The Hindu Business Line : Tax managers focus more on compliance than planning

Tax managers of corporates, who are supposed to look at strategic tax planning, are spending more of their time looking after the tactical issues of tax compliance. The taxman has perhaps made them behave differently?

One can look at the situation from two sides. Either, compliance standards have been set very high which require more resources, or corporates have been ignoring compliance issues. There is a third side too, the role of authorities enforcing compliance. What's the solution? "A customised tax compliance solution to organisations based in India," says Mr Bharat Parmar, Vice-President (Business Development), BMR Managed Services, New Delhi.

But isn't financial management and accounting in most large organisations managed through the specific modules of ERP systems?. Mr Parmar explained the shortcomings of the system and other issues in an interaction with Business Line over e-mail.

To know more about the issue, read on.

Excerpts from the interview:

How is the tax landscape changing for Indian companies?

With increasing globalisation and the massive growth that India-based businesses are making, the Indian economy is expected to change enormously. More and more organisations are expected to enter the country or increase their footprints in the coming years.

Considering the inherent complexities of Indian statutory regulation and the relative ignorance of these companies about their implication, running business in the country might become very demanding.

So, is compliance the `big' issue?

Staying abreast of the latest changes in national and State taxation laws, their interpretations, and their effect on multiple jurisdictions and your business is a formidable challenge in today's world. If you add the changing industry landscape - from local to global, compressed reporting cycles to government, and ever-rising demand for accuracy - to the list, the situation seems all the more grim and complex.

Where exactly are tax managers in the Indian context stumbling?

A quick look at the tax management in Indian corporate houses will suggest that the managers involved in this, more often than not, are reduced to fighting the tactical issues of tax compliance rather than working on strategic tax planning, which would have been the ideal scenario.

How could that be? Large companies have dedicated systems and modules, don't they?

It's true that financial management and accounting in most large- and mid-size organisations in India today are managed through the specific modules of ERP systems. Typically these systems are also leveraged by the organisations to help the tax team compute the tax liabilities and extract relevant information.

Since these applications are primarily financial and accounting solutions, they are not intrinsically capable and aligned when it pertains to the Indian tax compliance requirements. In many cases the relevant information may reside in other standalone systems such as customer relationship management (CRM), supply chain applications, etc.

Applications are not `intrinsically capable'.

Yes. Organisations thus have to resort to manual processes to manage their regulatory compliances that are expensive, error-prone and inconsistent.

Also, one of the key challenges in such systems is trying to keep up with the changes in the tax laws. Tracking those changes, interpreting the laws, the entire gamut of the implications, and ensuring that these changes are correctly incorporated in the systems on a routine basis is a complex and arduous task.

Given all these costs, complexities and risks involved, it is evident that these applications cannot effectively handle the challenges arising from the tax compliance needs without proper customisation or help from specialised tax management solutions.

We have heard about niche tax solutions.

Globally, niche tax solutions have found acceptance in most of the developed markets like the US and Europe. Specialised tax management solutions with a centralised tax management system that can support multiple countries and jurisdictions and complement the existing ERP and the other financial applications have been extremely successful.

However, given the uniqueness and the complexity of the Indian tax laws and regulations, none of these solutions meets the specific compliance requirements for the country.

Can you tell us what a solution catering to Indian needs should offer?

Yes, a tax compliance solution customised to organisations based in India. The ideal solution should manage the complete service tax compliance lifecycle of organisations. Also, it is imperative that such an offering should be interoperable with most of the familiar accounting and ERP packages.

What companies need is to ensure accurate and efficient extraction of tax-related information: invoices, vouchers, payments, receipts, etc.

In the Indian context, the ability to automatically determine the tax liability based on the attributes of the transaction, requiring no manual tax decisions during transaction processing are of paramount importance. Plus, the tax should be computed for an invoice as a whole.

To add to the complexities of the tax laws, differences in interpretation across business scenarios between organisations within an industry complicates the implementation of these tax positions.

Business rules driven software products (such as KORE from BMR Managed Services) help organisations in such scenarios where there is unusual complexity in implementing these tax positions consistently and accurately across thousands of transaction records.

With the right software that frees up resources, customers can focus on more strategic tasks.

More Stories on : Interview | Enterprise Resource Planning | Detaxfication

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