Why do governments need to digitise their tax policies?

Why do governments need to digitise their tax policies?

Avalara’s Liz Armbruester highlights how mounting tax fraud and rapid technological advancements across our society are putting pressure on governments to digitise their tax policies – and to do so quickly

Guest contributor |

Technology has changed the way we all live, work and play. This impact is particularly evident in commerce and compliance. Just think about the purchases you’ve made today – maybe you had food delivered after buying it via a mobile app, purchased a new pair of shoes online, and picked up coffee via a mobile order. Several systems had to work in sync to make each of these transactions possible, including those for payment collection, tax calculations, order management, shipping, and more. At the same time, several different tax determinations had to be made as each purchase may come with a different set of taxes, various tax rates and other nuanced rules.

The scenario described above illustrates how technology and access to commerce has changed how business operates today, and why governments have adapted their tax policies to keep pace. But there are several other factors contributing to the digital future of tax, including challenges around tax fraud and a growing desire by tax authorities for increased and accelerated access to data. Let’s look at some examples of how authorities are digitising tax compliance globally.

In the USA, there have been efforts by certain states to take sales tax requirements to another level by bringing tax reporting closer to the time of the transaction. This year, legislators in Rhode Island introduced a bill that would require credit card companies to provide the dollar amount of the tax collected on transactions to the state within 48 hours of processing. In recent years, Massachusetts has introduced legislation that would require payment processors to report tax data and remit tax collected to the state daily. While none of these legislative efforts have been enacted to date, the growing interest in bringing tax collections closer to the time of a transaction may give us a glimpse into the future of sales tax compliance.

Globally, e-invoicing and live reporting mandates are defining the future of digitally driven continuous compliance. More than 60 countries around the globe have announced – or already require – e-invoicing for tax reporting. While models vary, e-invoicing provides tax authorities increased visibility into the tax owed on transactions. Brazil’s Nota Fiscal Eletrônica gives us the best glimpse into the future of digital tax compliance as it requires businesses to clear invoices by the tax authority before they can send them to the buyer. As more governments follow Brazil’s lead, we’ll inch closer to a future where managing compliance is a continuous process that is facilitated by technology for both parties – business and government.

At Avalara, we’re providing solutions for tax today and creating the world’s largest platform for the compliance of the future. We have cloud-based solutions that are designed to address every step of the compliance journey, including next-generation digital tax policies, like e-invoicing and live reporting. We also use the best of emerging technologies, including artificial intelligence, machine learning, optical character recognition and robotic process automation, to source and maintain up-to-date tax rates and rules, which will become even more critical as tax reporting becomes more real time in the future. Using leading technology platforms, like Microsoft Dynamics 365, to power your business in tandem with powerful tax integrations will be critical to success as tax becomes more digital.

Our integrations with Microsoft Dynamics help address the growing tax pain for businesses today. The Dynamics 365 framework supports many types of indirect taxes, including sales and use tax, value-added tax, communications tax, and more. For example, we provide enhanced tax determination and calculation capabilities to Dynamics 365 customers to increase the accuracy on every transaction in real-time.

We know that our digital economy is pushing us towards real-time compliance. The rise of e-invoicing and other legislative moves to bring tax closer to the transaction are clear evidence of this shift. At Avalara, we’re developing application programming interface-driven tools that make it possible for us to get the right tax data, in the right format, through the right network, to the right tax authority without a business needing to think about how it happens. And, as compliance becomes a digital-first and continuous process, technology that can enable the movement of data and tax funds will no longer be an option, but a requirement.

By combining our solutions with Microsoft Dynamics 365, Avalara can provide organisations with a full suite of tax compliance management solutions, enabling them to meet current tax requirements and easily update their systems as these rules evolve in future.

Liz Armbruester is executive vice president of customer and compliance operations at Avalara

This article was originally published in the Summer 2023 issue of Technology Record. To get future issues delivered directly to your inbox, sign up for a free subscription

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