CEOs are anxious about the global economy, and their confidence about growth, in the short term at least, remains fragile. Many are casting a wary eye over how governments are addressing their deficits — and seeing a potentially rising tax burden as the key threat to their business’s growth.
And this worry is not unfounded: after an eight-year trend of decline, the total tax rate appears to be stabilising. Our 2013 Paying Taxes study also reveals that corporate income tax — the headline tax — in fact makes up just over a third of organisations’ total tax rate contribution.
CEOs today are feeling pressure from a growing number of stakeholders, as traditional groups have been joined by new influencers — with social media and the 24-hour news cycle giving voice to an ever more diverse (and often noisy) set of observers.
We’ve seen recent cases where corporate tax practices have become a matter of significant public interest. CEOs are fully aware of how closely they are being watched, and are adapting their business strategy in response.
Trust is an essential component of the relationship between an organisation and all of its stakeholders. Companies must understand their stakeholders’ interests in their tax reporting — and determine if, and how best, to communicate key messages.
While CEO confidence for revenue growth remains fragile, particularly in Western Europe, confidence is much greater in less-developed markets.
Business leaders are continuing to keep their eyes firmly on where the growth is — Indonesia, for example, made the list of top 10 investment destinations for growth for the first time.
Where focused on cross-border activity, of course, businesses must understand local regulations and attitudes towards tax. Our Paying Taxes study compares countries’ tax systems like-for-like, considering not just corporate income tax but the full impact of all business taxes, as well as the compliance burden.
Paying Taxes 2013 is a unique study from PwC, World Bank and IFC. The study investigates and compares tax regimes across 185 economies worldwide using a case study company, and ranks them according to the relative ease of paying taxes.
Governments, regulators and the public are focusing on corporate tax practices in a way we haven’t seen before. And over a third of CEOs expressed the view that a lack of trust in their actions on the part of these stakeholders would pose a serious threat to their business growth.
So it comes as a surprise to see how far down managing corporate reputation is on the CEO priority list, with almost half not claiming this as a priority for 2013. A further surprise is that although CEOs told us they consider their tax burden the number-one threat to growth, half of businesses did not plan to prioritise tax strategy this year.
This presents a serious risk. Tax is on the agenda of an increasing number of stakeholders — and more tied than ever to corporate reputation. Tax strategy and managing this link to corporate reputation should become a higher strategic focus for business in 2013.