Modernizing indirect tax departments using AI

August 13, 2024 Editorial Staff 3 min read

The indirect taxes landscape is undergoing a radical transformation, driven by a relentless pursuit of accuracy, efficiency, and strategic advantage. A recent Thomson Reuters Webinar highlighted the critical role that technology and automation play in reshaping indirect tax departments. This blog looks at the key challenges faced by tax professionals and explores the emerging technological solutions that are poised to revolutionize the function.

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The imperative for change

The indirect tax function is under immense pressure to deliver on multiple fronts. Recent Thomson Reuters Institute research revealed that 37% tax professionals cite increased regulatory complexity as a major challenge. 39% of tax professionals cited resource constraints as an important obstacle. These pressures have underscored the urgent need for transformation.

The webinar emphasized that success hinges on achieving both accuracy and efficiency. As Nadya Britton, Enterprise Content Manager – Tax and Accounting at the Thomson Reuters Institute, stated, “Success for the indirect tax department is about accuracy and efficiency.” However, the path to this ideal state is obstructed by several challenges:

Technology and automation lag: A significant proportion of indirect tax operations still rely heavily on manual processes, leading to inefficiencies, errors, and increased compliance risks.
Resource constraints: Limited staff and budget allocations hinder departments from keeping pace with the dynamic regulatory environment.
Increased regulatory complexity: The intricate web of indirect tax regulations, varying and constant changes across jurisdictions, demands consistent attention and expertise.

The rise of AI in indirect tax departments

The good news is that technology offers a powerful antidote to these challenges. The webinar focused on the transformative power of artificial intelligence and automation. AI-powered solutions can automate a wide range of time-consuming tasks, including:

Data extraction and analysis: indirect tax technology solutions can efficiently extract relevant data from various sources, reducing manual effort and improving data
Indirect tax management: Content-driven tax technology solutions can automate sales tax calculations, returns and audits, minimizing errors and streamlining compliance
Compliance risk assessment: AI can analyze vast amounts of data to identify potential compliance risks enabling proactive mitigation strategies
Fraud detection: AI algorithms can detect anomalies and patterns indicative of fraudulent activities, safeguarding revenue

Christian Jensen, Director, Technology Vertical at Thomson Reuters, emphasized the transformative power of AI, stating, “We see AI being leveraged to go in and scrape that data and look at and identify those anomalies.”

Upskilling the workforce for a tech-enabled future

While technology promises to revolutionize the indirect tax function, human expertise remains indispensable. The webinar stressed that upskilling employees is essential to leveraging new technologies. A significant majority of companies (78%) surveyed to invest in employee training to bridge the digital skills gap.

Upskilling will equip tax professionals with the ability to collaborate with AI and automation tools, enabling them to focus on higher-value strategic tasks such as tax planning, risk management, and business advisory.

The evolving role of tax technologists

The convergence of tax expertise and technology has created a relatively new role: the tax technologist. These professionals have a unique combination of skills that allows them to bridge the gap between tax technology and tax technical. A tech and AI-driven indirect tax future

The indirect tax department’s future is undoubtedly tech driven. This transformation will not only streamline operations but also empower tax teams to contribute more meaningfully to overall business objectives. This transformation will not only streamline operations but also empower tax teams to contribute more meaningfully to overall business objectives.

To fully realize the potential of technology, tax departments must adopt a holistic approach that encompasses:

Strategic vision:

Developing a clear technology roadmap aligned with business goals.Data management:
Establishing robust data governance and management practices.Talent development:
Investing in employee training and upskilling programs.Change management:
Effectively communicating the benefits of technology and managing resistance to change.Each of these are a separate workstream which can be planned and delivered by the tax team as a part of adopting a more technology driven approach.

By embracing these principles, tax departments can position themselves for long-term success in an increasingly complex and competitive environment.