1. What is the most significant change to your region/jurisdiction’s tax legislation in the past 12 months?
We have seen, and are seeing, an increased desire from Deloitte Africa Tax & Legal’s clients to digitize the more routine functions of their tax departments.
We have also seen in our multinational client base an increased emphasis on developing and implementing transfer pricing policy and practices that are aligned with the G20/OECD Base Erosion Profit Shifting (BEPS) project in order to determine that value is recognized and taxed in the jurisdictions where it is created.
Right now, Deloitte Africa Tax & Legal’s clients are also needing to deal with the impact of the COVID-19 global disruption to their businesses. For obvious reasons, this is unfolding in real time. From a tax point of view, this has multiple potential impacts including the ongoing planning and management of transfer pricing policies in an environment of plummeting revenues and profits, taking advantage of government relief measures, and the tax implications of organizational restructurings (including making retrenchment payments).
2. How do you anticipate that change impacting your work and the market moving forwards?
It will require us to increase efficiencies in how we deliver solutions to clients and will require us to increasingly leverage our industry experience and collaborate across our functional competences to see that we are able to provide practical solutions to our clients.
The more ‘standard’ tax solutions are likely to become commoditized, while real skills with the ability to adapt to future trends will remain lucrative and price-based on value added.
We are also finding a sustained demand for secondments in our client base – due to the shortage of in-house resources at organisations.
The impact of the global pandemic - COVID-19 has also required an increased agility in response and it is expected that going forward agility will be an important aspect for both clients and service providers.
3. What impact do you see the COVID-19 pandemic having on your work directly and on the wider tax environment, in both the short and long term?
The global disruption of COVID-19 will likely have a direct negative financial impact in the short-to-medium term, as businesses cut on consulting spend in order to preserve cash and survive. We thus anticipate that business will focus on compliance.
However, as and when the situation normalises we could probably expect a significant jump in consulting spend as new business models are developed to make businesses more resilient against the impact of future global pandemics such as COVID-19.
COVID-19 will also impact the way that we work. We have discovered during this time of the COVID-19 global pandemic that working remotely is not only possible, but often more efficient than spending a lot of time travelling to and from work.
4. Given the likely long-term implications of COVID-19 on things like remote working and digital retail, how do you see tax technology developing to accommodate this new reality and where do you think the next area of focus might be?
The market is moving towards solutions that can automate routine aspects of the tax function while requiring proficiency from functional and industry practitioners on the tax implications of business transactions. This change is driven by clients experiencing the simultaneous pressure of having limited in-house skilled tax resources while often also being also required to contain or reduce headcount in tax departments. The tax teams of the future will require not only tax skills, but also digital knowledge, such as data analytics skills, etc.
As working remotely will become the new normal, teams will need to continue to adapt to using technology to collaborate on projects and deliver services to clients.
5. What potential other legislative changes are on the horizon that you think will have a big impact on your region/jurisdiction?
The focus of legislative changes is likely to be aimed at broadening the tax base, curtailing perceived tax abusive arrangements and closing the tax gap. There is also a debate in many countries concerning the possibility of implementing a type of digital services tax and certain African countries are also further along in this consideration than others.
Authorities will probably closely monitor international tax developments and align themselves with proposals that seek to curtail base erosion and profit shifting (BEPS) and provide a new taxing right for “virtual permanent establishments”.
6. What are the potential outcomes that might occur if those changes are implemented?
It is difficult to say how the landscape will look in the future. However, it will no doubt evolve, notwithstanding the need to simplify will probably become more complex to manage.
For instance, looking at the tax controversy landscape in South Africa, it is relatively robust and is likely to be a growth area in the future as the South African Revenue Service is renewing its mandate to be an efficient revenue collection agency. The more complex areas of taxation, such as transfer pricing, M&A and controlled foreign company legislation lend themselves, by their nature, to differing interpretations on the correct application of the tax laws. We can thus expect more disputes arising in these areas in years to come.
7. Do you think that change will have a positive effect on both your practice and the wider regional/jurisdictional market?
The ability to be agile in the face of change is an essential ingredient for staying relevant in both the current context as well as in future. With change there is always an opportunity; we need to challenge ourselves to apply our curiosity as we seek to have a positive impact in our markets and to meet our clients’ needs. We also need to remain in touch with our social responsibility.
8. What legislative changes would you like to see be implemented that you think would have the most positive effect on your practice and the wider regional/jurisdictional market?
Legislative changes which will aid in revitalizing economic growth would be to key to our accomplishment in the market. These could include the following:
- The emerging digital economy should be top of mind as the world moves towards 5G connectivity. There have also been various discussions globally around the taxation of the digital economy. Clarity as to South Africa’s position on potentially introducing digital services tax could make a significant impact.
- Further support for small businesses – an important engine for economic growth and job creation. The cost of tax compliance remains a significant challenge for small businesses. Addressing this issue, in conjunction with other measures such as tax incentives and/or tax breaks for small-and-medium-sized enterprises, could reduce the cost of doing business, and aid this important segment of the economy.
Emphasis on the following aspects would also assist in having a positive effect:
- Building capacity for the tax authorities and the use of new digital technology to improve efficiency and effectiveness
- Greater tax policy coherence and consistency, along with better regulatory certainty are key issues that should be addressed
- Focusing on closing the tax gap and targeting illicit transactions
9. Do you think something like that is likely to be implemented in the near future?
It is difficult to predict, as tax regimes and tax legislation are fluid with constant changes being proposed to the tax laws to address various competing priorities.
10. What have been the biggest developments in tax technology and where do you think the next area of focus might be?
We recognize that in a world of globalization, digitization and social transformation, tax as a function can no longer watch from the sidelines, and organizations are increasingly recognizing the need for their business, and their tax function in particular, to be tech-savvy, data-driven and predictive.
Deloitte Africa Tax & Legal has embraced its role as one of the leaders in digital tax transformation by contributing to tax technological developments and new tax solutions, turning tax into a source of agility, strategic insight, and even innovation for the organisations we serve. We have assisted tax and finance leaders at Deloitte Africa Tax & Legal’s clients with practical steps that can be taken today to help them envision their road map to the tax function of tomorrow. This is the next focus area moving toward the tax function of tomorrow.
From a tax authority perspective, the next area of focus will be on reducing the level of taxpayer input required for tax returns, as a result of using third-party data, as well continuing with the drive for more real time data from taxpayers.
