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Three ways to manage data to integrate technology in tax

The swiftness with which tax authorities have adopted technology has been remarkable, bringing in greater transparency and stringent reporting practices. Today, the tax landscape is being reshaped due to the emergence of innovative technology solutions, major enterprise resource planning (ERP) system overhauls and the strategic use of data.

All of these changes require data to be leveraged effectively and efficiently, necessitating a revamped approach towards managing data.

1. Integrating data systems for data management

Tax functions are under intense pressure to adapt to evolving compliance requirements like the Carbon Border Adjustment Mechanism (CBAM), Pillar Two and others. Ensuring the quality of legal entity and jurisdictional data is therefore crucial to manage these changes and risks. To ensure compliance, tax departments must thoroughly evaluate their current data management systems, including collating and extracting data from ERPs and financial reporting software. This strategy requires:

(i) a data-centric approach that utilises centralised technological platforms

(ii) a comprehensive assessment of existing data architecture and processes, followed by the creation of a future-proof framework – which incorporates advanced technology processes, a connected compliance plan and strong governance.

2. Data architecture

In today’s business environment, centralising data through a unified dictionary is essential to enhance efficiency and accuracy across various processes. This approach prevents the inefficiencies of isolated data handling within individual workflows and supports the increasing overlap in data requirements across different reporting domains – such as tax compliance, environmental, social and governance (ESG) reporting and Pillar Two. Moreover, consistent data sourcing is crucial to avoid discrepancies that tax authorities – now equipped with advanced digital tools like artificial intelligence, data and analytics – can easily spot during audits.

Today, tax authorities expect corporations to have the capability to swiftly provide detailed source data and respond to audit inquiries. Therefore, ensuring audit readiness now transcends maintaining files – rather, it necessitates a robust data strategy to minimise reliance on manual processes and remain adaptable in the face of evolving regulatory challenges.

3. Data insights through generative AI

Once data integration, management and architecture are optimised, organisations can leverage generative AI in tax functions, which offers significant and swift returns on investment due to its scalability. Generative AI facilitates quick insights and analytics on specific data sets, with initial applications in text queries and data interrogation. As it evolves further, its proficiency in processing unstructured data will be instrumental in expediting data-centric transformation projects, bypassing traditional developmental stages.

Furthermore, tax functions that standardise core processes around uniform data sets – especially through the adoption of ERP sensitisation, cloud technologies and other integrated solutions – will be better positioned to capitalise on generative AI advancements.

Managing data requires a holistic approach in order to obtain optimised results, and the process begins with taking stock of where businesses stand today, followed by crafting a blueprint for the future and a change management programme for its adoption.

Technology enables tax compliance. Compliance enhances transparency. Enhanced transparency builds trust with stakeholders, which is crucial for business sustainability.

The author is Sanjay Tolia, Partner – Price Waterhouse & Co LLP

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Published: 16 May 2024, 05:28 PM IST

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