The tax environment is ever changing and regulations are constantly evolving. Owing to this, businesses need to keep up by thoroughly assessing their tax structures, tax positions and tax compliances on an on-going basis, to ensure that the overall tax positions are backed by adequate support, compliances are monitored, and matters that are under litigation are dealt with appropriately.
What is a tax health check?
A tax heath check is a systematic review of your business’ records and accounting systems with a view to identify any areas of risk in relation to the collection or recording and reporting of data used to produce reports to any Government revenue office (ZIMRA) as well as to assess opportunities that have not been taken advantage of, for example incorrect reporting or not utilising alternatives available through the tax system leading to too much tax being paid. In effect, it gives confidence in the level of risk the business has in relation to taxation.
Tax health checks provide an assurance that tax implications for a certain period, an area of compliance, or a specific transaction are identified, duly addressed, and in following through, appropriate action are taken for risk mitigation. Conducting such health checks on a periodic basis will help in managing tax risks, ensure appropriate compliance, and result in better preparedness for litigation matters and strengthen tax positions.
The Key Focus Areas for a simple tax health check
Tax Audit Risk
A tax audit is an inspection of the correctness of the tax accounting with the aim of identifying and hedging potential tax risks arising from violation of different requirements. Furthermore, a tax audit is an efficient tool for optimising the tax liability, offering real options for improving economic results. An analysis of risks inherent in the different tax areas, including but not limited to, corporate income tax, value added tax, wage accounting, is done to check for compliance with statutory registrations. A regular tax health check will expose all non-compliance issues before the organisation has been flagged for an audit by ZIMRA and penalties imposed on them.
This is also a critical area in conducting a health check. Corporate governance is the system by which companies are directed and controlled. Everything from communication to leadership and strategic decision-making. Primarily, however, it involves the board of directors, how the board conducts itself and how it governs the company. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate structure is in place.
It takes an external party to be impartial in analysis of processes and note the loopholes than those in the system. This is why organisations find it easier and efficient to outsource such activities to firms that specialise in this.
The Small to Medium Sized Business: is there a case for a tax health check?
Compliance issues are universally applicable regardless of the size of a business and as an owner of a small business, it is even more important that you are found compliant by ZIMRA. This is because non-compliance has far reaching effects. Multiple researches on SMEs is Zimbabwe have found that most enterprises in this bracket are non-compliant, and with a sizeable number of them forming the back-bone of the country, this poses a serious challenge to the economy. A regular occurrence in SMEs is that of lack of adherence to corporate governance procedures leading to inefficiencies, unethical practices, tarnishing of corporate image when such issues are exposed, legal penalties, and disregard of procedures especially in situations where the founding owners are part of the board. Absence of regular checks therefore expose these enterprises to overtaxation.
Access to such vital information in a small business may not be readily available. This is what companies such as ourselves are passionate about. We identify issues through understanding of management activities and industry-specific activities, assess accurate classification and tax treatment, perform a comprehensive review and analysis of major accounts and transactions, provide in-depth review of issue-specific laws and regulations and quantification of potential tax effect.
We also develop appropriate solutions to minimize possible tax exposures and risks, assist with requests for rulings or interpretations by tax authorities on issues in question or dispute to minimize risks of uncertain tax liabilities from a possible challenge by the tax authorities. This is in addition to performing comprehensive reviews of tax reconciliation to ensure all opportunities to reduce tax liability or to obtain refund of overpaid tax have been explored. Further, we identify areas where tax exemptions or reductions may be utilized to reduce future tax liability and through all this process offer sound business advice to ease your way of doing business.
It is one thing to conduct a successful health check for an organisation but the important thing is also to then put forward ways in which such businesses can plan for tax payments such as Quarterly Payment Dates (QPDS) in line with the ZIMRA calendar.
In summation, having constant and thorough tax health checks should not be optional for any business it is therefore worth the consideration that small businesses outsource such services to the experts who understand this so you focus on what you can do best.