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The global tax management software market size stood at USD 5.24 billion in 2018 and is projected to reach USD 11.19 billion by 2026, exhibiting a CAGR of 10.4% during the forecast period.
Tax management software market growth is primarily driven by the increasing volume of financial transaction data collected captured by the companies. This has provided an impetus towards the technologically advanced platform to create and manage audit reports, tax returns, and payments. The companies and Fintech firms are emphasizing on simplifying tax compliance with automation; thus, the demand for the software has been on the forefront. In addition to this, the complex nature of the existing taxation system and digital payments growing at a larger scale have created ample opportunities for key vendors to expand their product portfolio.
Key vendors in the market are heavily investing in research and development activities to develop cloud-based solution that enables organizations to configure tax rates, perform tax accounting, and generate tax reports in a single platform. For instance, in December 2019, Wolters Kluwer N.V. launched, a cloud-based tax preparation and compliance platform, namely CCH Axcess Knowledge Coach module in its CCH Axcess. This solution helps tax auditors to establish collaboration across audit members and improve audit efficiency.
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Adoption of Advanced Technologies to Focus on Enforcement and Taxpayer Compliance for Efficient Customer-Centric Services
Although the tax eco-system may be slow to digitalize, the modern value is gradually being taken up by the tax authorities to pursue more real-time reporting and offer efficient services to their customers. These days, tax authorities are at different maturities by digitizing interactions to give taxpayers with more useful and personalized services.
In the era of the consumer-centric world, tax authorities around the world are also adopting more recent tax legislations and demand greater transparency by sharing and easily exchanging information between tax authorities and taxpayers. For example, many European regulators, followed by Latin America, are shifting towards Standard Audit File for Tax (SAF-T) protocols. Similarly, web-based tax systems, equipped with applications of Machine Learning (ML) and Artificial Intelligence (AI) are being replaced with spreadsheets, which minimize manual input, data transformation, and speed the tax filling processes. Since most of the tax authorities have started using advanced analytics, there has been complexity associated with digitization of taxation process. The adoption of advanced technologies in tax management reduces complexity by helping tax payers to apply for tax registration online, e-filling of tax returns, and e-processing of returns and refunds by tax authorities in minimal time. Thus, the emergence of new technologies and businesses adopting digital strategy has made constructive addition to the growth of the global tax management software market.
Need for Automated Solution to Manage Large Transactional Data Driving the Market Growth
Due to the constant globalization and proliferation of e-businesses, there has been a continuous demand for a platform that enables enterprises to conduct businesses across nations, trading zones, and multiple interaction channels. With rising digitization, corporate tax and IT departments are aiming to come across more partners and meet specific customer needs. Tax Management Software software help enterprises to improve reporting and administration of ever-changing transaction tax laws and regulations. This software for Tax Management is capable of handling and managing compliance reports and meet tax filing-requirement deadlines, without an unnecessary burden and with minimal manual labour.
Furthermore, constantly evolving taxation eco-system intensify the burden for implementing successful strategies for gathering, processing, and evaluating data which is usually hard to obtain from standard financial reporting. This has facilitated the growth of this market, globally.
A Tax Management Software helps financial institutions and businesses to analyze the massive amount of data collected by monetary transactions and help businesses with decision making. Tax and customs authorities are collecting data from Value Added Tax (VAT) and Goods and Service Tax (GST) payers through their financial transactions. Additionally, tax administrations are electronically processing and analyzing financial data collected from indirect tax. This software enables tax administrators to use data extracted from taxpayers’ systems to carry out VAT/GST audits. Thus, the adoption of data analytics solutions to improve eVAT/GST compliance is considered to be an emerging driver for tax management softare market growth. For instance, Spain introduced the Immediate Provision of Information in July 2017, which allowed all taxpayers to provide data relating to VAT invoices in real-time.
Growing Emphasis on Centralized Taxation System for Economic Development to Aid Demand
A well-functioning taxation system may lead to a firm, sustained, and effective economic development. Taxation provides governments with the requisite funds for infrastructure development, poverty reduction and high efficiency and timely delivery of public services. It also ensures economic reliance and sustainability to foster growth. In terms of transparency and equity, tax system architecture is also closely related to internal and global investment decisions.
