Taxation or any other scope of work in accounting isn’t just limited to completing the delivery of work. Today, we live in a socially aware world, where all the stakeholders of a business – clients, investors, and management are concerned about taking and giving back to society and the environment. They are also aware of their responsibilities. Hence, the trends that rule the industries are determined by factors like their societal implications. A lot of what organizations do comes from being socially aware and this applies to businesses of all sizes.
Whether taxation is the foundation of your business or just a part, it is important to be aware of what’s trending in the industry. The shareholders rely on service providers who are aware and have the knack for giving back.
Here are the top trends to look out for in 2024-25:
- ESG reporting and compliance: ESG lies at the core of corporate strategy and investor decision-making today. Governments are considering ESG while formulating tax policies. Tax incentives have been increased for sustainable practices and penalties have been levied for things that harm the environment. Firms are increasingly required to report their ESG initiatives. This directly impacts their tax liabilities and access to incentives.
- Green taxes and initiatives: We all know the environment is threatened by human activities. Hence many governments have introduced green taxes to discourage environmentally harmful activities. An example of this is carbon taxes. It is aimed at reducing greenhouse gas emissions. As a part of this tax, the government can levy taxes on organizations based on their carbon footprint. Similarly, there are tax incentives for renewable energy investments and sustainable business practices that are encouraging firms to adopt green operating practices. These policies help organizations become environmentally responsible and offer financial benefits to compliant businesses.
- Digital taxation – Almost all business processes, across industries, are under the grasp of digitalization. The digital economy is growing around the world and it has forced significant changes in the tax policies. Governments are increasingly shifting to digital tax transactions, making taxpayers independent and the processes transparent. The introduction of digital service taxes (DSTs) in many countries is a mere extension of this effort. Firms need to keep up with these evolving developments to ensure compliance and optimize tax strategies accordingly.
- New and improved reporting requirements – Tax evasion is a common problem and to eliminate this and improve transparency, many governments are implementing strict reporting requirements. Some of these acts mandate that financial institutions disclose information about foreign account holders. They also need businesses to report their tax arrangements, especially if something is out of the ordinary. These measures are aimed at preventing tax avoidance and ensuring that the firms can contribute fairly to the public finances.
- Progressive taxation: Over the years, many have argued the rich existence of income inequality. To promote social equity, governments are getting inclined toward progressive tax policies. These policies imply that higher tax rates will be levied for wealthier or high-earning individuals and corporations and then, these would be used to fund public services. Some firms, as a result, may face higher corporate tax rates or new taxes on high-income earners. To address income inequality, careful tax planning is needed to manage these liabilities.
- Anti-avoidance measures : Governments are working towards improving anti-avoidance measures. This is to ensure that the wealthiest individuals and corporations make a fair contribution to society. Some of these tax policies include measures to close the loopholes that lead to evasion and increased scrutiny of complex financial arrangements. Firms must navigate these changes while ensuring that regulations are met and reputations remain intact.
- Combining CSR with tax policies : CSR is not just another annual activity that needs to check the box. In today’s light, they are linked directly to tax policies. More and more governments are offering tax incentives to organizations that indulge in activities that are beneficial to society at large. This ranges from community development, education, healthcare, etc. When CSR strategies are aligned with tax policies, firms can make a social impact while reaping long-term financial benefits.
- Building a reputation : The public perception of corporate tax behavior plays an important role in shaping tax policies. Firms that are known to increasingly avoid tax can face reputational risks and potential backlash from clients as well as investors. Transparent and responsible tax practices are important in maintaining a positive image in the fraternity and fostering trust.
- Tax policies determined by economic fluctuations: Tax policies are no longer black and white. They are all shades of grey. Today, economic conditions or diabolical political situations can influence policies. At times of economic downturns, governments often implement tax cuts and incentives to stimulate growth, Similarly, in times of fiscal deficit, tax hike measures might be introduced. Firms need to remain agile and responsive to these changes, allowing adjustments in tax strategies.
- Tax reforms due to shift in political power: Political shifts can lead to significant tax reforms. As governments in a country change, it brings new tax policies and priorities. It impacts businesses of all sizes. Firms need to be aware and informed of the political developments and forecast the potential tax reforms that could impact their operations and financial planning.
Keeping up with the changing tax landscape – A Checklist
Change is the only constant and just like every other thing, it remains relevant for tax policies too. Firms might constantly struggle to keep up. But knowing the right thing to do at the right time can be the guiding force that organizations and tax professionals need:
- Stay informed and engaged by regularly monitoring domestic and international tax policy developments
- Align your business practices with ESG and CSR goals to benefit from tax incentives and enhance your corporate reputation
- Invest in automation to streamline the tax compliance processes to improve accuracy, and reduce administrative burdens
- For MNCs, ensure robust transfer pricing documentation and adherence to international tax standards. Anticipate global reforms.
- Adopt transparent and responsible tax practices to reduce the risks and foster trust with various stakeholders
- Outsource taxation to a trusted service provider who can help develop comprehensive tax strategies that align with evolving tax policies and are also constantly aware of the trends and the changes
Want to know how outsourced taxation can help? Write to our experts at connect@finsmartaccounting.com.
Director Growth Strategy & Alliance
Maanoj Shah is a finance and outsourcing expert with strong Business Strategy and Scaling-up experience. Over the last 20 years, he has incubated multiple businesses and helped build global enterprises in verticals as diversified as hospitality, technology, and healthcare.
