TAX AUTOMATION BY GOVERNMENT - BOON OR BANE
Hello everyone! I'm Priyanshi Agarwal, a CA Finalist. From a couple of days, I have been reading and researching on the automation of taxes. In this article, I have accumulated all the research and thoughts around this topic. Hope you find this insightful. Happy Reading!
The ‘future of work’ has been the subject of hot-debate across the world as machines increasingly replicate and replace human labour. The current wave of automation has been characterised as the ‘Fourth Industrial Revolution’ i.e. the convergence of technologies such as robotics, artificial intelligence, machine learning, etc. and experts predict that this time will be different. The ramification of this wave would depend upon the socio-economic and labour profiles of different countries.
Union Finance Minister Nirmala Sitharaman said the e-assessment plan?would be formally rolled out on October 8 when Vijayadashami will be celebrated. In 2017, while speaking at a seminar of senior tax officials,?the prime minister had urged the need for e-assessment in income tax proceedings and secrecy of procedures by utilising information technology.
While presenting the Union Budget 2019, Sitharaman said that “the existing system of Income Tax scrutiny assessments involves a high-level personal interaction between the taxpayer and the department, which leads to certain undesirable practices on the part of tax officials. To eliminate such instances and to give shape to the vision of the prime minister, a scheme of faceless assessment in electronic mode involving no human interface is being launched this year in a phased manner. To start with, such e-assessments shall be carried out in cases requiring verification of certain specified transactions or discrepancies”.
To support the government’s proposal of impersonal and anonymous scrutiny, CBDT ordered the creation of a National e-Assessment Centre (NeAC) in Delhi. At a later stage, Regional e-Assessment Centres (ReAC) are also expected to be established. The NeAC will have 16 officers and will be led by a Principal Chief Commissioner of?Income Tax.
The centre will be an autonomous organisation which will solely look after e-assessment. Notices will be served to the assessees by NeAC and the reasons for selecting them will be stipulated. Within 15 days of the receipt, cases will be allocated to the assessing official by an automated system. Nevertheless, assessees or their permitted representatives who are desirous of a personal hearing can get one. Such hearings shall be conducted exclusively through video conferencing
Why tax administrations are embracing digital transformation
For citizens in countries around the world, paying taxes is among their most challenging and time-consuming interactions with government.?For many governments, enhancing tax compliance and collecting sufficient revenue have been a matter of necessity to finance public goods and services. That is why tax administrations are undertaking the digital transformation and automation of their systems. The adoption of technology can enable successful and sustainable tax reforms, ensure the proper taxation of the digital economy, and reduce the obstacles to compliance. The COVID-19 pandemic, which led to a boom in the use of digital commerce, made this change especially urgent for tax administrations.
The transformation has progressed increasingly rapidly over the past decade, as the cost of digital technologies has plunged and powerful tools to develop applications have become more user-friendly. One example of the falling cost: Cloud storage is now over 50% cheaper than it was a few years ago. The rise of big data is an important factor in the shift because it can allow easy cross-checking of information, which enhances compliance by taxpayers. Overall,?global data volume from mobile payment providers, electronic cash registers, online marketplaces, and other digital sources is expected to nearly triple from 2020 to 2024.?Digital transformation is also being driven by the rapid growth of e-commerce, which is projected to expand 24% from 2020 to 2025, making it an increasingly important part of the tax base. The increasing use of cashless payments, through mobile phones and other devices, is also powering the change. Such payments can be easily reviewed by tax administrations and often leave a digital trail that can be audited.
Digitalization makes life easier for authorities by easing the administrative burden, which gives officials more time to focus on higher-value activities.??But it also allows authorities to simplify procedures and reduce the compliance burden on taxpayers. Research shows that in South Korea, for example, digitalization has reduced compliance costs by as much as 19% in the 2011-2016 period.
Advantages of tax automation
The primary advantage of e-assessment is that it saves time. The scheme exempts the individual from travelling to the Income Tax Office and wasting a few hours to meet the tax officer. Even if the person is out of town, he can react to the notices. Moreover, the taxpayer will no longer be a victim of probable exploitation by an officer who threatens to make additions to the income unless he pays up. This is a big relief for sincere taxpayers.
Tax analysts spend a considerable amount of their time by engaging in repetitive tasks, including manual data entry, scrutinising spreadsheets, verifying numbers, and generating reports. However, these tasks might not enable them to reach their full potential and expertise. Reducing manual labour can help businesses utilise their specialised skills and know-how on strategic initiatives, including addressing assessment errors, challenging auditors, identifying tax-saving opportunities, implementing solutions to optimise transactions with business partners, and more.
Modern tax automation solutions can serve as a boon and take over repetitive administrative tasks, allowing tax professionals to focus their expertise where needed. Let’s take an in-depth look at the reasons why businesses must consider incorporating tax automation solutions.
A real-time, more user-friendly future
?With these changes underway, taxation is likely to look a lot different in the future:
·????????Instead of storing huge amounts of taxpayer data, administrations will have access to encrypted, distributed ledgers that allow them to capture tax information seamlessly and in real time. This has the added benefit of making tax administrations “less visible” to the public.
·????????The decisions of the tax administrations will increasingly be supported and strengthened by artificial intelligence. But the system will need to be closely monitored for errors.
