Over 60 million small and medium businesses account for about one-third of India’s GDP. These SMBs play an important role in maintaining the circular flow of income in the nation’s economy. They are highly inclined toward digitisation, but the tax implications are still daunting. This has led to prioritising tax automation as one of the most critical aspects of a business’s success. Currently, SMBs seek the government’s infrastructure when optimising automated tax compliance.

Challenges faced by Indian SMBs with the changing tax regimes

Given the progress of tax practices over the past three years, the pandemic caused significant tax shortfalls across the nation. SMBs tried hard to cope with the changing dynamics of consumer behaviour. There were gaps in how they responded to the reporting and compliance requirements that came along with the new regime of indirect taxes. These limitations paved the way for automation in tax systems. 

SMBs faced challenges while adapting to the government’s makeover of the latest ‘indirect tax system’. These challenges included: 

  • Understanding the official provisions to re-frame the distribution strategy  for tax return filing
  • Defining new business policies that will help eliminate loopholes while claiming GST Input Tax Credit (ITC)
  • Studying its impact on the running costs and the working capital

Considering the resources available for SMBs, calculating and collecting indirect taxes while ensuring compliance becomes a major challenge. Data extraction, collation, analysis, reconciliation, validation, etc., eat away at businesses’ valuable time.  Ultimately, there rises a need to replace the existing indirect tax system with a streamlined and unified tax system. 

Setting up an efficient and fair tax system is, however, far from simple. For businesses, this task gets pretty tedious without tax automation. The iterative task of managing item-level invoice detail, maintaining entry sequences, reconciling sales and purchase registers, etc., demands automated tax compliance. In case of inaccurate reporting, the business’s compliance gets adversely rated. India’s GST regime compels firms to have a defined harmonisation standard with the system. This is between a taxpayer’s application, such as an ERP, accounting, or invoicing software, and the government’s taxation (GST) system.

SMBs adapting to the ‘New-age Tax Practices’

Considering the rapidly evolving tax practices, taxpayers must evaluate the automation alternatives that comply best with the latest regulations. Factors such as intuitiveness of reconciliation, validation and tax determination, data security, storage, and privacy policies, are crucial.

Here’s how Tax Automation can help Small and Medium businesses scale effortlessly:
  1. Cloud-based technology solutions enable businesses to manage, change and validate their data on the fly. With this, they can collect, pay and report all their taxes correctly.
  2. The most common ground for small businesses to get audited is underreporting sales tax. Tax automation adds a trust factor with consistent and accurate tax reporting, which can help mitigate audit risks.
  3. Businesses can avoid underreporting or saving extra funds and put their assets to better use, regardless of the regulations involved.
  4. Tax automation can help businesses accelerate overall growth with one-click report generation. Automated tax reports allow them to accurately represent and understand how they collected or paid taxes while responding to audits.
  5. Businesses must maintain consistency with tax policies throughout their growth journey. It’s not only the initial stage that seems difficult with all the evolving regulations. The more challenging part comes later as the business grows and accounts are not managed precisely.
  6. As a business evolves, technology and tax automation empower it with the right toolkit to help plan its future tax obligations. Cloud-based tools can automate planning, minimise capital expenditures and give businesses direct access to changing regulations. 

Apt planning and tax automation can be a huge plus for business growth, allowing businesses to respond to changes and allocate resources better.

Let’s get on to the top 5 reasons – Why SMBs must prioritise implementation of Tax Automation

An intuitive tax automation tool can level up a business’ tax management game like never before! 

1. Amplify productivity while upholding compliances

Keeping up with the ever-evolving tax codes can burden the finance team. Tax automation empowers businesses to keep up with the latest regulations as they replace the older ones. This enables them to define their resources for better productivity smartly.

Moreover, failing to track tax compliance returns can welcome audit-inducing errors. Tax automation tools help oversee and manage reports clearly and concisely.

2. Avoid the overage cost tucked away in accuracy maintenance

Errors in business tax compliance attract adverse consequences. Manually formatting taxes, finances, and sales data propagate errors that only fuel the fire. On the other hand, automated tax compliance enhances data accuracy, clears up the sticky compliance scenarios, and helps reserve funds for fitting business activities.

3. Small e-Commerce businesses to validate indirect tax details hassle-free

When it comes to trading online, the burden falls upon the seller to know, understand, and comply with the tax collection and reporting. It becomes essential to manage business compliance efficiently, which is challenging. Technology can provide real-time insights and data on changing tax regulations anywhere the company does business.

When considering e-Commerce businesses, inaccurate shipping details might cost numerous unwanted charges. Shipping addresses are used for indirect tax calculation for every transaction. In that case, incorrect shipping details can cause massive complications than minor logistic issues. Businesses can maintain all such shipping databases for instant validation. This way, they can ensure precise tax reporting for every transaction, regardless of the customer’s location, with tax automation. 

4. Invest in technology that offers a roadmap to scale

It’s important to have the right tools to help the business augment at a good pace. Nonetheless, it limits businesses’ flexibility when they start trying to keep up with the pace by just adding IT or accounting staff. The correct choice of tools equips enterprises to plan, mitigate expenses and stay on top of the changing regulations with a quick response to the evolving market standards.

5. Plug ‘N’ Play with the existing infrastructure, leverage the best suitable solution

Integrating with the right tax automation tool that matches the current billing and finance system increases efficiency. Integrating existing tech or choosing a new tech for a superior tax automation system requires dedicated resources and time. 

Why is OPEN’s Tax Management Solution best suitable for SMBs?

At OPEN, we have been helping businesses, including startups, efficiently manage their business finances and taxes. Our in-depth experience enables us to understand clients’ unique business banking requirements better. We formulate solutions, incorporate industry best practices, and empower business owners to streamline their operations systematically.  

Whether filing tax returns, making challan payments, or monitoring tax reports, OPEN’s Tax Management solution has covered it. Not just that, considering all the latest GST implications, OPEN helps businesses scale along with being compliant. No business would want to let go of an opportunity to make it future-ready with OPEN’s intuitive tax management solution. 

Explore how to be in control of your taxes with OPEN’s Tax Management Solution.

Explore Tax Management with Open