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How to get ahead of the tax curve: Predicting and preparing for future market disruptions

When it comes to the creation of new legislation – particularly as a lever to respond to global and market disruptions – the tax industry is guilty of safe thinking, inaction and lagging – perhaps more than any other sector.  

Indeed, it can often be an astonishing length of time – I’m talking decades, not just years – before tax regulations are updated and invoked to tackle long-running and all-consuming troublesome trends.  

Take the rise of digitalisation as an example. In the modern era we can’t go more than a few days without hearing about imminent e-invoicing mandates or real-time reporting requirements, and then the subsequent delays and amendments.  

The authorities always appear to back down to business demands for more time; time which, ironically, is usually needed because of their poorly designed ERP systems that will never change as companies are not forced to update them. 

In my opinion, if India can introduce a new GST in a few months, surely any country has the capabilities required to do the same… 

It’s left me considering how long has it taken to reach this point of the digitalisation roadmap? Why are schemes such as e-invoicing not already commonplace in every country? What can we learn from this for the future? And why are tax authorities not adventurous enough to lead the way with new tech instead of always taking the safe option? 

The roots of tax digitalisation 

Digital regulations – including mandatory B2B e-invoicing, real-time reporting, electronic VAT returns and data visualisation – will enable tax to evolve and advance in future decades.  

Laborious, error-prone manual inputs are being removed from the workloads of tax professionals around the world; replaced by automation that provides precision, speed and reliability as standard.  

While this is understandably good news for tax teams and their businesses, it’s not the primary reason for tax authorities increasingly moving towards digital mandates. In reality, authorities are pushing digitalisation for one simple reason: they deem it to be their best hope of closing the VAT gap, although the huge volume of near-to-real-time invoice data does also give quite a good update of the economy.  

But the VAT gap isn’t a new problem. Official EU estimates put the VAT gap at €90.9 billion as far back as 2000, while it had grown to €177 billion in 2012. In the most recent figures for 2021, it actually stood at a more modest €61 billion 

As long as I can remember the VAT gap has been vast and, for most of that time, digitalisation has been an option. The fact it’s taken almost a quarter of a century to see the use of digital systems enforced – and we’re still some way from it being uniform across not only the EU, but North America, APAC and Africa too – illustrates the painstaking pace at which these things move when it comes to tax.  

And it’s not just the VAT gap and the subsequent rise of digitalisation. Stock market crashes, the rise of AI, natural disasters, sunsetting of existing tech and all manner of other macro factors can result in governments and authorities pulling the tax lever to help them ride out the storm – often with significant delay.  

What’s coming down the tracks? 

Of course, it’s impossible to predict the exact scenarios the world will face over the coming years.  

But looking solely through a tax lens, I expect the following trends to define the next decade: 


  • Data is king 

Last year, I detailed how data had become king in the world of tax – and we’ve seen nothing yet. As tax authorities continue to leverage data analytics systems, machine learning and AI to scrutinise your tax data and identify any errors or gaps within it, businesses must renew their focus on maximising data quality, digital audit trails and controls. Many of the tax authorities currently have no idea how to process all the tax data they have accumulated but when they do, there will be a tidal wave of non-compliant data being flagged. 


  • Fully integrated systems 

From ERPs to third-party tax tools, e-invoicing solutions and plug-ins or bolt-ons, tax teams are accustomed to having numerous pieces of kit at their disposal. The difference in future will be unprecedented harmonisation between all these platforms (and more).  


  • Real-time reporting > Annual compliance  

The days of working towards the completion of an annual compliance cycle are gone. Instead, tax teams should have access to their data in real-time, including visualisation platforms like our LimeLyte Visualisation tool that allow early identification of potential issues. 


  • Where’s the evidence? 

Simply being compliant at the point you have checked your data with a tax authority will no longer be enough; you’ll need to have evidence you ensured you have been compliant throughout. Applications will record proof that you checked your customer and supplier data – not just once, but continuously, and that all potential issues were dealt with. This will also give businesses adequate defence at audit. The development of tools like LimeLyte Entity Manager which allow the tax team to manage their data and keep a full audit of any changes or checks to potential issues will become the standard. Using a tax compliance tool to find the issues will no longer be enough as the tax team will need to be able to manage their data, recording the reasons why a flagged record is valid and correct – and have the evidence they have done so.  


