DECODING Taxation in India

Tax compliance can be daunting in a country with complex taxation laws such as India and perhaps no one knows the challenges better than Manjula Muthukrishnan, Managing Director of Avalara Technologies Private Limited, a market leader in transaction tax technology solutions. She has over 25 years of experience in information technology and digital transformation, and has served leadership roles at renowned organisations like Infosys, HSBC, and Socion Advisors. She shares her unique perspective on the taxation structure in India, the challenges posed by the Covid-19 pandemic and why she believes diversity should be a core agenda for any business today

Corporate Citizen: The taxation structure in India is perceived as more complex than in other countries, especially when it comes to a fairly new structure like GST. Do you agree with this view?

Manjula Muthukrishnan: GST frameworks in many countries around the world are known to have similarities. In other countries, a much higher threshold for its applicability allows a lower tax burden on small businesses. France was the first country to implement GST in 1954, and since then Spain, the UK, Brazil, Canada, Italy, South Korea and many others have followed suit. Today, over 160 countries have adopted the VAT/ GST indirect taxation system. Each has its way of implementation. New Zealand and Singapore apply GST at a single, consistent rate while Indonesia has around five tax rates. China collects tax on goods consumed in the manufacturing process while Australia collects federal tax and divides the revenue among its States. Canada GST is divided into Federal GST, Joint federal and separate federal.

For India, GST was a landmark reform introduced to eliminate a complex tax structure and promote the idea of one tax for one nation. GST at the core is a multi-stage destination based tax applicable on the supply of goods and services. Its primary goal is to boost the manufacturing sector by removing the cascading effect of taxes and reduce the final prices charged to end consumers

If we deep dive into the differences between Indian GST and indirect taxation in other countries, we'll see several aspects unique to India. Let's look at ITC. A buyer of goods or services in India can avail ITC on purchase only if the seller has paid or reported the GST received from the buyer. Registrations under GST are also unique in India'our law requires separate registrations of the same legal entity in different states. Globally, GST regulations for e-commerce transactions are different from that in India. Examples would be our TCS (tax collection at source), the movement of goods under GST law requires the generation of an E-way bill.

More recently, mandatory e-invoicing was rolled out under GST. This new system is expected to iron out several issues while filing GST returns, decrease the turnaround time for verification of e-way bills and keep tax evasion in check. Every single B2B GST invoice generated by a business, not only maintains a standardised schema so that it can be easily processed by supporting systems but also electronically authenticates the validity of the GST invoice by issuing an invoice reference number'this IRN will be auto-populated while filing tax returns, thereby eliminating fake invoicing.

India is still an evolving tax economy but it is embracing technology to implement and manage its taxation systems. India has introduced measures like e-invoicing, e-way bills, use of QR codes for verifications at checkpoints, use of big data to track GST fraud and maintain tax compliance. Paperless invoice management is the future. E-invoicing will significantly reduce manual paperwork in GST operations and allow faster authentication of invoices.

"India is still an evolving tax economy but it is embracing technology to implement and manage its taxation system"

CC: Do you believe Indian businesses, which have historically been more reluctant than their global counterparts in adopting technology, have become more receptive to tax automation technology solutions, especially since GST was introduced?

It is clear that GST is the single biggest driver for the adoption of tax technology in India, and its reform measures are carving a path that will rely on tax technology & automation solutions.

Look at the case of e-invoicing where the tax authorities now deal electronically with businesses. GST authorities now have government-regulated invoice authentication systems to obtain transaction-level data. With this data, they can carry out analytics to find more insights, track compliance and detect fraudulent transactions.

The pandemic and subsequent lockdown changed the way businesses fulfilled compliance obligations, including GST returns and GST audits. The inability to manually file returns and conduct audits gave way for the use of cloudbased software to maintain compliance, obviously resulting in a massive improvement in tax compliance efficiency in comparison to on-premise tax solutions. Concerns about operating from different locations using different technology and collaborating are easily ironed out by cloud-based technology, making it the ideal choice for CFOs and accounting managers.

A SaaS solution is ideal for businesses with a large volume of transactions as these solution providers have the resources to stay agile and keep up with the dynamic landscape of the Goods and Services Tax. Firms who tend to build in-house systems overlook the fact that these SaaS solutions are being updated and maintained by a team of experts with massive technology infrastructure. A significant benefit is that they can sign up with these platforms on a subscription basis and save money by avoiding the cost and time of setting up an entire system in-house. The global tax software market is projected to register a CAGR of above 10.2% by 2024.

Do you feel India has tremendous untapped potential for tax automation technology solutions?

This is just the beginning of the tax automation journey for India. There is a huge potential for automating tax functions with technology solutions. Soon, several technology trends will drive the growth of tax software in India, including artificial intelligence solutions, real-time data analytics and blockchain. New-age technologies like AI, ML, NLP are expected to have tremendous use. They will increase efficiency, speed, the accuracy of data, and improved audit support.

Indian businesses tend to have a 'head in the sand' approach while dealing with new tax reform measures, but digital transformation initiatives are invariably pushing tax professionals and tax teams of businesses to cross-skill as 'tax technologists'.

