About half Chinese companies (51%) that responded to a survey have drafted or are in the process of drafting a multi-year documented tax technology strategy, roadmap and/or plan, according to PwC’s latest 2016 Chinese Companies’ Tax Technology Maturity survey.
The report also showed that 31% of the surveyed companies don’t have a designated tax technology resource. Chinese companies still rely on existing resources to plan the layout of tax technology.
The data comes from the results of a questionnaire of 151 Chinese Mainland and Hong Kong enterprises from October to November 2016.
The surveyed Chinese companies are predominantly engaged in finance, technology and communications industries while the respondents were mainly individuals in tax and finance departments.
Nearly half (46%) of the surveyed Chinese companies obtained tax information from various sources including email and ad hoc reports, while the existing systems such as ERP lack a unified interface for the tax purpose.
With regard to tax control and analysis, 49% of the respondents said they used spreadsheets or database tools to track reporting due date calendar and workflow, while 12% of the respondents said they never used any tools.
As for tax administration and decision-making, 60% of the surveyed companies only used spreadsheets to model various scenarios, and lacked professional analysis tools.
“Although Chinese companies train their sights on digital management of their tax functions, and tax divisions are playing an even more important role in corporate decision-making, they still lack actions,” says Ann Kwok, Tax Director of PwC Tax Technology practice in China and Hong Kong.
“One reason is that when Chinese enterprises face tax function digital transformation, they don’t have any industry benchmarks or best practices to use as a point of reference.
“A majority of these enterprises have a good vision to aspire to, but don’t have feasible plans for infrastructure development. Another important factor is that digital management within the tax function requires professionals to have strong capabilities in analyzing tax data and managing the changes.”
Both the global and domestic tax environments are constantly changing. The global economy continues to integrate and technology innovation booms, while global tax supervision environment grows tighter. In particular, with the implementation of the BEPS Action Plan, regulatory authorities demand increasing improvements to tax transparency.
Concurrently, China is undertaking reforms of the domestic tax collection and management system, utilizing the latest developments. For instance, all levels of Chinese tax authorities are adapting to the launch of the “Internet + Tax” Action Plan, and the new Golden Tax System Phase III. As the reforms continue, large and medium-sized enterprises will face increasingly rigorous requirements in tax risk management.
“Under the backdrop of the digital era, the tax industry, as one of the traditional finance sectors, is also undergoing a tremendous transformation,” says Jenny Chong, PwC’s Asia Pacific International Tax Services Leader.
Chong noted that due to the large number of affiliates involved, it is very difficult for Chinese enterprises to manage their tax risks in a unified manner. These changes bring unprecedented challenges to the tax management of China’s large and medium-sized enterprises.
“We suggest that enterprises should adopt technology as early as possible to support tax data analysis, statistics, process optimization and change management. They should also give priority to development of both internal control systems and technology systems, to establish effective tools and methods for addressing the challenges.”
The phases of the tax digitalization process
According to PwC’s outlook for future tax functions, the first phase of the tax digitalization process involves self-help tax business intelligence, which focuses on what's happening at the time.
The enterprise integrates tax-critical data from multiple sources, allowing tax officers to access the data directly and generate self-service reports without spreadsheets, charts and related analysis.
The second phase involves tax visualization that provides real-time, effective decision-making, focusing on answering "why," with more agile and flexible tools that can respond to the increasing complexity of business and geographic distribution, as well as the ever-increasing volume of data.
The second phase also includes refining the key indicators in the form of graphs, with trend analysis for market benchmarking and evaluation.
The third phase is predictive analysis, which focuses on what is likely to happen. This phase includes generating predictions and tax planning recommendations based on credible data, trends, and expectations of change for forward-looking decisions by tax authorities.
From the fourth phase onward, tax data and analysis focus on what is the “best action strategy,” moving from "predictive analytics" which require human interventions to "self-help reporting" with automated decision making. As a result, the system will automatically choose the best solutions based on the tax control frameworks and tax laws. Ultimately data management will evolve to provide decision support underpinned by adaptive learning with AI and machine learning.
“Corporate data will be crucial for increasing the value of the tax function. The tax technology development is just starting, or is still just in the first phase of development at Chinese enterprises.
“As financial data are separated in different programs, security risks arise, which affects enterprise’s efficiency and economic interests. In an era in which Big Data plays a big role in tax, planning and using tax data centers will become more popular among large and medium-sized enterprise,” says Kwok.