What does the future hold for the tax industry?

Part two in the blog series on tax and technology – interview with Geoff Peck, Taxologist and founder of PawPaw Technology.

Like most industries, tax has seen extraordinary levels of change and disruption due to advances in digital technology. 

While no-one doubts that the industry has adapted, utilising new innovations, the question is whether it has changed enough? Is the industry open to new ways of thinking?

For Geoff Peck, digital change is only really worthwhile if we fully embrace its potential. In the first blog in this series, we examined the role of a taxologist, the tax professional who sees the wider picture.

Geoff noted: ‘Only a taxologist can help a tax department graduate past automation to true digital transformation as a mindset and a way of being.’

In this interview, we delve deeper into what the future of the tax industry may look like…

Q & A

Firstly, where are we now? Do you feel some corporate environments are too resistant to change?

Of course, but this is not limited to tax. In 2016, Gartner reported that digital transformation initiatives had an 85% failure rate, and just last year E&Y reported a 75% failure rate for tax transformation initiatives.

Corporate cultures are carefully constructed but invisible structures that are tightly woven with major dependencies throughout, and creating a holistic whole.

You cannot disrupt one part of the system without throwing the rest out of whack, so when this happens its natural reaction is to reject the ‘infection’ and reform back to its original pattern.

This is why transformation is so named, in other words, during transformation the object article must ‘transform’, which means the end state must bear little or no resemblance to the start state.

This prospect is terrifying for incumbents, so the standard response is to commit to transformation in word only while their actions portend to an entirely different outcome. This is why Inc. magazine predicts that half the S&P500 will be replaced in the next decade.

Coming back to tax, and in my experience for which I have no proper evidence other than observation, lawyers and accountants are among the most resistant of all. It’s as if their highly specialised competencies, which are built on layer upon layer of convention and rules, is most sensitive to having its apple cart upset and is therefore the most zealously guarded.

However, this is a two-way street. The technology and its proponents have yet to demonstrate adequately that can safely maintain those standards without severe risk of upsetting that same apple cart.

Until that day comes, the tax industry will resist disruption from ‘the new technologies wild bunch’ and condone to dabbling half-heartedly in the automation of existing processes only.

Is 100% automation desirable anyway? Isn’t there a concern about the over-reliance on technology in taxation?

The question is the wrong way around. The question should be, ‘how concerning is the under-reliance on technology in taxation?’ However, you are right to point out the dangers of automation, especially 100% automation, but then automation is not the same thing as technology, even though the two notions are frequently collapsed into one.

The danger comes from the fact that the uninitiated mind can only relate to technology in terms of replacing humans. The mental process here is called the anthroporphisation of machines, in other words, attributing to them human traits. They might be far faster and never need toilet breaks, but they are still doing human-like tasks.

Unfortunately, today’s technologies are not good at this, and this uninitiated approach which dominates the industry has given rise to the bloated, over-engineered, massively expensive tools we see today, because they try to ape the qualities of humans, something they just cannot do (Arnold Schwarzenegger’s terminators are still some way off).

Instead, to truly bust out of their current straightjackets they need to be looking at ‘data’ platforms, and commoditised and democratised technologies aimed at tax. Only tools of this nature can play into people, process, & technology the way it needs to, but then the people in this triumvirate need to become digitally aware, tech-savvy and data literate, and we are some way off from that as well.

So, for the time being it is a balancing act where knowledge and vision is everything. Without that, any initiative is a shot in the dark, and the industry can ill-afford more of that.

Would increased use of technology inevitably lead to automating tax jobs?

In-house tax professionals and their extended family of advisors and consultants have two customers; their own organisations and the tax authorities. It is true that both are digitising and digitalising at pace.

The now infamous Frey and Osbourne study from 2013 that predicted huge job losses turned out to be untrue, but it was an accurate predictor of which industries are most likely to be impacted by computerisation. The Accountants and Auditors Group, which includes the tax industry, was the most at risk, bar one. This is the global tax digitalisation challenge, and it is an immense one.

After re-examination, the outcome of Frey and Osbourne was that the total number of tax jobs is unlikely to alter much, or even increase slightly, but that 94% of today’s tax jobs will disappear due to computerisation. In other words, there will still be plenty of tax jobs, but they may not have been invented yet

So to conclude, where will the tax industry be in five years’ time?

I believe in five years the industry will be different, but it is hard to predict exactly how. I suspect that it will be ‘data’ that drives the change, either because tax authorities are asking questions about uploaded data that the companies that gave it to them cannot answer, or tax is swept up in ‘data’ that finally takes hold as a viable concept in organisations.

Five years from now the biggest demand in the industry could be for Tax Data Engineers.

Now you might have expected me to say taxologists, but I suspect that taxology will more likely become the body of knowledge that underpins tax data engineers, tax technologists, digital tax managers and their leaders in years to come.

Unfortunately, this will probably not come quick enough and many early Tax Data Engineers will be left hung out to dry by their bosses that neither know how to manage them nor understand the value they can bring. This is exactly what they do today with the tax technology products they purchase, and five years from now they will be doing the same with the new-skills people that they hire.

In other words, five years from now the tax industry will still be struggling to figure itself out and find a new identity. It will just be far more urgent than now!

Geoff Peck is the Founder & Chief Taxologist at PawPaw Technology