A company has a duty to avoid tax

The better a business is at avoiding the payment of unnecessary tax, the healthier it will be.

A company has a duty to avoid tax
- Advertisement -

Successful businesses have one trait in common – they manage resources well.And in any venture, no matter the size, the health of the venture is enhanced if it has a good reserve of capital. A healthy company is an asset to any country. It provides goods and services. It makes use of goods and services, including labour – and, being healthy, it pays direct and indirect tax.

READ:Don’t forget to pay Freshmark Systems

The higher the volume of healthy companies in any country, the better the services available, the fewer jobless people and the more times a unit of money circulates, generating wealth and tax as it goes. If a company pays excessive taxes, it loses capital, as after-tax profits build up capital. So, the better a company is at avoiding tax, the faster it will acquire capital and the healthier it will be.

- Advertisement -

In many advanced nations, taxes are used fairly wisely. The heads of state live more like upper middle-class people than royalty, the government ministers and officials avoid overspending on items that don’t advance the country, such as luxury vehicles for government employees.

Intrinsic worth of taxes
In advanced economies, the ordinary person has many government-funded perks. Taxes are high, but services such as education and medical facilities are free and of a good quality. There’s an intrinsic capital worth to the paying of tax, as the companies and ventures of those economies actually benefit from their tax-spend.

But, in an economy where taxes are swallowed by luxury vehicles and unnecessary spending on expensive homes, it could be said that tax is really more of a burden than a contribution to the common good. Thus, the precious resource that is capital is used less wisely in an environment where taxes are not well allocated.

Staying Tax-lean – and strong
A good manager, therefore, will ensure that the enterprise is as ‘tax-lean’ as possible so as to assist in securing the health of the company for the good of the economy. Just as a farmer who manages his water resources well would immediately take steps to ensure that a leaking pipe or a dam wall or reservoir is fixed, so a businessperson (including a farmer) should avoid wastage of capital.

Not illegal
Tax evasion is illegal. Tax avoidance is not. “Every man is entitled, if he can, to order his affairs so that the tax attaching under the appropriate acts is less than it otherwise would be.” So says a famous ruling in a British case. Difficult as it may be to avoid tax and to avoid the anti-avoidance provisions of the income tax act, prudent businesses in South Africa should do their best to do so, because it seems that government expenditure is out of control and unsustainable, and it is business that keeps the country going, not government.

Business has to stay strong. If business cannot deliver, no one can.

Peter O’Halloran is head of tax at BDO, Gaborone. Contact him on 00267 390 2779 or at [email protected]. Please state ‘Tax’ in the subject line of your email.