The indirect tax landscape is undergoing a profound transformation, driven by the relentless pursuit of efficiency, accuracy and strategic advantage. A recent Thomson Reuters webinar highlighted the critical role of technology and automation in transforming the indirect tax department. This blog looks at the key challenges facing tax professionals and explores the new technological solutions that will revolutionize this function.

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The imperative for change

The indirect tax function is under enormous pressure to perform on several fronts. A recent report from the Thomson Reuters Institute found that 37% of tax professionals cite increasing regulatory complexity as their biggest challenge. At the same time, 39% said resource constraints are a significant obstacle. These pressures have underscored the urgent need for transformation.

The webinar highlighted that success depends on accuracy and efficiency. Nadya Britton, Enterprise Content Manager – Tax and Accounting at Thomson Reuters Institute, said: “The success of the Indirect Tax Department depends on accuracy and efficiency.” However, the path to this ideal state is blocked by several challenges:

• Technology and automation lag: A significant proportion of indirect tax transactions are still heavily based on manual processes, leading to inefficiencies, errors and increased compliance risks.
• Resource constraints: Limited staff and budget allocations prevent departments from keeping pace with the dynamic regulatory environment.
• Increased regulatory complexity: The complex network of indirect tax rules and the different and constant changes in each jurisdiction require constant attention and expertise.

The rise of AI in indirect tax departments

The good news is that technology offers a powerful antidote to these challenges. The webinar highlighted the transformative potential of artificial intelligence (AI) and automation. AI-powered solutions can automate a variety of time-consuming tasks, including:

• Data extraction and analysis: Indirect tax technology solutions can efficiently extract relevant data from various sources, reducing manual effort and improving data
• Indirect tax management: Content-based tax technology solutions can automate sales tax calculations, returns and audits, minimize errors and optimize compliance.
• Compliance risk assessment: AI can analyze large amounts of data to identify potential compliance risks and enable proactive mitigation strategies
• Detection of fraud: AI algorithms can detect anomalies and patterns that indicate fraudulent activity and thus secure revenue

Christian Jensen, Director, Technology Vertical at Thomson Reuters, emphasized the transformative power of AI, saying: “We see AI being used to sift through this data and investigate and identify these anomalies.”

Higher qualification of the workforce for a technology-supported future

Although technology will revolutionize the indirect tax function, human expertise remains essential. The webinar highlighted the importance of upskilling the workforce to effectively use new technologies. A clear majority of companies surveyed (78%) said they are investing in training their employees to close the digital skills gap.

The training will equip tax professionals with the ability to work with AI and automation tools so they can focus on higher-value, strategic tasks such as tax planning, risk management and business consulting.

The evolving role of tax technologists

The convergence of tax expertise and technology has given rise to a relatively new role: that of the tax technologist. These professionals have a unique combination of skills that allows them to bridge the gap between tax engineering and tax technology. Tax technologists will play a critical role in driving digital transformation and the successful implementation of tax technology solutions.

A technology and AI-driven future for indirect taxes

The future of the indirect tax department will undoubtedly be driven by technology. By leveraging AI, automation and upskilling initiatives, indirect tax professionals can create a more efficient, accurate and strategic function. This transformation will not only streamline operations but also enable tax teams to make a more meaningful contribution to overall business objectives.

To fully realize the potential of technology, tax departments must take a holistic approach that includes:

• Strategic vision: Develop a clear technology roadmap aligned with business objectives.
• Data management: Establish robust data control and management practices.
• Talent development: Invest in training and development programs for employees.
• Change management: Effectively communicating the benefits of technology and managing resistance to change.

Each of these steps is a separate workflow that can be planned and implemented by the tax team as part of the adoption of a more technology-focused approach.

By implementing these principles, tax departments can position themselves successfully in the long term in an increasingly complex and competitive environment.

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