Adoption of emerging technology can help manufacturing tax functions improve efficiency and productivity

07 October, 2019

Chris Kontaridis
US Deals, Strategy & Operations Leader for Tax Reporting & Strategy, PwC US
Mark Nadel
Director, PwC US
Nancy Hsieh
Partner, Tax Reporting & Strategy, PwC US

The current global economic and tax climate is causing unprecedented change to tax functions in the manufacturing industry. The impact on each tax function will be different, but certain trends, including rapid technological change, are prompting tax functions in manufacturing to reassess their adoption of emerging technologies. They know that the increasing use of emerging technologies can drive efficiency and productivity in the tax function and enhance data and analysis needed to enable insightful decision making.

PwC and the Manufacturers Alliance for Productivity and Innovation (MAPI) recently collaborated on a survey of MAPI member organizations that included questions around developments in tax reform and emerging technologies. The survey results provide insights to help tax functions in manufacturing understand what has changed in the tax technology ecosystem over the past few years and their impact on tax department design, skillsets and functional key performance indicators (KPIs).

Tax reform highlights need for emerging tax technology

Tax functions in manufacturing continue to adapt to the 2017 tax reform legislation. Calculating and analyzing the impact of these new complex and interdependent provisions is creating unprecedented compliance burdens. More than half (52%) of tax functions in manufacturing must access more than three additional data sources to perform these new calculations. While it is critical for tax functions to adopt an automated approach for calculating, reporting, and planning around tax reform, 59% of manufacturing tax functions continue to use error-prone spreadsheets for these purposes.

Tax functions must automate and manage their processes to reduce time spent on data manipulation. Although manufacturing tax executives rated the use of tax technology as their #1 concern and area of improvement, 89% of them have adopted only a minimal amount of technology to respond to tax reform and 59% have implemented little to no automation to perform tax reform calculations.

Expanded budgets can help tax fund technology enhancements

The average tax department budget has increased over the past few years and tax functions in manufacturing are capitalizing on this enhanced funding — and more than one-third (35%) of them have a designated tax technology professional.

We have seen a significant increase (from 39% in 2016 to 73% in 2019) in the tax function’s use of business intelligence (BI) tools to visualize data, with reporting/forecasting tools presenting the greatest opportunity for a positive impact on tax operations. BI tools usage also increased from 44% in 2016 to 51% in 2019; we expect this usage to increase over the next few years.

Small automation is an increasing priority for manufacturers, with 44% of their tax functions exploring potential robotic process automation (RPA) options for automating the “clicks and keystrokes” performed by humans and 36% using extract, transform, and load (ETL) tools to extract data from source files/systems, then transform and load that data into tax calculation and reporting engines.

Small automation tools are causing tax functions to reassess how they use and the type of tax work they send to shared service organizations. Automation may prompt tax departments to consider moving certain activities to these centers. An 18% increase in the usage of shared services shows that this is already happening.

Artificial intelligence applications emerging, but more work to do

Current internal and external challenges require tax functions in manufacturing to be nimble and accurate in providing information the business needs to make decisions and comply with increasingly complex tax rules and reporting requirements. Artificial intelligence (AI) — a machine’s ability to perceive its environment and complete tasks that normally require human intelligence — can perform structured or unstructured tasks and mimic human ability to sense, think, and act with greater speed and accuracy.

Although technology-enabled access to accurate data can enhance every aspect of the tax lifecycle, only 11% of survey respondents are utilizing AI, including machine learning (applies statistical learning techniques to automatically identify patterns in data) and natural language processing (understands the meaning of written text) algorithms in their tax functions. This means that 89% of the companies have yet to explore these emerging technologies.