New Delhi, Dec 13 (UNI) Tax risk management still remains an ad-hoc process and if continued in the same manner may pose a greater risk to organisations or companies in the days ahead.
A survey by Pricewaterhouse Coopers released here today said heigtened scrutiny by tax authorities, increasing public attention and changing legislation has led to tax risk management with 95 per cent of organisations acknowledging the importance of managing tax risk.
''From being a subject matter that resides only at the finance department level, tax risk needs to reach to the CEO and board to gain significance and attain maturity in managing such issues,'' Pricewaterhouse Coopers Executive Director Ketan Dalal said.
According to the survey, 75 per cent of the organisations are conservative in their approach and do not want to litigate for settling tax-related issues. Most of them have resource constraints in dealing with long-drawn tax resolution process.
Sixty-one per cent of the organisations feel that 'unpredictable rulings' by the tax administrators is the most challenging factor contributing to tax risk in the present circumstances.
It clearly indicates tax management is part of over all management of the company with 58 per cent viewing image damage as the top concern due to tax risk leaving behind opportunity to save cost and potential levies.
''We see tax issues in the lime light of businesses, with organisations reviewing them on a real time basis to perevent loss of reputation,'' added Mr Dalal.
Among the MNCs 'transfer pricing' emerged as the most significant issue leading to potential tax risk but for the Indian firms'setting up operations abroad is a key concern. Though direct taxes have higher impact in comparison to indirect taxes as most of the companies in the country are not able to pass on them, the survey said.
Fifty three per cent of the respondents believe that risk issues are being managed by functional departments, across the industrial sector with the CFO office continuing to be the main stake holder for handling the tax risk, supported by the finance or income tax department.
Almost all organisations mention securing competent tax advisors as a priority while on the other hand effective contingency planning is 87 per cent for MNCs as compared to 69 per cent for firms.
However, the key areas identified by the organisations in the survey to help improve tax risk management include better understanding and management of income and service tax matters, suitable methodolgy for determination of tax liability and better working synergies with external tax advisors.
Operational improvements like preservation of data, providing training to administrators, guidance notes supported by specific tax risk management frame work and checklists can help add to organisational performance on the tax risk front, it added.