Tax now at the Centre of Management Decisions
By Nathan Omayio
For a long time, tax has been seen by many company executives and stakeholders as a single line in the financial statements which gets the least attention. It is not surprising to note that most companies do not have sound tax policies in place and if by chance they do, they are not implemented. Management decisions are made without due consideration for the tax implications of the various transactions that will go into implementing the strategies discussed at “strategy meetings”.
This has been the soft underbelly for most organisations in Kenya as evidenced by the recent flurry of contentions between companies and the Kenya Revenue Authority. This has been both on and off camera. Last year alone, disputes between KRA and taxpayers were a constant feature in our prime time news with the amounts in contention running into billions.
Such contentions have proven to be very costly to businesses as they have to engage experts to prosecute their matters. Further, most of the issues take a long time to resolve hence becoming both expensive to the business in terms of man hours and the attendant expenses. Some companies do not have the necessary internal technical resources to deal with such issues. This leads to engaging the finance team in dealing with the issue, consequently distracting them from their core business. There are even instances where the operations staff are involved in settling the tax issues taking their eyes off the ball. When such matters get into the lenses of the 4th estate, it becomes another public relations nightmare as the company reels from the negative coverage.
It is not all doom and gloom and the business climate in Kenya continues to evolve and so does the Kenya Revenue Authority to keep up with the dynamic business scene. To stay ahead of the game, KRA recently launched the 7th Corporate Plan which is a three year strategic plan intended to leverage on the gains achieved by digitisation of their processes to increase revenue collection.
First, the key focus of the revenue authority is utilisation of data in decision making. They have committed to invest considerable resources in acquisition of modern technology and data analysis capabilities to enable them expand the tax base. This has been emboldened by the huge success of the iTax roll out that netted an additional two million tax payers.
Second, KRA has continued to drop the moribund tax collection methods and is increasingly relying on intelligence and smart technology to deal with issues of tax compliance. This requires management’s attention to the nitty gritty decisions which are now under the constant surveillance of the revenue collector.
Third, the revenue authority has committed to further improve its image by transforming its staff and processes through an elaborate customer service improvement program. The KRA is looking at shedding the antagonistic image that has dogged it for a while now to a more customer friendly agency in the hope that this will lead to increased revenue collection. The creation of the Alternative Dispute Resolution mechanism has reduced the numerous court battles that have left both the revenue authority and the tax payer bruised and ushered in a new era where the “win-win” philosophy has been embraced. Last year alone KRA collected over KShs 8.3Billion through the ADR framework. The ADR process has been lauded as a landmark initiative since it has provided a platform where KRA and taxpayers can negotiate in an amicable environment.
In light of this, what then can companies do?
Some companies are now adopting tax policies that guide transactions that the company is entering into. The policies are designed to anticipate any tax gaps and remedial actions. One can also opt to take the route of creating tax departments within the finance teams with the sole mandate of adding value to other departments in addition to tax compliance.
Those with tight budgets can choose to build capacity within their finance teams to take care of any tax issues that arise. This includes creating tax awareness within the company so as to achieve tax efficiency, investing in tax trainings and having tax point persons. Most of these point persons will work with external consultants to assist them navigate the murky tax issues.
Whatever strategy that a business intends to deploy, tax management is now a key consideration in the year 2019 and going forward. In our next article we shall discuss how the KRA’s transformation will affect the way businesses view their tax matters.
Andersen Tax, Kenya is a member firm of Andersen Global. Andersen Global is an international association of legally separate, independent member firms comprised of tax and legal professionals around the world. Established in 2013 by U.S. member firm Andersen Tax LLC, Andersen Global now has nearly 4,000 professionals worldwide and a presence in over 126 locations through its member firms and collaborating firms.