Managing tax risks
Data analytics is an effective tool to support tax planning
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.