By Mark Wilfred
Is India entering into another slowdown? Are we out from of the uncertainties of the COVID-19 world? Is the inflation which is at an all-time high making difficult for businesses to flourish? Till when we will remain in this VUCA world? These are some of the questions which every CEO asks today.
The Centre for Economics and Business Research (CEBR) predicts that a global recession has begun across the globe. Given that Indian businesses had significant outsourcing agreements with US, UK and European clients, a slowdown in the US economy was undoubtedly terrible news for India. Here, business need to manage their operational cost and ensure correct tax regime.
As businesses have no control over the tax pay-outs since the amount or percentage to be paid is fixed by the government, an intervention is necessary. The Central Board of Direct Taxes (CBDT) received various requests for relaxation of compliance requirements. Indian government took slew of measures like extending the timelines for tax compliance & ITR, reduction in TDS/TCS rates, exempting start-ups from filing tax for another year among others. TDS structure for some sectors is also included in Union Budget 2023, which is an impactful move.
While such relief keeps economies humming for the short term, it results in changing tax rates throughout the year that businesses need to keep track of. It’s challenging for companies to monitor and comply with these multiple and frequent changes, given that the finance departments in Indian businesses often rely on manual processes − from employees filing expenses to finance teams adjusting the rates to ensure compliance.
Such manual processes often lead to human error, resulting in claims being rejected, or increased regulatory scrutiny and fines in the worst-case scenario. As per the Association of Certified Fraud Examiners’ (ACFE) 2022 “Report to the Nations”, a total of $3.6B reported from 2110 cases from 133 counties. In fact, out of 138 cases in Southern Asia, 103 were in India. Some businesses forego the exercise altogether because of the sheer difficulty in ensuring compliance with regulations.
However, even if an organization chooses to do nothing, the risk of financial loss can still be substantial. Additionally, they may also forfeit historical refunds they are entitled to. It is, hence, important for businesses in India to get a handle on the issue.
Thankfully, there are technologies available today to help organisations automate the tax reclaim process, improve compliance, and provide a revenue boost to their business.
Automating Tax Reclaim
To reclaim tax, finance teams need to document all expenses, store related invoices, verify their authenticity, and validate that they are eligible to be reclaimed under the prevalent regulations of the tax authority. When relying on manual processes, businesses need to add an extra layer of complexity − encoding disparate expenses and invoices for processing by the right authorities. In this scenario, the potential for human error increases with each new invoice or expense claim that needs to be re-encoded to suit the regulatory requirements. Tracking changes in rates, checking line-item data, and keeping up with changing regulations is also tedious.
In India, eligible businesses registered under Goods & Services Tax (GST) can claim the input credit for tax paid on the initial purchases require to prepare the products. One of the major issues has been fake invoices along with no direct linking between revenues that business disclose in the income tax and GST returns.
By using digital expense and invoicing management systems, businesses reduce their reliance on manual processes. Sophisticated platforms powered by AI enable businesses to combine efficient data capture and enrichment from multiple sources into a unified digital workflow. This results in a much simpler process for the employee, who only needs to submit their expense claim.
These platforms reduce the risk of non-compliance with domestic regulations and provide additional governance and visibility into the full value of reclaimable tax for the business, while maximizing the full amount of tax the business is entitled to, whether domestically or internationally. The extra savings can then easily be processed and reallocated to other areas of the business that matter most.
Monitoring Employee Spend and Fraud
Another source of cash outflow is poor spend governance, fraud and erroneous claims, and sometimes good faith mistakes. According to the ACFE report mentioned above, fraud committed through asset misappropriation, like inflated expense reports and fictitious expenses, leads to a median loss of USD 1,02,000 to companies in Southern Asia, including India.
Organisations should put in place processes and technologies to flag unauthorized spend and identify patterns of abuse or fraud.
A firm needs to have reliable means to identify violations of spend policy before reimbursement. It can raise awareness, decrease risk of misuse and fraud, shorten auditing time and boost compliance. Reducing an organization’s financial liability is especially important during this economically challenging time.
As business recover from the pandemic and advance towards high growth, it is more important than ever to simplify processes, eliminate unnecessary expenses, and minimize the risk of incurring fines and penalties due to non-compliance. With more governments mandating near real-time digital reporting and looking to increase revenue through direct/indirect taxes and enforcing compliance with those regulations, organisations need to plan better and automate their expense and invoice management.
(This article is authored by Mr. Mark Wilfred – Director, Solutions Consulting (SEA and India), SAP Concur, and the views epxressed in this article are his own)