GST is relatively new to India, but there is a visible evolution in its journey so far. India is working toward the implementation of tax reforms that tend to rely on technology solutions including e-way billing, online tax returns, invoicing etc. More such reforms are expected to be implemented in the future, and they are likely to be supported by tax technology.

"Avalara employees who recovered from Covid-19 shared their real-life experiences, debunked myths and provided tips to stay safe"

CC: Avalara's global growth has remained solid during the pandemic. Did you see the same growth in India as well, especially in light of the lockdown?

Avalara's growth has remained solid throughout the pandemic. The Indian market has been phenomenal, especially in light of the lockdown, mainly due to two factors.

We have seen a considerable rise in the adoption of cloud-based SaaS technology, and tax professionals prefer more and more automated systems to move away from old-school manual processes. There is a considerable shift in mindset where people want to focus on business growth and new revenue streams. Cloud-based apps are very attractive since they are available to use from anywhere, especially from the remote working scenario. A significant factor was the introduction of e-invoicing under GST. With the introduction of e-invoicing, there is a need to integrate transaction and tax information and create a single source of data using multiple platforms and apps.

Once the restrictions on international shipments were lifted, there was a massive rise in cross-border transactions worldwide. Indian businesses have taken a note of this new opportunity, and they do not want to stick to the traditional brick and mortar model. With drastic changes in consumer behaviour it is driving the conventional businesses to move to online models and selling their products in new geographies. Take an example of chemical, pharmaceutical and healthcare industry. If they try to sell in the US, they need to know as well as be compliant with the extraordinarily complex and dynamic tax landscape of that country. That is where we come in.

CC: What has Covid-19 pandemic changed the way Avalara operates? Tell us about some steps you have taken to meet the challenges posed by the crisis.

In the beginning, we moved to a hundred per cent work from home in a matter of weeks. We enabled people who had never worked from home before and adapt to a culture where they had to work from home. We were able to ship laptops and monitors to even remote parts of India. We on-boarded new hires throughout the lockdown period. We created and curated online learning resources and guidelines for managers to help them manage teams remotely, engage with them and boost their morale. Our internal communication teams rolled out weekly updates on Covid in our offices, guidelines for data sharing and online meetings, helped our people set up home offices and ensured that there is a Covid bonus to help people overcome work from home issues.

HR teams realised workplace relationships can increase productivity so, in an indefinite remote working situation, HR teams must focus on team-building tactics, employee engagement and internal communication. It was time for HR to get creative, and that's exactly what happened at Avalara Inc. Our HR teams introduced a plethora of engagement initiatives using the technology at hand. We introduced a monthly AMA or Ask Me Anything with C Suite executives. Our employees can ask questions on an open channel, and everyone can upvote questions for C Suite executives for better prioritising. We also developed an array of virtual activities including virtual sessions around mental health, physical fitness and wellbeing featuring yoga, meditation, breathing techniques and body stretching, virtual talent shows, interactive sessions on diet and nutrition counselling, online cooking classes, weekly contests, magic shows, virtual standup comedy sessions.

We have tried to keep the human interaction alive and kicking with real-time community sharing. Avalara employees who recovered from Covid-19 shared their real-life experiences, debunked myths and provided tips to stay safe. Our HR team also conducted sessions addressing fundamental issues of remote working like how to manage work-home interferences, prioritisation of work, time management and how to maintain a work-life balance. Avalara CSR team engage and give back to the community wherever we do business. However, due to the lockdown, we had to do things a little differently. We organised a 10-day virtual fitness challenge as a fundraising campaign in collaboration with Nirmalya Trust to help people whose livelihoods were affected by the lockdown. Women of Avalara, our global employee resource group for women, organised various unplugged unfiltered discussions with women leaders to understand specific challenges women are going through, having a discussion around pregnancies during the pandemic, managing work along with kids still in school to more critical topics like domestic violence, combatting gender bias, interactive session with gynaecologists addressing woman health. We observed Pink October last month for Breast Cancer awareness with Q&A sessions on self-examination and mammograms

"With the introduction of e-invoicing, there is a need to integrate transaction and tax information and create a single source of data"

CC: What goals have you set for Avalara for the next five years?

Since our founding in 2004, Avalara has always aimed high. We publicly framed our aspirations as 'Shooting the Moon,' and then as a 'Mission to Mars.' In truth, however, our mission has always been earthbound. We are driving to eliminate the confounding, wasteful burden every business on the planet must face: the staggeringly complicated, endlessly evolving government-mandated obligations of transaction tax and regulatory compliance.

Governments worldwide require businesses to collect taxes, remit taxes and impose an astounding array of compliance obligations. In a digital world where all primary business functions are automated, the idea that compliance will remaina manual process is absurd. The global compliance automation revolution is inevitable.

Our vision is audacious: Avalara will be the global cloud compliance platform. What does that mean? Simply put, Avalara will automate all aspects of compliance for every business in the world. This vision transcends being part of every transaction in the world because it includes generating and managing all compliance documents, facilitating all returns and remittances to governments, and becoming a repository of all global compliance and product content. We understand that we are an indispensable service for our customers and accept the responsibility that entails. We work incessantly to meet our promises to our customers, and we remain steadfast in our commitment to our partners, without whom we can never accomplish our vision. We acknowledge that our partners are the indispensable link between our customers and the compliance solutions we provide, and we resolve to improve them continually.

