Are Tax Authorities Better at Analytics than You?
Taxing Authorities and their Knowledge of Analytics
As if CFOs were not already faced with enough barriers and challenges, it is now becoming more apparent that they are now up against a new threat: the ever-increasing reliance on digital methods to monitor taxpayer data. Making the situation even direr is the fact that this is reliance on the part of tax authorities, not the CFOs themselves, to collect and subsequently analyze such data. When it is necessary to gather or mimic real-time data, whether it is for an audit, or for just a general collection, digital means are being utilized to fulfill current and potential future needs. Tax authorities are undeniably reviewing, scrutinizing and comparing data that has been gained via digital means, and this trend has imposed a sort of challenge to businesses and their finance teams.
This trend and shift to digital collection means, on the part of tax administrations, did not come out of nowhere. In fact, such technology is increasingly becoming the international and global standard by which data is gathered. One would be very hard-pressed to find a government not faced with diminishing resources to meet increasing revenue demands. Businesses need to be prepared for the emersion and implementation of this new digital data collection trend. Now, it’s time for businesses to ramp up their resources so they can adequately produce data, most likely in a digital fashion, that can accurately answer the inquiries of taxing bodies.
Let’s get one thing straight though, this is not necessarily a negative concept for businesses. Rather, it’s just a step in the regular evolution of businesses. While tax administrations raise their standards for data collection by encouraging the development of new technologies and analytics, companies should be striving to have an at least an “on par” understanding and visibility of data. It’s not just a matter of businesses needing to compete with the government, it’s a matter of them wanting to enhance and leverage their own capabilities for data analysis. Nothing negative can really come of the development of a more robust data collection policy where greater insight is garnered. And that is how businesses should view the shift…as a time for action as the result of careful planning based on in-depth insight.
Origins of Digital Tax Methods & Analytics
The natural “progression” of society involves “progress”. The past several decades have witnessed and given birth to increased complexity and mass globalization. In turn, businesses have modified the very way that they operate. Tax authorities have responded in kind, particularly in the area of data analytics. After all, businesses were not the only area affected by a natural evolution in the budget arena whereby the necessity to combat stifling deficits and crippling inefficiencies were no longer avoidable; governments were also very much in the red. It is largely believed that the birth of the digital tax age began because of these quandaries.
The government is essentially a business so it should be no surprise that our taxing authorities faced (and continue to face) staffing and budgeting hurdles. To combat these obstacles, taxing bodies developed, tried and tested out new technologies that allowed for a more clear, concise and accurate picture of the economy and of the businesses they govern, so far as compliance and financials are concerned. Taxing bodies were ahead of the game and their willingness to change has offered them the real-time opportunity step up to the plate in the face of concerning budget demands. Their response? The digital streamlining of tax revenue collections and the ability to practically instantaneously monitor and compare taxpayer data regardless of sector. With this transformation came markedly increased, and even unheard of, efficiency and on point accuracy.
Businesses and their CFOs had no choice but to respond, and that response needed to be immediate. Using the knowledge garnered by their respective tax authorities, businesses created and implemented competitive and comparable analytics capabilities.
Digital Disruption & its Positives
Alongside the evolution of society into the digital age came some good things. Although some equate the digital age to the opening of a “Pandora’s Box” of sorts, the digital age has given us challenges, but it has also given us opportunities… new obligations for sure, but also new opportunities beyond those that just offer tax breaks and easy tax compliance methods.
CFOs and businesses that have been noted as successful in this new digital age often offer advice to their peers and counterparts. These CFOs are those who realized and recognized the disparity between the data analytics they had and the data analytics capabilities they needed. CFOs who are recognized as industry leaders dealing very well with the evolution into the digital age have some good advice for those who also want to successfully navigate the digital age channels:
- Assess– Where exactly does your business stand in terms of data collection?
- Manage– What methods do you use to submit business data? Who exactly submits this data and what departments do these individuals work in?
- Analyze– View your data as though you were a taxing body- where are your risk areas? How can you improve your government compliance?
- Implement– Try automating your assess, manage and analyze phases…streamline this process and put proper protocols in place to ensure complete compliance.
- Expand– Understand that long-term strategic decisions are the most important decisions you will need to make; use the insights of those who have been successful doing so.
Thomas Huckabee, CPA of San Diego is a seasoned accounting professional who can assist your business in its efforts to be successful in the digital age. Remember, absolute compliance with taxing authorities is a necessity- no shortcuts allowed. Contact us for a free consultation