Pramod Jain, Heads - Tax Function,
India is a land of multiple and very complex tax laws and rules. The things can get more complicated for businesses due to lack of tax certainty and stability. These tax laws and interpretation thereof, are also subject to revenue biased approach of the tax authorities most of the times (though the author based on his professional experience can say that landscape is improving rapidly since last few quarters).
The issues and demands arising from these multiple tax laws and interpretations thereof can have a big impact on the financials of a company and in addition, to the risk of loss of reputation and credibility before investors, public and government.
Until 15-20 years back, the tax function in most of the companies (including the large ones) was seen as limited to timely payment of taxes and timely filing of tax returns. The function was generally performed by book-keepers or accountants in the company and similar to the concept of family doctors’ until some decades back whose advice and prescription was sought by all family members regardless of age, affected organ or visible complexity.
With the changing times, the concept of family doctor became less common and people started consulting specialists and super specialists and who will advise or prescribe something only after detailed discussion, tests, scans and investigations. Similar to this, more and more corporates started employing tax specialists and within tax specialists, further super specializations stated coming in like transfer pricing, international tax, indirect tax etc.
The trend of hiring dedicated tax professionals was made more popular by large multi-nationals setting up business in India during 90’s when India started opening its economy and within no time, tax specialists were in demand in listed companies and large companies with international operations or multi-locations/multi-products. With the advent, need and growing acceptance of tax specialists, the standards of tax compliance, tax documentation and management of tax disputes also improved considerably. Now, discussion on tax is one of the main items for discussion in any meeting of the board or audit committee of any big company.
The necessity for hiring tax specialists or finance professionals with reasonable tax knowledge and experience should percolate down to the small and mid-companies and even start-ups which are growing fast. It is often seen that these companies continue to focus solely on the business and their customers. Somewhere, the accounting processes, tax compliances and documentation take a complete back seat and which sometimes forces companies to adopt short cuts or face huge tax demands with significant litigation and consultancy cost.
On the other hand, the companies which don’t ignore accounting and tax processes from beginning are able to command more premium and respect in the market. The investment in a right tax professional can even help promoters, senior management and business leaders to stay focused on growing business and without being pulled into attending summons by tax authorities or management of tax assessments and demands. A good tax professional can even help grow the brand value of the company, improve engagement with the government agencies, reduce tax costs embedded in products and services, prevent tax leakages and thus, contributing to the growth of business and profitability. Tax function in corporate is no longer a cost center but is rather a profit center.
As the tax function grows and evolves more and its importance and criticality is understood better, some large companies may even start providing an independent seat to tax in the board room, similar to legal and internal audit.
Tax is a dynamic and fast changing field as compared to several other sub-functions of finance which are more static in terms of knowledge and application thereof. The tax professional also owes it to himself to keep abreast of latest happenings not just in India but internationally as well. Similarly, for the companies which are looking at rapid growth, it makes complete business and financial sense to invest in right tax professional and tax processes at the right time and not when there is a fire that needs to be doused.