5 Indirect Tax Challenges Solved Through Automation

In India’s complex and fast-changing Goods and Services Tax (GST) environment, indirect tax automation technology can make GST determination and compliance more accurate, efficient and painless. Beyond saving time for other important work, this type of solution helps to mitigate the risk of mismatches, penalties and reputational damage.   

Furthermore, during the pandemic era, many organisations are under pressure to manage work-from-home scenarios more efficiently. In this environment, indirect tax technology can help to run processes virtually and make data digitally available to all – in a secure manner. With the tools to work productively and collaborate from anywhere, tax teams can be much more efficient and resilient to change.  

Outlined below are five common pain points that can be addressed through indirect tax technology with automation capabilities

1. Lack of control and consistency

Inconsistent indirect tax determination and compliance practices can lead to inefficiency and error. Without well-defined processes in place and an organised approach to data management, it can be difficult to maintain accuracy and meet compliance obligations under tax law. Often, the tax team needs to spend a huge amount of time checking, adjusting and/or reconciling data to ensure the accuracy of tax returns.

With a modern tax determination and compliance solution, it’s possible to meet GST and other indirect tax requirements in India on a single platform with ease and efficiency. Ideally, you want a solution that offers comprehensive coverage of all indirect tax types in India, including CGST, SGST and IGST; as well as a comprehensive set of tools to manage compliance, e-filing, ERP integrations, calculation and reporting processes. This allows you to improve accuracy and control over tax policies, and mitigate the risk of penalties, interest and overpayments.

2. Constant tax rate and rule updates  

In India, enterprises must navigate an extremely complex and ever-changing set of tax regulations. In this context, managing indirect tax using multiple ERP platforms, legacy systems and spreadsheets can be onerous, to say the least.

Often, organisations require a large research team to track and interpret tax changes. Also, each time tax rates, rules and deadlines change – these systems must be updated, and tax processes must be rebuilt manually. The continuous need for maintenance and de-bugging can place undue pressure on your IT and tax resources.

This can be resolved with a technology solution that provides automatic access to the latest tax rates and rules in India, as well as the logic to accurately calculate GST based on the place of supply rules for the sale and acquisition of goods and services for intrastate, interstate, import, export and stock transfer transactions. With minimal manual work required, there’s far less opportunity for human error.  

3. Manual maintenance of tax codes  

Often, businesses have insufficient tax codes to segregate transactions for tax compliance purposes. Also, as tax laws change frequently in India, tax teams spend a lot of time creating and maintaining tax codes manually within their ERP systems.  

To simplify indirect tax compliance and mitigate risk, it helps to have an indirect tax technology platform that provides out-of-the-box content and tax codes which cover all possible scenarios provided in the legislation. With sufficient and appropriate tax codes at their fingertips, there will be no need for your teams to monitor constantly changing tax regulations.

4. Poor visibility

Your tax leaders need a clear and comprehensive understanding of the activities or transactions being carried out by your business, so they can ensure that your tax function is effectively supporting business resilience and success.

However, a reliance on manual processes, multiple spreadsheets and siloed systems impacts data visibility and makes tax management challenging. With a single source of tax reporting, however, you can establish a clear line of sight into all tax-related processes and data.

Ultimately, you will benefit most from a system that allows you to:

  • Easily monitor whether you are over- or under-paying indirect tax
  • Effortlessly create custom reports and access tax management insights through analytical dashboards
  • Access an audit trail functionality that allows you to digitally track and highlight any changes or adjustments made in your tax returns

5. Frequent regulatory changes

GST reconciliation has been one of the most complex and challenging areas for taxpayers in India. The government is in the process of addressing this with a series of updates to the GST return filing system.

One major change that’s being introduced is complete synchrony between forms GSTR 1, GSTR 2B and GSTR 3B. While GSTR 2A is already auto-generated in the GST portal for each entity using GSTR-1 data – GSTR 1 and 3B will now be linked. This will make it possible to receive a system-generated liability and auto-populate values from GSTR 1 and 3B.[1] Additionally, a new return form, GSTR 2B, will be introduced to make it easier for all parties to match the input and output of ITC in GSTR 3B, GSTR-1 and GSTR 2A. Rather than input tax credits being claimed on a self-declaration basis, the GSTR 2B will be auto-drafted monthly to simplify reconciliation and compliance, and minimise errors.

While these updates will certainly make life easier, it also helps to have an indirect tax technology solution in place to rigorously match accounting data with tax returns to root out values that create discrepancies. With a solution that supports robust reconciliation, you can automatically identify mis-matches in input tax credit amounts.

India’s government is also pushing ahead with its e-invoicing system with the aim of making it easier for companies to conduct business and pay taxes. As of 1 October 2020, it has been mandatory for large businesses with an annual turnover of over Rs 500 crore to submit sales invoices electronically. Finance Secretary Ajay Bhushan Pandey has announced that the e-invoicing system will be available to taxpayers with an annual turnover over Rs 100 crore from 1 January 2021. This approach will replace physical invoices; and soon, the existing e-way bill system.[1]

With a tax automation platform that enables integration with the GSTN – your business is ready for e-invoicing. This type of solution should ideally support notifications, signatures and required validations; as well as the upload and download of invoices from the GSTN. It should also automate the import of data from existing ERP systems and reconciles GSTN with ERP, providing an interface to accept, reject or modify invoices as needed.

Searching for one indirect tax technology solution to provide all this functionality?

Look no further than Thomson Reuters ONESOURCE. As part of the industry’s most powerful portfolio of tax and accounting technology for corporations, Thomson Reuters brings you ONESOURCE software that’s purpose-built for managing Indirect Tax Determination and Compliance in India. Our innovative and comprehensive platform helps to address all of the five challenges discussed, and more – providing automation and accuracy across all tax and finance workflows from determination through to compliance.

Are you ready to transform the way you manage GST in India? Get in touch. 

  • [1] https://www.business-standard.com/article/economy-policy/gstr-1-and-3b-to-be-linked-to-determine-liability-and-input-tax-credit-120080701909_1.html
  • [1] https://www.hindustantimes.com/business-news/gst-e-invoicing-for-all-b2b-transactions-from-april-1-2021-finance-secretary/story-CknjhNd58Yk503qJWNHRcO.html

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