Key Advancements in Technology and the Future of E-Filing Income Tax Returns

As technology continues to evolve rapidly, it profoundly impacts various aspects of our lives, including how we file income tax returns.

Electronic filing (e-filing) has become the standard method for submitting tax returns, offering convenience, efficiency, and accuracy. However, the future of e filing of income tax returns holds even greater potential as emerging technologies revolutionize the process.

This article explores technological advancements and their potential implications for the future of e-filing income tax returns.

Developments and Barriers

  • The advent of digital tax administration, which refers to the use of information and communication technology by tax authorities to collect, process, analyze, and communicate taxpayer information, is one of the key drivers of tax function transformation. Digital tax administration aims to promote tax compliance while lowering administrative expenses, improving service quality, and increasing transparency.
  • The Goods and Services Tax (GST) in India is an example of digital tax administration since it is a technology-led tax reform that compels taxpayers to submit their returns and pay their taxes online via a shared platform. GST also necessitates the exchange of real-time data between taxpayers and tax officials and between various levels of government.
  • Another example is the Organization for Economic Cooperation and Development, OECD's Base Erosion and Profit Shifting (BEPS) initiative, which addresses the issues created by digital business models and cross-border tax planning. BEPS compels multinational corporations to declare their revenue, taxes, and activities on a country-by-country basis and reveal any tax arrangements they have with other countries. BEPS also makes it easier for tax authorities to communicate information automatically, which improves collaboration and transparency.
  • E-filing of income tax returns and source data is becoming increasingly widespread and required in many countries due to its benefits over paper ITR filing. E-filing lowers transcription mistakes, expedites return processing and refund issuing, saves time and money for both taxpayers and tax authorities, and allows for improved data analysis and risk assessment.

However, e-filing presents several difficulties for tax functions, such as:

  • Many routinely used forms, such as amended returns, certain schedules, attachments, and other documents, may only be submitted on paper.
  • Paper filing is required when an e-file is rejected due to technical faults, mismatched information, or missing data.
  • Inability to e-file returns with attachments and streamline the last date for filing the ITR process, such as scanned documents or photographs needed to substantiate certain claims or deductions.
  • Inability to e-file returns with overrides of software-populated fields, such as when taxpayers need to alter or modify specific amounts or computations.
  • Taxpayers file on paper for various reasons, including a lack of trust, knowledge, access, or convenience.

Tax Technology Environment

The tax technology environment is quickly expanding, with several solution providers and products providing a variety of capabilities and features to tax operations. The following are some of the developing technologies that are altering the tax function:

  • Cloud-based solutions are those that are housed on distant servers and are accessible over the Internet. Cloud-based solutions are less expensive to build and maintain, have more scalability and flexibility, better security and backup, and are simpler to integrate with other systems.
  • Automation uses software or computers to execute repetitive, rule-based, or human-error-prone operations. Tax operations may benefit from automation regarding efficiency, accuracy, uniformity, and compliance.
  • The use of data analysis tools and methods to develop insights, patterns, trends, and forecasts from big and complex data sets is called analytics. Analytics may improve tax decision-making, risk management, planning, and performance monitoring.

Strategy for Tax Technology

Most tax functions need help establishing their objectives, resources, and roadmap for implementing a tax technology strategy that corresponds with their goals and priorities. A tax technology plan should take the following factors into account:

  • Assessment includes determining the existing condition of the tax function, its strengths, shortcomings, possibilities, and threats, as well as the company and tax administrations' expectations and needs.
  • Vision entails outlining the anticipated future state of the tax function, its goals, scope, and value proposition, as well as the key performance indicators and metrics that will be used to monitor its development and success.
  • Roadmap: This entails creating a detailed action plan for achieving the vision, which includes the selection, implementation, and integration of appropriate technology solutions, as well as the allocation, management, and development of the necessary resources, such as people, processes, and data.

Conclusion

Technology is a great facilitator for tax services to adapt to a changing tax environment and fulfill the expectations of companies and tax administrations. However, technology also presents significant obstacles and concerns that must be properly handled. Tax operations must establish and implement a digital tax plan that uses technology to improve efficiency, accuracy, compliance, and value generation in e-filing of income tax returns.