Bringing this back home, CFOs/tax directors/heads of tax departments should also be asking themselves questions like: (i) Does my tax department have qualified individuals to manage our taxes? (ii) Are the tax processes standardized and frequently reviewed with consideration of tax risks? (iii) Is the tax team’s vision aligned with that of the organisation and does our tax team have sufficient contact with the rest of the organisation? (iv) Do we have the relevant technology to support us or do we rely heavily on spreadsheets?
The answers to these questions will give you an insight on the level of preparedness of your tax department for the modern-day business requirements. If your answer to any of the above questions is no, perhaps your tax team is not optimally supporting your business and may still be set only to crunch numbers and file returns. A recurring issue noted across industries is that many tax departments are not consulted when strategic decisions are taken by their organizations. This in many instances has proven to be disastrous.
Therefore, it would be a worthy investment for big companies not only to have a dedicated tax function, but a tax function designed and equipped to support the organisation in its growth strategy. There are several key components that make up the ideal tax function and, in my view, they include:
(a) Governance and risk: The management of organisations should set the right tone at the top. Tax issues should be discussed and monitored at board levels after the tax department has carried out a comprehensive review and documentation of the tax risks associated with their business. This ensures that the board has adequate visibility over the tax risks associated with the organization and that proper mitigating steps are taken. The board should not become aware of certain tax challenges only at the point of approval of the liability to be paid to tax authorities.
(b) Organisational model: The tax department’s operating model should be appraised vis-à-vis the organization’s operating model. The aim would be to align the tax department’s operating model to that of the organization in order to maximize its efficiency and effectiveness. For instance, the structure that a company that has operations in every state of Nigeria would adopt may be different from the structure that a company that has operations in a single state would adopt, etc. Generally, an efficient tax model is that which should adequately be in touch with the day-to-day transactions of the organization and should have a view over the process owners of these transactions.
(c) People and capability: Companies should also consider if they have recruited the right people and at the right number to manage their tax affairs. They should consider if they have adequate structures in place to ensure that they retain such people or suitable succession plan. Companies intending to maintain a lean staff strength may also consider using external consultants to provide support in this regard.
(d) Process and responsibility: The daily tax processes should be simple and, where possible, it should be standardized and possibly documented. Many companies have gone the extra mile to document standardized procedural manuals to encourage efficiency. In addition, all forms of task duplication should be removed and there should be clear lines of responsibilities to avoid conflicts or negligence that could occur as a result of lack of clarity.
(e) Data and information: An efficient tax department should be able to provide the relevant data to management for decision making within the shortest available time. Also, the archival system used should be such that information back-up is readily accessible in the event of tax queries or tax audits initiated by tax authorities. Another facet to consider here is the quality of information being kept by the tax department. For instance, in the event of an audit, would the information kept and subsequently provided by the tax department on reversal sufficiently support why a reversal of income was made or would it only show that a reversal was made with inadequate information to support why?
(f) Systems and technology: Another important component is the technology in place to support the efficiency of the tasks required of the tax team. Some companies, in addition to the Enterprise Resource Planning (ERP) software, have tax technological tools to assist the tax department. It is best practice for companies to evaluate, as often as possible, the sensitivity of the existing ERP software for tax purposes. The ERP could be updated as soon as a new product/tax process is developed or as soon as there is a foreseen need. For instance, I once traced the cause of huge VAT liability paid by a company to be coming from a product it introduced but did not configure its system to charge VAT once the code for the product is used. The company has been audited afterwards, and such liability did not come up.
(g) Performance management: Once the tax department has been empowered to take charge of its affairs, a proper performance assessment tool should be put in place to measure and appraise the effectiveness of the department. With the use of KPIs, the performance metrics should be aligned with the finance department’s objective and inevitably the overall organization’s goal. The presence of these components will not only guarantee that the tax department is ensuring that the business is in compliance with the tax laws but will contribute optimally to the overall strategic intent of the business.
Some Nigerian companies are beginning to understand the importance of the tax team and are proactively working to develop and empower their tax departments with the right tools and resources. Accordingly, companies in this category are usually less perturbed at the thought of tax audits or queries from revenue authorities as they know they have done the right things the right way and can rightly support their actions with proper documentation. With the dwindling oil prices and increased focus on revenue from tax, it would be a worthwhile investment for most companies to join the band of those companies that have adequately equipped their tax teams for the future.
Ikechukwu Ene
