 2021.


Importance Of Technological Advancements In The Taxation Process

  • There has been a wide impact of technological use in the business circle as well as financial sector because of the use of the ERP systems which help in efficiency and increasing the accuracy of it.the use of technology also helps in dealing with competition and achieving heights than the less technical business organizations.
     
  • It will be so difficult even to imagine the business growing without technology as it is not manually possible to keep the internal reports or bulks of statutory filings.
     
  • There is no doubt that the technological advancement have made the life easier as well as increased the pace of working effectively because of the IT equipped ERP platforms etc.

Technological Advancements In Tax A Necessity Shaped Into An Opportunity

Because of the Technological advancements the Indian tax authorities had many recent changes with respect to transparency and disclosure like filing of invoice level in GST. There are several ways where government are trying to have a way in order to interact related to operational data, finance etc.Many companies have been giving high weightage on taxes transparency by global companies.

In other ways it can be said that power of digital is being used in order to improve the administration of tax and taxation process by facilitating tax payer compliance and counter fraud. Technology act as the major necessity in order to survive in the new world. It can be grabbed by young entrepreneurs as opportunities in order to fulfill tax functions in order to achieve more heights in their business.

India has been using the technological advancement as an opportunity in order to expand the norm of sharing the information related to tax to other countries on digital platform. India has been signing certain treaties and Tax Information Exchange Agreement (TIEAs)in order to cooperate in the norm of bringing transparency by exchanging the tax related information.
Since living with the technology is what is demanded in the current world.

Thus Indian Tax Authorities have been taken it as an opportunity by introducing several changes in its taxation process like:
  1. Disclosure of more information in income tax filing
  2. Linking of Aadhar and PAN on some specific transactions
  3. Financial Statements Transactions been used instead of Annual Information Return
  4. For documentation purpose three tier TP is required.

Important Data:

  1. Around 6,754,000 were identified by CBDT related to the non filers but with potential tax liability during the year 2016-2017 [3
  2. Approximately 90 % as an enabler are thankful for the technology and its advancements
  3. Technology being an important factor was acknowledged by 84% of the people which are considered in effective working in taxation process
  4. A list of the defaulters were being published by the CBDT for not filling the tax recovery in public domain. It was also suggested that after the due notice the defaulters will be blocked and will not be able to file for tax returns. [4]
  5. There were 70 % of the people who kept on reworking related to data of finance in order to be used in by tax authorities.
  6. There was a growth recorded by Finance Ministry in net indirect tax collection of approximately 12.3% in the financial year 2020-2021.
  7. In the financial year of 2020-2021 estimates of 108.2% related to indirect taxes were being achieved and recorded.

Advantages Of Technological Advancements:

  1. Acts as a risk management tool along with it the protection of the firm's reputation.
  2. It can be of help in costs related to investment and licensing with the help of technology.
  3. It enables the taxation process to work in a more efficient way.
  4. Helps in creating better strategies which will be helpful for tax professionals with optimum use of resources
  5. Helps in wasting less time in assembling data along with generating revenue in that precious time by cutting off the costs.

Challenges / Demerits Related To Use Of Technological Advancement In Taxation Process:

  1. The technical things cannot be understood without proper training because of which excess time gets waste
  2. It is a bit difficult to locate and manage documents and its final versions.
  3. The main challenge is when we need to translate the data in a common data that comes from multiples sources [5]
  4. There is seem to be inconsistency in the diverse fillings of tax in multiple jurisdictions.

Future With Technical Advancements:

The future prospective of introducing technological advancements are planned to be in the areas of taxation process in the field of litigation management, documentation management, data collection, process control and workflow in the tax function, support for data and Tax process compliances along with the handling of reports.

The Income Tax Department is working on a new system of jurisdiction-free assessment (pilot underway), where a taxpayer would be assessed by a taxman based in any part of the country. This would further facilitate easier electronic communication between the Income Tax department and taxpayers.

Because of the technological advancements we all know that it had impacted at a wider pace and also in the future will. Because of the technological advancements in the future we can see the transformations in the assessments quality wise, Officers assessing the profile of taxpayers, sharing of information mutually between the IT database and GSTN along with reconciliation with GST of several new forms.

Role Of Tax Consultants:

There are certain new technologies been into existence like RPA are considered to be helpful and also technologies with AI have several emerging scope and possibilities.The more usage of technology will help in transforming the taxation process thus speeding up the pace as well as the higher expectations of the business reducing risk and improving and managing effectively and in a better way. Several companies also plan to handle the outsource or in house via manageable service provider.

Suggestions:
  1. The business organizations can get the solutions based on analytics based on real time informed decision in order to gain insights from the data generated through internal as well as external sources
  2. The tax data which is integrated can help in optimizing taxation as well as accounting process.
  3. There can be more clarity in the controls and roles and responsibilities been created.
  4. Integrated ERP systems can be used in order to analyze the data which are tax related from various sources and generalize using automated tool at a single source.
  5. As said using cloud based apps will also help enterprises in standardizing the tax process and creating a audit trail based on the consolidated tax disclosures as well as source data
  6. The inefficiencies and risk will also be less which were earlier linked with the use of spreadsheets because of the use of improved consolidation of data which will directly or indirectly help in working effectively and efficiently.

Conclusion
Because of the technological advancements there is no doubt in saying that there has been a good quality change in audits and its manner of taxation process. Also, government helps in getting digitalized platforms in order to assess the taxpayer data by analyzing and sharing the information to the other sources.

If we look around traditional tax function operating models have changed a lot and needs to be changed rapidly in order to tackle the inquiries and obstacles of audits.

In India as well, the technology led reforms have played a positive role in the field of both direct and indirect taxes.Also because of the IT database there is seen an increased collaboration between various agencies, government which have impacted a lot in such a way that the change is been clearly seen in exchanging of information via technical means, IT equipped databases,automated tools.

Bibliography:
Pdfs:

  1. https://assets.kpmg/content/dam/kpmg/au/pdf/2017/tax-technology-now-and-the-future.pdf
  2. https://www.oecd.org/going-digital/tax-and-digitalisation.pdf
  3. https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/digital/ey-tax-technology-transformation.pdf
Websites:
  1. https://www.internationaltaxreview.com/article/b1rw3lh618jvch/embracing-digital-transformation-the-growth-of-tax-technology-in-india-and-beyond
  2. https://blogs.worldbank.org/voices/why-digital-transformation-matters-taxation
  3. https://blog.ipleaders.in/impact-digitalisation-taxes/
End-Notes:
  1. Get set for the tax function of the future EY TaxTech Survey 2016, EY report, November 2016
  2. MOU between the Ministry of Corporate Affairs and Central Board of Direct Taxes (CBDT) for Automatic and Regular Exchange of Information," Press Information Bureau, http://pib.nic.in/newsite/PrintRelease.aspx?relid=170769, accessed 5 Oct 2017
  3. Income Tax Department Identifies 67.54 lakh Potential Non-Filers for F.Y. 2014-15," Press Information Bureau, http://pib.nic.in/ newsite/PrintRelease.aspx?relid=155757, accessed 27 Sept 2017
  4. CBDT's Central Action Plan 2016-17," http://www.taxsutra.com/sites/taxsutra.com/files/webform/Central%20action%20plan%20 2016.pdf, accessed 27 Sept 2017
  5. OECD (2019a),Addressing the Tax Challenges Arising from Digitalisation, OECD

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