Tax data analytics: How compliance can fuel growth
Tax data analytics refers to the use of advanced data analysis techniques to extract valuable insights from tax-related data. As this reshapes the foundation of our financial world, Tax Data Analytics is more than just a buzzword now. According to a recent survey by EY, only 34% of tax executives say they have access to high-quality data for tax purposes. That means 66% of them are missing out on a valuable asset that can help them improve their compliance and revenue. That asset is tax data analytics.
Historically, the field of tax has been hesitant to embrace the power of analytics. However, we are finally finding signs of growing interest in enhancing compliance accuracy, improving risk management, achieving cost savings, facilitating strategic decision-making, providing a competitive advantage, enabling proactive tax planning, and identifying tax incentives. As a result, analytics—especially in the realms of direct tax compliance and provision—is becoming increasingly too critical to ignore. By automating data collection and analyzing processes, organizations can reduce errors and ensure compliance with tax regulations.
Tax data analytics can provide valuable insights for strategic decision-making. Providing tax data analysis alongside other forms of data – such as those related to business, transactions, customers, and in some cases, employees, organizations can gain a comprehensive understanding of their financial position and tax implications. This enables them to make informed decisions regarding mergers and acquisitions, international expansion, investment in new markets, and other growth-oriented strategies.
The Hurdles We Face
Even though tax data analytics provides several benefits to its stakeholders, some challenges have slowed down the adoption of analytics in the tax world. The complexity of tax law and the scarcity of data have been formidable barriers. But it’s time to change our mindset. Instead of asking, “What do I need to do?”, we must start asking, “What do I need to know?”.
Leveraging tax data analytics can provide a competitive advantage in the marketplace. Businesses that effectively use data analytics to streamline compliance processes and optimize tax strategies are better positioned to adapt to changing tax regulations and market dynamics. This agility allows them to seize growth opportunities more quickly and efficiently than their competitors.
Historically, tax data gathering has focused on hindsight, but analytics empowers us to gain insight into what lies ahead. By delving deep into data with sophisticated queries, we can understand how various aspects of our business may influence tax outcomes and even gain predictive insights into our tax obligations, allowing businesses to proactively plan for those outcomes.
The Arsenal of Tax Analytics
Tax analytics can help identify potential tax risks and vulnerabilities. By analyzing historical tax data and applying predictive modeling techniques, businesses can proactively identify areas of non-compliance or tax inefficiencies. Addressing these risks promptly minimizes the chances of adverse financial impacts and ensures a solid foundation for growth. It transforms organizations into insight-driven entities, guiding decision-making through data and analytics. It encompasses various types of analytics, including descriptive scorecards, visual representations of vast data volumes, and predictive and prescriptive analytics.
Jumpstarting Tax Data Analytics
To kickstart our journey into tax data analytics, we can rely on prebuilt modules that serve as foundational blocks. The data we require can reside in a tax data warehouse or elsewhere. An organization’s focus should be on understanding the data and its relationships, and then building custom solutions to address tax data analytics needs. We can also leverage existing tools, such as machine learning, to automate processes.
Tax Incentive Identification
Tax data analytics can help businesses identify available tax incentives and credits. By analyzing tax data and understanding the eligibility requirements, organizations can take advantage of various tax incentives offered by governments to promote specific industries or activities. Maximizing the use of these incentives can significantly reduce tax liabilities and support growth initiatives.
Elevating the Role of Tax with Analytics
In conclusion, tax data analytics isn’t just a tool; it’s a transformative force. It offers us a new lens through which we can view our financial world. It is both a powerful investigative tool and a graphical medium for sharing findings and discoveries. By embracing data analytics, practitioners can enhance risk assessment, compliance, financial analysis, and decision support.
The era of tax data analytics has arrived, and it’s time for us to embrace it.