  • 100% technology enabled  

Every step of the tax journey must be automated; underpinned by one or more state-of-the-art systems that ensure seamless processing of every single transaction. Businesses that still rely on human inputs will be the first to be caught out by the new AI-enabled automated checks made by tax authorities. Just because you cannot see any issues with your manually derived data, the tax authorities will be able to. 


  • The great upskill

 As technology advances and new ways of working render legacy processes redundant, tax functions will be forced to adapt. Modern systems will take the strain, freeing up tax professionals to focus on more valuable projects. Those looking to get ahead should prioritise upskilling in areas such as data analytics, risk and governance and technology systems. With the right tools, the tax team will be able to transfer the ownership of ensuring the processes that include a tax element are correctly followed. 


What’s the next transformative trend? Here’s my prediction 

We know it’s taken a couple of decades or so for us to reach the point where and the VAT gap is slowly being closed through the introduction of new digital regulations and enhanced technology. 

Assuming digitalisation continues to contribute towards achieving this aim, what is likely to be the next big trend? Where will tax authorities look next? 

Fast forward five years or so; digital mandates are in place and ingrained across the western world, tax professionals are relying on technology and utilising new skills more than ever before, human error is no longer a risk in tax determination or application.  

At first, you’d be forgiven for thinking we’ll have achieved a tax utopia. Unfortunately, contrary to that belief, there will still be inaccurate or incomplete VAT reporting and remittance to the authorities.  

Sure, it’ll no longer be a consequence of outdated systems, human error or unfit processes. Instead, it will be the result of bad data.  

That’s why I believe the next new dawn for tax will be all about data compliance – and we’re likely to see:  


  1. New legislation passed to widen the scope of data that must be included in tax documents. 
  2. Standardised processes for data collection and sharing mandated by tax authorities. If crypto currencies become the mainstream then expect even more regulation to report what the banks are unable to do anymore. 
  3. Certification of compliant data systems, a new ISO standard for tax compliance. 
  4. A common data model that standardises and enriches records. 
  5. Routine checks by tax authorities using newly created algorithms against historic data and submissions – allowing those data zombies to raise from that data graveyard that you had completely forgotten about and start to cause all sorts of issues.
  6. The introduction of a blockchain tax hub where a customer can log a PO on the portal showing the confirmation of the goods or services being provided and subsequent invoices created. This will also share confirmation that the tax treatment is correct – and potentially, the tax authority may even do the tax determination for you. The customer can then download directly into their ERP, eliminating the need for invoice scanning or manual entry before recording the payment which the tax authority can then split if required. Every step of the supply chain will be recorded by a centralised government hub using blockchain to ensure 100% accuracy. 


Furthermore, in a world with a rapidly ageing population, no authority can continue to raise tax rates to fund the infrastructure required; instead they must find new ways to increase VAT revenues.  

Another factor to consider is if the tax authorities want all your data to help with getting a pulse on the economy, consider how easy it would be for that flow of data to be monitored providing essential data for insider trading. So expect enhanced security to follow this almost continuous flow of data with the tax authorities. 

We’ve already seen the embracing of digitalisation to help authorities achieve this critical aim. But what about AI, the next transformative technology out there? Is it taxable? How will tax authorities use it to drive their next steps?   

The current VAT gap may be coming down but the accuracy in the way it is currently calculated is open to debate. Just like those tax managers who manually process all the tax and say they have no errors – it’s because you have no way of knowing where those errors are! The VAT gap is still very much there but mainly hidden and as the tax authorities introduce better data processing, those hiding places will disappear and a real VAT gap will be exposed. 

Nobody can yet be sure, but what we do know is that digitalisation is imperative and a force for good across our industry. However, without quality data it will always be limited in its efficacy. As I often say, if you put garbage in, you’ll get garbage out.  

That’s why I believe companies that get ahead of the curve by prioritising data now will be laying the foundations for long-term compliance with the wave of data-led legislation that I expect to come over the next decade.  

Put it this way, when the tax authorities start using AI to trawl through your historical data, do you want to be at the top of the red flag league table or at the bottom?