Tax technology is transforming compliance for banks in Saudi Arabia

An opinion piece by Nicholas Soverall, KPMG in Saudi Arabia

Since digitalization affects every facet of banking operations, KPMG latest Banking Perspectives report touched base on the scope and future of banking automation in Saudi Arabia, growing need for tax technology and data manipulation leading to enhanced efficiency and better value. Traditionally, banks hold an immense amount of data about their customers.

Saudi Arabia stepped into the realm of tax technology with the introduction of new regulations about e-invoicing by Saudi Arabian General Authority of Zakat and Tax (GAZT) in December 2020 with an implementation date of 4 December 2021. It strengthens and enforces compliance to do away with the commercial concealments and duplications. At this stage we know that the new regulations cover the issue, storage and transmission of e-invoices and related relevant data and are already causing Saudi businesses to adopt new tax technologies and processes.

The new e-invoicing regulations are integral and complementary to the VAT Implementing Regulations and apply to all Saudi resident taxpayers. The move to e-invoicing is intended to improve compliance, tax revenue collections and the efficiency of the filing process for taxpayers. Overall, the aim of GAZT is also to improve the Kingdom’s alignment with, and adherence to, international standards. GAZT has committed to make further details available to taxpayers by next month – May 2021.

As banks quickly ramp up their e-invoicing operations to meet GAZT’s end-of-2021 deadline, it is crucial that they take action to ensure data completeness, security and privacy are integrated into the management of their VAT systems. Saudi digital regulations stipulate that web access and encryption are prerequisites for implementing an e-invoicing solution.

Saudi banks face a daunting task to ensure that their VAT related data is complete and accurate to minimize the likelihood of invoicing errors and adjustments and that, e-invoicing solutions are built to identify the likely formatting and syntax discrepancies that will arise – a notoriously tall order for any kind of technology.

Until now, the use of tax technology in the banking sector in Saudi Arabia has appeared to lag behind more widely-implemented product and accounting technologies. We understand that banks with considerable non-zakat obligations have introduced tax-specific technologies, but broadly the sector has a steep road ahead of it.

From a governance perspective, it is wise to have a voice at board-level to make sure the needs of the tax team are not ignored when adopting such systems and re-thinking operations. This could prove to be a challenging task since the breadth of taxation is still a relatively new phenomenon in Saudi Arabia.

It is now even more critical that the entire tax environment is viewed holistically and that the necessary skills and experience are acquired to manage both the output of tax information and the inevitable heightened interaction with the tax authorities.

Finally, modernizing a bank’s tax accounting systems does not often mean technology first and people and processes second, but rather the other way around – updating its operating model and processes and training its people, then introducing compatible technology is a proven approach. With more changes coming to the tax environment in the Kingdom, the need for a tax operating model to support the management of tax risk is becoming ever more urgent.