SAP Tax and Revenue Management for Public Sector – Exploring innovative tax models and accelerators
SAP Tax and Revenue Management for Public Sector provides a service enabled, configurable, upgradable solution that supports an end to end tax administration lifecycle. This article aims to explore future innovative ideas as to how the software can be best deployed to bring maximum efficiencies to tax authorities and ultimately, to its customers, the taxpayers.
The world is changing, changing rapidly. We only have to listen to the current news headlines to understand that we, as a human race, are living in unprecedented times. Governments are currently under extreme daily pressure to ensure that they make the right public health and economical decisions. The emergence of the gig economy and globalization were already having a large impact to these organisations, now, with the emergence of COVID-19, governments are being forced to evolve business models at a lightening pace.
Orchestrating some of these processes on behalf of the governments are its’ tax authorities who are under constant pressure to rapidly deliver critical, but simple to use services that orchestrate complex processes, whilst ensuring controls are in place to combat fraud.
The current socio-economic circumstances have created a dramatic shift from collecting tax to applying tax relief and making social payments. More than ever, there is a large burden on the tax authority to keep the “money flowing” whilst paying due diligence in keeping the financial budget in balance. With governments dramatically overhauling policies and investing in public health, these elements need to be dealt with, whilst continuing to; increase (or at least maintain) compliance rates, close the tax gap, increase data accuracy and improve taxpayer experience.
Tax authorities are also paying more attention to their main asset, its people, who are the heart of the organisation. At this current time, it is even more prevalent that the right people are working in the right jobs. For some organisations, specifically public sector, the “working from home” model was an exceptional circumstance. What is now evident is that “working from home” will become the new normal. With this major shift in working models, tax authorities need to ensure that the necessary controls are in place to ensure they maintain (if not increase), their employee experience. The term “automation” for such organisations, is (or even has) shifted away from the paradigm that “it is a nice to have” to “it is a necessity”.
What I hear more and more customers asking for is best practice or a model tax administration company that they can base their tax administrative processes on. The question arises of whether it is even possible to create a model company in such a scenario where every tax authority will have so many fundamental legislative differences?
For example, unlike a private sector company implementing a standard SAP S/4HANA Finance solution, (where their processes may fit a common and therefore standardised model company accounting process), for tax authorities it is not quite as simple. This is primarily because there can be huge legislative differences (business rules) that need to be realised, and therefore, next to impossible to build all these permutations into a model company or best practice solution which satisfies every tax authority business process.
The SAP Tax and Revenue Management solution has been specifically developed to cater for the flexibility required to satisfy this complex legislation (which differs across, state, council, country tax type etc). Whilst the SAP Tax and Revenue Management solution is an enabler that fully supports policy agility and allows administrative processes to be automated, it is also important to ensure that the solution is implemented as efficiently as possible and at a minimised long-term cost to the tax authority.
Coupled with this flexibility are the usual challenges we hear from customers – projects take too long, cost too much and even though tax types are being orchestrated on the same platform they are still being implemented using a siloed approach which leads to process inefficiencies, the list can go on.
The Foundations of a Model Company (Best Practice)
So how can some of these concerns be addressed? In my experience of delivery, the answer is through maximum reuse of platform components. The idea, where possible, should be to create re-useable business rules/patterns across tax regimes using the functionality and tooling provided by SAP Tax and Revenue Management.
It may be incomprehensible to even suggest every single tax type that is administered by the tax authority should be completely aligned in process, because as stated, they will all have their legislative differences. However, if we break each tax type down by process to its most fundamental, we will find similarities at each stage of the tax type core process.
For example, across tax types they will all,
- Capture information – e.g. tax registration/tax return. Manually on paper or electronically through digital channels.
- Process the data e.g. customer designatory data for registration or financial data for tax returns
- Query the data e.g. to front end system where customers can view information or internally to internal users.
As we continue to cross analyse the processes amongst tax types from within and across tax authorities in such a manner, we will notice more process similarities and therefore, there is no doubt that there can be some element of process and technical standardisation.
(It should also be noted that whilst it is acknowledged that key technological and process innovations (point of sale taxation, AI Chatbots, Machine Learning, Blockchain etc.) have key roles to play in undertaking the challenges mentioned above, this article is specifically focused on innovating the core tax process using the tooling readily available in the core SAP Tax and Revenue Management solution. The core tax process, excluding debt management is depicted in the following):
Before we deep dive into some of the ideas, it is important not to trivialise the various complexities and dependencies that influence implementation strategies. Even though a best practice model company may be envisioned, there are core dependencies in a tax authority’s approach to the implementation of tax types that needs to be aligned to the technical framework.
The following diagram below aims to highlight these dependencies to acknowledge vast political influences but will not be discussed further as part of this article.
SAP Tax and Revenue Management
The implementation strategy should include the set up and delivery of a configured, best practice (based on common tax process), re-useable, flexible, technical framework. The framework would be designed in such a way that it could be enhanced through iterative processes to ensure specific business rules can be achieved whilst still allowing generic processing.
The diagram below represents the overall SAP Tax and Revenue Management architecture. The highlighted box shows the core processes that would be encompassed as part of the technical framework described above.
Adopting a Best Practice Model
Change management is a key enabler for successful change and must be acknowledged. In the current climate, simply identifying strategies is not enough. In order to tackle the new challenges that the tax authorities are faced with, the focus needs to be on how to implement these strategies. It goes without saying that there must be top down belief and sponsorship from the organisation’s leadership team. Support must be provided to individual employees that maybe impacted by the change during the transitions from current to future state, and therefore, change management requires commitment throughout the process of change so that it can have the desired impact.
