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Nitin BCAJ Article - 03 - Tax and Technoly July 2020 PDF
Nitin BCAJ Article - 03 - Tax and Technoly July 2020 PDF
T h e B o m b a y C h a r t e r e d Acc o u n t a n t J o u r n a l
c u r i o s i t y t o c r e at i v i t y
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THE RUN-UP TO
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OVERCOMING THE CHALLENGE
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TAX AND TECHNOLOGY:
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LEARNINGS FOR AUDIT
AUDIT IN THE OF RISK MANAGEMENT IN ARE TAX PROFESSIONALS FIRMS IN THE ERA OF
2030s PROFESSIONAL SERVICES AT RISK? PCAOB AND NFRA
BCAJ Vol. 52-A Part 4 | JULY 2020
META-TRENDS IN TECHNOLOGY Besides, the way transactions are effected will change
IMPACTING TAX PROFESSION with greater digital impact on transactions and dealings
In any case, regardless of the current experience, between taxpayers and tax authorities and judicial bodies.
developments in various technologies will continue to For example, the Income-Tax Department has already
be transformational, influencing both professional and started deploying data-mining and data analytics by
personal lives. The following are the five meta-trends in linking various big data from internal as well as external
technology that will materially affect the tax profession in sources such as Statement of Financial Transaction
the future: (SFT), data received from Investigation Wing, information
received under Automatic Exchange of Information
(1) Data – big data sets, massively improved performance (AEOI), FATCA, Ministry of Corporate Affairs and GSTN
and memory capacity at scale; to identify persons / entities who have undertaken high-
value financial transactions but have not filed their and other systems, and more recently have adopted
returns. Several tax administrations around the world technologies such as robotic process automation to
have started providing pre-filled returns and automating streamline collection processes.
various tax compliances based on comprehensive and
accurate third-party data available with them. Today, multiple tax compliance solutions help in generating
accurate tax returns by leveraging data collected as
In some territories, tax authorities already require part of core business functions. In future, this is likely to
full accounts payable (AP) and receivable (AR) change dramatically. Increasingly, the classification of
ledgers (with invoice-level detail) and subsequent transactions will be automated using machine learning
periodic trial balance financial ledgers to be applications that perform text-based search and apply
submitted. These countries include Brazil, Poland, preset rules, learning from previous analysis to predict the
France and Spain (where AP and AR ledger details appropriate tax treatment.
are required to be provided within four days of the
invoice issuance). India, too, will join this club once AI will do the job without needing to rely on upfront
e-invoicing is rolled out. recording in structured accounting ledgers or after-the-
event manual review and allocation in spreadsheets.
The Organisation for Economic Co-operation and Combined with the increase in the extent of data to
Development (OECD) in its report on ‘Advanced Analytics work with, these cognitive technologies will produce
for Better Tax Administration - Putting Data to Work (2016)’ a much higher degree of accurate tax classification for
highlights that several tax administrations (including all transactions and business events that taxpayers
Ireland, Malaysia, the Netherlands, New Zealand and undertake.
Singapore), in addition to building statistical models
to predict VAT fraud or error, are carrying out Social (3) DECISION-MAKING
Network Analysis (SNA) to help detect VAT carousel AI will have a similarly dramatic impact on the
fraud (a VAT carousel is a complex form of missing-trader application of tax judgement. These same cognitive
fraud which exploits the VAT-free treatment of cross- technologies improving data classification will enhance
jurisdictional sales) and other group-level risks. SNA the professional's decision-making capabilities: machine
helps administrations to identify risky groups in situations learning, pattern matching, fuzzy logic and natural
where individual-level assessments may fail to detect language processing will allow complex tax analysis to be
anything of concern. It identifies links between individuals undertaken by technology. These developments pose a
(for instance, through company directorships, joint bank significant opportunity to reduce time and effort, improve
accounts, or shared telephone numbers) and assembles quality and accuracy and ultimately to raise the bar of
connected individuals into easily visualised networks. what can be achieved.
