Why indirect tax compliance is key this Christmas

indirect tax compliance

Alex Baulf, Senior Director, Global Indirect Tax, at Avalara discusses why implementing an effective omnichannel indirect tax compliance strategy is becoming increasingly important to retailers with global ambitions, particularly at this lucrative time of year. 

The festive period is just around the corner and most businesses will have locked in their multi-channel marketing plans, payment platforms, logistics, and special seasonal offers months ago. 

For many, Christmas represents the busiest and most lucrative time of year, and effective forward planning typically pays huge dividends. However, there’s one part of the e-commerce jigsaw puzzle that can sometimes be an expensive afterthought for online retailers trading internationally – tax and compliance obligations. 

The international tax conundrum

Today’s consumers demand consistent, high-quality experiences across all brand channels, regardless of where, or when, they are doing their shopping. While tax compliance was once a simple back-end process for accounting teams to deal with, the combination of expanding global reach and new indirect tax regulations is making every retailer’s ability to maintain international tax compliance more and more complicated.

One of the best ways to mitigate this is with an omnichannel indirect tax compliance strategy that supports the organisation’s global business goals. When done correctly, it can help to accomplish four key objectives: 

1. Enhancing the checkout experience

Online shoppers have grown accustomed to viewing all tax, fees, and shipping costs at the final stage of the purchasing process. However, the latest statistics show that 49% of shoppers also abandon their cart at this point because they consider these final ‘extra’ costs to be too high. 

To prevent this, retailers need to provide fast, accurate, and consistent tax calculations across all their channels. Automation is a great way to do this, helping avoid that last minute ‘uh oh’ moment that stops customers from clicking ‘buy’ at the crucial moment. 

2. Accommodating rapid sales growth 

The rapid growth of e-commerce has truly turned the world into a global village, where businesses of all shapes and sizes can reach new customers, expand product offerings, and sell across a host of different channels. For most retailers, this peaks during the festive period, where in the US alone, online shopping sales hit $201.32 billion during November and December 2020, up more than 45% from the previous year. 

While the ongoing pandemic was a major factor in the growth of online shopping over the last 18 months, the change in consumer habits has proved permanent and many experts predict online sales this year will easily surpass last year’s figures. However, the ability to effectively serve this huge influx of new shoppers will depend largely on whether retailers can deliver that consistent, high-quality shopping experience they are looking for across all channels and devices. This includes fast, transparent tax calculations, delivered at a crucial point in the customer journey.

3. Cutting costs and driving business efficiency

For many retailers looking to broaden their horizons by selling to more overseas shoppers, the plethora of different national/international tax rules and regulations can quickly become a huge burden. In many cases, businesses are forced to either bring in new resources to deal with it, or rapidly rethink the scope of their ambitions. 

However, a well organised and executed compliance strategy lets retailers do more with less, while automation technology can help to further reduce the manual aspects of compliance assurance. Getting all this right can also be the deciding factor between successfully defending an audit or facing penalties, should the situation arise.

4. Reducing risk as compliance increases

During the festive period, retailers often look to take on seasonal staff, expand product lines and increase their high street presence with pop-up stands. However, this rapid growth means they can unknowingly affect their indirect tax obligations too. 

Legislation often moves faster than most businesses can keep up with, and staying on top changes requires continual research, which is almost impossible to achieve without an effective tax compliance strategy in place.

As Christmas looms on the horizon and the sound of festive cheer grows louder by the day, businesses and retailers everywhere are quite rightly getting excited about the prospect of a lucrative few months. However, for those looking to international markets, taking the time to put an effective omnichannel indirect tax compliance strategy will not only help boost customer experiences and streamline business operations, but it will also help avoid a painful New Year tax hangover. 

More about indirect tax compliance

For more information on Avalara’s indirect tax compliance solutions, please visit www.avalara.com.