There is no doubt that the Middle East is embracing the concept - and the reality - of the ‘tax function of tomorrow’ and the idea of the tax authority as a “superpower” is no longer hypothetical. We are seeing this evolve in real time across the region and the window to be ready to adapt and respond is shrinking. Businesses will need to act fast, plan for flexibility and fold their tax technology strategy into budget planning and the wider business conversation.
The past year has seen a number of developments for tax in the Middle East, the significant one being the introduction of e-invoicing; implemented in Egypt at the end of last year with a planned implementation date of December 2021 for the Kingdom of Saudi Arabia (KSA). We know that the roll out of e-invoicing is also high on the agenda for tax authorities across the GCC and expect that other countries will be quick to follow, based on the consistent trend towards the digitalisation of tax across the region. Tax authorities globally and in the Middle East are pushing for greater visibility of data and increasing their revenues, and technology is the vehicle which will enable this.
What is e-invoicing?
Put simply, it is the structured data contained in web-based forms submitted via the internet between suppliers and customers and also to the tax authorities for clearance. This excludes soft copy format or scanned hard copies, and will therefore require many organisations to take a remedial approach to their current processes and invoicing systems. This is highly IT invasive and, at a minimum, will require a review of existing technology infrastructure and its capabilities.
But while the benefits of e-invoicing for tax authorities is clear, there are multiple benefits for the taxpayer as well, providing more security with a clear, paperless trail. There is also significant potential cost saving in processes and a guaranteed reduction in human error.
A clear trajectory
Across the world, there is a clear trend of authorities moving away from manual accounting and hard copy submissions. The recent introduction of electronic submission of contract information in the Kingdom of Saudi Arabia last year is yet another example of consolidating information and streamlining processes using a digital approach.
So, looking forward, what can we expect? Given the current trajectory, the next logical step would be the connection and visibility of data between the taxpayers; electronic matching between the consumer and supplier, for example, will minimise tax errors and result in higher accuracy of tax collection.
As more and more information becomes electronically accessible, auditing and assessments can be done faster. It is almost certain that in the near future, tax authorities will have visibility and access to taxpayer data on both a holistic and much more granular level, demanding greater speed and accuracy from the taxpayer than we have ever seen before. With this real-time access, there will be very little room for error and the risk of penalities will increase.
Ensuring data is transparent and accurate is going to be key to successful compliance and risk mitigation and businesses will be expected to update and ready their systems in a relatively short space of time.
The tax function of the future
What does all this mean for an organisation’s people and operations? Within the finance function, a tax practitioner can expect a very different role in the future, with excel spreadsheets rolling towards an inevitable end. Manual data management and wrangling will be a thing of the past, joining the typewriter and fax machine in the archives of administrative history.
Instead, Smart Automation tools such as Robotic Process Automation, along with further advancements in core ERP technology, AI and other bespoke solutions could be the ‘new normal’.
E-invoicing alone marks a significant change and is likely to represent an incremental step in relation to the future of tax authority governance. Decisions by the authorities to convert to digitised processes is indicative of a paradigm shift that could likely end in a wholly digital interaction between the authorities and taxpayers.
Business intelligence and forward planning could be the new tax function mandate, contributing to the wider business strategy, effectively replacing the traditional means of reporting tax information to the authorities - and marking the death of the tax return.
