Man­ag­ing tax risks

Data an­a­lyt­ics is an ef­fec­tive tool to sup­port tax plan­ning

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - NAZRIEN KADER & CRAIG TURN­BULL

DATA an­a­lyt­ics is the ca­pa­bil­ity that is go­ing to be­come es­sen­tial for any com­pany in­ter­ested in mak­ing smarter de­ci­sions. Reg­u­la­tors too will use this ca­pa­bil­ity to find those who are, for ex­am­ple, pay­ing too lit­tle tax (or even too much).

What com­pa­nies need to do, in­stead of wait­ing for the reg­u­la­tors to do so, is an­a­lyse ex­ist­ing data to bench­mark them­selves us­ing for ex­am­ple tax ra­tios: against other coun­tries and against their in­dus­try.

Com­pa­nies can en­gage in proac­tive tax plan­ning on amore sci­en­tific ba­sis, sup­ported by trend analy­ses, than they have done in the past.

Tax is usu­ally the high­est cost item on the in­come state­ment and tax man­agers should be us­ing their data an­a­lyt­ics ca­pa­bil­ity to man­age their tax strate­gies more ef­fi­ciently. Ev­ery or­gan­i­sa­tion needs to man­age its tax risk and this must be done in a trans­par­ent and rig­or­ous man­ner to meet gov­er­nance, reg­u­la­tory and good man­age­ment stan­dards.

Good tax risk man­age­ment al­lows a busi­ness to more ef­fec­tively fo­cus its re­sources and ensures that cor­po­rate gov­er­nance stan­dards and obli­ga­tions to tax authorities are met. With an in­creas­ing em­pha­sis on reg­u­la­tion and cor­po­rate gov­er­nance, com­bined with the fre­quency and in­te­grated na­ture of the South African Rev­enue Ser­vices’ (SARS) risk-based tax au­dits in­clud­ing the high penal­ties for non-com­pli­ance, the in­her­ent risks for South African cor­po­rate tax­pay­ers have in­creased enor­mously.

The tech­nolo­gies that are avail­able to­day en­able busi­ness ex­ec­u­tives to col­lect data and gain in­sight to give them a bet­ter un­der­stand­ing of the in­for­ma­tion at a deep level and across the en­ter­prise.

This makes all the dif­fer­ence when mak­ing dif­fi­cult busi­ness de­ci­sions be­cause it al­lows strate­gic con­sid­er­a­tions and fore­cast­ing to be made based on a sci­en­tific anal­y­sis. Do­ing pro­jec­tions, busi­ness analy­ses, struc­tur­ing trans­ac­tions for fu­ture ben­e­fits can all be done wisely be­cause it is more fac­tu­ally­based as op­posed to ran­dom sam­ples that are an­a­lysed in iso­la­tion.

One would also be able to pick up non-ob­vi­ous trends and high­light anom­alies. With taxes for ex­am­ple, one could an­a­lyse av­er­age ef­fec­tive tax rates (such as Value Added Tax (VAT) and in­come tax), com­pare these to the ac­tual rates of VAT at 14% or com­pany taxes at 28% and pick up in­con­sis­ten­cies — us­ing this to man­age the tax com­pli­ance func­tion more ef­fec­tively. Data an­a­lyt­ics can be an ef­fec­tive tool to sup­port tax plan­ning ini­tia­tives.

When data an­a­lyt­ics tech­nolo­gies are em­bed­ded in busi­ness pro­cesses, the re­sult can be a sharper view of the pat­terns and sig­nals buried deep be­low the sur­face of the com­pany’s data.

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