Strict compliance, reporting rules making tax function difficult: PwC India

The study also said that to manage compliance and ensure that businesses pay their "fair share" of taxes, rapid tech adoption is necessary

Advanced technologies and international data-sharing mechanisms have improved transparency and efficiency in taxation in India, but strict compliance and complexities have made it more challenging, according to a new study by PwC India.

"Be it in India or other global economies, tax authorities are leveraging advanced technologies to streamline tax administration and combat tax evasion effectively," it said, adding that international data-sharing mechanisms, including bilateral tax treaties and multilateral initiatives, are facilitating cross-border information exchange.

"While these developments have resulted in transparency, efficiency and speed, on the flip side, stringent compliance and reporting requirements and incremental operational intricacies have made the tax function for businesses all the more challenging," the study titled "The three T's of tax – technology, transparency and trust" added.

It said that to manage compliance and ensure that businesses pay their "fair share" of taxes, rapid tech adoption is necessary.

"Advanced technologies, including generative AI (GenAI), are increasingly transforming businesses, reinventing systems, and gradually reshaping the tax ecosystem," it said.

The study also said that a foundation of trust and credibility needs to be built to help businesses gain a competitive advantage and "demonstrate the role companies play in contributing to the government coffers".

"This can pave the way for building trust and responsible tax practices that are difficult to achieve through tax policies and policing alone," it said.

The study said that the tax workforce is generally occupied with routine and regular compliances, spending a "large amount of time" responding to tax authorities.

"Thus, the agenda for transforming tax gets deferred and delayed and the entire tax function continues to operate without creating enough efficiencies," it said.

However, it added that the tax workforce needs to skill themselves "adequately and continuously" to ensure that they are "embracing the change powered through tax technology tools".

The report also said that businesses must design tax functions which can provide accurate data speedily to the tax authorities and should be in sync with newer compliance requirements like Pillar Two, e-invoicing, or the Carbon Border Adjustment Mechanism (CBAM), among others.

"Previously, tax disclosures centred around investor needs. Tax disclosures are now broadening their audience and scope, and going beyond just reporting the effective rate of corporate income tax," said Sanjay Tolia, subject matter expert.

"Transparency sharing key tax metrics can solidify a company's credibility and support its commitment to environmental, social and governance standards."