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VAT data quality: keeping the core strong

Aamer Bhatti

EY MENA Indirect Tax Leader

6 minute read 04 Oct 2023
Related topics
Tax
Technology
Tax compliance
Tax planning
Tax function operations

Data quality is crucial for accurate tax reporting, but monitoring it manually can be complex.

The introductory article in the MENA Tax Technology series reflects on the common technology-related issues businesses have experienced and more importantly, how to mitigate them. The second article in the series outlines the importance of accurate value-added tax VAT determination, challenges, the opportunity and technology solutions available.

This third article in the series focuses on VAT data quality, which is the second pillar in the indirect tax transformation journey; after all, poor quality data means inaccurate outputs.

Data quality and its importance

Data quality is a measure of how complete, accurate and reliable your data is. At times, this may seem simple; however, there are several underlying factors to consider. Here’s a simple example.

Scenario A:
  • A UAE organization has implemented a state-of-the-art VAT determination system and needs 10 points of data to function correctly.
  • Only eight data points are being fed in — the two missing data points are the transaction date and the Emirate.

In the above scenario, when you start preparing your VAT return, you realize that you are unable to detect the correct tax period to report in and the Emirate that the sale reports to. This results in an incorrect tax return, which attracts penalties from the authorities.

The above scenario will most likely be identified very quickly within an organization and in most cases, you may not need any technology to assist you to do so. However, assuming you were monitoring this data manually, let us examine another example:

Scenario B:
  • You are a UAE organization based only in Dubai. You only deal with standard-rated goods and services.
  • If we focus on the output tax section of the VAT return, you only need to populate the sales and tax figures in Box 1B of the VAT return.

With the above scenario, you will only need to monitor two boxes on the VAT return and ensure that the data populated is correct and in a format that is required by the authorities. At the outset, this may sound quite simple.

However, imagine the same organization has seven branches in Dubai with multiple entries being performed by multiple people simultaneously from multiple systems. This now becomes slightly more complex as there is more data to monitor from multiple sources and currently, only two boxes are being monitored.

If we were to then assume the organization also sends and receives payments in foreign currencies, it adds another layer of complexity as the VAT return can only be entered in AED (rounded to two decimals) and the only conversion rate that can be used is the one published by the UAE’s Central Bank (CBUAE) on the day of said payment being received or sent. Therefore, the data now needs to be validated to ensure the correct conversation rate has been utilized and ensure that it is in the correct format. The above example demonstrates the complexities an organization may face while compiling the output tax figures for a single Emirate. However, most organizations will have multiple Emirates, input tax considerations, reverse charge scenarios and many other added nuances. Most organizations have extremely complex IT landscapes and multiple points of data, which can make it nearly impossible to monitor.

In addition to the above complexities, organizations are always evolving and as a result, business processes are constantly being enhanced. This increases the complexity of the data quality journey. Therefore, it is essential to constantly measure and assess data quality levels, as this will assist organizations to identify data errors early and save organizations time and money. As we all know, when it comes to data, low quality data in means low quality data out, which potentially means large penalties and fines, not to mention the time and resources that would be required to manage any related controversy.

How EY can Help

How does technology assist?

Implementing VAT data quality controls can be tricky at times, however, they are one of the most impactful changes that you can make in your tax transformation journey. Better data quality means better risk management and compliance; greater efficiencies leading to lower costs; and increased trust in business processes leading to added business value. In most organizations, technology is already deeply embedded within business processes. With hundreds of business transactions daily, it is difficult for organizations to constantly monitor the quality of their data. This is where technology is able to constantly monitor data that is related to your VAT lifecycle and highlight any potential errors.

