Technology from a taxation perspective – Budget expectations – Budget 2024 News

– By Shrenik Shah and Dhrumin Sanghvi

The times are changing! There is a paradigm shift unfolding across the Indian tax landscape triggering changes in the way the taxation system is managed, viewed and even interpreted. Much of this change is evident in the direct and indirect tax compliance and reporting requirements, with surprisingly, the government being the catalyst here, with its extensive usage of technology in the administration and governance of tax.

The transformation is real and visible, in the form of e-invoicing, e-way bills, transaction-level reporting and reconciliations, pre-filled income-tax returns, faceless assessments and appeals and like the annual information statements and taxpayer information summary (AIS and TIS) etc. This ongoing digital transformation and integration of advanced technologies are reshaping strategies around the use of technology in taxation – mainly with Artificial Intelligence (AI), machine learning, generative AI, blockchain and robotic process automation. They have the potential to improve the management of tax litigation and enhance the overall efficiency of the compliance and reporting index.

It is therefore natural that taxpayers, aware of the critical intersection of technological advancements and taxation, expect the forthcoming Budget to acknowledge and respond to these changes.

Specific areas where technology is influencing taxation and the expectations from the Budget are highlighted below:

Technology focus – Due to transaction-level reporting and the reconciliations required since 2017, GST is seen to be more mature when it comes to the usage of technology. The government may hence consider giving a push to technology usage in income tax by employing sophisticated data analytics and tech-enabled assessments. Adoption of technology for taxpayer facilitation for Customs could be enhanced. The introduction of the Standard Audit File for Tax (SAF-T) will be a great leap forward in the usage of technology in tax.

Use of AI in taxation – The application of AI could potentially bring in significant automation for tax administration as well as taxpayers because it has the potential to significantly streamline processes, enhance accuracy, and optimise administrative costs. Budget expectations would include a boost in the investments in AI and machine learning to identify inefficiencies in litigation management, and data management across regulators and increase access to quality data, thereby enhancing taxpayer experience and minimising complexities. Training programmes for tax officials to leverage these technologies may also be introduced to ensure a smooth transition.

Incentive for innovation – While the government, as well as businesses, have started adopting technology, there is still resistance to change gears, especially in MSMEs. The government may accordingly consider introducing tax incentives for businesses and start-ups that develop innovative solutions, including for tax administration, compliance, and reporting. These incentives could encourage the private sector to actively contribute to the ongoing technological evolution, including in taxation.

Use of blockchain technology – Blockchain technology has the potential to revolutionise tax administration by introducing transparency, security, and efficiency in the process of recording and managing transactions. Blockchain operates on a decentralised and distributed ledger system, where each transaction is recorded in a block linked to the previous one, forming a chain. Blockchain technology is presently unexplored and not fully recognised for taxation. Furthermore, traditional tax administration often involves delays in data processing and reporting. Blockchain can provide real-time updates on financial transactions, allowing tax authorities to access accurate and up-to-date information, especially around GST and TDS. This real-time data can streamline the auditing process, making it more efficient and reducing the likelihood of errors or discrepancies in tax reporting.

The tax administration will have to be seeded with technologists trained to prepare and adapt to the fast-changing world of technology in tax. The Budget has the potential to ensure the effective integration of technology into taxation and also address the challenges and concerns associated with this paradigm shift.

(Shrenik Shah is a partner and Dhrumin Sanghvi is a senior manager, at Deloitte Touche Tohmatsu India LLP)

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