Sue Phillips; accountANT, and lover of sustainability, both in business and in the other sense, has written a three part series on the importance of tax for brands and businesses claiming to be sustainable and ethical. Read her tipS and expert advice on the subject.
Does not paying tax make you "smart"? Donald Trump certainly thinks so. And he's not alone. But, if you're a business with a conscious focus on sustainability and ethics, does that change your attitude to tax? And, if so, why?
Tax (and perhaps finance generally) can seem quite daunting if you're not an accountant . . . But clearly it's essential for your long-term business success to understand your company's financial performance. Remember, sustainability is often defined as people, planet and profits! So what I'm aiming to do in this three-part resource on tax is to:
1. explain why tax is a key ethical and sustainability issue;
2. explore whether tax transparency can potentially benefit your reputation; and
3. outline some practical tips for managing tax.
Tax as a key ethical and sustainability issue
Tax has been around for a long time. In fact, it's been around longer than money. People have paid taxes since pre-Biblical times, albeit sometimes 'in kind' with goods or with their own labour. And questions of who should pay tax, how much tax they should pay, and for what purpose have caused disagreement ever since.
In the UK, taxes were historically a way for royalty to raise revenue, often to fund military ambitions and wars. And there's still a nominal link between the Crown and the government when it comes to tax: after all, HMRC stands for Her Majesty's Revenue and Customs. But, in the twenty-first century, types and levels of tax are determined by the government, not the royal family.
Every time we cast an election vote, we're expressing an opinion on what kind of society we want to live in (for example, whether we want universal and free (at the point of delivery) healthcare, and access to education); and how this should be paid for (whether progressive tax, where the richest individuals and the largest companies pay more, or so-called 'flatter' levels of tax). So, tax can be seen as a fundamental aspect of modern democracy.
Coming back to the earlier point that sustainability can be defined in relation to people, planet and profits; tax revenue, or lack of it, has implications for social, environmental and economic sustainability at national level. (These are, of course, hugely complex and often controversial subjects so this is the briefest of introductions. If you want to know more, take a look at the Resources section below.)
Taxation is one of the ways the government funds public services. Taxes help to pay for the NHS; schools; and welfare benefit payments to individuals who can't work (whether due to sickness, disability or just lack of suitable employment opportunities), or who've retired. And it's also one of the fiscal tools used to achieve social objectives such as full employment. In addition, governments can use taxation in support of environmental objectives: perhaps levying taxes on products and services with an adverse environmental impact, such as polluting fuels or landfill; or offering incentives to entrepreneurs developing environmentally-friendly solutions.
The aspect of tax which probably generates most disagreement is its potential to redistribute income and wealth. Which is one reason why 'fair tax' campaigner, Richard Murphy, in his book 'The Joy of Tax: How a fair tax system can create a better society' makes the observation that "tax and morality are inextricably linked".
So a key issue is what happens if individuals and companies don't pay their fair share of tax. Clearly there's less government money available to fund social objectives. And, even if companies provide corporate sponsorship for health or education initiatives, this undermines democratic political processes which give people the opportunity to vote for the kind of public services they want. It hands influence and control over such decisions to companies who may not, of course, actually be based in the same country.
All in all, tax is inextricably linked to ethics and sustainability.
Are you wondering how this applies to you and your company? Well, another fundamental question is whether global corporations benefit from arrangements such as tax havens in ways which make them more financially competitive than smaller, conscious enterprises? Is it a level playing field, or do larger corporations have access to tax concessions which give them an unfair advantage? I'll cover these issues in the second part of this three-part resource on tax.
Contributed by Sue Phillips (ACCA)