Furthermore, efficient tax administration help government and businesses to be registered formally, thereby expanding the general taxation and increased tax revenues. For instance, as Tajikistan aims for its development goals, the government of Tajikistan has made tax reform a vital priority. The Tax Reform Project was launched in Tajikistan in 2013, which contributed to the creation of a more competitive, transparent and service-oriented tax system in Tajikistan. Modernization of the infrastructure and the implementation of a single tax administration system have made tax officials and taxpayers more operative.
Tax software assists organizations and taxpayers with a better understanding of complex taxation systems, and thus enable them to monitor their business and finance activities and provide alerts about tax payments. As a result, the need for timely tax filings with the help of tax software is driving the market.
Increasing Reliance on Digital Communication and ePayment Methods Are Creating Data Security Concerns
There are several possible vulnerabilities present in electronic communication methods. These vulnerabilities include sensitive information sharing, data and security breaches, identity theft, and other platforms of cyberattacks. Nevertheless, due to the useful and fragile nature of the information, the danger in tax administration is severe. Sensitive data is often stored in areas outside banking such as on-cloud and databases, which enables cybercriminals, including the filing of fraudulent tax returns to subvert valuable company data and to use it to enter unlawful trading. Similarly, cybercriminals also target tax professionals as they have details including client names, addresses, dates of birth, and access to the bank accounts. This might impede the tax software market growth during the forecast period.
Human errors trigger many of the data breaches, so policymakers should combine that dependency on digital communication with a concerted effort to inform citizens on the key risks and safeguards.
Software Segment to Dominate the Global Market
Based on the component, the tax management software market is segmented into software and professional services.
Tax software is witnessing high demand as tax and accounting laws are continuously changing in various countries. Organizations will follow the new and existing tax reports and enforcement procedures internationally. In such cases, tax software assists major companies with effective tracking and improve business decision making, depending on the tax obligations in different countries.
Professional services segment involves a range of services that provide support and maintenance and license renewing of the tax software. With growing adoption of tax management software, the demand for tax management services is also anticipated to see a healthy growth during the forecast period.
On-premises Segment to Aid the Market Growth
Based on the deployment, tax management software market has been segmented into the cloud and on-premises.
On-premises segment is expected to hold the largest share in the global tax management market. On-premises deployment of tax software enable organizations and financial firms to gain control over their integrations and provides various benefits such as scalability, functionality, and high data security.
The cloud-based software approach helps businesses and tax authorities minimize expense while offering highly versatile and efficient access to IT approaches through the Cloud Service Provider (CSP) network. Enterprises, therefore, tend to use cloud platforms to improve mobility and decentralize data storage and computing. Cloud-based tax solutions deliver accurate tax reports with a hosted tax decision engine. Also, these solutions enable companies get a comprehensive insight into innovations, patterns and preferences. This concept is used to implement tax and organizational decisions effectively based on analytical results.
Adoption of Tax Management Software among Large Enterprises is Likely to Witness High Growth in Near Future
Based on enterprise size, the market is segmented into large enterprises and SMEs.
The large enterprises segment is expected to hold the largest share mainly owing to the growing digital transformation among companies and ubiquitous adoption of tax platforms. An increasing number of large enterprises are shifting towards tax management solutions to manage taxes and regulate compliance responsibilities.
Tax management is an inevitable aspect of running a small business, and it can be a struggle for any small business owner to deal with the taxes. Small and medium-sized enterprises, which contribute to economic growth and employment, have significant modest tax rates. SMEs need tax software to manage their tax fillings and financial transactions as they are offered loans at lower interest rates than usual; thus need for tax software among SMEs is likely to boost during the forecast period. In Brazil, a monetary framework designed to simplify tax collection for micro and small businesses was developed by the government.
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Implementation of Tax Management Software Expected to Gain Momentum in BFSI Sector
Based on vertical, the market is segmented into BFSI, healthcare, retail, manufacturing, energy and utilities, and others.
The banking, financial services and insurance (BFSI) sector has shown great reluctance in its transition to adopt tax software. The explosive growth of banking data collected through various channels such as mobile banking, digital wallets, and chatbots has resulted in a demand for tax software. Government regulations in the BFSI sector are complex; thus, businesses are leaning towards advanced technologies to provide a more value-added and strategic role for the organizations.
