Managing tax planning and minimizing tax risks: How CFOs must square the circle

“It is a paradoxical truth that tax rates are too high today and tax revenues are too low, and the soundest way to raise the revenues in the long run is to cut the tax rates.”—John  F. Kennedy

‘Tis the season for change.

The Department of Finance submitted to Congress the tax-reform package. As it is a priority bill and one of the election promises of the President, it is expected that it will be given due consideration by the country’s legislators.

There is also the likely call for tax amnesty that will provide a clean slate for taxpayers moving forward, provided certain conditions are met. In the past, tax amnesties were granted if tax payers would present the appropriate balance sheet and declare likely gaps in past tax declarations on which a corresponding amount will be voluntarily tendered, subject to certain minimum amount to be settled including terms and conditions. Thereafter, the taxpayer is deemed to be tax compliant as far as the years covered by voluntary declaration of gaps and tax settled. It would be timely to have the tax-amnesty program before the effectivity of the new tax laws.

Most chief finance officers (CFOs) are trying to understand the proposed package and likely tax amnesty, and are studying how they will impact on their respective company’s business and personal circumstances. Postenactment of the law that will put aside the 1997 Tax Code, CFOs will be busy doing tax planning.

Tax planning is an art. Creativity is a major factor in arranging the corporate affairs in such a manner that will save the company from paying excess corporate taxes without violating any law or regulation. Business processes, and even location of  business, are looked into with the aim of structuring things to achieve a tax-efficient setup and ways of doing business. Optimization of tax benefits and/or savings over the long term is a usual goal in tax planning.

CFOs are expected to be “tax literate” and they should be major participants, if not the leaders, in crafting an appropriate tax plan aligned with their business plan. A tax plan is an important tool in enhancing the bottom line that translates to increasing the wealth of equity holders. Thus, tax and financial planning are intertwined.

As things seem to move fast, one can only hope that those tasked to legislate and those in authority to implement laws would have foremost in their minds and hearts what is good for our country and people now and in the future.  May I quote Lao Tzu —“The people are hungry: It is because those in authority eat up too much in taxes.”

Note:

The importance of tax planning is well recognized by the International Association of Finance Executives Institutes (IAFEI), where the Financial Executives Institute of the Philippines (Finex) is a founding member. In the 46th IAFEI World Congress from November 8 to 10 at the Cape Town International Convention Center in South Africa, the topic on managing tax planning will be taken up by the international tax committee of the premier global society of finance executives in one technical session. Delegates from various countries all over the world will participate in the discussions of burning issues that concern finance executives.

Dr. Conchita L. Manabat is the president of the Development Center for Finance, a joint undertaking of the Finex Research & Development Foundation Inc. and the Virata School of Business at the University of the Philippines. She is a trustee of the Finex Development & Research Foundation. A past chairman of the International Association of Financial Executives Institutes (IAFEI), she now serves as the chairman of the Advisory Council of the said organization. She can be reached atclm@clmanabat.com.

source:  Business Mirror