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Tax Work is Key to Driving Supply Chain Resilience

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Supply chain challenges can wreak havoc on businesses that rely on a steady stream of products, services, or components to survive. We’ve seen some immense disruptions over the last two years, and we’ll likely continue to experience them. We should expect future crises, as a complex, unpredictable global economy filled with interdependent, diverse economic agents and entities that continue to rise. 

Aug 3rd 2022
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Most business leaders are aware of the current state of the market. High inflation, trade barriers, geopolitical risks, and labor shortages have pinned executives’ attention on the supply chain. These leaders want their organizations to develop or redesign supply chains to withstand global disruptions more effectively and efficiently. 

But the simple fact is that most businesses aren’t ready.

“Supply chain agility and resilience will be critical to building a sustainable organization,” according to the Conference Board’s 2022 CEO Outlook survey report. But only 28 percent of chief executives reported that their organizations are “well prepared to deal with a future supply chain crisis.” 

Tax groups can play an essential role in addressing these disruptions and helping their organizations develop greater supply chain resilience. In fact, EY released a report last year that said tax considerations are central to making global supply chains more resilient and sustainable.

“The tax function will play a central role in helping organizations take advantage of government green incentives while reducing exposure to penalties,” the report says. “Businesses that do not prioritize these tax, sustainability and supply chain issues risk incurring penalties and costs, and missed opportunities.”

But for tax teams to thrive, they need situational awareness beyond their own offices. That’s because the elements of chaos—a term my colleagues and I use to describe external shocks beyond the control of any one government or entity—are all interrelated. 

Supply chain hiccups, inflation, fiscal policy, and tax policy are several elements that tax leaders need to address in their planning activities, which means figuring out how they work together. 

This is important because while specific supply chain bottlenecks causing price surges may be resolved soon, other core economic factors contributing to higher prices appear much more entrenched, suggesting that this inflationary cycle will continue. 

To parse out how these elements interweave, you must understand the correlation between inflation and taxation, its circular effect on our economy, and its influence on fiscal policy. Business and tax executives should also recognize the distinction between cost-push inflation and tax-push inflation—what I call taxflation—and whether it is derived from a demand or supply shock, or something else.

Tax groups can help their organizations operate more agile and resilient supply chains by ensuring tax compliance as tax policies, rules and rates change – and as companies enter into new relationships with suppliers and customers in new countries and tax jurisdictions. 

There are challenges for tax teams, including the fact that U.S. legislative changes appear likely to result in more state and local transaction taxes, and VAT/GST changes continue to change at a fast clip. But getting the right strategy, technology, and talent in place will help address those difficulties and give tax leaders more time to focus on supporting their organization’s supply chain transformations