Tax automation vs. transformation


The indirect tax function has three core tasks: tax compliance, tax planning and audit defence. From all three, tax compliance is generally considered to be the most time-consuming and labor-intensive as it is comprised of multiple routine activities, each of which may have a significant and lasting impact on the tax position of the company.

In order to improve the execution of indirect compliance processes, many companies consider launching automation projects. Automation can offer many advantages in terms of improving accuracy (by removing the potential for human errors), efficiency (by reducing the time spent on repetitive manual tasks around tax return preparation) and transparency (by creating an audit trail that keeps track of all user activity and data changes in the return preparation process). As indirect tax functions are facing increasing demands in the form of both more complex compliance obligations and budgetary restrictions preventing them from adding new staff to cover these additional responsibilities, investing in automated solutions becomes a necessity.

Robotic Process Automation (RPA) is a software solution that mimics human actions and connects multiple fragmented systems through automation. RPA does not change the company’s current IT landscape and integrates easily into IT systems as it can work across legacy systems, custom applications and any other technology platforms. It is like an employee who can effectively work 24/7 and maintain a high level of accuracy in repeating tasks.

Whereas RPA can lead to labor savings and improved accuracy, it automates the “as-is” process, with no examination of the current process steps. RPA does not redesign anything. It does not ask whether one needs to perform this activity at all. It operates at the task level and not at the end-to-end process level. Companies that focus on RPA only may miss out on significant opportunities to improve process outcomes, quality and cost structure. Therefore, when it comes to processes, every tax technology project should not be aimed at process automation but at process transformation. The goal should be to redesign or improve the process rather than to automate its current state.

Before process automation initiatives are launched, it is advisable to take a critical look at the current processes which are often overly complex, contain unnecessary steps and have not been examined for many years. Automating inefficient processes can only generate modest labour savings but not significant improvements in terms of costs, quality and performance. Therefore, the focus of tax technology initiatives should be on process transformation rather than automation. As Bill Gates once said, “the first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency”.

If you would like to read more about process transformation, please take a look at my article Indirect tax compliance: automation versus transformation? (Tax Notes International, vol. 94 no. 3, 15 Apr. 2019).