This article first appeared on CFO.co.za on 29 July 2020 written by Pieter Janse van Rensburg.
Covid-19 shockwaves force leaders to rethink how tax risks are managed and tax practices are run.
2020 has tested the resilience of not only the South African fiscus, but also companies that contribute tax revenues. In particular, those involved in managing tax and risk at a corporate level, including tax managers and tax directors, have faced significant challenges.
What we have seen is a rapid shift to strategic priorities and overall tax risk management that emanate from a “Black Swan” event like Covid-19. Tax executives are undoubtedly feeling the pressure from CEOs and boards as a whole to provide strategic insights and support on the government’s perceived long term intentions with tax policy.
The utilisation of emergency measures, including certain deferral payments on provisional taxes and employment taxes, counted among the initial responses to the Covid-19 pandemic and lockdown and these all kept companies and tax managers on their toes. There was indeed, a measure of uncertainty to navigate, amid an extremely high level of risk.
One of the first points of call for these executives to obtain guidance would have been the emergency budget delivered on 24 June 2020. Unfortunately, the measures announced by finance minister Tito Mboweni were primarily aimed at the expenditure-side of the budget and not on the revenue side . No clear policy intent or change in direction was hinted at. In the minister’s defence, the data on which he must base his decisions changes consistently and the reliability thereof is questionable at best. What has become very clear, however, is that executives will sooner, rather than later, be forced to strike a balance between implementing measures based on policy, on the one hand, compared to practical matters when dealing with the South African Revenue Service (SARS).
Commissioner for SARS Edward Kieswetter has reiterated the importance of tax compliance and has informally alluded to several measures that SARS is either already employing, or is in the process of investigating, and notably how it is harnessing technology to assist with enforcement. These include several risk identifiers using algorithms, third-party data reporting and trend analysis. It therefore seems as though tax policy and tax compliance have been introduced to the Fourth Industrial Revolution and that the Covid-19 pandemic (and lack of credible data) has perhaps pushed this agenda sooner than what executives might have expected. Embracing technology will not only be necessary, but for those willing to accept its inevitable use it will prove invaluable in managing the overall in-house tax practice.
Apart from technology, there has been an increasing trend in the degree to which executives make use of their existing professional networks and build new networks within professional bodies to try to keep abreast of the ever-changing circumstances. As businesses do not operate in silos and have various stakeholders, tax executives can no longer operate within their field of expertise only and need to reach out to others in support. Whereas previously the concept of “continuous professional development” was often just an administrative hurdle to jump over every year, it has now become a tool in the tax executive’s arsenal to manage not only his company tax risk but industry risk as well.
Industry players join forces
More and more executives are joining forces with others in the same industry to lobby SARS and National Treasury, not always to obtain a beneficial dispensation of sorts, but simply to obtain clarity on certain tax policies and measures. Given the ever-changing landscape within which the C-suite executive operates, there is a real need to eliminate the inevitable ambiguity and uncertainty that arises from broader tax policy and more specifically, in tax legislation. The in-house tax council needs to partake actively in industry matters through his regulated body.
Is a change at board level justified?
As soon as the immediate shock waves from the pandemic have been managed, tax executives will be forced to rethink and adjust their approach on how their tax practises should be run, in light of the wake-up call that Covid-19 has provided. The King IV Code on corporate governance suggests that the executive directors who form part of a board should be the CEO and the director responsible for finance. In our view, the scope of this requirement has changed (become outdated, even) to include a director who has extensive tax knowledge and has the necessary skills and experience to act on changes in tax policy, implementation of tax strategy and practical tax matters. Such responsibilities can no longer be delegated to the (non-executive) audit and risk committee – it requires (and deserves!) executive attention.
Pressure from the fiscus on SARS for tax collection, and in turn, from SARS on taxpayers will be relentless over the next years. But with the use of more extensive networks and optimal use of this process it can be managed effectively, without fear and business activities being interrupted.