RPA in taxation: Using the bots to handle the repetitive tasks

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  Quantumrun Foresight
• November 25, 2022

Insight summary

Robotic process automation (RPA) allows organizations to automate their operations, resulting in increased efficiency and quality as part of a larger digital transformation initiative. This technology's growth is driven by technological advances that can transform tax practices, internal processes, client services, and interactions with regulatory agencies. The long-term implications of this trend could include increased investments in workforce automation and worker displacement.

RPA in taxation context

Robotic process automation comprises software that can automate specific, repetitive tasks that human workers do. In the taxation context, RPA can be used to automate data entry, preparing tax returns, or other administrative roles. A programmed bot can efficiently perform routine activities and procedures linked to structured data and well-defined rules. In addition, RPA can enable more sophisticated, intelligent process automation with the help of artificial intelligence and machine learning (AI/ML). These bots are increasingly essential in automating tasks and workarounds that would otherwise be tedious and prone to errors.

Some tax leaders have realized that taxation has to keep up with the increasing digitization of businesses. Companies are investigating how technologies used in other areas could improve the tax department. In particular, some companies have documented that when specialized machines and software are properly managed and paired with people instead of replacing them, they can create new efficiencies and make the organization more agile.

According to the Journal of Accountancy, there are three ways to implement RPA in taxation. The first is the citizen-led approach, where tax professionals are trained to develop the bots themselves. Another approach is center-of-excellence, where a department is in charge of creating and maintaining the technology. The last method is outsourcing, where third-party providers deploy the RPA solutions for a given company. 

Disruptive impact

Tax practitioners have already started using RPA to automate common functions. For instance, tax preparers often receive financial information in PDF format, including tax reporting forms. Employees traditionally spend significant time manually extracting data from these PDFs and loading it into spreadsheets and systems.

With RPA, the bots can automatically scan through the documents and extract the information programmed to be collected. This enhanced process saves the tax professional valuable hours, improves quality, and reduces the risk of errors. In addition, by automating repetitive tasks, RPA can ensure that taxes are paid correctly and on time, reducing the amount of money lost due to tax evasion. 

An example of the widespread use of RPA to digitize taxation is the UK’s Making Tax Digital Initiative, which aimed to make the national tax system fully digitized by 2020. The country invested about USD $1.5 billion in this initiative, and automation was one of the major factors that enabled its success. According to consultancy firm PwC, implementing RPA is about 50 percent cheaper than the costs of offshore processing.

In addition, general cost reduction brought by bots can reach up to 80 percent. Another advantage of RPA is that no interface must be developed, and the solutions are scalable and easily implemented. Additionally, enhanced process efficiency can lead to about a 30 percent reduction in average handle time (the time it takes for a transaction to be completed).

Implications of RPA in taxation

Wider implications of RPA in taxation may include: 

• Widespread use of bots to automate different processes, leading to fewer workers needed to do manual, low-volume work. This trend might lead to decreased employment in the sector.
• Tax professionals being trained to handle AI/ML solutions.
• Governments using RPA to digitize their taxation systems, increasing employment opportunities for software developers and AI experts.
• Companies investing in digitization programs to file taxes on their behalf, leading to more partnerships with third-party providers.
• Fewer opportunities for tax outsourcing companies as onshore firms switch to RPA.
• The integration of RPA in taxation prompting a shift in educational curricula for accounting and finance students, focusing more on technology skills.
• A surge in demand for cybersecurity measures as taxation systems become more digitized, ensuring the protection of sensitive financial data.
• Enhanced public transparency and accountability in tax collection due to the increased accuracy and traceability of automated processes.

Questions to consider

• If you work for a taxation company, how are they automating repetitive processes?
• What are the other benefits of being able to file taxes automatically?