 

How to select the correct technology

There are a range of solutions available and picking the right solution depends on many factors, such as your existing IT landscape, budget, and your overall tax transformation strategy. The EY Tax Technology and Transformation (TTT) practice can assist you in selecting the appropriate technology that matches the needs of your organization. A solution that may assist organizations to address data quality issues is SAP Tax Compliance, from one of the Alliance Partners, SAP. SAP Tax Compliance simplifies the approach to tax controls and improves compliance by systematically checking transactions and centralizing remediation activities. SAP Tax Compliance can be co-deployed in SAP S/4HANA or deployed as a sidecar to integrate with any SAP and third-party system. The solution can be deployed using the sample content or you can create your own content for specific compliance requirements. SAP Tax Compliance allows you to centralize your tax compliance management by setting up a central repository for managing all compliance checks and monitoring compliance status, and results in the creation of a unified worklist that enables organizations to identify anomalies. SAP Tax Compliance also increases compliance efficiency by distributing and managing remediation tasks while providing transparency and maintaining a full audit trail. You can run simulations on tax check parameters to optimize your tax rules and improve the reliability of your automation. Overall, SAP Tax Compliance helps improve the quality of your tax data, reduces the cost of compliance and acts as a single source of truth.

SAP Tax Compliance is a single product within EY “Agile Tax” offering. Agile Tax is an approach that combines the tax capability of EY across the globe with our SAP and tax technology knowledge to help deliver SAP-enabled transformation programs that are broadly enhanced for tax functions.

The approach is to help clients enhance the benefits of their investment in SAP by combining tax technology offerings across core SAP, SAP® applications and EY offerings. This is all provided by more than 250 EY SAP knowledgeable tax professionals across the global EY network supporting country-specific tax types and regulations.

 

Why work with EY TTT?

Taxes and tax-related processes are becoming technologically advanced and often drive business transformation. The EY Tax Technology & Transformation (TTT) team helps clients realize transformational benefits through system integration and business integration for tax by transforming tax functions into intelligent tax functions. EY TTT operates as one connected team across the globe with physical hubs in the key markets, including MENA. With EY teams across EMEIA, we will be able to assist you in your tax transformation journey. This in turn means that you get access to professional assistance in every jurisdiction that EY operates in.

With all the latest indirect tax developments and rapid overall digitalization of tax processes in MENA, EY TTT and Indirect Tax professionals work hand-in-hand. Together we are implementing effective indirect tax solutions for multiple organizations across the world. Furthermore, the TTT team works very closely with all our alliance partners to ensure that we are always at the forefront of technology, to be able to recommend the best-fit solution for your organization.

 

What’s next?

Next articles in the MENA Tax Technology series focus on managing VAT reporting and VAT controversy.

Related articles

MENA Tax Technology: The implementation of VAT and the lessons learned so far

With tax authorities moving toward digitization, upgrading technology is becoming increasingly necessary.

Aamer Bhatti

VAT determination: avoiding the domino effect

Technology can be utilized by organizations to address the difficulties associated with the implementation of VAT.

Aamer Bhatti

VAT data quality: keeping the core strong

VAT reporting depends on the accuracy of VAT determination processes and ongoing data quality assurance.

Andy Baldwin Andy Baldwin

    Summary

    The quality of data is an essential aspect of ensuring that VAT determination is accurate and avoiding penalties. Poor data quality can lead to incorrect tax returns and errors in VAT data inputs. Businesses that have multiple branches, perform simultaneous transactions from multiple sources, or operate across different Emirates will find data monitoring complex. To solve these data quality issues, organizations can deploy technology that constantly monitors VAT data and identifies potential errors. SAP Tax Compliance is a potential solution that helps businesses simplify their approach to tax controls, enhance compliance, and reduce costs.

    About this article

    Aamer Bhatti
    EY MENA Indirect Tax Leader
    Indirect Tax leader at EY MENA. Global experience of managing indirect taxes and VAT implementation. Delivering the exceptional EY experience. Father of two. Loves travelling and the outdoors.
    Related topics
    Tax
    Technology
    Tax compliance
    Tax planning
    Tax function operations

    EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.