Case-workers can then browse these networks to profile
individual risks. Equally, the networks can be scored for A leading firm has developed a tax-related application for
risk using either a rules-based assessment or a statistical large organisations with complex tax affairs in the area of
model trained on historical data. This report also provides classifying expenses for correct treatment in the corporate
an overview of the application of advanced analytics by or indirect tax returns. This application goes beyond rules-
various tax administrations for: based solutions, using ‘human eye matching’ (fuzzy) and
artificial intelligence, where the tool ‘learns’ from the user’s
(i) audit case selection, tax decisions. The tool can rapidly analyse complete sets
(ii) filing and payment compliance, of data, eliminating the risk of both human error and
(iii) taxpayer service, sampling. In addition to its versatility which allows it to cater
(iv) policy evaluation, to a variety of compliance-related needs, this tool offers
(v) taxpayer segmentation. a fully documented process that reports on the decisions
made and tax positions taken. Software features allow the
(2) PROCESS AUTOMATION reviewer to focus on the most important or contentious
In the past data collection has often been ad hoc and decisions, which can be manually overridden if the
laborious. It typically requires analysis and rework of data reviewer is uncomfortable with the machine’s decision.
to classify for tax purposes. Businesses have worked on Time savings are realised immediately as analyses that
structuring their data and recording it in their financial would otherwise be done manually have been automated,
TOMORROW'S TAX WORLD Daniel Susskind and Richard Susskind also raise the
The combined effect of these broader technology following profound questions in their book ‘The Future of
developments will bring about a sea change in the way the Professions’:
tax authorities and other regulators meet their objectives
and manage their responsibilities. u Might there be entirely new ways of organising
the full or partial pre-filling of tax returns. Digital contact all the work that our professionals currently do?
channels (online, email, digital assistance) now dominate u To what extent do we trust professionals to admit that
and the number of administrations using or developing their services could be delivered differently, or that some
mobile applications continues to grow. Electronic data of their work could responsibly be passed on to non-
from third parties, including other tax administrations, as professionals?
well as internally generated electronic data, is used in u Are our professions fit for purpose? Are they serving
in which data needs to be maintained and provided. institutions and individuals are being asked to deliver
For example, filing schemas and standard audit files more service, with fewer resources at their disposal.
like SAF-T, an international standard for the electronic u Existence of new competition – Many of the
exchange of reliable accounting data from organisations technology-driven changes are being driven by people
to a national tax authority or external auditors, defined by and institutions outside the boundaries of the traditional
the OECD, are being widely adopted. professions (often tech startups), with very different
training and experience to traditional professionals.
Gradually, most tax authorities will be requiring fuller u Productisation of services – Many professionals think
data sets to be filed or made available and in real-time of their work as a form of craft, like an artist starting each
or close to it. Indeed, they are likely to move beyond this. project afresh with a blank sheet of paper, or akin to a
Rather than require the data to be filed and managing the tailor stitching a suit to fit the particular bodily contours
transfer and storage of large volumes of data, they may of his clients. Now we see a move away from that view,
simply mandate the algorithmic routines that they require recognising that professional work does not have to be
to be run across data sets and then review the results. handled in this bespoke way.
This real-time access to the taxpayer's financial data will u Increasing decomposition of professional work –
save the effort of data transfer and rely on taxpayers to Many professionals think of their work as solid, indivisible
maintain a digital record. Such a development will also lumps of endeavour that must all be handled by particular
accelerate the time at which revenue authorities can types of professionals, working in certain ways, organised
review and investigate a client's information. in specific forms of institutions. Increasingly, however, we
are instead seeing professional work being broken down
TOMORROW'S TAX PROFESSION into composite tasks and activities. Once this is done, it
These developments pose an essential question: What will often becomes clear that the work can either be performed
be the nature and volume of future work for professionals? by non-professionals or can be automated.
When the impact of automation and augmentation u Increasing commoditisation of professional work –
increases, what will tomorrow's workforce do to replace When professional work is broken down in this way, it
the time currently spent on today's processes? Ultimately, transpires that many of the tasks involved in it are not
what will be the right balance between human and particularly complicated, they are relatively ‘routine’ and
machine? can be automated accordingly.
