Tax in the digital transformation process

Bruce Martin at Tax Systems argues that it is time for the tax function to take the limelight in digital transformation 

 

There can be no doubt that digital transformation projects designed to improve business processes and performance are now commonplace. Technology innovation is driving profound change through the economy to deliver widespread enhancements, with some sectors, such as finance, at the helm.

 

Yet even here, there are specialised areas, notably tax, where organisations have not tapped into the opportunities that digital transformation offers – this needs to change for businesses to fully realise their potential. 

 

It’s become apparent that the tax function is often some distance away from the limelight enjoyed by its finance counterparts. Frequently viewed as part of the wider finance operation in organisations, tax isn’t always treated as an entity in its own right when business leaders are designing their transformation strategies.  

 

However, there is a strong case for why tax warrants more digital investment. With today’s tax departments handling large, complex datasets, it is a prime candidate for the application of artificial intelligence (AI) and other digital technologies to improve the effectiveness of data analysis, reporting and insights.

 

By leaving tax out of the transformation process, data hungry organisations could, therefore, be missing out on a range of opportunities to enhance business-wide effectiveness. 

 

So why then is tax frequently dismissed in favour of high-profile digital investments in other areas of finance? 

 

Tax: a priority, not an optional extra 

Tax is a complex area – and typically uses technology more widely than other finance specialisations. It is fundamentally driven by the need for regulatory compliance, rather than being based on operational and revenue targets that have a direct impact on the bottom line. 

 

Arguably this means that there is less perceived need to allocate any additional budget to tax beyond necessity and tax transformation is left to fall behind.

 

A parallel example is with Environmental, Social and Governance (ESG) planning and implementation, where there is a tendency for businesses to bring in the minimum of changes until government regulations or other pressures demand more notable action. 

 

Another consideration is that the integration of digital technologies by tax teams will depend on factors such as overall business requirements, the position in the finance and tax lifecycle, team experience and its involvement with shaping technology strategies at senior level, all of which influence how budget is allocated for transformation projects.   

 

Moreover, with many CFOs coming from an accounting background, it is common for the focus to be on transformation projects that align with their experience. These could be transactional changes to core accounting processes or investments into areas such as internal audit, or financial planning and analysis (FP&A).   

 

The potential of tax transformation 

But tax transformation is about far more than reporting deadlines and ticking compliance boxes. Done the right way, it should use technology to automate the numerous manual and repetitive tasks so characteristic of tax, to enable experienced professionals to deliver more strategic insights and efficiencies.

 

Concurrently, using advanced technology, including AI, to handle the predictable tasks achieves improved productivity with manual data processing across the tax department. The emphasis is not to replace or displace jobs as some people fear, but to free up human resources to focus on strategic matters that can make a material difference to the entire business. 

 

There are additional incentives to build the case for greater digital change in the tax function, and these lie within the broader tax ecosystem. In the future, organisations within the tax industry and beyond will have to adopt technologies and processes to be able to interact with each other.

 

For example, it is well known that HMRC is gradually increasing its digital capabilities and the requirements that come with these. So standing still is not an option in the medium term. 

 

A rightful place in digital strategy 

Looking at the bigger picture, organisations now have a wealth of opportunities to balance human expertise and training along with new technologies as part of their digital transformation strategies. 

 

Momentum is set to build, with 69 per cent of business leaders saying that digitisation initiatives are accelerating in their industries and most saying that they expect digital technologies to transform their industries by 2026. 

 

Tax transformation has immense potential to deliver significant financial and process efficiencies to a business, and warrants more visibility than it currently gets. Yet, to take its place firmly at the digital table, there has to be a paradigm shift that moves tax from an exercise in regulatory compliance to an area that impacts business performance. 

 

Those organisations that recognise the benefits that tax can bring to a holistic digital strategy and act on this will be in a strong position to reap future rewards. 

 

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Bruce Martin is CEO of Tax Systems 

 

Main image courtesy of iStockPhoto.com