The future of taxation is automation

The finance ministry's new online tax filing system will help expand the tax base by reducing the time and effort required to register a new taxpayer and create a permanent account number

Soon, filing returns may no longer be the most taxing activity of our lives. Not just in India, but globally, a move towards digitalisation of taxation activity has brought a lot of efficiency and convenience to the system. Individual and institutional taxpayers as well as tax authorities in many countries are rapidly digitising the process.
 
India has been at it for many years now and many aspects of the tax processing systems are automated already.
 
For India, this is not just important but essential. A mere 14.6 million Indians paid taxes last year. For a growing economy the taxpayers' base has to expand to perhaps 10 per cent of the population. This would mean about 140 million taxpayers at the minimum. With such growth in the number of taxpayers, manual processes will not work and nor can there be a commensurate increase in officials in the tax department.

 

For countries such as India, digitalisation of tax administration is not an option anymore. Over the last few years tax management has been steadily digitised. What was not possible before is now being enabled by the rising application of artificial intelligence, data science and robotic process automation (RPA).
 
In most governments across the world, the tax department has also emerged as crucial data centres of the country. Taxation systems can generate data on individual consumption and broader economic activity. Combined with digital financial transactions, the tax department of India can create data lakes of over a billion consumers over time. Managing such data will require tax departments to extract, store and analyse data using the emerging new tools created by RPA.

 
The new online tax filing system launched by finance ministry is one dimension of digital tax management. For instance, the portal will help expand the tax base by reducing the time and effort required to register a new taxpayer and create a permanent account number (PAN). The portal promises an electronic PAN within 10 minutes of filing an application online. Earlier, applying for and receiving a PAN card took a lot of paperwork and days of effort. Automated transactions can accelerate such processes to minutes.
 
Digital tax management works in reverse too. Not just for filing taxes but in an era of pandemics, it can help in delivering stimulus and tax breaks. Institutional taxpayers can get instant relief. Many organisations are linking and aligning their internal tax management systems to governmental taxation systems. The next stage of tax management could be direct reporting from an enterprise to the tax department. Predictive analysis of data by the government and the enterprise can help both stakeholders plan their future revenue flows.

 
Several manhours and cost of tax administration can be reduced by greater integration of tax process within an enterprise and with external regulators. Most importantly, technology can help release billions of rupees of funds caught in tax litigation and prevent future disputes. With greater transparency, disputes can be reduced sharply.
 
“Disputes happen for two reasons. Broken and inadequate records are a key reason. Secondly, this happens because of ignorance of taxpayers on various changes in rules. Digitisation will help in reduction of judgmental issues, making the process less vulnerable for tax litigations,” says Kapil Rana, Founder of Hostbooks, an accounting and tax compliance software solution.

 
While large companies like Infosys are working with governments to strengthen digitisation of tax, start-ups like Hostbooks are enhancing the tech-led tax management capabilities of corporate India, especially small and medium enterprises (SMEs). Use of technology can help millions of SMEs in developing predictive reports and automating tedious tasks.