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Why tax compliance needs dedicated software

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Tax compliance in Australia is a complex business and can involve multiple departments across an organisation working together to fulfill any outstanding issues.

This, however, is not always a simple or coherent task, as departments in big companies often hold onto data or don’t have the necessary resources to share efficiently or effectively to allow smooth decision making.

This is why when individuals rely on Excel as their main source of collating data within big organisations it can lead to a breakdown of communication and misinformation regarding vital data that can mislead the tax office as to a company’s true financial position.

“In dealing with issues like this the key question is scale,” Steve Williams, PKF partner, says. “As companies grow in size the volume of data that needs to managed not only by the tax function but the accounting administration as a whole becomes problematic.

“Just as companies that experience growth tend to invest in more sophisticated ERP systems, so too does the need for a well-planned and implemented tax reporting system. The key issues that an efficient tax function seeks to address are cost reduction pressures; globalisation; a climate of rapid corporate change; and an ever-increasing rate of development in software generally around the world.”

The main issue with relying on Excel is that it doesn’t allow for appropriately documented processes nor was it designed for complex taxation functions. Furthermore, it can become very cumbersome due to its manual entry process.

“Excel is a very useful tool,” Williams says. “But it was not designed for the specific needs of tax functions within corporate groups.

“For example, redundant or new financial accounts need to be manually managed by personnel in an Excel-based system, whereas specifically designed systems have validation processes built in to avoid the errors that arise when new accounts are ignored.

“When it comes to interdepartmental collaboration regarding tax reporting, the question is how do we get the data we need in a timely and efficient manner.

“Tax teams do not generally control the financial data and therefore rely heavily on the accounting function to extract reports that can be manipulated into an Excel spreadsheet to allow the tax numbers to be determined. Each group of people may (usually do) have competing priorities and therefore the data flow to the tax function may be inefficient. Having an integrated system that mapped to the accounting system and draws data directly from the system alleviates the double handling of the data.”

There is also the question of the volume of data. The bigger the company, the more transactions that are happening across a range of divisions, the harder it is to keep track of everything unless the accounting software systems are unified.

The easier the internal network is to use to access real-time data, the quicker the process will be when it comes to ensuring tax compliance is up-to-date.

“Having a reliable and efficient system that can manage large amounts of data allows the entity to analyse the data risk reporting to the board of directors where data analytics can be used to highlight areas of tax risk such as anomalies in GST accounts for example,” Williams says.

“Furthermore, specifically designed software solutions are generally designed to allow flexible reporting lines. That is, members of a group of entities might have very different accounting and management accounting reporting lines such as by sector, whereas the tax authorities well generally only see the whole group.

“Most designed systems allow the grouping of families of entities to enable this flexibility in reporting.”

Tax compliance will only increase in the future. There is no doubt that the Federal Government wants to close any loopholes so as companies can’t avoid paying their obligatory tax.

“Tax compliance is constantly becoming more complex and more closely monitored by the Australian Taxation Office,” Brad Loftus, principal, RSM Australia, says. “Therefore, it is imperative for businesses to take a more sophisticated approach to managing their tax affairs.”

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