Tax compliance software is software that assists
tax
A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...
compliance, and may cover
income tax
An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Tax ...
,
corporate tax,
VAT
A value-added tax (VAT), known in some countries as a goods and services tax (GST), is a type of tax that is assessed incrementally. It is levied on the price of a product or service at each stage of production, distribution, or sale to the en ...
,
service tax,
customs,
sales tax,
use tax
A use tax is a type of tax levied in the United States by numerous state governments. It is essentially the same as a sales tax but is applied not where a product or service was sold but where a merchant bought a product or service and then conv ...
, or other taxes its users may be required to pay. The software automatically calculates a user's tax liabilities to the government, keeps track of all transactions (in case of
indirect taxes), keeps track of eligible tax credits, etc. The software can also generate forms or filings needed for tax compliance. The software will have pre-defined tax rates and slabs and can allocate income or revenue in the right slab itself. The aim of the software is to provide the user with easy way to calculate tax payment and minimize any
human error
Human error refers to something having been done that was " not intended by the actor; not desired by a set of rules or an external observer; or that led the task or system outside its acceptable limits".Senders, J.W. and Moray, N.P. (1991) Human ...
.
Tax compliance software has been present in developed countries for long in the form of tax calculators mainly for direct taxes, such as income tax and corporate tax. Gradually some more complex and customized tax compliance software has been designed and developed by organizations around the globe.
Tax compliance software can be divided into two main categories:
direct and
indirect tax compliance software.
Direct tax compliance software
A
direct tax
Although the actual definitions vary between jurisdictions, in general, a direct tax or income tax is a tax imposed upon a person or property as distinct from a tax imposed upon a transaction, which is described as an indirect tax. There is a di ...
is one paid directly to the government by the persons (juristic or natural) on whom it is imposed (often accompanied by a tax return filed by the taxpayer). Examples include income tax, corporate tax, and transfer tax such as
estate tax
An inheritance tax is a tax paid by a person who inherits money or property of a person who has died, whereas an estate tax is a levy on the estate (money and property) of a person who has died.
International tax law distinguishes between an es ...
and gift tax.
Basic software for income tax in the form of a tax calculator, and are now widely used. For example, the
Government of India
The Government of India (ISO: ; often abbreviated as GoI), known as the Union Government or Central Government but often simply as the Centre, is the national government of the Republic of India, a federal democracy located in South Asia, ...
provides an income tax calculator on their website.
Corporate tax compliance software has also been in existence for years, more often than not within the company's Finance & Accounting software or financial module of
ERPs
Ethernet Ring Protection Switching, or ERPS, is an effort at ITU-T under G.8032 Recommendation to provide sub-50ms protection and recovery switching for Ethernet traffic in a ring topology and at the same time ensuring that there are no loops for ...
. These suites have the facilities to maintain the company's General Ledger, Cash Management, Accounts Payable, Accounts Receivable, Fixed Assets along with some basic taxes.
Financial Features of SAP ERP
Retrieved 20 June 2008
Indirect tax compliance software
An indirect tax (such as sales tax, value added tax (VAT), or goods and services tax (GST)) is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the customer). The intermediary later files a tax return and forwards the tax proceeds to government with the return.
Indirect Tax compliance has always been much more complex as compared to the direct taxes. Many indirect tax compliance programs have separate modules for VAT, Service Tax, Customs etc.
VAT compliance software
Value Added Tax (VAT) legislation has a common structure across countries (and states in case of India
India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the seventh-largest country by area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the so ...
). Software must be customized to each country, however, because of differences in the some areas, such as handling of credit of capital goods, sale of scrap and second-hand goods, formats of mandatory submissions and audit exercises.
Service tax compliance software
Service tax compliance software often include maintenance of credit registers, handling reverse charges, rebate claims on export of services along with payment of tax and filing of returns.
See also
* Streamlined Sales Tax Project
References
{{DEFAULTSORT:Tax Compliance Software
Financial software
Regulatory compliance