Everything You Wanted To Know About Indirect Taxation And Staying Compliant


Financial literacy is critical for any business, big or small, looking to scale in an unpredictable world where policy revisions and the speed with which you pivot remains vital to the health of your organization. With Covid-19 changing the way we have run businesses, overnight, and the almost symbiotic relationship every industry type must have with remote technology in order to survive today, a deep understanding of indirect taxations and remaining compliant is crucial. Inaccuracy and oversight of these taxes can limit an organization’s ability to grow, plan, and adapt in changing market dynamics, resulting in penalties that are felt throughout your enterprise, negatively impacting public perception, customer loyalty, possible acquisitions and mergers, or anything else you may foresee in the future.
It is widely acknowledged that keeping up with business tax regulations in a pre-covid world was challenging enough, especially with taxation of e-commerce goods and services largely being a moving target with individual states in the United States making their own rules. For instance, in a report by Reuters, the passage of the 2017 Tax Cuts and Jobs Act (TCJA) introduced hundreds of changes to the U.S. tax code, followed by a constant stream of updates and clarifications.

The unpredictability however, has only grown over the years. Despite Covid-19 taking a toll on businesses, when the vaccines signaled a return to normal, the stock market hit an all-time high, with many states in the US discovering that they had more revenue than they had taken into account. While California is predicting a $75.7 billion for year 2020-21, there will always be the unpredictable nature and ways of the world. Case in point: 11 million people unable to work in March 2021 in the United States with Covid-19 variants resulting in a surge in cases. Despite all this, the show must go on with lawmakers legislating on tax and policy matters with as much precision as they can.

You Must Adapt To Pivot In A Changed/Continually Changing World
A huge degree of change can be visibly felt when you overview changes in indirect taxation policies across the world, since last year. Mid-year into 2021, a lot has changed in the US with regard to tax policies and compliance, in a report published by Avalara: Colorado and Maryland decided to tax digital products; Florida adopted economic nexus and marketplace facilitator law; Nevada and Pennsylvania offered tax amnesty; Kansas lawmakers overrode a veto to tax remote sales, California extended Covid-19 tax relief. Even while there is conversation around lowering the cost of food by either exempting the tax on essentials for home consumption or reducing tax rate, removing tax on feminine hygiene products and diapers is already under consideration in the US. One thing is being made evidently clear in the world of today: for businesses to grow and stay resilient, early understanding and adoption of indirect taxes and compliance regulations are the foundation stones for effective business operations, no matter what industry type your business is catering to.

Keeping Up With Indirect Taxes Protects Your Business
Calculating various indirect taxes like sales and use tax (SUT), value-added taxes (VAT), or goods and services taxes (GST) can become extremely tricky. For businesses operating in Europe and Asia, one must report VAT for almost all goods and services as well as every component in the supply chain, from assembly to shipping. Moreover, with different types of products and services all requiring different tax considerations, companies that operate in multiple countries must calculate and report the VAT for each transaction in each country, individually.

One must understand the all-encompassing nature of indirect taxes like VAT which is operated differently in more than 170 countries. Therefore, no matter where your business is headquartered, it is the company’s responsibility to keep up with indirect tax, report them accurately and pay them on time. The repercussions of not doing will create friction in not only other parts of your business, but the time, money, and resources you will be directing to rectify errors will make your organization less agile, especially with the unavailability of critical data at your disposal. If you over-pay your taxes, reclaiming them is a tedious and difficult process, in the event you underpay them, there will be penalties which will further impact your product pricing, affect market competitiveness, and mar your credibility.

Use Software That Demystifies Indirect Taxes And Eliminates Errors
Cloud-based ERP software which builds your financial health by eliminating the risk of manual errors provides friction-less support that frees up time, resources and energy. Trusted worldwide, NetSuite ERP (Enterprise Resource Planning) software, powered by Aarialife overrides complexities that may seem overwhelming with ease. This ease of operations brought in by technology is fundamental to ensuring compliance performance on an enterprise scale. Instead of working in silos, having access to accurate information means effective data analysis and judicious updates which helps your business avoid the pitfalls of indirect taxation, helping you remain compliant. Ernst and Young LLP’s Gino Dossche, EY Americas VAAT Compliance Leader and US Consumption Tax Leader advises, “VAT and indirect taxes will become a more important source of revenue for the authorities—there has been a lot of money put into the economy that governments will need to get back. Therefore, it will be more important than ever to get the fundamentals tight”. In order to do so, organizations need to focus on key areas of their business in order to ensure they are optimizing their indirect tax operations with software that ensures timely updates and data analysis.


Key Areas To Boost In Order To Avoid Pitfalls Of Indirect Taxation

a) Visibility across operations: The only way for businesses to achieve accuracy is if there is visibility and transparency in keying data across the board. With business operating not only in their own countries with tax policies changing from state to state, but across the world where compliance standards need to be met, technology/software is the only way to achieve visibility.

b) Dive deep into local operations before going global: According to EY’s Geert Vandenplas, EY Global Indirect Tax Compliance & Reporting Leader, Ernst & Young Tax Consultants, even if your organization has moved to a more centralized approach, businesses need to be organized in a way that allow the local finance function or service provider to feed information up he chain so that it is centrally captured, by monitoring and tracking changes swiftly and accurately. In Canada, for instance, indirect taxes are broadly on transactions, and liability arising out of profitability like, harmonized sales tax (HST) systems, the goods and services tax (GST), provincial sales taxes (PSTs), and globally value-added tax systems and sales and use.

c) Ensure VAT is actively managed: The speed and scale at which indirect tax landscape has changed since the pandemic means businesses need to set up frameworks and structures that ensures easy transfer of information. In Spain, tax authorities have moved away from traditional VAT returns and more transactional reporting, which means authorities will be able to make the assessment of VAT due themselves. This means, tax practitioners are moving towards real-time reporting that will result in fewer opportunities for amending data upon submission and filing. Staying on top of VAT compliance is the only way forward.

d) Balance outsourcing, co-sourcing and insourcing: At the end of the day, managing resources in the most optimal way will help with visibility across your business and staying compliant. The fundamental flow to create perfect balance between outsourcing, co-sourcing, and insourcing is therefore key to optimizing what may seem like pitfalls of indirect taxes. Staying open-minded and willing to learn the tropes to survive, and eventually thrive must be a driving force for businesses looking to stay future-proof.

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Aarialife Technologies Inc.
343 Preston St
11th Floor,
ON K1S 1N4, Canada

E: hello@aarialife.ca
P: +1-416-649-5788