Role of Technology in Tax Compliance and Reporting in Future

The use of technology by tax authorities and taxpayers has increased in recent years. This article shows the impact of technology on the Indian tax environment and how Indian taxpayers can use it to simplify tax treatment.

Towards an electronic monitoring assessment (Revenue Audits)

Submission of tax returns, receipt of requests from the tax authorities and sending of answers have now been transferred to electronic communication. The use of Tax Technology will increase even more in the coming years, as will almost all electronic communications. For example, you can submit requests from the tax authorities and contributions for assessment (tax assessment) immediately online. A pilot project of electronic monitoring launched by the government is a step in that direction.

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Special and in-depth discussion between taxpayers and tax authorities

Data links between various government agencies and institutions in the financial system enable the tax authorities to obtain better information about taxpayers. In the coming days, we expect seamless integration of various aspects of taxpayer information such as bank accounts, income, expenses and investments through the core areas of Permanent Account Number (PAN) and Aadhaar. This will make business and tax information available to the tax authorities.

The data connection should improve tax compliance, identify arrears and make requests more accurate and “indicative”. Adequate information on the activities of taxpayers is provided to the tax authorities in the annual information report. By using this flow of information, government systems can have certain automatic triggers to capture transactions with a value that exceeds the declared income and / or operating size of the taxpayer. Suspicious transactions can be caught in a timely manner. At the same time, the question of tax authority will be more specific for the taxpayer, thus saving time and effort on both sides and leading the investigation to a logical conclusion.

In a recent presentation of the “Net Money Action” to manage cash deposits during installment periods, the government directly discussed the use of data analytics to identify potential tax evaders.

Possibility of internal fiscal work

From the point of view of taxpayers, the electronic data transmission module offers significant possibilities for automation and reduces the work of people to improve the efficiency of tax control and reporting. Several standard tax rules can be largely automated by linking correlation forms to taxpayers’ accounting systems. An interface could be developed in which correlation forms are filled in automatically as soon as an accounting posting is made. This could avoid the need for separate data collection and aggregation to meet compliance requirements.

Tax logic can also be incorporated into the accounting system as part of the decision tree model. There are currently several ERP packages where such functionality is available on a custom basis. With the increased use of technology and the greater standardization of tax matters, tax law can be added to almost any accounting software and made accessible to taxpayers in a timely manner and at a lower cost.

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