Analytics And Automation Go A Long Way To Help Narrow Down Tax Non-Compliance Investigations

In an interaction with Dataquest, Sudipta Ghosh, Analytics Leader at PwC India talks about how the Andhra Pradesh Commercial Taxes Department is benefiting from PwC's advance analytics solutions to mitigate tax non-compliance and how automation plays a major role in it. Excerpts:

How can tax non-compliance be prevented with the help of analytics tools? Does automation play an important role?

Analytics is all about mining data and generating meaningful insights to assist in decision making and administration. Tax intelligence solutions help to unearth various kinds of outliers and exceptions by analyzing a huge amount of data from various sources using advanced analytical and indirect taxation related business rules. Automation plays an important role in reducing the time taken for collecting and analyzing the data, identifying red flagged transactions and conducting audits. It helps to save a significant amount of time and resources on the part of the tax department.

For example, our advanced analytics solution has the potential to scan more than 100 million records of all dealers’ data such as invoices, returns, waybills and transit passes to identify and categorize possible non-compliant dealers based on several metrics and analytical models. This level of automation goes a long way in helping the tax department to narrow down the investigation set and increase the effectiveness of the audits.

How is PwC helping the tax departments with tax non-compliance issues?

The PwC solution links data from multiple sources in order to get a 360 degree view of the transactions, which helps in identifying patterns and trends. It incorporates a risk-based approach to identify and categorize high-risk dealers based on specific metrics.

The analytical models developed can be refined on a continual basis in order to increase accuracy over a period of time. Specialist knowledge of the various causes of tax leakage gets incorporated into the statistical models, which helps in institutionalising this knowledge base. This knowledge base can subsequently be shared across state governments to enhance tax compliance and widen the tax net. The flexibility of the solution can be further enhanced by incorporating external data feeds, which can potentially increase the accuracy of the predictions.

Do the analytics solutions help in putting a cap on tax leakage only or do they help in increasing compliance also?

The solution incorporates state-of-the-art intuitive dashboards for department officers to get actionable insights across different dimensions including the ability to detect circular trading, suppression of turnover in returns/invoices and duplicate registrations, to name a few. Further, the solution also integrates data from various third party sources such as the Transport Vehicle department, Excise and Customs department and Income Tax department, which can help in cross-checking and verifying the dealer data.

The department notifies businesses regarding the possible mismatch and exceptions highlighted by the solution, which helps in early detection and increases the compliance by various businesses. Thus, in addition to putting a cap on tax leakage, the solution also helps to increase tax compliance among businesses.

Is PwC planning to update its solutions to comply with the new tax regime (GST)?

The solution is scalable to incorporate external data feeds including GSTN data to perform a variety of data analyses. Because GST brings together goods and services under a single bracket, the tax base is set to increase significantly, giving rise to many first-time taxpayers.

The solution has capability to handle a large number of businesses’ data and we are in process of working with the tax department to extend the analytical models using GSTN data.

How does PwC’s tax analytics solution perform vs. other competitors?

PwC’s tax intelligence solution uses advanced analytical models to identify possible cases of tax evasion and there is an ability to refine the models on a continual basis in order to increase the accuracy over a period of time. Specialist indirect tax domain knowledge of the various causes of leakage gets incorporated in the statistical models.