The business and regulatory environments have evolved at a rapid pace over the last few years, and with a global phenomenon of bringing back transparency and trust back into business, all business functions are undergoing a metamorphosis. The tax function too has evolved and is no longer just about interpreting tax laws. The EY Tax Survey 2018 – Reimagining the tax Function invited views from the leading CFOs, tax leaders and senior executives across 15 sectors and industries in India including public and private organisations as well as global corporations. Vast majority have turnovers of more than INR1,000 crore.
Survey findings highlight how the tax function is evolving to keep pace with digital advances and helping companies in their transparency and compliance journey. It reveals that 78% respondents believe they are not adequately prepared for the new avatar of tax function and consider that there is an urgent need for tax functions to better leverage people, process and technology to effectively deal with the external environment and add value to the business.
The survey further reveals that for tax to be seen as a strategic function, 44% respondents feel that the ability to add value to business through insights is the biggest challenge, with timely involvement of tax in business decision making and agility as well as ability of the tax function to provide insights based answers to business-critical questions taking the top slots.
Talent and competencies-related aspects for the tax function of the future have also been highlighted in this survey in light of the evolution of tax professionals with rapidly changing and transparent global tax landscape and advent of technology. Over 90% the respondents believe that core competencies of the professionals will move from tax and technical skills to process and technological skills over the next three years. In order to do this it is imperative for the organisations to hire the right mix of talent equally who can manage process and leverage technology to improve consistency, quality and efficiency. This topic becomes even more relevant from an India perspective owing to the large scale tax reforms powered by technology (more specifically GST) that have been and continue to be undertaken by the Indian Government.
Garima Pande, Partner and National Leader, Business Tax Services, EY India said, “This survey highlights the increasing strategic importance of the tax function in light of the tax reforms we are currently experiencing. However the challenges are multifold – from the ability of tax as a function to show business value through insights to the evolving nature of the tax professional, organisations and leaders need to do a lot more in order for it to be seen as a truly strategic function. Additionally, with the increasing demand for transparency across board, the tax function needs to not only be agile, but also invest in technologies and tools to keep pace with the fast pace business environment. Essentially, there seems to be a valid business case for the tax function to revisit the operating model particularly from the people, process and technology aspects, and organisations with inertia or lack of will to move on it fast are likely to be left behind in today’s highly competitive environment.”
While access to high quality talent is vital, the evolving nature of tax function has necessitated organisations to revisit resourcing in terms of technology and overall investments as well. As per the survey, 89% of the respondents believe that the increasing importance of ensuring transparency in business has increased the workload on the tax function. This, combined with the lack of technology investments, people and processes further complicates matters. In fact 60% of the respondents to the survey believe that their organisations are not investing enough time and money in technology to manage its reputational and tax risk profile.
From a forward action perspective, the survey revealed that 88% of the respondents do recognize the deficiencies in their existing tax function and are taking measures to plug those gaps through initiatives involving re-engineering of the tax function, functional outsourcing or developing point-based technology led solution to address specific tax area. In response to a question pertaining to the benefits of outsourcing, the opinions were split fairly well with 26% doing it to reduce tax risk and 44% doing to address internal issues relating to talent gap and better utilization of management time to focus on core competencies.
The survey makes recommendations in terms of possible action that organisations can undertake in this regard. While the first step is to take stock of the current function, it is critical for business leaders to be able to visualize where they want the function to head and what they expect it to contribute, essentially evolve their own version of the tax operating model. With that in place, it will be critical for leaders to set milestones and priorities along with metrics for them to measure significant achievements in the function. And while there are no simple answers, it is clear that the evolution of tax function could play a vital role in the growth of businesses in the digital and transparent world of the future.