Constitutionalism on tax waivers or exemptions granted to taxpayers has been heavily debated after the High Court quashed income tax waivers granted to specific persons.
This, among other similar cases, has highlighted the importance of taxation in a country’s national economic discourse.
Adam Smith argues in The Wealth of Nations (1776) that taxation should follow the four principles of fairness, certainty, convenience, and efficiency.
The ongoing national debate on the payment of taxes by organisations or the waiver of the same, penalties, or interest by the National Treasury is related to one of the four principles, public perception of fairness in taxation.
According to the Principles for Responsible Investment (PRI), tax fairness can be understood as the effectiveness of public policy design in reconciling objectives with economic and societal objectives and ensuring levies are distributed fairly in society.
It is crucial in addressing inequality, ensuring there is reliable access to basic public services including health and infrastructure, and ensuring that there is sufficient revenue to address sustainability goals.
Tax makes a major economic contribution to the society and is the main source of revenue for most governments.
It provides the resources that are required to promote sustainable development. It is also often used as a tool to measure an organisation’s contribution to society and to nudge behaviour change.
Some of the key metrics that demonstrate a responsible attitude towards tax include public information on taxes or a global tax footprint that allows the public to assess if the performance of an organisation is responsible and sustainable.
The attainment of some SDGs is directly related to the payment of taxes. This is particularly so for social SDGs related to poverty, hunger, good health, quality education and equality.
Equally, environmental goals which relate to clean water and energy are impacted by fiscal outcomes.
The following SDGs have fiscal targets and hence their success is related to fiscal resources such as taxes; SDGs 10 (reduce inequality), 11 (sustainable cities), 12 (responsible consumption and production), 15 (life on land) and 17 (partnerships).
There are various drivers of tax reporting which include, public attention with the public expecting large organisations to fulfil their social responsibilities as corporate citizens by paying their fair share of tax.
Regulators in some instances impose mandatory public tax disclosures while investors keenly monitor key tax attributes such as the tax charge, effective tax rate, cash tax position as well as inherent tax risks of underlying investments.
On the other hand, tax authorities are also focusing on an organisation's tax processes and internal controls to ensure taxpayers substantiate the reliability of reported financial figures.
In conclusion, it is imperative that the management and the board of directors pay close attention to an organisation’s tax policies.
Secondly, they should clearly communicate their overall societal contribution, including taxes, to all stakeholders including the public.
Robert Maina is an Associate Director at Ernst & Young LLP. The views expressed herein are not necessarily those of EY.
