As we continue to navigate a turbulent year for the global economy, three overarching trends are shaping indirect tax policy and how indirect tax leaders plan: global trade, transformation and sustainability. These external pressures mean indirect tax teams must be agile, use technology to adapt, and sometimes do more with less. But they are also creating new opportunities for indirect tax and trade functions to help their organizations thrive in a world of change.
A world of change
The economic and geopolitical challenges we are dealing with globally are driving a significant additional focus on indirect tax. Indirect taxes, including VAT/GST/sales tax, property tax, customs and excise duties, and environmental taxes, are becoming more prominent and demanding worldwide. Amid significant budget pressures post-pandemic, governments are using indirect taxes to meet their revenue needs. They are also using tax and trade measures to pursue political aims and to drive change in areas, such as sustainability. This focus has created a great deal of legislative change, creating new obligations and placing far greater emphasis on technology to drive tax and trade processes and compliance. Managing indirect taxes effectively is more critical than ever to managing cash flow and costs, and reducing exposure to potential audits and litigation by tax authorities.
Trade disruption
Indirect taxes are inextricably linked to supply chain activities and global trade. Changes in the ways that companies do business have a profound impact on these taxes. Equally, changes in these taxes may have a profound effect on companies' supply chains. A clear theme of the past year has been trading disruption. The war in Ukraine has contributed significantly to this, but it has not been the only factor. Trade disputes, new trade agreements and alliances, a rapidly changing regulatory environment, and the ongoing effects of the COVID-19 pandemic have all contributed. The trade function has never been so much in the spotlight – nor has it had such a significant opportunity to contribute to the performance of the organization.
Transformation
Factors driving transformation include the race for talent, and increasing regulation and complexity. But the biggest driver is technology. Around the world, tax and trade authorities are adopting technology and automating manual processes at pace. They are demanding real-time transactional data and the use of e-invoicing and real-time reporting is becoming a reality in many jurisdictions. As a result, tax and trade authorities now have more visibility of companies’ day-to-day operations – putting the onus on businesses to improve their collection and management of data. And as new taxes and reporting obligations come on board, this often means identifying data across the enterprise and even throughout the supply chain.
