Turning Data into Power with Tax Data Analytics
It is estimated that data creation will grow 44-fold by 2020. On the way to this extraordinary figure, data sizes have rapidly increased from megabytes to gigabytes, and terabytes to yottabytes.
In this context, Deloitte predicts a tripling of the usage of data analytics for tax reporting purposes within a year, and with that quantum leap comes improved performance indicators in areas as diverse as cash flow, reduced tax audit risk, streamlined processes and a protected bottom line.
Deloitte’s Tax Management Consulting (TMC) team hosted several roundtable discussions on the topic of ‘VAT Data Analytics:Gaining efficiency while addressing compliance’, to assist business with understanding the steps necessary to implement this new approach to indirect tax management.
Key note speaker, Jan De Clercq, Global Leader of Indirect Tax Technology of Deloitte, explained that the use of data in the US is substantially higher than in South Africa. This was confirmed during the session, as only 22% of South African Tax Directors present at the session had some insight into the tax setup of their enterprise resource planning (ERP) system.
In line with global trends SARS is demanding more and more electronic data from taxpayers and is using data analytics extensively to improve tax revenue and perform more efficient and effective audits.
Traditional tools can no longer cope with the massive volumes of data that organisations now need to process in order to make informed strategic decisions. In addition, tax authorities all over the world are using data analytics to help make sense of their own data. Corporate taxpayers will do well to explore the potential of tax data analytics, and to pilot some of these applications in-house if they are not already doing so.
“Rather implement it before you’re forced to,” says De Clercq.
Reinforcing that this trend was as evident in South Africa as in developed economies, Clinton Eidelman, Associate Director at Deloitte Tax Management Consulting, explained that the October 2011 implementation of the IT14SD meant that SARS was now able to access a variety of sources of data to reconcile companies’ VAT returns to other key figures, such as Cost of Sales and Customs returns.
“Any discrepancy will likely generate an audit,” he said.
The amount of data required to be submitted to SARS will be extremely demanding on companies that do not have a tax data analytics system – it can be a very manual process with possibly millions of lines of data. The least that tax data analytics achieves is to automate reconciliations, but its real benefit is to free up tax personnel for more detailed analysis and a better understanding of the underlying processes, by integrating the tax reports into the ERP system and creating dashboards that provide management a user-friendly, interactive view of where the major tax risks lie.
To realise these benefits fully, the tax departments should work closely with information technology and other business functions in projects of this nature.
The Deloitte Tax Management Consulting team presented a series of case studies at the roundtable discussions, which in most cases found that companies had enjoyed financial benefits ten times the cost of implementing the system. These arose not just through the detection of over or under-payment of VAT, but from improved cash flow and streamlining of supply chains.
Tax is the biggest consumer of data in any organisation – tax data analytics analyses huge volumes of data (Big Data) and turns it into strategic knowledge. Tax analytics extends well beyond reducing tax risk, it enables far better decision-making processes. In discussions, the Deloitte Tax Management Consulting team established that many executives are still using ‘gut feel’ to make decisions, primarily because they are not confident of the data they have at their disposal. Data analytics engines give these exectives access to complete data sets to provide the confidence they need to make objective decisions. As an example, indirect tax and customs are so integral to cross-border supply chains that combining tax and logistics data offers a complete view of the entire supply chain. Customs is one of the most complicated aspects of tax due to different duties and tariffs, but one way that companies are reducing this complexity is by integorrgting customs data downloaded directly from SARS databases.
Annelies Dieusaert, Johannesburg based Deloitte Tax Management Consulting leader, closed off the session with a few thoughts and reflections. Organisations today are confronted with a growing mountain of tax data. Data that needs to be captured, entered, processed, stored, retrieved, analysed and used. Organisations however, often have a fragmented approach to tax data management and older reporting tools are restricted to standard reports. This limits the potential of the data, which in turn limits the tax manager’s ability to plan and forecast. A few consequences for the organisation can be missed tax opportunities, inefficient processes and the constant re-invention of the ‘tax wheel’. She emphasized the importance of companies investing in tax data analytics to help reduce their tax administrative and compliance burden, and in turn create the transparency their stakeholders and SARS are looking for.