AI in tax operations seen as a game changer by 94% of Indian CFOs, tax leaders

With GenAI storming its way into India Inc. operations, tax functioning is also expected to get a boost from this. Nearly 94 per cent of Indian CFOs and tax leaders recognized GenAI’s potential to significantly enhance tax functions and transforming tax and finance operations, according to the EY Tax and Finance Operations (TFO) Survey 2024.

According to the report, this is a dramatic surge from just 19 per cent in 2023, further highlighting GenAI’s prowess in the tax industry.

The survey, which gathered insights from 1,600 leaders across 32 countries and 18 industries—including 70 CFOs and tax leaders from leading Indian corporates—highlights the key challenges and opportunities in the evolving tax landscape.

Indian tax leaders are ahead in their GenAI journey, with 14 per cent actively developing strategies, launching pilot projects, and exploring early-stage applications of the technology. Another 47 per cent are in the exploratory phase, investigating and experimenting with how GenAI can help in their operations.

This surpasses the global average of 40 per cent, showcasing India’s proactive stance in embracing this technology.

Rahul Patni, Digital Tax Leader, EY India, said that GenAI is an effective tool for tax professionals to transform their workspaces and professional lives. “…every tax professional should learn about GenAI, start applying it in routine tasks. Areas of application can range from AI-assisted document reviews to data cleansing and drafting business deliverables for day-to-day matters. This will allow them to work more effectively, focus on strategic priorities, and make better decisions,” he said. However, the survey reveals significant barriers to adoption, with 44% of respondents citing a lack of skilled talent and limited understanding of GenAI’s capabilities as major challenges.

As per the global insights from EY, three pressure points stood out in the survey:

1. All businesses are contending with more demands for real-time filings, including e-invoicing.
2. Large businesses are struggling to comply with global tax reforms developed by the Organisation for Economic Co-operation and Development (OECD)/G20 Inclusive Framework.
3. Many businesses are bracing for the required public disclosure of more information about their tax and finance affairs by governments.

The survey finds that 46% of Indian respondents (and 45% globally) spend much of their time on routine tasks such as data collection and tax return preparation. Tax leaders believe these activities should ideally take no more than 20-25% of their time, allowing them to focus on strategic initiatives.

“Survey respondents say complying with real-time and digital tax filings is the most “significant” emerging reporting requirement for tax and finance functions. More countries than ever require e-invoicing, which involves transmitting specific data to tax authorities, typically in real time. Governments take this approach because once they have the data, they can determine the amount owed. This puts enormous pressure on businesses to be sure the data is accurate and reliable, and it effectively shifts the audit cycle forward, essentially resulting in real-time examinations,” the report read.

For the first time, cost pressures have emerged as the top concern for tax and finance functions. Inflation and budget cuts have led 91 per cent of Indian companies to plan reductions in their tax and finance budgets. Simultaneously, new regulatory requirements, such as BEPS 2.0’s Pillar Two rules, are adding complexity to tax operations.

According to the survey, 59 per cent of Indian companies, in response, are considering changes to their tax and finance operating models. This signals a shift towards alternative approaches to managing operations more effectively.

Jitesh Bansal, National Leader, Tax and Finance Operate, EY India, noted the urgency for tax teams to adapt.

“The need of the hour is for tax and finance functions to have access to expert tax knowledge, combined with a working knowledge of process, data, and technology, whether in-house or through external support. The chosen operating model should allow flexibility, modularity, talent management ability, and best practices,” Bansal said.

The survey showed a looming talent crisis in the tax and finance sector. According to 72 per cent of Indian respondents, the profession faces a significant disadvantage due to fewer accountants entering the workforce and the retirement of senior professionals over the next five years.