A TECHNOLOGY-BASED INTERNET the system simply returns the offending card. The rules
SOCIETY are embedded in the system. A breach is not merely
The Susskinds see a different set of models for producing prohibited, it is impossible to perform. Likewise, as more
and sharing practical expertise emerging as we evolve of our lives become digitised, practical expertise will not
into a technology-based internet society: be invoked through the intervention of human beings but
(A) Networked experts or ‘workers on tap’ model – Here, will be embedded in our everyday systems instead.
it is still professionals that are involved in producing (F) Machine-generated model – Here, increasingly
practical expertise. However, rather than being employed capable systems and machines produce and share
in a particular brick-and-mortar institution (a firm, hospital practical expertise without any human involvement. Of
or school), professionals instead use online platforms to the six models, this is the most radical, where traditional
work in a far more flexible, more ad hoc way in solving recipients of professional work would have access to
professional problems. Doctors-on-Demand in medicine technologies that obviate the need for human experts
and Axiom Law in the legal world are two examples. altogether. Although this scenario is the most widely
(B) Para-professional model – Here, less expert people, discussed in the popular debate, it is essential to keep in
using new technologies, can perform tasks that would mind that this model is only one of six.
have required more expert people in the past. Take the
medical diagnostic system developed at Stanford. It is While digital transformation will require significant change
entirely conceivable that in primary care of the future, one and pose considerable challenges, that future will also
may not necessarily be treated by a doctor but by a nurse offer significant opportunities. It seems clear that revenue
practitioner who, using one of these systems, can offer authorities will embrace technological change and use
the sort of diagnostic support that might have required a it to gain access to global data sets and thereby create
more expert person in the past. more tax transparency. This development will increase
the demands on tax professionals coming from increased
(C) Knowledge-engineering model – This is what we were complexity, rapid change and heightened risk. However, by
doing in the 1980s: engineering systems, derived from the embracing the new technologies for handling and analysing
knowledge of experts, for non-experts to use (in our case, data, tax professionals will be able to improve compliance
to help solve legal problems). Many readily-available processes, enrich their tax analysis and provide greater
online DIY tax preparation software and contract-drafting understanding and value to their organisations.
tools rely on this model.
(D) Communities of experience model – Social networks Over the short term, it appears that there will be more
are now a ubiquitous feature of contemporary life. Also work to do in both managing the change and the
familiar are professional networks, where practitioners consequences it will lead to: The greater accuracy that
gather to share their expertise. Less familiar, though, are the new technologies will offer and require for both tax
communities of experience – where patients, rather than processes. Moreover, the nature of that work will be
practitioners, meet to share their experience and advice. different. The digital transformation will reduce time spent
Take, for example, PatientsLikeMe, an online network of processing, improve analytical capabilities and create
more than 600,000 patients who come together to share significant new opportunities for businesses to manage
experiences of their symptoms and treatments, receiving their tax obligations.
support and solving problems that might have required
more expert medical professionals in the past. It’s difficult to be precise about what the tax digital future
will be like, but certain characteristics seem clear. As a
(E) Embedded knowledge model – To grasp this, consider society and as professionals:
the card game Solitaire (also known as Patience). If this (a) We will be data-driven, leading to a more holistic
game is played with physical playing cards and a player approach at the enterprise level. We will manage that
tries to put a red five under a red six, this is possible data better. We will harness its power to act faster,
(even if it is called ‘cheating’). Putting two cards of the provide richer insights and create business value for the
same colour on top of one another is, of course, against organisations we serve.
the rules. Now imagine a player who is playing the (b) Big data will lead to greater granularity, precision
same game but on a smartphone. If the player tries the and accuracy. We will work with integrated data sets,
same move, it is not possible for him to do so because including all aspects of the underlying transactions – both
the structured and unstructured data elements. It will tax return compilation and filing work on a large scale
result in enhanced analysis in detail rather than sampling by employing graduates who work with the tax return
and estimation. preparation software with minimal training. The evolution
(c) Algorithms will increasingly be the way we apply our of the sharing and social economy will open up talent
expertise, our knowledge and experience. Furthermore, networks, crowd-sourcing models and the so-called ‘gig’
we will need to apply that expertise earlier in processes economy to the tax marketplace on the lines of examples
as real-time reporting takes hold and accelerates the given under the networked expert or workers on tap
times at which data is submitted. model above.
