Digital Transformation of Your Tax Function: From Basic Process Automation to Cognitive Automation
I recently read a well-written article by the KPMG Tax Technology team in China that was aimed at equipping tax and finance managers with the tools and knowledge to deploy technology to manage their tax function over the next 2-3 years. This inspired me to write this article which is a distillation of key takeaways through the lens of my experience at Checkbox.
Your tax function needs to be on a journey of technology transformation to avoid falling behind. This does not necessarily mean investing in emerging technologies like cognitive AI and blockchain, but taking the first, incremental steps in learning how to 'walk before you run' and learning from those experiences to grow alongside the tax technologies of the future.
- The most common form of technology used right now to manage tax compliance is a number of Microsoft Excel spreadsheets.
- There are still a lot of inefficient, manual, process orientated work being done - for example, obtaining information and data from within your own organisations' business lines or from clients.
- Tax authorities are adopting technology and processes which increase the chance of being caught for non-compliance - for example, China tax authorities have access to transactional level data through its Golden Tax System.
How does Tax Technology Help?
Most tax technology solutions in the market can be broadly categorised into one of four types:
- Compliance related solutions
- Insight related solutions
- Process management solutions
- Accessories, components or infrastructure which enable or facilitate the above 3 types
The important thing to understand here is that a tax technology strategy needs to combine all 4 of these elements in harmony - investment in one component to the total exclusion of another may lead to failure.
Below is a figure from the KPMG article that outlines a typical client end-to-end tax process, with each of the 4 types of tax technology solutions mapped across.
This article has kept it super high level. For greater insights into how these 4 technology solutions work to help you transform your tax function, it is recommended that you read the original KPMG article linked at the end of this piece.
A Glance into the Future
Emerging technologies that have the potential to drastically alter the tax function include robotic process automation (RPA), machine learning (ML), natural language processing (NLP), cognitive automation/artificial intelligence (AI), and blockchain.
Whilst these technologies hold the greatest potential to revolutionise how tax functions will operate, they are still in their infant stage and require the greatest investment in both money and time. For example, the contextual learning stage alone for artificial intelligence can represent an investment measured in years, not months. Another big barrier is that as much as 80 percent of the world's data is unstructured which make it difficult to meaningfully consume in order to enable AI technologies.
Before leaping to implement such technologies, organisations should first ensure that they have made the necessary first step in establishing the 4 elements detailed above to deliver shorter term realisation of value from technology and get the momentum going.
- Be realistic: Many organisations expect to magically transform their tax functions by adopting emerging technologies such as AI and blockchain. It is vital to understand that transformation is a journey over a period of time. The incorporation of tax technology solutions will be achieved incrementally, not radically. Organisations need to learn to resist the lure of hyped technologies and invest in 'established' technologies which can deliver real business value today and learn from them, so that they are in a strong position to take advantage of the new emerging technologies when they ripen in a few years' time.
- Be cross-functional: Critical to the success of a technology enabled tax function is the ability for your IT people to develop some tax skills, and for your tax people to develop some IT skills. This doesn't mean having your IT people prepare tax returns or having your tax people code. Rather, it is about each party understanding the requirements, factors and constraints of the other party, creating a bridge and closing the gap between the two functions. Checkbox facilitates this development of the tech-savvy tax team by enabling tax people to build their own software but without the barrier of needing to code or engage IT.
- Be patient: Tax technology solutions may not yield the immediate results you expect. Further, the ability to fully automate your tax function is far from possible within the foreseeable future. Instead, adopt the mindset that introducing tax technology is a necessary first step to educate and shift the people within your organisation towards a more technology-centric culture. The opportunity to learn through experience should not be discounted here.
- Be involved: In a world that is rapidly advancing in technology, to do nothing is in fact to fall backwards rather than to remain stagnant. Similar to holding onto cash, technological advancement is like inflation - by not investing in technology, you are not only foregoing the opportunity to grow, but you are devaluating with every passing moment. In counterpoint to being realistic above, whilst you may not be investing in emerging technologies today, it is very important to stay informed and not be afraid of them.
This article draws from the publication Transforming the In-House Tax Function in China through Technology, 2018. You can download and read the full KPMG article here.