Carla Perry, Tax Reporting & Governance Specialist and Kerneesha Naidoo, Tax Reporting and Governance Manager at PwC South Africa
PwC’s 27th Annual Global CEO Survey results indicate that in the last five years, government regulation was one of the key factors that influenced how businesses created, delivered and captured value. Over the next three years, government regulation is expected to continue to influence factors around value, which intensifies the impetus for business leaders to reinvent. A core component of this reinvention includes tax-related rules.
“In the face of a relentless rise in regulatory demands, today’s tax leaders are facing an enduring imperative to reinvent their approach to tax, rethink how tax is fitting into their complex operating environment and rethink how they are communicating their broader sustainable tax strategy to remain relevant,” says Carla Perry, PwC South Africa Tax Reporting & Governance Specialist.
In our latest Building Public Trust through Tax Reporting publication, we outline the importance of tax in today’s business operating environment and look at why tax is material to both internal and external stakeholders from a risk, opportunity and sustainability point of view. We also provide guidance on how to get the basics of good tax governance right in order to support tax transparency. This annual publication provides insights on the tax disclosures of the top 100 companies listed on the Johannesburg Stock Exchange in 2022, with the aim to guide companies through the potential complexity of tax transparency to practical execution.
Tax as a tool to rethink, reinvent and remain relevant
When looking outward, tax can be seen as a matter of public interest. Taxes are used to raise revenues to fund public services, and governments use it as a tool to achieve a range of goals. These include influencing behaviour, fostering investment, growth and jobs, providing welfare support and pricing externalities. For businesses, tax can also be seen as a reflection of an organisation’s significant contribution to society and is therefore imperative to deliver on a business’s sustainability goals.
Looking inward, tax has the opportunity to create lasting value throughout an organisation. Kerneesha Naidoo, PwC South Africa Tax Reporting and Governance Manager, says: “Organisations need visibility, transparency and insights driven participation from tax throughout the business value chain. This approach helps to optimise tax strategies, mitigate risks, ensure compliance and ultimately, contributes positively to the organisation’s overall performance and sustainability. Tax operations also need to be adaptable to changes in the tax and business landscape as agility enables tax professionals to work smarter and faster by aligning leading practices and emerging technologies, freeing up their capacity to focus on insights.”
Using tax to build trust and transform
Geopolitical instability and key Megatrends are creating intense new challenges in today’s society. This has resulted in many business leaders shifting how they operate, with a focus on driving value for multiple stakeholders and resetting corporate agendas with an eye towards long-term outcomes. “These shifts are key to sustained success for both business and society,” Naidoo says.
Given these challenges, business leaders now have an unprecedented opportunity to lead. But, in order to do so, trust is imperative and needs to be built between leaders and their stakeholders. “Trust is a source of competitive advantage for companies that treat it as such – and a point of failure for companies that don’t,” Perry says. “Trust can be viewed as a currency, altering loyalty and buying decisions for customers, as well as employee retention.”
As the measures for company performance expand beyond financial metrics, companies have an imperative to build trust and transparency among different stakeholder groups. This includes both doing the right thing and communicating clearly on topics such as reporting and tax transparency. Revenue authorities will be placing more emphasis on monitoring larger taxpayers who pose a higher tax risk, particularly those who do not demonstrate cooperative and transparent behaviour.
“Invariably, a significant mindshift change is necessary”, Perry says. “Tax leaders need to be more transformative in their governance of tax, led by a sustainable tax strategy. Adopting innovative approaches to governance, risk management, process improvement, engagement and a connected, data-driven approach will help accelerate your ability to transform. Once the framework to govern tax is in place, the organisation can craft a credible narrative for taxes and how they are managed.”
PwC has observed progress made by many companies that are actively driving tax transparency through their communication with and disclosures to internal and external stakeholders. “Companies are seeking innovative ways to demonstrate their commitment to being responsible taxpayers through active, responsible citizenship and, in an environment where business wants to see governments using taxes effectively to support countries’ socio-economic development, consideration should be given to expanding the disclosure of their overall contribution, moving towards total impact measurement,” Naidoo concludes.
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