Why your margins may not have had a merry Christmas

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The global pandemic forced more businesses online and accelerated the use of online marketplaces. In what was a silver lining of the pandemic, businesses small and large found newer, innovative ways to sell their goods and services.

But selling your products to anyone, anywhere, comes with the requirement to calculate, collect and file tax returns. Depending on how businesses go about this, you can either support growth targets or eat away your margins by wearing the tax.

At the same time, as a result of pandemic losses, governments are constantly changing their indirect tax rates to recoup budget deficits and this is proving to be a monumental headache for retailers.

The land of opportunity is filled with… taxes

Since a Supreme Court ruling in 2018, any business trading online with US customers must pay state-based sales taxes, no matter if they have a physical presence in the US or not. These sales taxes vary considerably from state to state. For example, the state of Texas has an eye-watering 1544 taxing jurisdictions alone. 

Most e-commerce or marketplace solutions, including your ERP, cannot handle the complex tax scenarios these state-by-state rules present. This can put a serious dampener on kicking goals in the US.

This issue is not restricted to the US. India, Brazil, Argentina, Canada and China also have highly complex tax regimes.

Get (much) better margins with a tax engine

E-commerce and marketplace platforms are there to help you run your business, but they are not designed for the intricacies of getting the tax right or determining who is responsible for paying the tax.

But there is hope for a brighter future–better margins – and a happy CFO. The tax engine was created for the sole purpose of being able to calculate and charge tax at the checkout of your ERP, e-commerce or marketplace platform. It is the only way to effectively manage tax on customer purchases.

A tax engine will manage multi-tier tax regimes and complex tax scenarios with very minimal configurations, ensuring the right tax is being charged at the right time – eliminating margin erosion.

Do business anywhere, anytime – without friction

For global retailers that are equipped with multiple ERP systems, the continuous monitoring of tax legislative changes across numerous jurisdictions, and the update and selection of tax codes in multiple systems is a painstaking exercise for IT and finance. Understandably, IT teams often do not properly understand the tax requirements and do not configure them correctly, resulting in incorrect tax calculations. These manual errors can end up being very costly to businesses.

Tax engines take all of the pain out of researching, determining and processing your VAT/ GST and sales tax obligations. They come with built-in global tax scenarios that are regularly updated by the vendor and rate changes are updated in all systems simultaneously.

Accurate estimates and reporting

Tax engines can estimate the taxes on your sales and purchase orders instantly. More importantly, they integrate the transaction data audited from all of your systems in real-time into a reporting database that contains transaction line-level detail and elaborate fields so that you can design custom reports.

Retailers have an opportunity to implement a solution to help manage the tax they have to pay, control their audit risk, and facilitate accurate reporting and forecasting for the c-suite and the board.

Technology is the key to business success

Tax engines are flexible and scalable and will help accelerate business growth instead of holding it back. In a tight labour market with limited access to skilled resources, technology can help fill those resourcing gaps and ensure accuracy and efficiency.

Successful businesses will include tax as part of their holistic business planning and use it to underpin their expansion into new markets. Technology has a key part to play, alongside people, processes and governance.

To find out more about tax engines, contact Ben Scull. To find out more about optimising your tax function visit KPMG Tax Transformation.

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