By Prakash Mohan, Tax Managing Consultant, PwC Malaysia
In this digital environment, there is a higher demand for information in real time by regulatory authorities and stakeholders of organisations. What does this mean for internal functions such as Tax? In our last blog, we emphasised the need for a strong framework to hold suitable building blocks together. Tax functions’ building blocks include Data, Process, People and Organisation. In this blog, we will focus on Data, Process and Technology as an enabler.
It is not enough to have a plan and building materials; you have to hire the right construction crew to ensure that your dream house is resilient. They would have the skills and experience to lay the bricks, and install the roof, wiring and plumbing.
However, manual labour can be costly and prone to human error, hence, you would need to equip your crew with the appropriate training and tools to execute their jobs. Just like a house, building an efficient and effective tax function in your organisation requires the right team, a solid plan and durable materials.
In this scenario, Data would be the bricks, Process would be the cement and tools would include robotics, analytics, and computation engines that replace and reduce manual tasks. These three elements are fundamental to optimise your tax function and its operations in today’s digital environment.
Data is the most valuable intangible asset in an organisation -- it is currency in today’s digital environment. However, many organisations struggle to obtain data for tax reporting and compliance. This is typically due to stretched resources, time sensitive tasks, high volume and poor quality of data available, which impacts the accuracy of taxes payable or reported. This, in turn, may result in penalties, affecting cash flow and reputational risk.
The primary source for tax data comes from an organisation’s source system, i.e. the Enterprise Resource Planning systems (ERP), which are typically set up with financial reporting requirements in mind.
Generally, when ERPs are implemented or upgraded, there are nominal (if at all) considerations to ensure that the data and system configurations are able to meet the requirements of all their users, apart from Finance, such as Tax. Consequently, it is unlikely that you will find a set of tax-enriched data readily available from an ERP. Very often, if there is insufficient data for Tax in the ERP, Tax personnel will need to go back to multiple data sources to extract information for tax reporting and this process may be manual. This also restricts effectiveness of other tax modules that may be available such as tax dashboards, computations or population of prescribed tax forms.
Therefore, a data strategy (including a data governance policy) in an organisation must consider the data requirements of all users, including Tax.
Aside from improving quality and integrity of data for tax reporting, robust controls and processes need to be in place to ensure that tax risk is managed effectively. Regulatory bodies are moving towards real-time reporting, which also means increasing expectations of readily available tax information. If you are spending an inordinate amount of time extracting data for tax compliance reporting, it is likely that you are responding reactively to requests made for other tax-related information, especially if there are no processes in place.
Processes are important in governing a function’s tasks, i.e. compliance controls, risk escalation, data collection, extraction and management. These would need to be supported by clarity in accountability and roles of personnel involved in managing risk. Well-documented and widely communicated processes allow lead reviewers and stakeholders to be more comfortable with how tax is being managed. Lack of process alignment with relevant functions could lead to tax leakages (as seen in our first blog which outlined withholding tax management as an example).
The top three most common process challenges faced in a tax function are:
High number of manual processes (e.g. extract from data sources to populate an excel sheet to massage data, etc.)
Processes not properly documented (e.g. reliance on personal experience on action to be taken, decisions made are not documented, etc.)
Processes not communicated or aligned with other stakeholders
Tax functions should continuously review their processes to look for opportunities to improve efficiency. Leveraging process automation, for instance, can reduce human error, unlock time and manage risk. There is great potential in technology to derive business insights from data analytics and real-time reporting, e.g. using tax computation engines to seamlessly pull information to populate prescribed tax forms or schedules, and analyses of expense items for tax computation.
Ask yourself these key questions:
Is your source system able to support your Tax needs?
How much time is being spent on data collation for tax reporting?
Are the current processes the most efficient way of getting things done?
What else can I do with real-time tax-enriched data (e.g. scenario planning, Effective Tax Rate analyses, etc.)?
Taking the first step to dealing with your tax challenges of tomorrow, starts today - Let’s chat.
Tax Executive Director, PwC Malaysia
Tel: +60 (3) 2173 1059
Tax Managing Consultant, PwC Malaysia
Tel: +60 (3) 2173 1896