“When the business is so tightly knotted with tax policies and the system of credit claiming with the features of the cross assessment, there cannot be any board meeting complete without the due discussion on the tax function”
In the business world, Tax and Board Room are two entirely different concepts. There is a famous assumption rule while making financial planning and modelling, i.e., ignore the taxes. The entire subject of management accounting and decision theories stay away from the subject of the taxes in general.
On the other hand, the tax team makes the effort in isolation of the business direction. The teams work on the post mortem and reactive role than the proactive and tip of the edge roles. There are policies of tax because of the business decisions but there have not been business decisions based on taxes.
However, the entire thought around this belief turned 180 degrees around in the recent years. The biggest role played in this transformation has been the role played by the implementation of GST. The law of GST is simple. There is not much difference on the thought of the law from top of the mind. It’s a tax on sales. Simple. But, the special feature of the GST is the unlimited powers given to the department authorities. And even more special feature is the implementation of the return system where in one’s input is dependent on the other vendor filling the return correctly. It’s not a matter whether a business has a valid input claim in the documentation but the scope has been increased to the case where the vendors of the business also need to be complied and should be filling in time to enable a business to get the input claim.
To put it in simple terms, Government has embedded a discipline of the self-regulation as well as cross-regulation where in the businesses have to
- Comply in time themselves first and then
- Businesses need to make sure that their vendors need to be complied in time and in correct form as well
The implications of the incompetence in the GST function of the businesses results in
- Denial of the input tax paid,
- Additional liabilities and interest on the tax which needs to be paid to keep the business running
- Blockage of the working capital and cash crunch for the businesses in the times of need
- Additional cost of doing the business as the ROI on business takes a dive as there is more capital required to keep things up
- E-way bill linking has even made the movement of goods also restricted if there are issues in your taxes
The above are just a few examples of the what a typical business may go through if there is no synchronization of the business decisions and tax function.
There is more!
Recently the government brought the new TDS and TCS provisions which are very similar to GST issues. Even though the TDS and TCS are part of the indirect taxes but the new sections 194Q, 206C 1H, 206AA and 206AB have made the TDS and TCS behave very much alike to GST. The driving factor of the TDS, TCS and GST remains the invoice value / value of transaction and are due to be deducted / collected well in advance than the actual assessment of the income even happens.
The resultant scenario comes in the form of
- Blocked Working Capital
- Cost of capital rising
- Increased cost of compliances and efforts by the tax teams to manage the tax
- Business needs to be aligned with the Tax Functions more than ever now
The business entity should now be more diligent, active and proactive in case of their taxes. There is a need to be sceptic with the external vendors. The verification of the records, communications between the tax teams have increased multi-folds. Also, now is the time to cater the operational needs by the way of the directional implements.
The need for the strategy for tax. The need for investment in the tax team. The need for technology and technology driven tax processes.
The technology can no longer be dumb tech for tax as it has been till date rather it needs to be smart tech to guide the business through the taxes.
The implementation of AI and ML based mechanism needs to be the priority for this space.
Coming back to the Title
The board is supposed to be dealing with the forward-looking strategies and the meetings are not about operations issues. Board is about looking forward into the business and protect the interest of the company and shareholders.
They also need to be checking the warning signatures that comes with time and to decide on the backup plans.
Amidst this forward-looking outlook, there is an interesting feature that came to rise. When the business is so tightly knotted with tax policies and the system of credit claiming with the features of the cross assessment, there cannot be any board meeting complete without the due discussion on the tax function.
With GST and now the new provisions of the TDS and TCS, the tax has impacted the capital requirements of the businesses and as such the business needs to foresee their tax positions, their vendor policies, payment terms, revenue reconciliations and the business reporting in advance.
There is more to story…
The business world is not only taking the heat from the current taxes but also from the provisions that need to happen in the future. There are numerous tax positions and the tax policies that a business to adhere in operations. This brings a series of what-ifs scenarios. Should a business take the new tax scheme for manufacturing units; or to set up in a particular are to get state’s benefit; or to explore a particular industry for tax benefits; or to setup a particular structure of the organization to see the tax outcome and many more.
All these scenarios are the matter of the tax consultants and is grossly a subjective matter which made the technology staying away from the tax consulting. But, now with AI and ML along with real time content-based software application, the subjectivity of the tax consulting can be merged with the computing capabilities.
What future shall hold for business?
The future looks very exciting as the quality of the tax consulting shall improve significantly due to availability of data analytics and content-based software –
- AI and ML shall be leading the tax software designs using content-based algorithms instead of rule-based logics.
- The outcomes of any business decisions and government policies shall be analyzed in advance.
- Tax function shall become directional, instead of being an operational function.
“With right tools and technology, the Tax provisioning and management shall become an integral part of the forward-looking board meetings”