Real-time taxation: Instant tax filing is here

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Real-time taxation: Instant tax filing is here

Real-time taxation: Instant tax filing is here

Subheading text
Some countries are implementing digital transformation projects to enable real-time reporting and remittance of taxes.
    • Author:
    • Author name
      Quantumrun Foresight
    • December 6, 2022

    Insight summary

    Tax functions may be slow in adopting digital processes, but tax authorities appear to be increasingly embracing the value of digitization as they transition to more real-time reporting. Experts agree that the age of digital taxation is finally here, and even tax authorities believe that investing in technologies benefits everyone. The long-term implications of this shift could include increased use of robotic process automation (RPA) and digital initiative investments.

    Real-time taxation context

    The growth of digital payments, real-time reporting, and increased consumer data sharing has resulted in tax authorities accessing more information than ever. This trend is affecting all industries, not just the government sector. For example, banks are offering more responsive services, with real-time fraud analysis and enhanced client security.

    In the pharmaceutical sector, producers are migrating from batch manufacturing to continuous production control to address factory errors in real-time and minimize capital and operating expenses. The transition to real-time reporting is needed more than ever in tax collection and processing, as Industry 4.0 (or the Fourth Industrial Revolution) continues to disrupt traditional manufacturing methods.

    The good news is that global tax authorities are seriously investing in cloud-based and artificial intelligence (AI) technologies. Countries including Brazil, Mexico, the UK, and Hungary have all introduced digital tax systems that allow them to collect transactional data in near real-time. This development is a significant change from manual methods of tax collection.

    Instead of information being pushed by businesses to tax authorities, it is now being pulled by the tax authorities themselves, especially at the point of a commercial transaction. However, this automation has caused new challenges for corporate tax departments. In Forbes’ 2021 survey of corporate tax teams, about half of respondents said they feel under-resourced due to numerous reforms and automation projects. There have also been increased filings because of digitization and more real-time remittance requirements to process.

    Disruptive impact

    Several countries have successfully deployed real-time reporting measures. In particular, Brazil was an early adopter in 2012, when businesses were required to file a Nota Fiscal Eletrônica (or NF-e) form every time a taxable action was completed for authorities to check. Meanwhile, the Organization for Economic Co-operation and Development (OECD)’s Standard Audit File for Tax (SAF-T) has been in effect since the 2010s in many parts of Europe.

    In July 2017, Spain released the Immediate Supply of Information system, requiring certain taxpayers to provide real-time data reporting regarding value-added tax (VAT) invoices. In 2019, Italy introduced a requirement for some taxpayers to submit e-invoices using their Sistema di Interscambio (SdI) platform. Poland also replaced VAT returns with SAF-T in 2019.

    The trend of real-time taxation is not showing any signs of slowing down. Following Brazil’s digital transformation, similar approaches have been implemented in Latin America and the US, where state-level tax authorities are starting to re-haul their clunky legacy tech. In 2020, both the California and Florida states proposed bills to convert their tax files into the XBRL (eXtensible Business Reporting Language) format.

    This system would enable state and local financial reports to be accessible by computers and people. Meanwhile, in 2020, Norway announced it will join the six existing European markets already obligated by the worldwide standard for electronic data sharing with tax authorities. In addition, the OECD is continuing to work on other areas to improve tax administration digitalization. 

    Implications of real-time taxation

    Wider implications of real-time taxation may include: 

    • Tax departments increasingly using robotic process automation (RPA) to keep up with real-time filing. These bots automate many manual and repetitive tasks.
    • Increased investments in digital initiatives for taxation, including infrastructure, cloud-based platforms, and smartphone apps.
    • Countries incentivizing small businesses and independent contractors to file taxes in real-time by making it more convenient for them through online tools.
    • Real-time reporting leading to reduced tax fraud and evasion, and more accurate filings, leading to increased revenues for countries.
    • Corporate tax departments building specialized teams to manage real-time taxation processes, which can increase employment opportunities for tax professionals.
    • Enhanced use of artificial intelligence in tax forecasting, enabling more precise revenue projections and budgeting for governments.
    • Shifts in consumer behavior towards digital payment methods, as real-time taxation integrates seamlessly with e-commerce platforms and online transactions.
    • Education and training programs expanding to equip professionals with skills in real-time tax compliance and digital tax systems, reflecting the changing landscape of the tax industry.

    Questions to consider

    • If you work for a tax department, what are some of the real-time reporting technologies you use?
    • What are the other ways that governments can make tax filing easy?

    Insight references

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