The manufacturing sector is not only afflicted with the responsibility of following a dynamic taxation mechanism, ranging from decreases in exports and increased infrastructure investment. Some indirect fiscal regulations have led to considerable enforcement and administrative expenses, and conflicts over classification and evaluation. Therefore, manufacturers need to adopt tax management software to tackle continuously varying market. Tax management software enables manufacturers to increase working capital and amend supply chain management.
North America Tax Management Software Market, 2018 (USD Billion)
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Geographically, the global tax management software market is segmented across five major regions, namely North America, Europe, Asia Pacific, the Middle East & Africa, and Latin America. They are further categorized into countries.
North America market has shown a tremendous growth in the adoption of tax software due to the continuous changes and regulations in the regional taxation system. The complexity of the taxation system, together with differences between tax and employment law in the region is creating remarkable opportunities for software developers and key vendors to invest in tax management software market. Software vendors in the region have started integrating with the third-party developers to develop API-based software to smoothen the taxation system. Subsequently, businesses in the North America are embracing advanced technologies and channels to sustain the market and upgrade at an exponential pace. This is having a profound impact on the taxation environment, and the adoption of this market in the region.
Whilst, Asia Pacific tax management software market is expected to hold a prominent position in the market by registering moderate growth in the coming years. Governments in this region will continue to be driven to protect their tax base, tax reforms, and the frequency of tax audits will be in the spotlight. This will facilitate the need for robust solutions that handles tax reports; thus, the demand for tax management software is expected to boost in the region. The continuously evolving taxation environment has also made it essential that tax authorities and payers in Asia Pacific keep themselves informed about factors affecting the company’s tax obligations. The tax forum in Asia Pacific has become the best opportunity for tax software vendors to expand their consumer base in the region. For many countries, growth for Asia Pacific has moderated, making it increasingly necessary for tax policies to appeal to enterprises. However, there is likely to be more regular and vigorous fiscal audits by tax administrations to produce more significant revenues; thus, demand for this software is expected to increase in the forecast period.
The Middle East and Africa as well as Latin America are estimated to witness steady growth in the tax management software market. This growth is mainly owing to the increased adoption of tax software among SMEs and large enterprises to handle tax fillings and financial transactions.
Avalara, Inc., Thomson Reuters, and Wolters Kluwer are Emphasizing on Expanding Product Portfolio to Strengthen Market Position
Wolters Kluwer N.V. provides software solutions and services that serve businesses, tax, accounting, finance, audit, risk, compliance, and healthcare markets. The company provides numerous solutions such as CCH Axcess, CCH Tagetik, CCH iFirm, CCH Integrator to ensure compliance, improved audit efficiency, and effective management. For instance, in August 2019, Wolters Kluwer launched CASH Tax Importer. This solution will help commercial lenders to ensure and speed up the entry of correct tax returns used in commercial lending. The new module removes the manual function of entering details from the tax returns and tax schedules of a prospective borrower.
Furthermore, other prominent players such as Vertex, Inc., Avalara, Inc., and TaxSlayer LLC are introducing advanced solutions with an integrated data analytics platform. Besides this, the companies are heavily investing in R&D to produce new creative products in collaboration with research institutes. Tax management solution providers are concentrating on mergers and acquisitions of smaller and emerging technology companies, which expand their offerings and product range to gain more significant market share.
An Infographic Representation of Tax Management Software Market
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The tax management software market report provides a detailed analysis of the market and focuses on key aspects such as leading companies, product types, and leading applications of the product. Besides this, the report offers insights into the market trends and highlights key industry developments. In addition to the aforementioned factors, the report encompasses several factors that have contributed to the growth of the market over recent years.
Value (USD billion)
By Enterprise Size
Fortune Business Insights says that the global market size was USD 5.24 billion in 2018 and is projected to reach USD 11.19 billion by 2026
In 2018, the global market value stood at USD 5.24 billion
Growing at a CAGR of 10.4%, the market will exhibit steady growth in the forecast period (2019-2026)
The software segment is the leading segment in this market and is expected to continue to dominate during the forecast period
Need for automated solution to manage large transactional data is fuelling the demand for vagus nerve stimulation devices
Wolters Kluwer N.V., SAP SE, Thomson Reuters, Intuit Inc., Sovos Compliance, LLC. are some of the leading players in the global market
North America dominates the market share in 2018
Growing R&D and Demand for a centralized taxation system for economic development is opening up new application areas for tax management software in the market
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