How to mitigate indirect tax errors and protect your organization?
For every enterprise, regardless of the size and nature, calculating and getting the indirect taxes right is a crucial and indispensable part of the business strategy. Indirect taxes affect the cash flow and bottom line of the company.
As the company enlarges and scales up in size and reaches the market and customers, it needs to file income tax return and adhere to tax obligations along with reporting requirements which expand simultaneously.
The business is responsible for tracking all the relevant indirect taxes, making the correct calculations, and paying them promptly. Any drawback in the process results in penalties and hefty fines on the business, which sets motion in a cost-intensive process of re-assessment and course correction that disturbances other parts of the business. Companies become less agile and responsive as resources are divulged to resolve the tax issues.
Improper tax calculations have detrimental effects, and they can hamper an organization’s market reach and competitiveness. It incurs penalties that affect the bottom line and product prices. Errors in taxation can affect the company’s public reputation, perception, and customer loyalty.
Also, overpaid taxes cannot be reclaimed and cut short revenue that can otherwise be utilized in another developmental process. On the other hand, underpaying taxes have ill repercussions such as unexpected costs and penalties that affect the balance sheet. Hence, companies must pay attention to accurate indirect tax calculation, which is an integral part of the company’s responsibility.
Difficulty in the indirect tax calculations
Tax calculation is one area where companies might face difficulties and face considerable financial risk if left neglected. Also, accurate tax calculation commands enterprises to stay updated with changing legislative rules and regulations and shifts in rates, which is often a strenuous task to attain. Companies depending on primary accounting systems for tax calculations or even calculating them manually can increase the rate of errors in tax calculations.
Also, taxation of goods and services is perennially shifting with changing reporting requirements that command a new level of detail as tax authorities look closer to the source of systems and data.
Indirect tax experts are challenged to keep pace with changes and require knowledge expansion of tax codes and regimes for proper calculations. The complexity and dynamics of taxes increase the chances of calculation errors that lead to other ramifications.
Companies should report and track indirect taxes for almost all the goods and services, including those in their supply chain. Various types of services and products have different tax rates. Companies carrying out businesses in several countries should calculate and report indirect taxes for each transaction in each country. Hence, a supply chain involving multiple countries entails a large number of indirect tax deviance.
Companies face difficulties in calculating the accumulation of indirect tax errors across the operations. The indirect taxation’s very nature will have a compounding effect on errors when handled ineptly. Businesses are resorting to technological solutions to manage their indirect tax calculations.
How can you mitigate risks in indirect tax calculation?
Taking advantage of indirect tax technology is an efficient way to resolve errors in indirect tax calculations. It provides an accurate automated tax calculation framework that saves time and costs while cutting down the errors. It can handle various tax functions, such as consolidating and validating data, importing data from multiple ERP systems, and populating tax returns and filing income tax refund applications.
Modern tax solutions can cover the whole range of taxation issues while keeping track of the latest issues, changes and legislations.
Indirect tax varies based on price point, function and other factors that are not obvious. Tax solutions can calculate the correct rate of every product. It can streamline the process by automating calculation and tax-sensitive adjustments across all the entities.
Exporting companies can incur additional costs such as excise duty, sales tax or VAT, shipping charges, depending on the location. But the said the technology offers solutions that would allow sellers to decide the taxes, duties, costs of goods and shipping costs for global commerce transactions in real-time.
Advantages of incorporating the indirect tax calculation technology
– Consolidates tax liability and minimalizes efforts required to prepare tax returns.
– Integration with ERP and other financial systems and facilities to export data from various business systems to decide indirect tax on all financial transactions.
– Provides scalable and secure means to calculate indirect tax even during high sales periods.
– Deploys stern API and works with various systems across the departments that offer consistent, latest information across the teams.
Calculating indirect tax across various value streams and sources is a particular challenge to the companies. But it can be resolved with the help of technology which can help companies calculate tax efficiently without any errors.