GST governance and risk management
New GST risks are emerging all the time and with existing risks becoming more complex, it is an area that Inland Revenue is increasingly focusing on. Increasingly, management recognises that the ability to effectively manage, mitigate, and monitor risk can be a source of competitive advantage. However, despite the growing importance of GST to the Government (the GST revenue take is roughly twice that of corporate income tax), our experience is that GST is still not being properly managed in some businesses, which continue to regard GST as a by-product of the accounts receivable and accounts payable system. The attitude is sometimes “why worry about GST if it is just an ‘in’ and an ‘out’?”
In our view, strong GST controls and risk management framework mean fewer errors will be made in the GST returns. While most businesses would like to believe that they are in general compliance with the GST rules, the volume of transactions, the systematic nature and the wide application of GST in the different aspects of the business make it practically impossible for the modern tax accountant or CFO to detect all the GST risks in the organisation.
A good GST Governance and Risk Management system of controls should reduce the chance of GST errors occurring and increase the opportunities to minimise exposure to penalties and interest.
Many businesses are shifting into more sophisticated governance and risk management frameworks. However, until this area is fully legislated, at least consider the control features that your business should be implementing by asking the following questions:
- Do we have a policy guide and best practice checklist that is clear and well documented?
- Do we have a visible accounting and tax function that is properly trained to handle and evaluate the impact of GST on our business transactions and determine when professional advice is required?
- Is there a clear and documented process to escalate potential issues and risks (compliance and processing) to management?
- Do our people understand what an acceptable and unacceptable tax risk is in our business?
- Are our accounting systems sufficiently automated and robust to protect the integrity of our data and do they have the right GST coding and classification rules to ensure the completeness and accuracy of our GST reporting?
- Do we have robust checks and balances in place to manage the inherent risks for manual processes and invoice generation.
- If not, what further controls and safeguards should we incorporate?
- What regular checks and reviews are done to ensure that our controls are current?
Managing your tax risk well is core to good corporate governance, particularly if you are operating in international markets. Good governance and effective risk management are important in managing the risks associated with the outcomes of compliance failures such as tax shortfalls or overpayments.
If you would like to discuss GST governance or the impact of it on your business, please contact your usual Deloitte advisor.