Tax Morality Is Here To Stay Says SARS Commissioner
01 November 2010
Posted by: Author: Oupa Magashula
Tax Morality Is Here To Stay Says SARS Commissioner
The importance of good corporate governance and greater transparency has been thrown into the spotlight more than ever before by the current global financial crisis.The failure of governance – and in particular the excessive risk appetite of foreign financial institutions plunged economies around the world into the most severe economic crisis in living memory.
For the past two years, analyses of the factors which precipitated the global collapse and proposed measures to prevent its repeat have focused almost exclusively on corporate governance and the mitigation of risk.Just a week ago, global regulators under the auspices of the Basel committee, announced strong new regulations for financial institutions which effectively will triple the reserves global banks will need to hold against losses.
The Basel III package is one of a range of measures being introduced, or discussed, around the world in an attempt to compel organisations to manage risk better and to improve their corporate governance to prevent shocks which shake the entire global economy.One can barely open a financial newspaper or magazine these days without reading the words ‘risk’, ‘corporate governance’ and ‘economic crisis’ in the same sentence – mostly on the front pages. Yet the word ‘tax’ does not appear nearly as frequently in this regard.
Don’t get me wrong.The word ‘tax’ does appear very prominently in our analysis of the global crisis and in particular the responses of governments around the world in using public resources to bail out failing banks and fiscal stimulus packages to get their economies to grow again and to create jobs.
The future of tax policy in the face of higher fiscal deficits amongst many developed economies is very much under the microscope both here and elsewhere around the world, at the moment.But tax risk from an organisational point of view and the role of tax in good corporate governance has not featured as prominently to the extent of government interventions into the financial crisis.
Managing tax risks should be a core aspect of corporate governance for at least two reasons.The first is obvious.Taxes are often one of the biggest items on the income statements of organisations.How they are managed and planned for is a critical component of responsible corporate governance and oversight.
But there is a further reason for tax to become an important consideration on the radar screens of senior executives and company boards, and this realisation has been growing in significance, especially in the post-recession period.It is public sentiment and its impact on the reputation of organisations.
The fact is that everyone from shareholders to ordinary citizens is taking an increasing interest in the tax position of organisations from a moral point of view.Choosing to be non compliant with your tax obligations and evading your tax responsibilities is a huge reputational risk to any company that wants to do business in the right way.
At the sixth meeting of the recent OECD’s Forum on Tax Administration in Istanbul, it was encouraging to hear from the global heads of tax of the Big Four auditing firms that there is now heightened interest amongst directors in understanding the tax risks to which their organisations are exposed.Even more encouraging was to hear that many business leaders have now developed a much broader sense of their responsibility to society as opposed to just their shareholders.Less freedom is also now given to tax managers whom in the past have created unnecessary risk for companies through aggressive tax planning.
In the past 18 months over 500 agreements have been signed allowing for increased exchange of tax information between countries.We will be specifically renewing our focus on improving offshore tax compliance, in particular with regard to identifying the beneficial owners of complex offshore structures.We plan to leave nowhere for non-compliant taxpayers to hide.
The recent developments in moving away from bank secrecy to more scrutiny by revenue authorities is evidence that the pendulum is swinging firmly towards a greater sense of responsibility of citizens most especially the wealthiest members of society to meet their tax obligations fully and fairly.
In SARS, we have for many years promoted the notion that there is a moral component to tax compliance and this has seen us at odds with some tax advisers and professionals who insist tax is simply a cost to be reduced wherever possible.In Instanbul, the Big Four auditing firms further confirmed that they do not support clients that are not willing to be transparent for tax purposes.It was also stated that these auditing firms do not want their brands to be associated with aggressive tax planning.
Having said that, I am conscious of the fact that in order to achieve a shift in the way we interact with both taxpayers and their advisers, we will need to collaborate to bring it about.There is a need for regular dialogue to ensure that we understand the difficulties that we each experience in trying to ensure that the spirit of the law is not forgotten when it is being interpreted and applied.
Africa still has huge inequities which cannot be resolved without state involvement, without proper governance and without governments who have the necessary fiscal capability to address these inequalities. South Africa currently has one of the worst Gini coefficients in the world reflecting the massive discrepancies between rich and poor in our country and our unemployment is also among the highest in the world.
This places enormous pressure on the State for a redistributive and socially conscious budget while at the same time providing for huge investments in infrastructure and skills development to encourage and facilitate economic growth.Despite these challenges, in South Africa over the past decade tax rates have been reduced by providing substantial tax relief of over R90 billion to individuals and businesses.This relief while still maintaining and expanding the social and developmental agenda has been made possible through economic growth, more efficient collection of taxes and growing levels of compliance.
We need a tax system which is fair, does not place an undue burden on the economy, but at the same time provides the necessary means to correct imbalances, build infrastructure and stimulate economic growth – this requires everyone to pay their fair share.
None of us operates in a vacuum and we cannot turn a blind eye to the social and economic realities of our environment and expect the other social partners to bear the burden alone.Ensuring compliance cannot and should not be the sole responsibility of revenue authorities.The social compact requires all role players – taxpayers, practitioners, the tax authority and government – to participate in and to share in the creation of the more equal and more prosperous nation envisaged in our Constitution.
Source : By Oupa Magashula (TaxTALK)