20 July 2018
“Tax advocacy” describes activities deployed by companies to influence external stakeholders to change a specific fiscal policy or behaviour. Tax advocacy can also be used to preserve the status quo (for example, the recent carbon and sugar tax debates in the South African context). Tax advocacy is not always an active intervention to influence, but could be relatively passive. For example, maintaining positive relationships with tax authorities domestically and in foreign jurisdictions through regular engagement.
A tax advocacy strategy, for South African corporates, assumes added significance in the context of outbound investment (especially into African jurisdictions). Tax certainty is often achieved through negotiated investment incentives and stability agreements. In the context of the increasing importance of tax transparency, companies are moving to disclose tax incentives claimed to statutory or regulatory frameworks. It is becoming best practice for companies to develop tax advocacy strategies, incorporating the following:
- Analysing and understanding the cause/s of the fiscal issue in question, which will assist in determining the most appropriate advocacy approach;
- Analysing the external environment, including the country political/economic/social and policy context, contributes to identify the institutions, organisations and individuals to be influenced to achieve the desired change and other stakeholders, including potential allies and opponents. Stakeholders may include governments (all levels), investment promotion agencies, international and regional NGOs, revenue authorities, and industry and professional bodies;
- Analysing the policies and processes to be influenced to bring change in light of, inter alia, the nature of the existing scenario (legislated/policy/prevailing practice) and the steps or procedures to effect changes, and identifying the role-players who can effect these changes;
- Developing goals, objectives and key messages, including the ultimate objective of the tax advocacy initiative. The objectives represent the specific changes required to reach the ultimate goal;
- Deciding on the advocacy approach that is most likely to effect the changes sought. This will require an assessment of the advantages of alternatives (for example, adversarial/negotiation/lobbying/insider collaborative strategy or a combination thereof). It will also need to be decided at what level the tax advocacy should take place, from the company and external stakeholder perspective, taking into account local practices and customs in the jurisdiction involved;
- Regular monitoring and evaluation of the tax advocacy strategy, considering, inter alia, changes in the external environment, and the views of the external stakeholders.
Adopting a tax advocacy strategy, as an extension of a company’s existing procedures and policies to engage with external stakeholders, illustrates adherence to sound principles of tax governance, through recognising the importance of meaningful, sustainable, transparent and constructive relationships with stakeholders.
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