Rethinking compliance
In today’s complex business environment, organisations need to deal with several regulatory compliances in the course of conducting business. Bangladesh, being an emerging nation, is fast adopting several regulatory compliance measures to regulate businesses across industries. With the right kind of focus on automation, organisations can convert many of these compliance requirements into automated processes, thereby improving the compliance environment.
The collapse of Rana Plaza taught us an important lesson on safety standards. Several safety standards are available and companies, particularly apparel manufacturing companies, have worked hard to adopt these measures. Foreign buyers impose a few additional requirements with respect to the safety of factories as well as certain labour practices, and apparel manufacturing companies in Bangladesh are expected to comply with these standards.
The other concern is environmental. The Department of Environment under the government of Bangladesh is responsible for implementing the rules and regulations pertaining to environment protection and sustainability. Businesses in Bangladesh need to adhere to these requirements as well.
Above all, there are requirements for tax compliance. Companies need to follow both direct and indirect tax rules within Bangladesh. While value added tax (VAT) and income tax are the biggest tax components, companies routinely need to deal with other taxes such as import duty and excise duty. As a result, there are multiple compliance requirements corresponding to each type of tax.
In short, the regulatory environment today is highly complex. Noncompliance with any of these requirements would result in loss of reputation of the company, penal actions against the company, and more rigorous compliance assessments. Hence, businesses need to prioritise compliance needs, which result in significant effort and cost for a company.
Technology can be an efficient way for businesses to ensure compliance. The right kind of technology solution would provide adequate interfaces to capture all compliance needs for an organisation. Subsequently, the technology solution can generate daily, weekly and monthly alerts for the compliance officers to address in a timely manner.
The right technology solution can also collect and collate data periodically and use it to automatically prepare compliance forms. Some organisations have already started using such solutions for tax-related compliance. For example, VAT returns can be prepared automatically by collating VAT-related data captured in transactional forms generated through ERP systems.
However, it should be noted that technology cannot solve all compliance-related requirements. Often, rules and regulations are subject to interpretation and subsequent deliberations. A technology solution will function robustly when such regulations are free of ambiguity. Regulators belonging to all domains need to be mindful of such needs and, where necessary, regulatory reforms can be initiated.
A simplified set of rules helps in standardised codification and automation through technology. The best compliance regimes are nimble and responsive to changes in the structure of their economies. The next few years are likely to test these attributes as significant disruptive forces emerge. One of the most significant disruptions is expected to emanate from the use of artificial intelligence (AI) and its impact on labour-intensive processes in the near future. A similar effect will be observed in the case of compliance processes. Labour-intensive compliance processes are likely to be replaced with sophisticated algorithm-driven compliance processes.
Technology-led transparency will also bring about some radical changes in compliance processes. Distributed ledger technology, such as blockchain, is likely to improve the process of data sharing between companies and regulators. Once data sharing becomes a frequent and automated process using technology like blockchain, the degree of compliance will also improve. Companies and regulators need to collectively invest in building compliance systems that can automate processes and bring in more transparency.
Compliance also helps in boosting the brand value of an organisation. For example, the revenue department recognises the highest taxpayers within the country every year. This is an indirect way of recognising compliance. Regulators from other domains can take a more direct approach in recognising compliance of organisations. Once organisations find that their brand value is being enhanced through compliance, they would be inclined to invest more in implementing compliance efficiently and accurately.
Regulators will also have to familiarise themselves with the new technologies to comprehend their impact on improving compliance. The ministry responsible for developing such skills should take proactive steps to train and enable the officials of regulatory bodies to adapt to this new way of working. This will also change the profile of a typical regulatory official. In addition to their respective domain knowledge, regulators of the future will have to rely on technology and statistics to a greater extent.
The writer is a partner at PwC. The views expressed here are personal.