The pandemic has imposed a new challenge on tax management from a compliance perspective. As a form of relief to businesses, many APAC markets, including Australia, China, India, Indonesia, Japan, Malaysia, Philippines, New Zealand, Singapore, South Korea, Taiwan and Thailand, have introduced new or temporary changes to their value-added tax (VAT) regulations.
While such relief is keeping economies humming for the short term, it has resulted in changing VAT rates associated with expenses and invoices for products and services throughout the year that businesses need to keep track of. It’s been challenging for companies to monitor and comply with these multiple and frequent changes, given that VAT reclaim in APAC still often relies on manual processes − from employees filing expenses to finance teams adjusting the rates to ensure compliance.
Such manual reclaim processes often lead to human error, resulting in claims being rejected at best, or increased regulatory scrutiny and fines in the worst-case scenario. Some businesses forego the exercise altogether because of the sheer difficulty in ensuring compliance with regulations.
However, even if an organisation chooses to do nothing, the risk of financial loss can still be substantial. They may forfeit historical refunds they are entitled to, which may date back as far as five years ago. It is hence important for businesses to get a handle on the issue.
Thankfully, there are technologies available today to help organisations automate the VAT reclaim process, improve compliance, and provide a revenue boost to their business.
Automating VAT Reclaim
Seventeen countries in APAC and more than 160 globally are applying VAT on goods and services with varying policies.
To reclaim VAT, finance teams need to document all expenses, store related invoices, verify their authenticity, and validate that they are eligible to be reclaimed under the different regulations of each country’s tax authority. When relying on manual processes, businesses need to add an extra layer of complexity − encoding disparate expenses and invoices for processing by the right authorities. In this scenario, the potential for human error increases with each new invoice or expense claim that needs to be re-encoded to suit the regulatory requirements. Tracking changes in rates, checking line item data, and keeping up with changing regulations is also tedious.
By using digital expense and invoicing management systems, businesses reduce their reliance on manual processes. Sophisticated platforms powered by AI enable businesses to combine efficient data capture and enrichment from multiple sources into a unified digital workflow. This results in a much simpler process for the employee, who only needs to submit their expense claim
The platform will then collate all the relevant information, including VAT associated with the products submitted in the claim, and provide the finance team with an accurate record of the total VAT that is eligible to be reclaimed as well as full visibility into their VAT program through a simple, centralised dashboard. This simplifies processing and helps reduce the time the finance team spends assessing each claim.
Simply put, these platforms reduce the risk of non-compliance with domestic regulations, and provide additional governance and visibility into the full value of reclaimable tax for the business, while maximizing the full amount of VAT the business is entitled to, whether domestically or internationally. The extra savings can then easily be processed and reallocated to other areas of the business that matter-most.
Monitoring employee spend and fraud
Another source of cash outflow is poor spend governance, fraud and erroneous claims, and sometimes good-faith mistakes. Organisations should put in place processes and technologies to flag unauthorised spend and identify patterns of abuse or fraud.
If a firm has a reliable means to identify violations of spend policy before reimbursement, it can raise awareness, decrease risk of misuse and fraud, shorten auditing time and boost compliance. “Reducing an organization’s financial liability is especially important during this economically challenging time.
With Covid-19 still impacting businesses, it is now more important than ever to simplify processes, eliminate unnecessary expenses, and minimise the risk of incurring fines and penalties due to non-compliance. With more governments mandating near-real-time digital reporting and looking to increase revenue through indirect taxes and enforcing compliance with those regulations, organisations need to act now to automate their expense and invoice management.
| Intricacies of VAT reclaim in APAC |
| Businesses in China need a Special VAT Invoice (Special VAT Fapiao) for tax-deduction purposes. Non-resident businesses in India can only claim GST refunds if they are GST registered in the country. For meals related VAT in Australia to be claimed, a detailed separation of employee and non-employee incurred amounts must be reflected on receipts. In Singapore, input GST claims are not allowed for club subscription and membership fees charged by sporting and recreational clubs. In South Korea, input VAT claims are not allowed for entertainment expenses. |
