Auditing firm PwC has released its ‘Building Public Trust through Tax Reporting’ publication, which outlines the importance of tax in the business operating environment and looks at why tax is material to both internal and external stakeholders from a risk, opportunity and sustainability point of view.

The publication also offers guidance on how to get the basics of good tax governance right to support tax transparency.

Importantly, the yearly publication provides insights on the tax disclosures of the top 100 companies listed on the JSE in 2022, with the intention of guiding companies through the potential complexity of tax transparency to practical execution.

In PwC’s twenty-seventh yearly Global CEO Survey, results indicate that government regulation was one of the key factors that influenced how businesses created, delivered and captured value over the past five years. Over the next three years, government regulation is expected to continue to influence these factors, which intensifies the impetus for business leaders to reinvent the way they deal with tax.

“In the face of a relentless rise in regulatory demands, today’s tax leaders are facing an enduring imperative to reinvent their approach to tax, rethink how tax is fitting into their complex operating environment and rethink how they are communicating their broader sustainable tax strategy to remain relevant,” PwC South Africa tax reporting and governance specialist Carla Perry says.

She notes that, when looking outward, tax can be seen as a matter of public interest. This is because taxes are used to raise revenues to fund public services, and governments use it as a tool to achieve a range of goals, such as influencing behaviour, fostering investment, growth and jobs, providing welfare support and pricing externalities.

For businesses, however, tax can also be seen as a reflection of an organisation’s significant contribution to society. PwC says it is therefore imperative to deliver on a business’s sustainability goals.

Looking inward, tax has the opportunity to create lasting value throughout an organisation, PwC South Africa tax reporting and governance manager Kerneesha Naidoo says.

“Organisations need visibility, transparency and insights-driven participation from tax throughout the business value chain. This approach helps to optimise tax strategies, mitigate risks, ensure compliance and ultimately, contributes positively to the organisation's overall performance and sustainability.

“Tax operations also need to be adaptable to changes in the tax and business landscape as agility enables tax professionals to work smarter and faster by aligning leading practices and emerging technologies, freeing up their capacity to focus on insights,” Naidoo explains.

PwC says geopolitical instability and key megatrends are creating intense new challenges, resulting in many business leaders shifting to focus on driving value for multiple stakeholders and resetting corporate agendas with an eye towards long-term outcomes.

“These shifts are key to sustained success for both business and society,” Naidoo says.

Given these challenges, Perry says business leaders now have an unprecedented opportunity to lead, although trust is imperative and needs to be built between leaders and their stakeholders.

“Trust is a source of competitive advantage for companies that treat it as such – and a point of failure for companies that don’t. Trust can be viewed as a currency, altering loyalty and buying decisions for customers, as well as employee retention,” she explains.

Perry notes that companies have an imperative to build trust and transparency among different stakeholder groups as the measures for company performance expand beyond financial metrics. This includes both doing the right thing and communicating clearly on topics such as reporting and tax transparency.

PwC says revenue authorities will be placing more emphasis on monitoring larger taxpayers who pose a higher tax risk, particularly those who do not demonstrate cooperative and transparent behaviour.

“Invariably, a significant mind shift change is necessary. Tax leaders need to be more transformative in their governance of tax, led by a sustainable tax strategy. Adopting innovative approaches to governance, risk management, process improvement, engagement and a connected, data-driven approach will help accelerate your ability to transform. Once the framework to govern tax is in place, the organisation can craft a credible narrative for taxes and how they are managed,” Perry says.

PwC says it has observed progress made by many companies that are actively driving tax transparency through their communication with and disclosures to internal and external stakeholders.

“Companies are seeking innovative ways to demonstrate their commitment to being responsible taxpayers through active, responsible citizenship and, in an environment where business wants to see governments using taxes effectively to support countries’ socioeconomic development, consideration should be given to expanding the disclosure of their overall contribution, moving towards total impact measurement,” Naidoo says.