TAX PAYER, TAX ADVISOR RELATIONSHIP EXPLORED
“Death and taxes are the only two things that are guaranteed in life”, goes the old adage. The debate on whether or not citizens of a country should pay tax or not dates back to biblical times, in particular during the reign of Julius Caesar. The Lord Jesus once advised the Jews to “give to Caesar what belongs to Caesar”. It is therefore not surprising that tax is certain and cannot be avoided but one can consider minimising or mitigating the impact of tax. Both businesses and individuals can take steps to minimise or mitigate the impact of tax through judicious tax management. In order to achieve maximum benefits from tax management it is necessary to seek the services of a professional tax advisor. The role of the tax advisor becomes even more important given the view that on one hand the Zimbabwe Revenue Authority(ZIMRA) aims to maximise revenue collections within the confines of the law whereas on the other hand businesses or individuals seek to minimise the impact of tax on their income. The tax advisor therefore becomes a “referee” between the two players.
The role of tax advisors is to act as representatives of the taxpayers and in that sense they may be considered to be tax advocates for their clients (taxpayers). These professionals also serve as intermediaries in the tax administration system in that they deal with ZIMRA on behalf of their clients. They are concerned not only with their clients’ interests but also have a role to play in assisting the general tax payers to comply with the tax laws of the country in both ethical and legal manner. In simple terms tax advisors have a legitimate function as tax “knowledge brokers” between the taxpayers and ZIMRA. In Zimbabwe tax professionals are governed by the Public Accountants and Auditors Board (PAAB) through the Institute of Certified Tax Accountants (ICTA) and are commonly known as Registered Tax Accountants (RTA). Both institutions have a code of professional conduct that ensures that the tax professionals adhere to high standards in their execution of duties and that they act in an ethical manner in their dealings with ZIMRA and clients.
A well-functioning tax system is dependent upon a healthy relationship between taxpayers and their tax advisors and of course ZIMRA. The consultation of tax professionals by tax payers inevitably results in greater tax compliance being achieved.
Nearly every business decision has tax implications, which can be quite complex depending on the nature of transaction. Companies that do business internationally may experience further complexities given the introduction of digital taxation. The complexity of tax laws has led to an increase in focus on tax risk management or tax planning as part of most organisations’ overall strategy to ensure that business organisations become “good corporate citizens”. Tax risks may originate from conflicting interpretations of the legislation between ZIMRA and the taxpayers. Taxpayers may compute tax based on information they honestly believe to be consistent with the tax legislation but ZIMRA may find some fault in the taxpayers’ interpretation. ZIMRA may impose penalty and interest as at law it is presumed that ignorance of the law has no exemption. It is no doubt that taxpayers opt to engage the services of a tax advisor in the hope of mitigating these risks and achieving the desired certainty. According to a study conducted by the Organisation for Economic and Co-operation Development (OECD), it was noted that tax professionals serve a fundamental function in assisting taxpayers to meet their tax compliance obligations.
Many tax payers lack the basic or necessary tax knowledge required as far as tax in Zimbabwe is concerned. It is evident that tax payers hire tax professionals to save time and effort required to achieve compliance and this frees time for them to focus on the key strategic business operations. Tax professionals are expected by their clients to reduce the chances of a ZIMRA tax audit/investigation, thereby lowering monetary costs (penalties and interest) associated with audits.
As highlighted, tax legislation sometimes contains “grey areas” that produce ambiguous tax situations which may be open to various interpretations. The role of Tax advisors in such situations is not to get rid of the entire uncertainty but they can persuade the revenue authority to try and revisit the laws especially where the law disadvantages the taxpayers. This they do through raising objections against the decisions of ZIMRA or seeking Advance Tax Rulings (ATRs) in some cases. Tax professionals are negotiators who act on behalf of the tax payers and negotiations are usually common where ZIMRA has conducted an audit or investigation and the taxpayer is appealing on the assessments that would have been raised.
The ever-changing tax laws in Zimbabwe call for taxpayers to always keep abreast with the changes. Advisors play a major role in guiding tax payers on the effect of new tax laws on their businesses. This can be done through tax trainings, tax conferences, text books, or even tax articles and publications. Full knowledge of tax law is important because in tax the concept of “materiality” does not apply. Failure to comply with the tax law may result in ZIMRA refusing to issue a company with a tax clearance certificate (ITF 263) notwithstanding the fact that the tax debt is not material. It is for this reason that the tax payers should be aware of any changes in the tax legislation specifically those that affect them.
In the current business environment, mergers and acquisitions have become very popular. Taxpayers cannot offer a blind eye to the role of a tax advisor in mergers and acquisition transactions. A tax professional may help in analysing tax issues relevant to the taxpayer’s company, the company acquiring and other parties involved in the merger and acquisition transaction when assessing tax implications of the transaction. Another critical piece is the tax re-structuring and tax professionals help clients to take advantage of permissible tax concessions. Tax due diligence also plays an important part in uncovering potential tax risks in the target company. Tax professionals may help develop countermeasures to mitigate possible tax exposures.
In conclusion tax policies are very technical and complex and can be confusing for a layman. An expert makes the job easier and simpler since he understands the process with ease. Engaging a tax professional is an expensive affair and may be even be considered as an additional cost, but on the contrary, a tax advisor can actually save lots of money for the company.