TRMS

Tax risk management needs higher prevalence in the boardroom

The reality is that in today’s operating business landscape more companies – especially indigenous companies and conglomerates – should have clearly defined tax objectives- Tax Risk Management

Continuous changes in the regulatory and fiscal landscapes in Nigeria, as well as global regulations and wider awareness of corporate governance and risk issues, have made it an imperative for companies operating in country to address all aspects of risks in their business. In fact, a significant component of this is getting their tax right!

KPMG Nigeria’s inaugural Tax Risk Management Survey found that organizations need to understand and manage tax risks, similarly to all other aspects of the enterprise and business risks facing their organization – to enhance tax cost optimization, improve business performance and create shareholder value. The survey was carried out to evaluate how well organizations have integrated and aligned their tax functions in meeting business objectives and to evaluate how effective the tax departments have been in proactively identifying and managing risks.

According to Nike James, Partner, Tax Regulatory & People Services, KPMG Nigeria: “The findings are quite clear. Companies have to make turnaround improvements in their tax department operations. Also, there is still much work to be done in improving tax governance and risk management, and getting tax firmly on the boardroom agenda.”

Nike

Only sixty three percent of respondents to the survey say that their companies have written tax objectives, where the survey further revealed that these respondents are mostly organizations with foreign parent companies, which operate in environments with strong corporate governance requirements.

“The reality is that in today’s operating business landscape more companies – especially indigenous companies and conglomerates – should have clearly defined tax objectives. Additionally, these objectives should go beyond merely managing tax compliance and should include proactive and strategic planning and risk management that will have a significant impact on key business decisions and drive value to the organization,” adds James. “There should also be a formal document on how the organization plans to achieve these tax objectives. This in turn can be articulated to create shared understanding and interest within the boardroom, tax department and also teams outside the tax department who handle tax transactions.”

In addition to outlining tax objectives, KPMG believes that increased focus needs to be placed on companies’ tax risk management practices, as the manner in which daily business transactions are directed and supervised plays a great role in determining an organization’s exposure to tax risks. “In our findings only sixty five percent of survey respondents claimed to have properly documented tax risk management policies and strategies in place. It is our belief that this proportion is surprisingly high and, given our active knowledge of the market I would recommend that many organizations would still have much work to do in this area,” says James.

The Nigerian tax environment has undergone significant transformation in recent years. However, on the back of declining crude oil prices and fiscal revenues, the Nigerian government is more focused than ever before on tax collection and increasing internally generated tax revenues. “These difficult economic times are placing compounding pressures on tax departments as they juggle a myriad of responsibilities; to meet compliance requirements of more aggressive tax authorities, while still struggling to become more efficient and value-adding to the organization. Therefore, while the tax department should have overall responsibilities for ensuring adherence to tax compliance requirements, the Board and management should put in place standardized tax processes and technologies with adequate controls to ensure that tax is managed efficiently throughout the organization from the outset. Doing so, will enable the organization to proactively manage their tax using good corporate governance principles, to minimise errors, reduce tax risks and plug any tax leakages,” indicates James.

“When we undertook this survey we specifically considered the challenges organizations would face in understanding ‘how to begin the change process’ – as our aim was always to share our views on what organizations need to do, to set themselves on the right path. It is our expectation that this survey will provide any organisation with a solid basis from which to assess the current state of their tax department. And, if assessed against our suggested best practices – which we believe will form a blueprint for change – this will empower the tax department to become a strategic and value-adding business partner to the organization,” concludes James.

Tax Risk Management Survey 2015. Please feel free to download.

David Okwara

,

No comments yet.

Leave a Reply

LEGAL PRIVACY POLICY
Twitter Linkedin Facebook YouTube RSS