By Pratha Khanna

Importance of Technology in Indirect Tax

Tax administration in essence refers to the task of implementing tax law whether direct or indirect in any country in order to utilize its full potential. The use of technology to advance the objective and intent of indirect tax can greatly help any nation wherein the taxpayer does not have to manually file their taxes but can do so automatically through the use of online government-implemented software. The objective of giving a smoother and easier process to a taxpayer in terms of tax payment to ensure compliance also aligns with the motto of the government to mandate “ease of doing business”. Any taxpayer is more likely to make timely and correct payments of tax through the method of e-filing etc. as opposed to a paper filing method that existed before the advancement of technology. Therefore, the government has to invest in tax technology as the taxpayers, with the evolution in society, have started expecting greater results from the government in terms of ease of compliance, better tax administration, lower cost of tax payments and maintaining a competitive standpoint in the global market. For the sake of completeness, it would be pertinent to note that these technological advancements within the field of tax law are not completely devoid of disadvantages. Introduction of tax technology and overly relying on the same for quarterly and annual functions within the tax mechanism can lead to several issues such as lack of infrastructure, lack of training and jurisdictional challenges.

Technological Advancements under GST Law

The first change that was brought in place in line with the goal of digitalising India was the introduction of the E-Way Bill system for transport i.e. movement of goods from one place to another. Post this, the government started implementing more changes in terms of technological advancements such as e-invoicing, e-filing of returns, implementation of GST network and changes to the customs regime were also made such as faceless assessment in 2019 and formulation of a digital platform to collect taxes from the import of goods and services. Moreover, further steps have also been taken by the government to advance tax technology by implementing further digital solutions such as e-registration and QR code mechanism for GST invoicing to legalise and ease the process of consumer faith in the registered supplier. The regulation of Input Tax Credit (hereinafter referred to as “ITC”) has also been digitalised wherein the credit to be received by any supplier is now transferred to his electronic ledger wherein records are maintained regarding the receipt of the refund by the government. The GST Network (hereinafter referred to as “GSTN”) is one of the milestones achieved by the Indian government in terms of advancement in the field of tax technology as it creates a platform for a consumer, supplier and any other third party to interact in an open API (Application Program Interface) system. Another achievement of the Indian government has been in terms of ensuring that automation of manual transactions is done at the earliest wherein the supplier does not have to undergo repetitive tasks of filing of returns etc. through the provision of GST Suvidha Provider (hereinafter referred to as “GSP’s”).

Future Possibilities in Indirect Tax Technology

A major change that can be brought within the sphere of tax technology is electronic advancement and managed forms of litigation wherein disputes are settled online itself with minimum human intervention. Through this, any issue can be settled easily and in a quick manner because of which burden can be reduced on the judiciary as well as other administrative bodies such as the appellate tribunals. Further, the introduction of AI-based software has changed the level playing field in various sectors and the same is bound to enter the tax mechanism as well. To foresee and eliminate any chances of such AI-based disruption, the government and other tax authorities should actively work on creating a new and advanced bubble of technology that envisages any interruptions and makes the flow of data smoother irrespective of developments in the fields of Artificial Intelligence. Lastly, there is a need to also account for changes originating from the internalisation of the blockchain system which is most likely to create an increased number of key transactions that may be essential for the tax department to track. A system should be brought in place to ensure that tax payments are either tightly monitored through the blockchain itself or is easily recognizable in a situation where this technology is excessively used. Another important need at this stage would be to ensure that each company has a team focussed on increasing return on investments from ITC reconciliation which would inherently promote transparency, accuracy and easier data transmission and recording.

Cross-Border Comparison within the Realm of Indirect Tax Technology

E-filing and e-accounting have seen drastic developments in various Latin American countries such as Brazil, Mexico and Chile. Singapore has also been leading the way in e-filings by bringing in a stronger and more transparent mechanism for these tax payments along with the introduction of key features such as the EASY (E-Services Authorisation System) mechanism and the AIS (Auto Inclusion Scheme) system that provides various kinds of online services. United Kingdom has also brought in initiatives to make tax digital by increasing the use of software to make indirect tax functions easier, making e-registration available and through real-time processing of data. SPED (Public System for Digital Accounting) is an initiative brought in by the Brazilian government which has helped them in the collection of an increased margin of federal tax revenue by the rate of 19.13% as per various reports. Through the above initiatives, it can clearly be understood that every country across the world is striving for a stronger system of tax technology and they are doing so by inculcating different forms of technological solutions for tax payments. India being a rapidly advancing economy has successfully stayed at par with such changes by bringing in advancements such as e-filing, e-registrations, the opening of a specific GST Portal and more similarly placed efforts. For the Indian economy to have a strengthened tax base, they would have to primarily rely on increasing the reach of these technology-based solutions so that each resident can engage with the tax system successfully.

Initiatives and Recommendations given by the Organization for Economic Cooperation and Development (OECD)

The motive with which OECD laid down these recommendations range from ensuring that each tax transaction is tracked through online mechanisms and are multi-sided transactions, ensuring growth and increased revenue in each economy and facilitating easier and simplified tax compliance. Further, in April, 2022 the OECD launched the first phase of a global initiative known as the Inventory of Tax Technology Initiatives (hereinafter referred to as “ITTI”). To ensure the collection of data across the member countries to the ITTI, the OECD has also launched the framework of the “Global Survey on Digitalisation” which facilitates the storing of all important technological tools for tax around the world.Lastly, the OECD aims to create a second phase of data collection through ITTI wherein they will culminate all information for case studies and cross border disputes in order to make ITTI a one-stop destination for all tax administrators.

About the Author:

Pratha Khanna, is a fourth-year law student at Jindal Global Law School with keen interest in the field of taxation. She is currently a part of the Economics & Finance Cluster of Nickeled and Dimed under the Centre for New Economic Studies.

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