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8 Challenges SMBs Face in an Evolving Tax Environment

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Tax regulations and compliance are getting more complex and challenging. SMBs must keep abreast and face the changing tax landscape by embracing tax technology to streamline their tax processes and improve efficiency.

A report published in 2020 by the Finance Corporation and the World Bank Group stated that Small and Medium Businesses constituted 90% of all businesses worldwide, contributing 35% of GDP in emerging economies and driving 50% of employment. Globalization and constantly changing market dynamics require these SMBs to be watchful and agile to climb up the growth curve. While all functions are equally important in this evolution, the tax function is particularly prominent.

Why Tax is a key function for SMBs?

Tax departments are key to the success of any organization for the following reasons.

  • Taxes directly impact the company’s profitability and cash flow.
  • Effective management of taxes is essential for compliance, minimizing tax liabilities, and maximizing tax incentives and credits.
  • Laying down a strategy for growth by closely analyzing and optimally utilizing the prevailing and foreseeable tax conditions.
  • Freeing up valuable resources to work on high-stake strategic initiatives
  • A sound tax practice helps SMBs make informed decisions, maintains the organization’s financial health, and drives competitiveness.

A robust tax practice is a sign of confidence for SMBs and a pedestal for continuous growth, but the track to glory is fraught with challenges.

8 Challenges SMBs Face in an Evolving Tax Environment

Changing tax regulations-

Changing regimes, and changing economic conditions are constantly altering tax regulations. Keeping pace with these new tax requirements, understanding their implications, and staying compliant in the rapidly changing business environment can be daunting and time-consuming.

Inadequate resources and expertise-

Tax function is an expansive practice that needs to navigate complex tax rules. Adhering to tax filing timelines, calculating accurate tax liabilities, and maintaining exhaustive tax records can be arduous. SMBs with their limited financial and administrative prowess can find this overwhelming.

Limited technology adoption–

The lack of resources and expertise also prohibits SMBs from actively adopting the latest tax technology that can help them overcome the myriad challenges that evolving tax regulations and regimes throw at them besides the concerns of investments required to integrate technology into existing systems.

Compliance across jurisdictions–

Expansion is a priority for most SMBs as they look to grow beyond boundaries and jurisdictions. Tax laws play a crucial role in this expansion as organizations need to comply with the regulations prevailing in different countries and states. Managing multiple tax regimes, understanding cross-border tax implications, and addressing compliance requirements in different jurisdictions can be challenging for small and medium-sized enterprises.

Implications of digitization–

As the world moves towards a digital-first economy and the bulk of the transactions happen online, taxation too is evolving to drive digital tax regulations that include value-added taxes on digital services and cross-border sales. SMBs must understand and evolve to comply with this changing dynamic to stay ahead in the evolving digital business environment.

Complexities in international transactions–

Spreading business operations across international borders can also pose challenges for SMBs in the shape of transfer pricing, determining taxable income across jurisdictions, managing tax withholding requirements, and addressing tax treaties.

Tax incentives and credits–

Tax is an exhaustive process requiring an intricate understanding of eligibility criteria, application for incentives, and careful documentation. Only after these are expertly handled can SMBs stand to garner tax incentives and credits that can be realized as cost-saving opportunities.

Auditing risks–

Tax evasion, and tax filing irregularities, have made tax authorities extra vigilant turning their scrutiny towards small and medium enterprises owing to the limited resources and expertise at the disposal of SMBs. Preparing for tax audits, maintaining accurate records, and addressing potential risks proactively by instantly addressing tax administrators’ requests can be unsettling for SMBs.

A double whammy for tax practitioners!

The pressure on the tax function is growing with countries and states drawing out new or improvised tax policies to serve their interests better. At the home front, a case in point that is setting a new legal precedent is the case that pipped the state of South Dakota Vs. an e-commerce company, Wayfair. The Supreme Court in this case gave new power to tax authorities to levy taxes on online sales. The practice before this case required companies to levy sales taxes only if they had a physical presence in the state where the transaction occurred. Internationally Britain’s exit from the European Union or Brexit has made way for new legislation that requires all businesses importing goods into the UK to pay a value-added tax. This is unlike the practice in the EU where VAT is only levied on goods and services purchased or sold for use or consumption within the EU. VAT is not charged on goods or products exported outside the EU. These latest complexities are just the tip of the iceberg piled up on the multiple challenges that bog SMBs.

Embracing tax automation and technology to overcome adversity!

The tax landscape is a complex maze and requires preparedness and expertise that matches up to the complexity. There is immense potential in the tax practice to bring the different departments within the organizations in sync, garner returns on investments, and drive future growth. The first step towards realizing this state of growth is a strong technology or IT team. An experienced tax team can help SMBs realize the underlying potential of the tax function by embracing tax automation. Automation is a pressing imperative in an ever-evolving tax landscape that can ensure that your team has immediate access to up-to-date and accurate data, eliminating the need to spend time constantly updating and reacting to changing regulations. The use of advanced tools and technology in conjunction with automation allows for the seamless integration of updated tax information directly into calculations, saving valuable time. It also instills confidence in the overall tax practice being error-free. Strategic investments in tax technology can enable SMBs to drive compliance, minimize errors, and enable teams to focus on more strategic activities bolstering efficiencies and outcomes.

Innover’s extensive Tax Technology Expertise has powered organizations across the spectrum assisting them automate their critical data streams and tackle tax compliance concerns while serving all their trade finance needs. We are a Certified ONESOURCE Implementation and Product Engineering Partner for Thomson Reuters, with deep pockets of expertise across multiple industry-leading global tax automation tools. Our diverse experience across ERP systems, leading tax and trade tools, and data analytics is backed by more than hundreds of technology-driven tax practitioners across the globe enabling organizations to accelerate ROI by efficiently curtailing costs. Aiding our expert-driven technology prowess to systematically and cohesively transform tax practices is our indigenous process framework, C.H.A.M.P.

Learn more about our Tax Technology prowess and how it can help you meet your tax commitments, driven by the seamless confluence of data and technology.

  • Carroll McIntire  |  September 15, 2023   |  

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