As we continue to navigate the disruption brought about by the COVID-19 pandemic, companies are reshaping their operations in the new normal to focus on business continuity and to prepare for recovery once the economy bounces back. Part of this transformation strategy is to revisit and reimagine the tax and finance function.
The 2020 Tax and Finance Operate (TFO) survey sponsored by EY and conducted by Euromoney Thought Leadership Consulting with over 1,000 executives representing 42 jurisdictions (including the Philippines), 17 industries and 178 publicly listed organizations, demonstrated that the tax and finance function in organizations is generally struggling to cope with digital advances and rapidly evolving global and local conditions.
While the survey was conducted before the pandemic, nearly all respondents (99%) indicated that they are taking steps to transform their tax and finance operating models due to deficiencies in their current target operating model. Meanwhile, 73% are looking to co-source critical activities in the next two years as a solution to relieve growing pressures. This also aims to aid in successfully adapting to the constantly evolving tax environment and rapidly transforming digital landscape, which have been amplified by the unforeseen business and human impact of COVID-19.
DEFICITS IN DATA AND TECHNOLOGY TRANSFORMATION
Based on the survey, 65% of respondents cited the lack of a sustainable plan for data and technology as their biggest barrier to delivering the tax function’s long-term purpose and vision. In fact, 73% of the respondents said that their organizations do not have a formal tax technology strategy in place.
The unprecedented operational disruption due to the pandemic — where organizations struggle to manage business continuity amidst the abrupt need to shift to telecommuting and develop digital workspaces — only highlighted the deficit in the technological capabilities of most organizations.
This has brought the urgent need for digital readiness in organizations to the forefront. Contributing to the urgency are the growing demands for tax and finance functions to quickly and effectively respond to the dynamic tax landscape, due in part to the Philippine government’s tax reform programs and the implementation of the digital transformation roadmap, which is a priority program of the Philippine Bureau of Internal Revenue (BIR).
Organizations that are not pushing to operate in new ways or investing in data and technology adoption (e.g., automation, cloud storage and data governance, data analytics and reporting) may eventually find themselves at a competitive disadvantage. This is in comparison to others that have fast-tracked their digital transformation and have integrated digital technologies into their tax and finance functions to manage tax risks and provide greater focus on value generation.
EVOLVING TALENT NEEDS
Under their current tax operating models, 62% of the survey respondents spend majority of their tax function time on routine compliance activities. Examples of these include data collection and processing, workpaper preparation, tax returns and reconciliations — as opposed to higher value/higher risk activities — with nearly half (45%) of the organizations struggling to provide new responsibilities and career advancement opportunities for their tax and finance personnel.
With the move towards digitally transforming the tax and finance function, a corresponding reimagination of the tax and finance workforce would necessarily follow. This will, however, pose a challenge for organizations to search for and retain the appropriate talent in today’s evolving tax and finance function. In fact, 83% of the survey respondents believe that the core technical competencies of their tax and finance personnel will shift from traditional technical skills to data, process and technology skills over the next three years. However, 61% admit that they are unable to attract and retain talent with the skills required for the tax and finance function of the future.
As talent demands continue to evolve, organizations will have to revisit, reskill and/or upskill their tax and finance workforce. This can be achieved by either providing their current employees with the necessary learning and skills development (e.g., digital fluency, data analytics proficiency) to cope with the evolving tax and finance function, or by considering an entirely different strategy to bridge the talent and skills gap (e.g., establishing new tax operating models, co-sourcing) to improve the financial operational effectiveness and efficiency of their tax departments in the new and next normal operations.
TAX AND FINANCE OPERATE (TFO) SOLUTIONS
Organizations need to use the right mix of people, process and technology to maximize the value of their tax and finance functions and meet the evolving organizational goals now and in the future. One way to do this in the shorter term is by engaging an experienced external TFO solutions provider who can deliver a customized and flexible technology-driven tax service delivery model that can help business leaders reimagine their tax and finance functions. With the right TFO provider, organizations can achieve a sustainable corporate tax function that can support their strategic efforts and bring new innovation and transformation to their tax function.
In today’s highly dynamic tax and regulatory environment, which has been further complicated by the COVID-19 pandemic, sustaining a strong and stable tax and finance function with the right technological and talent capabilities may be one of the most difficult challenges of an organization.
In order to more effectively navigate through these changes, organizations should consider accelerating the transformation of their tax and finance functions into agile and cost-effective tax operating models. This will allow businesses to prioritize long-term value creation and risk management as well as redirect valuable internal tax and finance resources to more strategic activities and efforts. A focused effort will manage and boost business continuity and resilience, achieving operational optimization for the now, next and beyond.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.
Fatma Aleah A. Datukon is a Senior Director of SGV & Co.