Introducing Tax Risk Management Policies

The concept of a Tax Risk Management Policy (TRMP) is rarely spoken about in the tax fraternity, yet it is so critical in managing tax risks. First of all, tax is a cost which needs to be managed and if the law permits, minimised. If not managed well, tax can become a nightmare to your organisation or business. All tax authorities, including BURS, are empowered to audit, charge penalties and interest where non-compliance is detected. The taxman is not your friend if you are not tax-compliant. He means business and he is there to collect what belongs to him, period. And when he comes for an audit, don’t ever think he comes to play, he is on a statutory mission to ensure that what belongs to him is indeed paid.

Introducing Tax Risk Management Policies

The concept of a Tax Risk Management Policy (TRMP) is rarely spoken about in the tax fraternity, yet it is so critical in managing tax risks. First of all, tax is a cost which needs to be managed and if the law permits, minimised. If not managed well, tax can become a nightmare to your organisation or business. All tax authorities, including BURS, are empowered to audit, charge penalties and interest where non-compliance is detected. The taxman is not your friend if you are not tax-compliant. He means business and he is there to collect what belongs to him, period. And when he comes for an audit, don’t ever think he comes to play, he is on a statutory mission to ensure that what belongs to him is indeed paid. Throughout this article, words importing the masculine shall be deemed to include the feminine.

What’s this policy?

Before I get carried away, let me start with the basics. So, what really is a TRMP? In simple, it is a policy that is crafted to arrest any tax exposures before they even occur. It defines an organisation’s tax obligations and how it commits to abide by the laws in order to minimise tax penalties, interest and audits. Technically, it is a management tool which guides every member of the organisation on how to manage their tax affairs. With BURS capable of charging 200% in penalties and interest which exceeds the principal tax, this policy is so critical in minimising tax risks.

Is it necessary?

Large organisations have different divisions such as legal, finance, IT, HR and procurement, just to name a few. In the absence of a TRMP, each of the divisions in the organisation separately concludes agreements and embarks on projects without establishing the tax consequences. Worse still, the CEOs and MDs also do not establish the tax implications of some of the projects that they approve.

In simple terms, there is likely to be tax chaos if a large organisation does not have a TRMP. For example, most construction companies account for VAT on the amount after retention, yet the VAT Act does not exclude retention from the tax base. Some organisations do not tax contractual mobilisation fees received, resulting in them underpaying corporate tax. Some do not pay VAT on imported services, simply exposing themselves to heavy tax penalties. Worse still, some organisations do not do basic things such as deducting withholding tax on consultancy fees paid to non-residents or even from rent.

The solution

You probably may be asking who indeed should then conduct these tax risk clearances. Ideally, it is the Tax Manager and if none is available, the senior finance person, usually referred as a ‘Tax Champion.’ But we all know that there are some matters that are too technical that these ‘Tax Champions’ may not be able to unravel. These then have to be dealt with by the entity’s tax consultants. With an arrangement such as that described above, the tax risks are certainly minimised and manageable. But what happens on the ground? Tax chaos; all divisional heads go around signing agreements and embarking on transactions without checking the tax implications. Then everybody gets a wake-up call when the taxman walks in. No, this is not the way you should be managing your tax risks. Get a TRMP drafted and implemented today. Yours Truly wouldn’t turn down your request for assistance with crafting such a policy, at a small fee, of course.

Well folks, I hope that was insightful. As Yours Truly says goodbye, remember to pay to Caesar what belongs to him. If you want to join our Tax Whatsapp group or know about our 9 Tax e-books, send me a text on the cell number below.