TAXATION should be a seamless process.
It should be aligned to the other parts of the operations and decision making of the business, having a built-in compliance process and creating tax certainty in most areas and significantly reducing burdens.
We are familiar with Corporate Governance but is Tax Governance a new concept?
Around the world, to revive and allow the economies to recover and to combat the Covid-19 pandemic, governments have spent billions of dollars.
Tax policies are being looked at further to look at ways to encourage investments and foster economic growth, including ways to increase revenue. In addition, tax authorities are increasingly focusing on tax audits and giving more attention on tax governance.
Having a good tax governance model will allow better transparency and build trust in the tax system and encourage people to willingly pay taxes.
This can lead to better and stronger operations, create transparency and encourage a better environment for compliance.
Tax governance for better performance
Focus on having tax governance is more prominent in recent years for both the tax authorities as well as businesses.
This is influenced by several factors such as the changing business models, the need to reduce cost of compliance (for both tax authorities as well as businesses), the need to build trust in relationships, technology capabilities as well as having a simplified and transparent tax system.
Businesses are faced with various issues and the need to continue to expand and their role in the community. Measures are being done to build businesses and having operational sustainability is important in the face pace and ever-changing environment.
Tax governance built into the business processes will allow better performance and mitigate tax risks by the business as well as the ability of the business to optimise their tax position.
Lowering cost of tax compliance
The vision for the country is that everyone wants to comply with the tax requirements. It is, therefore, imperative that there is trust in the tax system that encourages higher tax compliance.
With greater trust, we can expect greater compliance. Having good tax governance means that the business is ready to ensure its policies and processes are meeting tax rules and regulations and, therefore, lessen any future disputes with the tax authorities or having errors and mistakes in their tax process.
This will mean the process in place through the tax governance by the company will create a systematic process and resulting in lesser time and burden for the corporate sector in meeting tax obligations, which then lead to lowering cost for both taxpayers as well as tax authorities.
Relations between tax authorities and taxpayers
Data collection and having the right information is vital and it is important to ensure the information gathering process is as easy and efficient as possible.
This is important for all parties – the tax authorities, taxpayers as well as tax intermediaries such as tax agents.
Having a tax governance framework allows taxpayers to ensure they have the relevant processes in place to manage tax risks as well as continue to ensure the relevant policy is in place to manage their tax obligations well.
The tax governance allows taxpayers to be able to interact with the tax authorities to share their control on meeting tax requirements and, therefore, establish trust and will also benefit the tax authorities in achieving further compliance.
Technology and tax governance
Having a comprehensive tax governance approach is dependent on the ability to create processes and procedures that are current and meeting the business operations as well as tax requirements.
This process is driven more each day by technology. The use of technology enables opportunities to reinforce governance.
Imagine having the use of technology, data analytics to streamline the tax compliance requirements in the overall business process and operations and thus bringing a tax control framework across the tax obligations cycle of the business.
This is powerful and will help manage tax risks as well as help to ensure the tax obligations are being met on a timely basis as well as to optimise the tax position of the organisation.
A Tax Control Governance framework is important in achieving a high level of unenforced tax compliance.
It allows taxpayers to be aware of their tax requirements and take measures to meet the obligations without having the high cost of tax compliance and being able to manage tax certainty better.
Some tax authorities in the advanced member economies of the Organisation for Economic Co-operation and Development (OECD) are already adopting a new co-operative compliance approach aiming to increase tax compliance through voluntary enhancement of internal control and corporate governance.
We must remember that the role of the tax authorities is to achieve tax compliance in the most efficient way.
Where taxpayers establish a tax control framework, this itself paves the way to achieve a robust, up-to-date, systematic and transparent approach the taxpayers have taken to achieve a high level of tax compliance.
Farah Rosley is the president of the Chartered Tax Institute of Malaysia and Malaysia tax markets leader at Ernst & Young Tax Consultants. The views expressed here are the writer’s own.