Significance Of Master Data On Tax Compliances

Significance Of Master Data On Tax Compliances

The famous Canadian author and entrepreneur Matshona Dhliwayo once said,

“When you master the past, you are a scholar. When you master the present, you are a saint. When you master the future, you are a sage.”

It represents the importance of mastering – as an art and skill in different context. However, in the context of modern day technology, mastering the data is a skill. If your data masters are well managed and updated, you have achieved the key to business success!!

A common phenomenon is that IT system is a typical example of garbage in – garbage out. Thereby, meaning it produces the results basis the information, data and details input by the user. Therefore, it cannot be far-fetched say that success of tax compliance of any organisation in digitalised world is entirely dependent on the robustness of the master data and how it is managed and updated by business on real time basis.

At a business level, there are various masters that a business need to maintain for true and correct reporting of the financial transactions to tax authorities. Some of the Masters that need to be kept in absolute check and control by businesses are:

Each of these masters represent its own significance when it comes to appropriate tax determination, correct tax policies and controls within the organisation and also correct reporting to the tax authority of any given jurisdiction. It is often observed that businesses are not vigilant enough of this fact and importance of updating master record at regular intervals is undermined. It is important to highlight that if the master data is not appropriately captured / updated, the businesses may run a financial, reputational and at times even the existential risk. There have been instances where businesses have defaulted in tax compliances on account of ignoring masters data.

Thus, the businesses have realised the importance of automation of tax function which has resulted in an increasing demand for Tax Compliance Automation as the function which constantly prompts for master data validations. At times, it is also observed that there are a few RPA processes in place wherein with the use of Artificial Intelligence and Machine Learning, the data of master is auto updated by the system. One such example is to validate the TIN number of the vendor as recorded in master record vis-à-vis as available on tax authority portal. There are a few software products available that self-validates the records in company systems with that available in public domain to ensure correctness and eliminate the risk of fraudulent invoicing or fake input credit.

The Middle East region in general and GCC countries in particular are at an evolving stage of VAT implementation. There are more and more audits and assessments being performed by tax authorities on the businesses. It is a common observation that the businesses have not upgraded / updated their masters records post implementation of VAT, since last 3 years. In addition to the tax risks arising because of incorrect data / data errors, modern day reporting requirements under the tax regime have comprehensive reporting requirements especially in relation to submission of data during audits.

It is therefore very important for businesses to understand the significance of creating and maintaining all these fields, masters, parameters and attributes in their systems and reports. Inaccurate submissions could further create chaotic situations with the authorities at later point in time and this has led to serious cost and penal implications for the businesses.

Accordingly, it is recommended that the businesses in GCC should make it a routine practice to regularly update their master records and also earmark some funds / budget for automation or tax compliance function.

In the end, would like to refer words of Craig Mundie – “Data are becoming the new raw material of business.” And, we must manage these critical raw material available with extreme diligence so as to furnish the true, correct and meaningful reports to the tax authorities. No one can afford to undermine the use and importance of Master Data and it’s management especially at a time when tax authorities are at an advanced stage of using various digital aids to assess the compliances performed by the business.

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