Tax Technology Value Rising: C-Suite Executives Urgently Need to Elevate Strategic Attention
The tax industry is undergoing significant transformation, but most corporate executives have not yet fully tapped into the potential of tax data and technology. KPMG's latest survey shows that although most respondents claim to frequently use tax data, there are still significant deficiencies in practical application: 52% do not use it for policy scenario planning, 64% do not align it with ESG strategies, and 64% do not use it to identify tax credits. The article calls on executives to confront the skills gap and strengthen tax data application through talent upgrades or managed services to gain a competitive advantage in a complex regulatory environment.
Editor's Note:Greg Engel is the Vice Chair of Tax at KPMG, managing a team of over 10,000 tax professionals and partners across federal, international, state, local, and specialty tax areas. The views expressed in this article are solely those of the author.
The tax industry is at the forefront of significant transformation. However, most C-suite executives seem to be missing the opportunity to leverage tax data or fully harness technology's potential to create real value.
This is particularly evident against the backdrop of the major tax and climate reforms brought by the Inflation Reduction Act (IRA) and the ongoing global tax policy reform negotiations led by the Organisation for Economic Co-operation and Development (OECD). These evolving policy changes present excellent opportunities for businesses to use data modeling and scenario planning, forecast tax rates, assess eligibility for climate tax credits, and prepare for potential tax audits. Failing to use tax data in these ways will severely limit an organization's ability to create value and, worse, may expose it to the risk of being left behind.
Data: The New Frontier in Tax
This week, KPMG released the findings of its annual report, "Tax Reimagined: Perspectives from the C-suite" (Tax Reimagined: Perspectives from the C-suite). The survey interviewed 300 C-suite executives from companies with annual revenues exceeding $1 billion, exploring changes in the tax industry and revealing key elements needed to compete successfully in the 21st century, such as the ability to organize, analyze, and synthesize data.
In our 2021 Tax Reimagined C-suite survey, 73% of respondents admitted their organizations did not know how to use tax data in a forward-looking manner. A year later, progress remains insufficient and uneven. In 2022, although most respondents claimed to frequently use tax data to address key business activities, we found that in reality, few leaders actually do so. For example, 52% of respondents said they did not use data for scenario planning around tax policy changes; 64% did not use tax data to align with ESG strategies; and 64% did not use tax data to identify tax credits. These are typical areas where many tax departments could dig deeper into tax data to bring greater value to the organization and enhance profitability.
Who Is Driving the Data Engine?
So why aren't companies mining the "diamonds" in tax data more? Corporate data is vast and complex, requiring tax talent with the right skills and tools to use it meaningfully. Often, corporate tax departments are lean, and the return on investment (ROI) of allocating extra funds to emerging tax technology is not cost-effective. Therefore, leaders should consider adopting managed service models and partnering with specialized firms focused on data management strategies, technology, and tax.
Another way to address this issue is for leaders to identify existing skill gaps internally and invest in upskilling talent. Leaders should ask themselves: Are we hiring and training people who can drive the modernization of the industry? Our survey found that many leaders face difficulties in hiring and retention, with 53% of respondents indicating that recruiting new talent with the right skills is a major challenge. Additionally, 70% of respondents said that cloud, data & analytics (D&A), analytics, and visualization tools are the skills their tax talent most needs to master and use. Nevertheless, we still see leaders tending to hire tax specialists who can learn technology rather than technology specialists who can learn tax.
The C-suite Competitive Advantage
As tax departments and their organizations face increasingly complex challenges and a rapidly evolving regulatory environment, they must recognize that tax data is both powerful and predictive. If properly leveraged, this data can help leaders gain insights into future trends and positively influence the direction of the entire organization. I firmly believe that tax departments that can unlock the hidden value in tax data will ultimately be the winners in the market competition.