The Future of Tax: How Corporations Can Leverage New Technology for Tax Efficiency

Digitalization is reshaping the way tax is collected, paid, and managed. According to the survey, 90% of respondents reported seeing progress being made towards digital streamlining and automation in tax processes. This shift is not merely about adopting new tools but fundamentally transforming interactions between taxpayers and tax authorities. The OECD’s Tax Administration 3.0 initiative exemplifies this transformation, aiming to embed tax processes into the natural systems used by taxpayers, thereby creating a seamless and frictionless tax environment.

The benefits of digitalization extend beyond mere efficiency. By integrating tax processes into everyday business operations, digitalization can reduce the administrative burden on taxpayers and enhance compliance. The approach set out in Administration 3.0, often summarized by the phrase “tax just happens,” envisions a future where tax obligations are automatically fulfilled through routine business activities. This not only simplifies compliance but also fosters a more transparent and trustworthy relationship between taxpayers and tax authorities.

The rise of Generative AI in tax compliance

Generative AI is poised to play a pivotal role in the future of tax compliance. The survey indicates that two-thirds of respondents anticipate widespread use of AI in tax compliance over the next three years. However, there is a notable expectation for continued human oversight, with opinions divided on the extent required. Approximately 40% believe significant human oversight will be necessary, while 26% foresee only minor oversight. This highlights the need for a balanced approach that leverages AI’s capabilities while maintaining necessary human intervention to ensure accuracy and compliance.

AI technologies, particularly GenAI, offer the potential to revolutionize tax compliance by automating complex processes, enhancing accuracy, and reducing the time required for compliance activities. For instance, AI can analyze vast amounts of data to identify patterns and anomalies, thereby improving the detection of errors and fraud. Additionally, AI can assist in the preparation of tax returns and reports, supporting accuracy and compliance with the latest applicable regulations.

Business benefits and challenges

The integration of digital and AI technologies in tax administration is expected to yield numerous benefits. Respondents highlighted improved accuracy (34%) and reduced costs (23%) as primary advantages. Other anticipated benefits include consistency in tax coordination, more time for core operations, and greater compliance with regulations. However, the journey towards these benefits is not without challenges. Concerns about increased costs and complexity remain prevalent, underscoring the need for strategic planning and investment to mitigate these issues.

The survey results suggest that while businesses are optimistic about the potential benefits of digitalization and AI, they are also cautious about the associated costs and complexities. Implementing these technologies often requires significant initial investment in infrastructure, training, and change management. Moreover, businesses must navigate the evolving regulatory landscape, which can add to the complexity and uncertainty of digital transformation initiatives.

Regulatory landscape and uncertainty

The regulatory framework surrounding GenAI and digital tax administration could be a key element to successful implementation. The survey reveals a landscape of uncertainty, with 41% of respondents indicating that their governments are considering regulatory options but have no firm plans. Only 13% reported existing regulations, while a significant portion remains uncertain about the timing of regulatory developments. This regulatory ambiguity poses a challenge for businesses, emphasizing the need for clear and decisive policy making to provide a stable environment for technological advancements in tax.

Regulatory clarity is essential for businesses to invest confidently in and adopt new technologies. Without clear guidelines, businesses may hesitate to fully embrace digital and AI solutions, fearing potential compliance risks and future regulatory changes. There are diverse perspectives on AI regulation, ranging from minimal intervention to comprehensive oversight. However, there’s a growing consensus that greater clarity from states is needed. Ideally, any regulatory framework should aim to address potential risks and concerns without stifling AI development and innovation.

Looking ahead: the path forward

The digitalization of tax and the rise of GenAI represent significant opportunities for enhancing tax compliance and administration. While the potential benefits are substantial, achieving them requires addressing regulatory uncertainties and managing the complexities associated with these technologies. Policymakers and tax authorities must prioritize the development of clear regulatory frameworks to support the seamless integration of digital and AI tools in tax processes. As these technologies continue to evolve, ongoing dialogue and collaboration between stakeholders will be essential to maximize their positive impact and navigate the challenges ahead.

In conclusion, the future of tax administration lies in the successful integration of digital and AI technologies. By embracing these advancements, tax authorities and businesses can achieve greater efficiency, accuracy, and compliance. However, this transformation requires a concerted effort to address regulatory uncertainties, manage costs, and ensure that the benefits of digitalization and AI are fully realized. As we move forward, it is imperative that all stakeholders work together to create a tax environment that is both innovative and reliable, paving the way for a more efficient and transparent tax system.

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Amanda Tickel is Deloitte’s Global Leader – Tax & Legal Policy and Regulatory Sensing. https://www.deloitte.com/global/en/about/people/profiles.gx-ajtickel+a1c34154.html