Choose the right approach to implement your new tax system – 4 key considerations

If you’re considering an IT upgrade, you’re probably looking for an agile tax solution which can exchange all relevant data and integrate your entire administration across taxpayer services and other governmental entities. Key capabilities usually include return filing, registrations, refunds, objections, workflow processing, case management and risk analysis, just to name a few. 

Historically, ‘homemade’ systems were built and maintained by internal teams, but as technology evolves, Commercial-Off-The-Shelf (COTS) solutions have become available. Leveraging SAP’s TRM platform based on S/4HANA®, COTS is designed to activate and modernise tax systems. These solutions offer configurations which meet tax-specific laws, regulations and business rules, provide single taxpayer views and support the integration of multiple tax types - ultimately helping administrations to increase collections and maximise compliance while reducing the total cost of ownership, in comparison to custom solutions.

Whether you’re considering a homemade approach, or procuring experts to help, here are four key considerations to keep in mind:

1. Taxpayer compliance and visibility

Administrations are striving to increase taxpayer compliance and tackle non-compliance more effectively, while also being required to quickly adapt to changing tax laws and regulations. If your environment is comprised of stand-alone systems, then each system is likely supported by separate staff for each tax and revenue type – meaning there’s little visibility of taxpayer statuses and reduced compliance levels.

To remedy this, an agile COTS solution introduces tax-inherent best practice features, meaning future changes can be easily integrated into the core of your system. Whether homemade or through a specialist partner, a successful COTS implementation should result in fully integrated capabilities which enable the tax administration to use data and reporting capabilities from anywhere in the system - ultimately providing far greater visibility, and accelerating risk reduction and increasing compliance.

2. Cost-effectiveness

With a COTS solution, tax features are readily incorporated so do not require specific customisation and evolve with the system over a period of years. However, custom-built or homemade solutions lack inherent tax-specific capabilities, meaning changes and upgrades can become more complex and costly to maintain.

Homemade implementations usually require additional infrastructure, hardware, network upgrades, security upgrades, user licenses and subscriptions. This approach entails multiple procurement processes for individual components or services, meaning you must maintain and manage each of these streams individually. Working with an implementation partner means all costs are covered in a single procurement process, so less surprises and more predictable costs prior to signing a contract are expected.

3. Optimise business processes and operations

Single tax type limitations in a system can lead to ineffective data sharing and process inefficiencies, meaning outputs can become painstakingly inaccurate as time goes on, requiring extensive manual intervention. A new system presents an opportunity to consider Business Process Re-engineering (BPR). BPR involves redesigning core processes to achieve drastic improvements in productivity, effectiveness and quality – and ultimately avoids reintroducing ineffective practices.

With COTS, a successful implementation will help eliminate manual processes with workflow driven operations and automated functions. Importantly, it also integrates the taxation system with ministries, banks and other third parties. These substantial changes will enable users to create consolidated taxpayer views, providing greater visibility, saving valuable time and centralising business processes based on consistent business rules. A key COTS benefit for operational success is a fully fledged language option in the backend, including competent translation features.

4. Skills and resources checklist

A thorough consulting, design and testing regime must be in place before any implementation takes place, therefore it’s crucial to establish roles and responsibilities at the start of the process to ensure all bases are covered. New projects often require a functional team, analysts, developers, software knowledge, tax-specific expertise, and of course plenty of time.

If you’re considering a homemade approach it’s critical to identify resource requirements and factor into your costs – the risk of missing this step is that items can easily fall through the cracks and quickly lead to underestimated costs. Without doubt, varying system components require a well-rounded and complementary combination of IT expertise. While partnering with an expert, tax authorities can offload, for example the testing and execution, to the expert partner and use their time to focus on key business initiatives like taxpayer audits.

Plan for the future

IT changes will heavily impact internal staff and wider groups, such as taxpayers and tax advisors, therefore all aspects must be carefully understood and managed. When functionalities are properly linked, the tax administration will have access to enhanced capabilities to help run a modern tax system, built ready for the future.

Whatever the approach, the biggest consideration should centre around the long-term viability of any potential tax solution, and whether it has the capabilities to keep up with the pace of change in today’s digitally powered tax landscape.

Learn how our experts implemented a state-of-the-art COTS solution to help Fiji Revenue and Customs Services (FRCS) to enable online taxpayer services and voluntary compliance and self-assessment environments.

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