·????????Tax administrations could become warehouses for more and more government data. That will give them a central role in the formulation of economic policy, enabling policymakers to review transactions in the economy and allowing better forecasting.
·????????The tax system could become much more user-friendly. Services could include prefilled tax returns, taxpayers’ access to their own filing information, the sharing of data with banks to expedite credit approval, along with privacy preserving queries on the tax file by researchers and local communities.
·????????Tax administrations will streamline the interface between taxpayers and tax officials, for instance by connecting corporate accounting systems with the tax administrations’ e-filing and e-payment platforms.
Efficiency??
Automating the collation of tax data allows qualified tax specialists to shift their focus on high-value tasks, such as discovering tax-saving opportunities. Lightening the workload on the tax team also reduces the chances of fatigue and burnout, commonly associated with tedious and repetitive work. This translates to happier, focussed, and efficient employees who make fewer errors leading to smoother audits.
Accuracy
Incorporating a tax automation solution can eliminate the element of human error from data extraction and compilation processes. Access to accurate, up-to-date data can streamline the tax reporting workflow, free up resources spent on managing and monitoring data quality, and ensure audit preparedness at all times. With?tax compliance automation, tax filing errors can be a thing of the past.
Cost Reduction
Aside from the speed and accuracy benefits of technology-enabled processes, employing a modern software solution for tax automation is more economical than assigning specialised teams for audit preparation. Additionally, the accuracy that these systems deliver negates the need to allocate additional resources towards identifying and correcting tax filing errors, thus ensuring a better ROI.
Flexibility and comparability
Large corporations must keep up with legislations across various jurisdictions to prevent compliance issues. Modern tax compliance automation solutions ensure that changes in local tax laws aren’t overlooked when taxes are filed, avoiding issues with tax authorities such as penalties and fines. Additionally, these automated tax services are built with agility and scalability, eliminating the hurdle of mounting tax filing obligations that come with business growth.
Better Overview
Tax automation solutions gather and compile all relevant tax information in a centralised location. This includes workflow details, compliance reporting, and analytics, all of which can be tracked and monitored by decision makers at a glance. Automated tax service providers handle the legwork of compiling, organising, and providing on-demand access to all historical transactions and receipts. This centralised access to up-to-date and maintained accurate data helps tax teams oversee the submissions process and foresee any possible bottlenecks while mitigating risk in real time and boosting the team’s operational efficiency.
Data Security
Contemporary tax automation solutions use high-level encryption for all sensitive data. Data encryption keeps your organisation’s financial information secure, reducing the chances of fraud or other malicious activities.?For organisations on the digital transformation journey, agility?is key in responding to a rapidly changing technology and business landscape. Now more than ever, it is crucial to deliver and exceed on organisational expectations with a robust digital mindset backed by innovation. Enabling businesses?to sense, learn, respond, and evolve like a living organism,?will be imperative for business excellence going forward.A comprehensive, yet modular suite of services is doing exactly that. Equipping organisations with intuitive decision-making automatically at scale, actionable insights based on real-time solutions, anytime/anywhere experience, and in-depth data visibility across functions leading to hyper-productivity, Live Enterprise is building connected organisations that are innovating collaboratively for the future.
Disadvantages of tax automation
There is a dark side to the scheme. Invariably, the scheme calls for much documentary evidence such as property sale and purchase agreements, bank statements, balance confirmations, etc, during the hearing procedures. These need to be submitted electronically. However, the capacity of the site where documents are uploaded is restricted while the size of the soft copy of many documents surpasses this limit.
Furthermore, due to lack of experience in the private sector, many officials who worked only in the Income Tax department are not in a position to comprehend commercial transactions and the reasons for a transaction being structured in a specific fashion. This will prompt them to make undesirable additions to the income reported on the Income Tax return. However, during the course of personal interaction, commercial validation of the transaction can be elucidated and the doubts of tax officers cleared.
Therefore, to make the scheme effectual, operational hindrances have to be addressed to avoid injustice to the taxpayers. The space limit for uploading documents has to be enhanced. Proper training has to be given to officers regarding trade practices and procedures in order to understand commercial activities thoroughly. It is only then that the e-assessment scheme will live up to its true potential and become a win-win situation for both the tax department and taxpayers. Otherwise, the government’s ambitious plan will take a beating.
Conclusion- Automation of taxes is a boon
The scheme was launched by the government with a dream of corruption-free India with the help of technology and the idea of Digital India. The faceless assessment?scheme was brought about with a view to honour the honest tax payers and bring in greater transparency to the tax administration. It is no doubt a massive paradigm shift in the way assessments will be carried out further on, they have been made faceless and organised. The main issue with the previous form of assessment was human intervention for selection of cases for assessment but now that it is addressed with the help of an automated selection by using Artificial Intelligence, the taxpayers will have more faith leading to increase in compliance. Though there are a few hitches it is upon the department and government to identify and address the same to ensure smooth functioning of the scheme. But both the tax department and tax payers need to be ready to adopt and accept the change in the assessment scheme, it needs to be thoroughly studied and implemented and till then we can only wait and watch for it to evolve and adapt to the practical environment.?
In a nutshell, governments and organizations at large should deploy automation and AI to extract the maximum benefits of its enhanced performance and fruitful contributions towards the societal benefits