Once the change management process has been established, we can focus on the adoption of the technical framework. For this to happen there needs to be an element of business transformation that standardises the core processes.
I believe there are three key elements to this:
- Legislative Rules Alignment – Legislation is sometimes old, (or even redundant) and therefore should not be a barrier to change. Where clear improvements and/or efficiencies can be gained to the taxpayer and internal user journey, attempts should be made to simplify, standardise and align.
- Process Model Alignment – lower level detailed taxpayer journeys and internal operational processes should be aligned. For example, the registration and subscription process for customers across tax types should have some commonality, from where the taxpayer submits their information, the internal technical process that orchestrates and processes the data, to the administration processes that the internal users perform.
- Data Structure Reuse – extend where possible rather than create. This is applicable from extending customer records with additional tax type information (achieving 360 view of the customer) through to reusing API structures to present information to different systems (e.g. front end, data warehouse etc.)
Best Practice Model – Tax and Revenue Management Platform Flexibility
Although the SAP Tax and Revenue Management solution has functionality to cover the entire end to end tax process, it is worth noting that some tax authorities, for certain tax types, do not use our solution to orchestrate this full process. Instead, they adopt a “hybrid” model where some parts of the core process are performed using a non-SAP system. There can be many different reasons for this, however, what is important about this statement is that even with this approach, I believe the best practice model can still be achieved. Due to the flexibility and ease of integration of the SAP Tax and Revenue Management solution with non-SAP systems, the core processes that are orchestrated using SAP can indeed be aligned.
The diagrams below highlight an example of some of the “hybrid” solutions I have encountered during my implementation experience:
SAP Tax and Revenue Management Accelerators
This section aims to describe ideas around the key accelerators that would assist the tax authority with a faster adoption to standardised processes.
The diagram highlights 4 potential accelerators that could help facilitate this process.
- Requirement Surveys – utilising experience gained from multiple tax implementations (across many tax authorities) has confirmed that similar (if not the same) information is gathered when defining the rules of a tax type. Common questions include, what are the legal entities types that can be registered for a tax? What customer identifiers are used or created for the tax? How many address types are captured? are bank details captured? when did the taxable activities commence from? What are the filing frequencies for the tax? What are the filing due dates for a date? When are the payable dates? What are the general ledgers? What are the tax return amendment rule? Return and replace vs deltas? the list is can go on.
The vision here is that we could have the ability to capture multiple questions via a digital questionnaire or automated using SAP Conversational AI. The aim of the questionnaire would be to process the tax authorities pre-defined answers into real time rendering of functional configuration, in addition to adding the relevant attributes to the pre-defined (template) BRF+ applications. Gathering the questions in a more standardised approach across tax types brings many benefits to the implementation. However, seamlessly capturing and instantly modelling information would elevate the efficiencies to the next level.
Allow me to also be a little realistic here, the configuration that SAP delivers is vast in its nature due to the large number of business process scenarios it covers. It would be impossible to pre-define questions that cover the hundreds, if not thousands of scenarios that can be configured within the system. However, what is possible, is defining the survey’s around the common scenarios as exampled above so that at least some automation and efficiencies can be achieved.
In addition, we must not forget the technical challenges that will present themselves. Specifically, around the SAP transport mechanism’s and the inserts that would be required across different SAP technical layers. However, as the saying goes “anything is possible with IT”.
- Documented Best Practice Flows – Using process knowledge from across the global tax authority community to create core tax process flows for the common tax types. E.g. Income tax, payroll tax, GST, VAT, Withholding tax, emergency payments.
- BRF+ Applications – re-usable, templated (wrapper) BRF+ applications that can be used to orchestrate functionality. E.g. Multiple tax types can re-use the same registration forms/application that can be enhanced in look and feel, common fields pre-defined. E.g. Customer designatory data (name, address, creation or extension to Business Partner, Contract Account, Contract Object etc)
- Native Fiori Apps – as a suite of applications that are based on the “top 10” commonly identified queries from taxpayers. The aim here would be to ensure that the common business processes that usually need two or more transactions (to orchestrate a business process) are standardised into one simple Fiori App. For example, it maybe common for a taxpayer to ask the tax authority about “where their money has been allocated”? Followed up with, “can you please assign it to another debit”. The process would need the internal user to use several transactions to identify the payment and execute the process required. The purpose of introducing such apps would be to amalgamate common transactions into a single application which would bring efficiencies to the internal workforce, whilst also having a positive impact with the customer as their query may be resolved faster.
Decisions around tax implementation and strategy are influenced by political-economic factors which are difficult to govern and predict. In a perfect world, where these dependencies do not exist, the aim should always be to create a model tax company and implement this model across tax types as a pre-configured solution with packaged accelerators. Couple this model with key S/4HANA intelligent enterprise innovations such as
- SAP Natural Language Processing coupled with SAP Cloud platform (providing never seen before insights into taxpayer behaviour. The results are new methods of revenue collection such as early intervention),
- Sentiment analysis (understanding the sentiments of the taxpayer to provide tailored services),
- Behavioral Insights (providing a complete view of process, risk and non-compliance),
and the ultimate result is an increase in taxpayer experience (through a more personalised service) and an increase in employee satisfaction.