(d) Robots will take more of the strain. Robotic process
automation technologies will evolve, become easier and The skills required for tomorrow’s tax professional will
cheaper to deploy and as a result will become ubiquitous continue to include the traditional skills such as core
tools for professionals to use to streamline processes. technical expertise (to deal with increasing complexity
Besides, they will become smarter, infused with AI, and in the ever-changing tax and regulatory landscape) and
therefore have a greater impact. professional ethics; the tax professional will need to
(e) The user experience will be more digital. We will imbibe additional skills such as:
consume information in a more personalised way through (I) Increased technology skills specifically with respect to
the video and other mixed reality media. At the moment, the familiarity with continuously changing applications such
work in systems such as email involves interacting as specialist tax software, electronic tax administration
through a keyboard. In the future, we can expect much platforms and also other disruptive technologies, such as
more use of natural language processing, talking to virtual artificial intelligence / digital assistants, to augment their
agents and connecting through online forums. output.
(II) Business and commercial skills to think and align tax
TOMORROW'S TAX PROFESSIONAL and business strategy.
With these dramatic changes will come a significant (III) Risk assessment and management skills in respect
impact on the tax professionals' lives – how we work of tax positions taken, corporate structures, existing and
and what we do. The relationships and roles within our emerging laws, regulations, political initiatives and shifting
organisations and with advisers will be different. They public perceptions.
will be expected to do more work earlier in the process (IV) Communication and collaboration to manage
as transactions are recorded, or internal controls put in relationships – engage, interact, influence and inform
place, and also in the later stages, in areas of controversy stakeholders in finance, statutory audit and tax
and dispute resolution. administrations. Ability to translate tax jargon for non-
technical stakeholders such as boards, management,
Consequently, the skills and capabilities required will investors, clients and media.
be very different from today with a blend of ‘automation (V) Advocacy and negotiation. Advocacy for tax policy
and augmentation’ impacting the workforce. Manual and strategy. Dispute resolution – internal and external.
processes will be replaced by automation of data flows
and the impact of robotic process automation. At the same SUM IT
time, professionals will be augmented by AI technologies Change for tax professionals is just round the corner.
embedded in the ways knowledge is accessed and Like other professionals, they, too, will continue to ride
experience used to apply it to business circumstances. the rapid wave of technology changes and associated
An example of this is an AI-driven tool that can act as risks as humankind continues to pursue the digital
a virtual research assistant that can help in searching future. While it is difficult to predict decisively what the
for relevant case laws, analysing rulings and assessing future holds, the meta-trends are recognisable in the
whether a tax case is likely to be successful. technologies today as we try to anticipate and shape our
plans accordingly.
The above transformation will trigger a complete overhaul
of the processes and the resource models to get tax work At the same time, we must also realise that in five years
done. Tax processes will be broken down into individual we may be working with technologies that are yet to
tasks and allocated to new workers not always needing be invented. Hence, riding the crest implies tireless
deep tax skills. For example, several BPO firms carry out monitoring of developments and agility in experimenting
with and adopting new technologies. The new road for tax digital-future.pdf
professionals could be fraught with no speed limits as the
pace of digital transformation hastens. The professionals 2. OECD (2019), Tax Administration 2019: Comparative
must map out the potential impact of all disruptive Information on OECD and other Advanced and Emerging
technology and actively engage with the emerging trends. Economies; https:/doi.org/IO.1787/74d162b6-en
Relentless evolution and adaptability will continue to be
the cornerstones, while yet retaining their core strengths. 3. OECD (2016), Advanced Analytics for Better Tax
Administration: Putting Data to Work; http://dx.d0i.
In this context, it may be worth remembering Mahatma org/10.1787/9789264256453-en
Gandhi's recommendation: 'The future depends on
what we do in the present'. 4. Susskind R. and Susskind D. (2015), ‘The Future of
the Professions: How Technology will transform the Work
REFERENCES of Human Experts’
1. Deloitte (2019), ‘Our digital future – A perspective
for tax professionals’; https://www2.deloitte.com/content/ 5. Diamandis P. and Kotler S. (2020), ‘The Future Is
dam/Deloitte/global/Documents/Tax/dttl-tax-deloitte-our- Faster Than You Think’
Of all the inventions of humans, the computer is going to rank near or at the top
as history unfolds and we look back. It is the most awesome tool that we have ever
invented. I feel incredibly lucky to be at exactly the right place in Silicon Valley, at
exactly the right time, historically, where this invention has taken form — Steve Jobs