What do enterprises need to know about digital taxation?
The Business of Tax Chris Downing, Head of Tax Transformation & Technology at KPMG in the UK explains how technology is shaping digital tax and revolutionising the tax function as we know it.
What effect is technology having within the tax function?
"Tax departments are having to change fundamentally. They’re not just full of accountants now. There’s a growing need for technology and data specialists because companies have to keep up with the digitisation agenda that is being set by Government.
In 10 years time, I think tax departments will be focused on data and technology because we’re just at the start of the wave, we’re nowhere near the end of it."
Where are the biggest changes in technology and tax likely to lead?
"If you take a 10-year view, I think we will see tax authorities moving to real-time reporting for indirect taxes. It will be a little like PAYE in wages. You’ll have a situation where, when a company buys products and services, the indirect tax will almost instantly be paid when the transaction happens, rather than waiting a month or two to be reported.
It’s important because corporation tax is now a smaller proportion of the overall bill companies pay each year. Indirect taxes are now the second biggest tax companies pay, behind those on employment.
Moving to real-time would have a massive effect. You can only begin to imagine the positive improvement it would make for the Government’s cash flow, and the negative consequence this could create for tax payers’ working capital."
Could real-time tax fundamentally overhaul our systems? Could blockchain play a role?
"The drive to digitisation of tax is going more in the direction of ensuring people don’t make mistakes on forms. It stands to reason that, if you have people writing things down, there is always going to be a certain level of human error.
However, with digitisation of tax systems you can move beyond spotting mistakes and get a better idea of who may need to be investigated. Systems could soon get to a level where they know what companies in the same sector as you with a similar head count and level of trade pay in tax. If there are significant differences, that could flag up where inspectors need to focus their efforts.
In terms of more ambitious technology, such as blockchain, I suspect we’ll see an emerging market make the leap first. This would mean there is a shared ledger so there would be the greatest level of transparency with every penny accounted for and tax bills worked out on actual transactions, not reported figures."
Could this lead to more complexity?
"It already is, to be honest, and all companies want to do is be compliant across multiple regimes. This can be difficult with rules changing and compliance hurdles moving with them. It’s making the role of technology consulting far more important within the tax function because you need to pick the right platform for you."