Don’t wait until its too late to deal with tax issues

Crystal Kabajwara, PwC business advisor

What you need to know:

  • Tax is critical to the success of a business and must have everyone’s attention all the time and not only in December.

Interest in taxes peaks in December - the half year point of government’s fiscal year - when most taxpayers must pay their due and the taxman scrambles to meet midyear collection targets. 
Taxpayers lie awake at night thinking of how to reduce their bill while the reverse is true for the taxman. 
At this time of the year, tax takes a prominent place on both management and board’s agenda, having been forgotten for the most part of the year or left solely to the tax or finance department. 

This, however, should not be the case. Today, tax is critical to the success of a business and must have everyone’s attention all the time and not only in December. 
Therefore, businesses must incorporate tax matters into their broader corporate governance strategy. 
When businesses have good governance in place around their tax decision-making that gives the business owners and other stakeholders confidence.
Good tax governance means having clear processes and procedures to support tax decision making and manage tax risks. 
Tax governance is effective when the processes and procedures in place consistently result in the correct tax outcomes and when the business is meeting its obligations.

While tax governance may look different for each business, the fundamental principles are broadly the same and can be adaptable regardless of the nature or size of the business.  
The first principle is accountability and oversight. There should be a clear definition of the tax related roles and responsibilities in the organisation and these should be understood in terms of accountability for tax administration and decision making.
Key roles include registration, filing, reporting, payment and record keeping. Where responsibilities are shared with tax advisors, the advisor’s role should be clearly defined. 
The ability to recognise tax risks is critical. There should be appropriate processes to identify, assess and mitigate potential or actual tax risks. 

Your business must be alert to the consequences of decisions that are made. It is recommended to have in place a threshold for material transactions and a requirement for such transactions to be well documented and subject to appropriate review and sign off for tax risk purposes. 
Where potential or actual tax risks have been identified, there should be a plan to manage them and limit the impact on the business.
It is also important to seek advice and have in place defined arrangements for escalating tax issues such as consulting tax advisors and revenue authority where certainty is needed.
Integrity in reporting is another key principle that must be followed. Check that systems and controls are in place to ensure accurate reporting. 

These should be reviewed periodically to ensure that they remain effective. Good record-keeping practices should be followed to maintain important documentation for the relevant periods, and to ensure that information is easily accessible.
Compliance practices such as timely filing and payments are characteristics of good tax governance. Effective tax governance is demonstrated by meeting obligations including filing and payment obligations in full and on time. 
When unable to pay, engage with the revenue authority early with a valid reason for being unable to do so.
Proactive stakeholder engagement and management is also critical. Having an open, transparent, respectful and professional working relationship with the revenue authority will help to resolve any issues and avoid disputes. 
Proactive engagement could entail scheduling one or two meetings a year with the tax authorities and other regulators to avoid surprises.

Lastly, tax is more than mere technical compliance. Ethical and responsible behaviour is equally important as it builds trust and avoids pitfalls such as the temptation to engage in vices such as aggressive avoidance or evasion.
If your business adopts these key principles of good tax governance, sleepless nights in December will become a thing of the past.

Caught offside 

Many people and businesses are caught offside when it comes to timely meeting of tax obligations. 
This is due to a number of factors, among which include, failure to deal with tax issues as soon as they happen. 
In the end, this becomes costly to a business given that last minute handling of complex issues such as might miss key areas that might lead to a wrong outcome or failure to meet deadlines. 
Therefore, as you plan, it is important to ensure that tax-related issues are not piled up, before they can be dealt with.  

Ms Crystal Kabajwara is a business advisor with PwC Uganda