Indirect taxes are increasingly becoming the way for governments to levy more palatable tax increases, but corporate tax departments may be bearing the brunt of that, according to a new report
Indirect taxes — often appearing as sales taxes, value-added taxes, or so-called sin taxes — date back to the consumption taxes levied by the ancient Greeks and Romans. Now, centuries later, it appears indirect taxes are coming into their own.
The number of countries implementing a value-added tax has tripled in the last three decades, and the portion of the corporate tax bill received from indirect taxes on production and imports (as opposed to corporate income tax) was more than 87% in 2018.
Little wonder as governments seek to repair their balance sheets after the global pandemic, that they’re turning to the more palatable indirect taxes rather than raising income taxes. The rub, of course, is that governments are requiring companies to calculate and collect indirect taxes (IDT) on the government’s behalf… and quickly. Little wonder too, that corporate tax teams are increasingly concerned with the growth of IDT and how they will keep up with that growing workflow.
To study how indirect taxes are impacting corporate tax departments, Thomson Reuters has published a new study, Indirect Tax: More than just a process, which surveyed more than 30 corporate tax directors around the world in a variety of industries about the impact that the growth of IDT was having on their departments and how they were handling it.
Based on these conversations, there is little doubt that for many companies, especially those operating in multiple jurisdictions with a variety of products and services, the IDT burden is increasing. Many corporate tax teams are under great pressure as they try to ensure compliance, while battling internally with too-often outdated manual processes and poor data, and, externally, with increasing demands from tax authorities.
You can download a copy of the full report, Indirect Tax: More than just a process, here. And you can download the U.K. version of the report here.
The new report finds that while indirect taxes pose an increasing risk to companies, a combination of the right investment in talent and technology can lift IDT teams beyond compliance, allowing them to add value to their companies’ bottom lines by improving customer relationships, contributing to cashflow, and enhancing risk mitigation.
The IDT report is broken down into three parts:
- The growing challenges faced by IDT teams;
- The role of IDT teams within the larger organization and the skills needed to meet the challenges; and
- The use of technology to support IDT teams.
Indeed, our in-depth interviews with tax team leaders shed light on the significant opportunities available. Because IDT teams work with almost every other department within the company, they can leverage their expertise and knowledge to add real value beyond simply complying with IDT regulations. Handled properly, the wealth of data these teams can offer could provide a unique insight into a company’s supply chain, customer behavior, and cashflows.
Of course, IDT teams themselves are hungry for additional technology investment to improve automation and increase the efficiency and speed of their work processes. Yet, while our survey respondents were clear on the benefits of investing in new technology and tech-savvy tax professionals, they also recognized the challenges they face in implementing new tech, such as collecting and cleaning their data, minimizing customization of new tech, and, crucially, ensuring the involvement of all users as early as possible.
Finally, as the report spells out, while there are a small number of corporate tax departments that have already pivoted to an in-house strategic advisory role, with a fully automated compliance function, the vast majority of corporate tax teams are immediately concerned with remaining in compliance in a rapidly-changing world while still using imperfect or outdated systems and processes. For them, as the report indicates, the journey continues.