We recognise the contributions, skills, and commitment of our employees, and we honour their diversity, which makes us stronger, more resourceful, and better able to realise our vision. Finally, we remain committed to our shareholders and our obligation to help them meet their goals.

CC: The Indian economy, especially sectors such as tourism, hospitality and aviation, has been badly hit by the lockdown. Do you see a turnaround in 2021?

There is no doubt these industries are paralysed, and there is a high rate of unemployment due to the pandemic, not just in India but the world over. With restrictions on international flying, experts have recommended shifting the focus on domestic tourism and making use of social media to capture the imagination of potential travellers. But businesses also need to take up specific measures while trying to stay afloat.

The Covid-19 crisis has changed day-to-day life in unprecedented ways, and businesses draw up and execute plans to support employees. Companies should set up a crisis response team to lead the effort and should appoint members from every function and discipline to assist. Businesses need to define various scenarios tailored to their company's context when it comes to having sufficient liquidity required to survive the hit period. Communicate with customers. There is no other alternative to it. Businesses need to invest in their core customer segments and anticipate their behaviours. Many top teams do not invest time in understanding what it takes to plan for disruptions until they are in one. For example, e-invoicing was a considerable disruption for many companies while they were struggling during the pandemic.

Even with the new travel restrictions and scenarios of a second wave, there is an upswing in economic activities around the world. With the ongoing reports of Covid-19 vaccines, people are hopeful about the future.

CC: You have 25 years of experience in the industry. What are key initiatives you have taken as a leader that you are most proud of?

I believe in building high-performance teams. One of my major successes was to transform an organisation's way of working from '6 Months Waterfall' to '6 Weeks Releases' through DevOps journey. I truly believe diversity should be a core agenda for any business today and should take strides in institutionalising 'giving back to society'. I have been actively supporting diversity and inclusion best practices to further this cause at my workplace. But my passion for equal opportunity is not limited to the workplace. I believe equal opportunity should start at the very beginning of an individual's growth years viz. education. I am very keen on education for all, especially the girl child and has spearheaded the building of a modern-day school with clean water and sanitation for teenage girl students.

"I have been actively supporting diversity and inclusion best practices to further this cause at my workplace"

CC: Do you feel work from home is here to stay even after the pandemic?

For the technology industry, remote working is not a new concept. The pandemic just helped us explore the depths of this concept fairly quickly. More recently, there have been talks about permanent remote working, not only in the technology vertical but across various industries. Even the World Economic Forum has pointed out that workplace flexibility is a critical tool for operating in the future. It is no secret that remote working is cost-efficient, and the productivity level is pretty high. That being said, only time will tell if we, as a country, can evolve and adapt to the modern-day remote working permanently. Productivity and cost-benefit aside, our readiness in terms of technology is an essential factor in determining how well we can manage remote working. We must also factor in how remote working will alter our talent management policies. It will all boil down to having a stable system interdependent on human and technological readiness ensuring data security and productivity tools. With phishing attacks rising during this remote working phase, there is a need to build more awareness and train employees regarding security, share resources and guidelines with them. Business leaders will have to figure out their overall vision of the workplace of the future and what works for their business

While remote working might not be suitable for every role, some roles that require minimal workplace interaction could benefit from remote working. However, for roles where there is a need for a high level of collaboration, it will be difficult to work virtually on a long-term basis. Before the lockdown, we faced a different set of challenges like proximity to the workplace, the commute, the traffic, etc. While remote working eliminates the soul-crushing commute, it brings in new challenges. Power cuts and a fluctuating internet connection only scratch the surface. There are technological challenges, like maintaining data integrity and data security. There are also challenges on the human aspect. Employees are vulnerable to working longer hours facing the risk of burnout and disruption of work-life balance. Stress levels are high, as those with larger families must deal with constant interruptions at home. Additionally, roles that require cross border collaborations are seeing a severe overlap in time zones. The need to stay in the loop is making work seem a lot more intense than what it is. Sometimes even the lack of a proper work desk or workspace can create physical stress.

CC: Do you feel that women are adequately represented in your organisation? If not, what steps have you taken to include more women in the workforce?

At Avalara, we have a goal to reach 50:50 gender ratio and equal pay, and we are continuously working towards it by looking at the available data starting with hiring data, compensation data. We are working with our dedicated women's employee resource group members to make institutional changes through the lens of diversity, engagement and inclusion. We are already influencing the way talent from all backgrounds are being actively sought by our talent recruitment teams because as we seek to accelerate the pace of technological innovation, we must create opportunities for women to grow our business, to engage and develop both in their professional and personal lives. We are in a position to disrupt the biased policies and practices that have excluded underrepresented groups from opportunities and advancement. We are actively working to address personal biases and internalised behaviours while also confronting the system barriers that keep people from belonging.

CC: What is your idea of relaxation?

I love going for long walks and running with my dog. I love to garden, and I also love reading books