Tax team could bolster your bottomline

Rapid technological advancements and globalisation have forced businesses to constantly re-jig strategies to keep pace with the changing tax environment. Uncertainty in the global economy is pushing companies to cut costs, while there is pressure on tax authorities to boost revenue to contain fiscal deficits. Further, the political mindset towards taxation is shifting too, with greater focus on civic responsibility and public demands for companies to pay their ‘fair share’ of tax. The global business models and intra-group transactions of multinationals are being questioned. The aggressive approach of Indian tax authorities on international tax and transfer pricing issues, and the recent series of legislative amendments underline the Government’s firm intention to defend its tax base.

In this backdrop, the relevance of tax in any business decision has increased manifold and become a subject of boardroom discussions. The role of tax executives is undergoing a sea change, requiring them to meet the dual challenges of managing tax risks and providing real-time support to the business activity, thereby positively influencing the bottom line.

A recent global survey by KPMG showed that tax departments in corporations have in the past few years made significant improvement in the areas of accountability, standardisation and efficiency. However, more work is needed to step up the integration and alignment of tax with other functions.

In India, tax executives spend significant time on tax audit and controversy-related matters, which have increased manifold in recent years. Around 86 per cent of the respondents said they faced some form of tax controversy. The corporate leadership is, therefore, taking greater interest in tax compliance and improving processes and controls. Expansion of Indian companies into new and emerging markets, and increasing tax complexity are the other factors involved. Technical training of tax staff, technology-related improvements, tax strategy and operational reviews, and other process-related improvements have been made. While this is leading to improved standardisation and accountability of tax function, the rising globalisation of business calls for a more independent tax function, with tax leaders exercising greater control over it.

The survey suggests that Indian corporates are increasingly outsourcing compliances to mitigate risks and achieve efficiency, although to a lesser degree compared to counterparts in the developed economies. With the increasing risks and complexity, tax compliance in India is taking precedence over value-adding activities that impact the bottom line such as managing the effective tax rate, cash tax savings and so on. Tax functions should also interact more with the other functions in order to contribute to the strategic and operational decision-making process.

As the Government is poised to bring in significant tax reforms in the near future, corporates would need to be prepared to not only reap the benefits of the reforms but also effectively address the fresh challenges that arise.

Girish Vanvari is Partner—Co-Head Tax, and Sujay Paul is Director — Tax, KPMG in India

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