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AfricaMoney | October 19, 2017

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Africa: Businesses not geared for greater tax transparency

Africa: Businesses not geared for greater tax transparency

It is worrying indeed for the continent that global businesses are still not prepared to implement the norms to provide open and clear financial data by the end of 2015, a deadline set by the G20. (Image: The Guardian)

Even as Africa bleeds on illicit cash flows from the continent on lack of stringent tax guidelines, a survey by Thomson Reuters suggests that global businesses are ill-prepared for greater tax transparency.

Illicit cash flows from the continent have nearly doubled over the last three decades. In fact, the amount of money going out of the African continent, whether legally or illegally, is equal to Africa’s current total gross domestic product (GDP), according to estimates by Ibrahim Aidara, economic governance program manager, Open Society Initiative of West Africa (OSIWA).

In light of this, it is worrying indeed for the continent that global businesses are still not prepared to implement the norms to provide open and clear financial data by the end of 2015, a deadline set by the G20.

The Thomson Reuters 2013 Transparent Tax Survey, by the world’s leading source of intelligent information for business and professionals, found that only 35% of respondents already have or are currently planning a tax transparency strategy.

The results reveal that businesses are suffering from lack of guidance on how to implement stricter tax transparency norms, with as many as 65% stating they would like more guidance and advice around managing tax transparency from government organisations.

Further, there are challenges being faced by organizations seeking to implement these guidelines, with 51% of respondents saying that internal processes that do not support efficient reporting and information gathering to be the largest major obstacle to improved transparency.

More shockingly, only 36% think tax transparency is very important to their business compared with 7% who think it very unimportant. A whopping 52% consider tax transparency will add a significant administrative burden on their tax department, yet only 19% of respondents have budgeted for increased costs.

Also, even though 62% say they understand the implications of tax transparency on the tax department, the findings suggest that the definition of what transparency means to their business varies considerably. ‘Explaining tax policies and strategies’ was the most popular, followed by ‘supplementary figures in the annual report’ and in third place, ‘disclosures to explain total tax contribution (borne and collected)’.

A case study from Cape Town, South Africa, has also been quoted by Thomson Reuters to show that tax and property valuation authorities have seen the benefit of using technology that promotes transparency — chiefly, increased efficiency and cost savings.

Charlotte Rushton, managing director Asia Pacific and EMEA, for the Tax & Accounting business of Thomson Reuters, said that the G8 and OECD have committed to a global government push for greater transparency in the way companies comply with local and global tax laws.

She added that the survey’s findings suggest that there is a risk that many companies could find themselves on the back foot if they do not start planning their transparent tax strategy soon.

The key factors driving tax transparency strategy are to meet corporate social responsibility obligations (47%), followed by an expected increase in future tax disclosure requirements (28%), improvement in brand image with the public (26%) and finally, improvement in their relationships with NGOs (17%).

The study, done in association with the Chartered Institute of Management Accountants (CIMA), surveyed the heads of tax of more than 100 global organisations.

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