Ravi Ravipati: Tax Ledger in SAP - Is It Time To Rethink About The Need For Tax Ledger
Ravi Ravipati: Tax Ledger in SAP - Is It Time To Rethink About The Need For Tax Ledger
Ravi Ravipati
Congress has passed the largest piece of tax reform legislation in more
than three decades few weeks ago. There is tremendous amount of
activity taking place in every company to evaluate the impacts and how
to maximize the benefits from provisions like reduction of Corp tax rate
down to 21%, Exemption of dividends received by certain US entities,
Bonus depreciation for certain assets, changes to transaction tax on
deferred earning and many more. This “tax planning and optimization”
strategy needs a mechanism to work out multiple “simulation and what if
scenarios” for every possible business scenario so that right decisions can
be taken to maximize the shareholder value. The question that struck me
is how invaluable a separate tax ledger could be in situations like this.
Imagine having a separate Tax ledger that has the actual data,
dimensionality, ownership structure, drivers etc where you could work
out every conceivable scenario to evaluate the tax benefits.
I think the need for a separate tax ledger is primarily driven by how significant the
differences are between the accounting principles and tax principles applicable to a
business. A simple example of a difference that could lead to a separate tax ledger
could be the difference in the fiscal year definitions between financial accounting
and tax accounting. If there are enough differences that warrant a separate ledger,
the new capabilities offered by S4H complement such a design. I believe the
simulations for tax incidence per various ownership structures could any way be
driven out of the planning suites with or without a separate tax ledger. So to me,
the S4H capabilities are a secondary consideration for making a decision of a
separate tax ledger. Thanks for initiating an interesting conversation, Ravi.
Appreciate the same.