3 Ways to Save Money With TaxTech
We can shout the phrase, “TaxTech can save you money!” until we’re blue in the face, but it doesn’t mean anything without offering details. To provide more context on how TaxTech will save your company money (and also save you plenty of headaches), we sat down with Fonoa’s TaxTech Director Alexander Kobakhidze (AKo). He’s spent much of his career transforming tax departments with the help of TaxTech, and he’s got quite a bit to share on the subject.
We asked him three questions:
- What benefits does investing in tax technology bring?
- What role did user experience play in TaxTech?
- Is TaxTech going to replace me?
Here’s what he said.
What are the benefits of investing in tax technology?
That’s a complicated question to answer. For me, TaxTech was always about improving the status quo in a manner that is measurable in financial terms. Simply put, investment in TaxTech can benefit the company’s bottom line either directly or indirectly. It can directly reduce spend (replacing a tool or process with a less costly tool or process), or indirectly improve a related metric such as speed and accuracy – which reduces other costs.
In the TaxTech departments I worked in, we had three simple objectives: reduce spend, increase accuracy, and increase speed. Let's look at each in turn.
Reducing spending can be achieved in multiple ways. One way, for example, is substituting a tool you already use with a better-priced alternative. Another common way is removing the FTE (full-time employee) hours required to complete a task.
Substitution (replacing tech with tech)
“All else unchanged” (or ceteris paribus for those who love Latin) - picking the lower-cost option is a no-brainer. Understandably, a common fear of moving to a cheaper technology is that all things won't remain unchanged and you’ll actually “get what you pay for.” So if you’re considering swapping tech, it's important to perform an honest appraisal of your existing solution versus the new one. It’s also critical to capture the costs of switching.
Automation (replacing humans with tech)
Let's use the example of preparing, reviewing and filing VAT/GST returns. Many companies rely on internal (or external) manual processes to prepare, review and submit returns. This results in substantial costs, ones often reflected in the FTE hours taken to do the work – or in the high fees you pay to your providers.
Most tax teams have already heard about the power of automation and data visualization products (like Alteryx and Tableau), which can be repurposed to automate parts of an indirect tax compliance process. These tools don’t yet offer full end-to-end automation, but they are a confident step in the right direction.
For full end-to-end automation, one option is to bite the bullet and develop in-house. If done right, this can be significantly more cost-effective than manual work. Yet while many tax teams dream of automating their compliance process themselves and can build a solution, not every enterprise has the necessary resources to monitor and maintain it. Another option is to utilize a sophisticated end-to-end solution which is dedicated to automating indirect tax filings globally.
Companies commonly spend too much of their budget outsourcing tasks that should be taken in-house and solved with TaxTech and conversely, spend too much time, effort and money insourcing tasks that are less expensive when they’re outsourced.
Harnessing the power of technology to automate repetitive manual tasks will reduce human errors. In the field of taxes, this has important knock-on effects such as filing more accurate returns. That means a reduced likelihood of audits (less time and budget to spend answering those pesky questions), and reduced penalties and interest for mistakes. There’s also reduced embarrassment – having to explain to your colleagues why the company was penalized is never a fun conversation.
The right TaxTech not only enables you to file accurate, on-time returns, but by using a tax engine, you can also ensure accurate tax calculations further upstream – a critical factor for companies doing this at scale. Think about how many invoices a global rideshare company or a music streaming service creates on a monthly basis. They could not begin to manage compliance without it.
Consultants can be hired to perform checks of a company’s books, but that’s costly, manual work that takes time (that you are paying for). When you use TaxTech to get your calculations and returns done right the first time, it’s much easier – and more cost-effective – for your internal team to look over the work and ensure that everything was done correctly.
Let’s use a real-world example to illustrate how you can use automation to speed up a typically lengthy process. Tax professionals at global companies who have tried to use the VIES portal to validate tax IDs (TINs) know it can be painful. It’s especially tough to validate TINs when VIES is “down”, which it often is (we’ve written about that here).
When you’re spending this much time on important (but time intensive… and often soul-sucking!) projects that could be automated, it gives you less time to do the work that actually matters. In general, utilizing dedicated TaxTech tools can reduce the cost of your tasks like digital reporting and e-invoicing, VAT return filing, and validating tax IDs globally.
What role does user experience play in TaxTech?
User experience plays an essential role. It’s no secret that when it comes to user experience (UX) and human-centered design, tax software has lagged behind. Tasks that could not (yet) be fully automated resulted in tax professionals using frustrating, inaccessible, and nonintuitive solutions.
As a result, there are unnecessary errors (reduced accuracy), they take too long to complete a task (reduced speed), or worse. Many tax pros consider leaving their job – I’ve personally seen two people quit. And this is why improving the UX is important. Accessible tools improve job satisfaction (reduced churn) and also positively affect the metrics we’ve already mentioned, like improvements in speed and accuracy.
Let’s look at a tax process that’s not yet fully automated, like answering questions during an audit. Handling complex tax authority audits requires you to quickly provide complete and accurate information, often in a very short period of time. Good TaxTech is built in a manner that’s ready to produce audit support. So it’s particularly painful when the tools you use do not express the same “sense of urgency” that you do (i.e. they are slow). It’s also tremendously annoying to spend most of your time searching for information rather than actually analyzing it.
Is TaxTech going to replace me?
In a way.
TaxTech will replace the mundane, repetitive, low-value add tasks you never really liked doing. It will replace the version of you that you never really enjoyed being. For indirect tax departments that are already often understaffed and overworked, it really means that TaxTech will free up your time to focus on more critical value-add projects that deserve your attention.
How Fonoa can help
Fonoa is a global tax automation and compliance solution provider that helps companies automate their tax processes in a digital, borderless economy. Our easy-to-integrate solution automatically keeps track of changing rates and rules to help your business stay compliant. And yes, it will also save your company money. Get in touch to find out more.