Advancing tax administration: Role of technology in India's tax ecosystem

Transforming tax administration in India: Technology-driven reforms redefine compliance, efficiency, and strategic decision-making

Over the last few years, the Government of India has been steadfastly focused on transforming tax administration by incorporating state-of-the-art technology. This initiative goes beyond mere amendments to tax laws, representing a comprehensive, reimagined framework for tax governance. As a tax professional, I have observed the substantial effects of these reforms on tax authorities and the taxpayer community. The integration of sophisticated technologies such as artificial intelligence (AI) is redefining how businesses view their compliance data and processes, while also reshaping the roles of tax and finance controllers in India.

 

Integrated approach to tax administration

A noteworthy advancement in India’s tax administration is the growing integration between direct and indirect tax administration and other governmental and fiscal institutions. The government has enhanced the tax system's coherence and efficiency by utilising data from diverse sources. For example, GST reporting in the Tax Audit Report, cross-legislation reconciliations during assessments, and the introduction of the Annual Information Statement (AIS) with comprehensive income tax and GST data have all become the norm. This consolidation has significantly improved compliance rates, contributing to increased tax revenue.

 

 

The implementation of e-invoicing has expedited the acquisition of transaction-level data, promoting greater precision and uniformity. The adoption of the Invoice Reference Number (IRN) system has set new benchmarks for consistency in tax reporting. Increasing demands for detailed reporting and verification during tax assessments underscore the importance of an integrated tax governance framework.

 

Contemporary challenges

India’s regulatory landscape requires unmatched precision and adaptability. Tax functions also face challenges such as limited budgets and a scarcity of skilled personnel. The EY Tax and Finance Operations (TFO) Survey of 2024 identifies budget constraints as the predominant challenge for tax leaders, closely followed by talent acquisition and retention issues. A decline in the number of new entrants to the accounting profession has further widened this talent gap. Moreover, the evolving skill set for tax professionals now includes expertise in data analytics and AI.

 

To overcome these obstacles, organisations are adopting innovative hybrid models that combine internal expertise with external resources and automation. According to the EY survey, more than half of tax leaders are considering adjustments to their operational models to incorporate these hybrid strategies.

 

GenAI: A pivotal innovation for tax functions

Generative AI (GenAI) is revolutionising the tax domain with its unique capabilities. Unlike traditional technology solutions that identify patterns and make predictions, GenAI independently generates insights and conducts complex analyses. It excels in navigating intricate tax scenarios, such as evaluating the implications of regulatory changes, drafting compliance reports, reviewing notifications from tax authorities, and extracting actionable intelligence from documents like annual reports.

 

The EY TFO Survey reveals that 87 per cent of tax professionals acknowledge that GenAI enhances the efficiency and effectiveness of their operations, a substantial increase from the previous year’s survey. While 75 per cent of tax departments are in the early stages of GenAI adoption, its rapid evolution is expected to transform modern tax practices. Organisations that strategically integrate GenAI will secure a competitive edge in efficiency and innovation.

 

Strategic advantages of integrated tax platforms powered by GenAI

The focus is shifting towards comprehensive technology platforms rather than isolated solutions targeting specific issues. These platforms ensure data integrity and provide a unified source of truth. Such a holistic approach is essential for addressing complex tax reconciliations, as mandated by Clause 44 in the Tax Audit Report, and for cross-utilising 26AS information during GST audits. By combining vast datasets with technological innovation, the tax function is emerging as a strategic contributor to decision-making processes.

 

Much like ERP and CMS solutions, building a transparent and comprehensive organisational tax data model using integrated tax platforms not only reduces individual dependencies but also enhances strategic decision-making. Advanced tools such as GenAI and predictive analytics enable real-time data processing, sophisticated risk management, and informed decision-making.

 

These tools empower CFOs and tax directors to identify tax planning opportunities while ensuring compliance. Integration with ERP systems embeds tax compliance into everyday business activities, improving precision and reducing manual errors. Additionally, some CFOs are leveraging tax technology for Environmental, Social, and Governance (ESG) reporting, aligning tax practices with sustainability goals and navigating environmental tax regulations.

 

Preparing for the future

In summary, the Indian government’s commitment to leveraging technology in tax administration is yielding tangible benefits. The integration of tax types, implementation of electronic invoicing and IRN systems, and the transition to faceless assessments are streamlining and increasing the transparency of the tax system.

 

Organisations must adapt by embracing integrated technology platforms that ensure compliance and provide a comprehensive view of their tax obligations. Looking ahead, it is evident that technology will remain a pivotal force in tax administration. By adopting integrated solutions and advanced technologies such as AI and data analytics, both governmental bodies and corporations can achieve greater efficiency, transparency, and regulatory adherence.

 

To realise these benefits, businesses must innovate by adopting scalable integrated solutions, prioritising a data-centric approach, and enhancing workforce skill sets. Entities that focus on these parameters will be well-prepared to navigate India’s intricate tax environment and drive value creation. The shift toward a fully digital tax administration is progressing rapidly, with its advantages becoming increasingly apparent.  (Sameer Gupta is National Tax Leader, EY India. Manoj Rathi, Tax Partner, EY India, also contributed to this article.)  Disclaimer: These are the personal opinions of the writer. They do not reflect the views of www.business-standard.com or the Business Standard newspaper