and Machine Learning technologies in various aspects to achieve their business goals. Now, they are actively exploring ways to implement these advancements responsibly and profitably. This goal closely aligns with the
Digital India initiative, launched in 2015 to build a next-generation empowered economy.By many measures, the country is steadily progressing toward this vision, with its digital economy projected to contribute nearly one-fifth of the nation’s GDP by 2030. This shift holds significant potential for businesses operating domestically, as well as for those planning to expand into global markets.. However, they must address regulatory compliance, cross-border taxation, and evolving trade policies to navigate international trade efficiently.
Recognizing these concerns, many organisations are turning to technology-driven tax solutions. A recent survey stated that 92% of companies have adopted or planned to implement
digital tax platforms within the next five years. Moreover, over half are actively integrating AI-driven technologies to streamline tax functions, paving the way for a smarter, more automated compliance space.
The constant stress of creating a tax-transparent and globally connected trade environment has driven Indian exporters to seek the best-in-class solutions. This stress arises from the multilayered regulations they need to tackle from the outset. In the US, for instance, tax compliance becomes challenging due to the multijurisdictional nature of sales tax. Each state imposes their own rates and economic nexus laws requiring businesses to collect and remit sales tax once they exceed certain revenue thresholds, even if the company has no physical presence there.
Moreover, there are over 13,000 sales and use tax jurisdictions in the US with their policies and deadlines. Similarly, the VAT system in the European Union (EU) has its own set of requirements. An Indian exporter selling across member states may need to charge different VAT rates based on the product type and the buyer's location, leading to a convoluted network of compliance responsibilities. This can be overwhelming, especially as compliance errors can lead to penalties and disruptions in trade.
To overcome this, AI-powered tax systems offer an integrated solution that consolidates tax laws from multiple jurisdictions, automating calculations, filings, and regulatory updates. By reducing manual efforts and decreasing the risk of errors, AI helps exporters redirect their focus from regulatory burdens to strategic expansion.
Additionally, AI-enabled platforms can help track real-time transactions, proactively flagging potential issues before filing returns. For example, if an Indian exporter selling apparel online approaches California's economic nexus threshold of $500,000 in sales, AI systems can alert the business to register for sales tax in that state.
By utilizing ML algorithms, AI can also predict future tax liabilities based on historical data and projections, helping businesses avoid unforeseen tax burdens. Simultaneously, AI and ML make accessing and interpreting vast amounts of tax data stored in the cloud easier. AI-driven platforms can source and structure this data, helping businesses understand what has changed, track new tax rates, and automatically find the correct rates for each product and location.
In line with this, companies are increasingly adopting advanced technologies, such as GenAI, blockchain, and data analytics, to revolutionise their tax functions.
According to recent studies, 87% of tax and finance professionals believe GenAI will significantly enhance the efficiency and effectiveness of their operations. GenAI helps businesses automate complex tax-related processes, such as generating accurate tax reports, predicting potential liabilities, and identifying discrepancies across jurisdictions. This allows organisations to swiftly adapt to regulatory shifts, ensuring greater compliance and reducing the risk of costly mistakes in cross-border transactions.
Beyond the basics
The push for Digital India is propelling significant progress in various sectors, focusing on leveraging technology to streamline operations and compliance. A recent example of this impel is the launch of Bharat Trade Net (BTN), a unified digital platform designed to simplify cross-border trade. BTN focuses on enhancing logistics, customs clearance, and trade documentation processes, which are often burdensome for exporters.
Moreover, it significantly improves transparency and provides easier access to financing, making it simpler for Indian businesses to expand. Given this, as AI drives tax compliance and automation, it has the potential to enhance the capabilities of platforms like BTN, ensuring that Indian businesses remain innovative and efficient globally.
Notably, the collaboration between the government and businesses will be crucial in shaping a future-ready tax ecosystem. With this, the increasing adoption of third-party, automated tax solution providers signals towards more secure, scalable, and cost-efficient solutions for managing tax compliance. Looking ahead, all these advancements will smoothen the tax processes and empower businesses to respond faster to regulatory changes, ensuring greater accuracy and transparency. As the industry evolves, Indian exporters need to be better equipped to meet the obstacles of a rapidly changing tax world, enabling sustainable growth and unfolding new opportunities for businesses and the economy alike.
The author is VP, Product Management, Avalara.
Disclaimer: The views expressed are solely of the author and ETCIO does not necessarily subscribe to it. ETCIO shall not be responsible for any damage caused to any person/organisation directly or indirectly.
