Taxes in the digital era. How is the Czech Republic doing according to a new Deloitte survey?

The main drivers for the digitalisation of taxes in companies are the requirements of tax authorities for digital filing, as well as the increasing number of automated processes that free up human resources in businesses for other activities. These are the main findings of a new Deloitte survey mapping tax issues in the Central European region.

Accelerating digitalisation is making it easier to access and analyse data across businesses in Central Europe. This shift is thus affecting the entire tax area, while allowing authorities and individual bodies to use digital technologies to collect taxes more efficiently and with greater control.

Key findings of the new Deloitte survey include:

– More than half (56%) of respondent companies are actively working to modernise specific procedures, processes and even entire systems.

– A third of respondents plan to change their operating model by outsourcing non-core technologies and processes.

– More than half plan to implement business-intelligence dashboards and customized data management tools.

The survey results clearly illustrate how tax teams are seeking to deploy new technology to help them achieve greater efficiency and value they provide back to the firm. This is an increasingly important factor of competitive advantage, which means one thing – tax professionals must continue to deepen their technological knowledge and capabilities, otherwise they will not keep up with the times. The process of the tax authorities is also becoming more sophisticated, often using the methods close to forensic ones. An example is the use of data from toll gates to verify the VAT exemption on the supply of goods to another Member State.

According to the survey, 75% of respondents expect tax authorities to carry out more targeted controls as a result of the progress in digitalisation and 62% of respondents believe that authorities will have more direct access to their IT systems in three to five years’ time. At the same time, half of all respondents see lack of time and resources as the main challenge in transforming their tax technology.

Czech Republic behind Poland and Romania 

According to the Deloitte survey, the Czech Republic is not doing very well in a number of respects. For example, one of the questions to companies’ representatives concerned the factors that will determine investments in technology in the next three to five years. Businesses in the Czech Republic are less aware of the importance of these factors than in other countries in the region. For example, the need for automation to free up team capacity is rated as important by 48% of respondents in the Czech Republic, compared to 80% in Poland or Romania.

Another question was aimed at the ability to respond to the increasing demands of tax authorities regarding the digitalisation of taxes. In the Czech Republic, 63% of respondents perceived this as an important topic, while in Romania almost 80% and in Poland even 91%. A similar difference can also be seen in the question concerning the need to be prepared for the future digitalisation of the tax agenda. In our country, 48% of company representatives see it as crucial, while in Romania 72% and in Poland 77%.

The state sets the bar for tax digitalisation, but companies can be more pro-active

Looking at the survey results without deeper insight and context, it might seem that Czech companies are resisting tax digitalisation. This may be partly true to a certain extent, but a more important factor is that our state does not push domestic businesses into automation as much as it does in some neighbouring countries.

Another barrier may be the fact that Czech companies have difficulty in finding economic justification for investing in tax digitalisation. The problem lies in identifying the benefits of automation, which are often found only when the company is fined or, for example, a key person leaves and the entire company’s VAT reporting collapses with their departure. All this has to be solved in a complex way, which often equates to increased costs. Often, companies automate only as a result of being unable to replace a key worker. Yet, when companies manage to transfer expertise into an automated tool, they are then less susceptible to sudden departures and can better manage crisis moments.

Good practices can also be found in our country

Other issues in which the Czech Republic did not perform well compared to Central European countries included a question about whether the company was able to automate processes in the finance function. In the Czech Republic, 41% of companies’ representatives answered positively, while in Poland almost 60% and in Hungary even 85%. The average for all countries was 60%, so the Czech Republic is less than 20 percentage points behind the average on this question.

However, there are areas where the Czech Republic is doing well. For example, when it comes to a proactive holistic approach to the whole tax area or budget restraint, the Czech Republic performs similarly to other Central European countries.

If a company is proactive, it has already been dealing with automation and digitalisation for a long time. From our experience, we know a number of Czech companies that automate in taxes and do it perfectly. After implementation, they often discover the benefits of tax automation and therefore continue to digitalise in other areas. We can see this with our colleagues regularly, for example, when companies implement our taxCube tool, they are subsequently able to dramatically reduce the time to prepare VAT reports and significantly reduce the frequency of audits or queries from the tax authorities.

In a vicious circle

Among the biggest challenges and problems that companies complain about are the low ability to adjust or update their systems quickly enough, the large number of requirements from authorities or the complexity of integrating their systems and processes with the digital interface of the financial administration.

When we discussed this survey with our clients, they often confirmed the findings. They told us that they felt somewhat like they were in a vicious circle. They do not have time because they are overwhelmed with work and therefore lack strategy. And without a strategy, they hardly prepare a business case for investment. And without investment, it’s hard to finance digitalisation and automation. But if they do not automate, they are logically overwhelmed with work and thus find themselves back at the beginning. However, in view of the overheated labour market that has been suffocating the Czech economy for a long time, automation is one of the key ways to untie their hands and stretch human resources where no one can replace them.

Start where it is the most effective

If companies want to be competitive, they should spend time looking for the benefits of automation and start where it has the greatest effect. The survey found that the ideal candidate for digitalisation could be indirect taxes, for example.

One good example is the accounting system upgrade that companies often have to deal with. Therefore, tax teams should write down the requirements and consistently test whether they have been met. One way may be to join a larger project that can solve most of the problems.

Inefficiencies are often the result of misunderstandings and low levels of communication between tax teams and the rest of the company. Therefore, we recommend that companies incorporate the needs of the tax agenda into working meetings with other departments or communicate them regularly at various training sessions or in internal company communications.

Deloitte’s new survey, the Central Europe Tax Technology Report, was conducted this spring among more than 120 senior finance and tax executives in 15 jurisdictions across the entire Central European region.

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