SA’s top companies are increasingly taking a more transparent approach in reporting on their tax affairs, with companies disclosing their tax strategy, performance, as well as their total tax contribution. This comes in the wake of mounting pressure on companies for tax disclosure from tax authorities, governments, the public and other stakeholders. Companies which are leading in the transparency and disclosure space are developing a holistic response to the ever-changing tax landscape. Their voluntary disclosures are based on which information stakeholders are interested in and what they want to know.
These are some of the key findings from a review of the voluntary tax reporting of the top 100 companies listed on the JSE issued by PwC today. The review summarises trends that are shaping the tax transparency landscape and provides examples of how companies are responding by using voluntary tax disclosures, thereby demonstrating corporate citizenship as responsible taxpayers.
The companies that were reviewed are the top 100 JSE listed companies by market capitalisation as at 31 December 2018. PwC has developed a tax transparency framework and the performance of each company was quantitatively assessed against the framework. The framework is intended to guide companies in developing a transparency strategy that is fit for purpose.
Gert Meiring, Tax Reporting & Strategy Lead for PwC Southern Africa, says:
“Mistrust between society and large corporates is currently at an all-time high, which leads to a challenging tax landscape. For many stakeholders it’s no longer enough for organisations to view their tax position by way of financial reporting. Increasingly, organisations are being challenged to provide more information to stakeholders.
“Governments, the public, employees, investors and the media are looking for evidence that organisations are committed to building a more sustainable and inclusive economy and are becoming a visible part of society, with senior executives and governing bodies explaining how their organisations’ tax strategies are responsible and align with their sustainability commitments.”
Findings of PwC’s report
This year our study incorporated an assessment of the manner and effectiveness in which companies communicated their tax information.
“The practices of the companies featured in our analysis show that some are taking a proactive approach to certain aspects of voluntary tax transparency, as they start to deal with an increasing amount of tax reporting guidance. However, the statistics indicate that most companies elect to only focus on mandatory tax reporting.”
On average, companies scored 38.5% for effectively providing transparency of taxes and for integrating it with other company-related disclosures to provide a sense of value reporting on tax disclosure.
The telecommunications sector received the highest overall voluntary tax transparency rating (29%), followed by the basic material sectors (23%). These findings are mainly due to the telecommunications sector experiencing a highly regulated and tax environment in Africa There is also an expectation that extractive companies (which form part of the basic materials industry classification) will be more proactive in tax transparency disclosures due to their exposure to international initiatives that aim to improve the voluntary transparency of their industry’s tax disclosures.
It is notable that only 17% of companies disclosed their tax strategy publicly and 5% for indicating how the tax strategy is linked to the business and sustainable development strategies of the organisation and the broader economic needs of the countries in which the organisation operates.
Other common trends of more proactive voluntary disclosure were identified. Companies scored:
24% for indicating that tax risk is discussed at the board/audit committee level;
23% of discussing changes to tax legislation/tax policy and its impact on the business;
33% for providing a clear and understandable tax rate reconciliation;
23% for providing a breakdown of the different types of taxes it pays.
A tax transparency strategy
Locally and globally, several initiatives have been issued on voluntary and transparent tax disclosure that stakeholders would find useful in order to understand a company’s tax affairs.
In South Africa, the King IVᵀᴹ Report on Corporate Governance (King IVᵀᴹ) has brought substance to the requirements of being a responsible taxpayer. King IVᵀᴹ suggests disclosure on issues such as a board’s tax strategy and tax governance structure. The report also suggests that the organisation’s board and audit committee should be responsible for a tax strategy. In other parts of the world, policy makers are actively involved in the design of transparency standards.
International frameworks such as the UN-supported Principles for Responsible Investment and the Global Reporting Initiative (GRI) include tax transparency within their scope. The newly developed GRI 207: Tax 2019 is the first public global standard for comprehensive tax disclosures. GRI 207 enables organisations to communicate on their tax practices to a wide stakeholder community under a standard set by an independent standard setting