People in business are trained to focus on ‘pre-tax’ numbers such as EBIT to measure financial success seemingly because the ingredients of ‘earnings before tax’ are what business managers feel they can influence and control. But the ever-pervading reach of tax is too important to leave as an after-thought or ‘below the line’ item. Many a good business decision can be unwound by failing to appreciate the substantial impact that a choice or direction can have on the resulting tax obligations. Ultimately, the value of a business is measured on a net present value basis inclusive of tax costs. Good business leaders learn that tax can both create and destroy value, significantly.
Like all variables, taxation needs to be managed as part of an overall business strategy. And it’s not just about saving or minimising tax. It’s also about not knowingly or unwittingly paying too little tax. It’s about ensuring that enough tax is paid under the laws; meeting the social licence to operate, stakeholder relationships and maintaining the reputation of the business within the community.
Tax acumen is the ability to formulate business decisions with an overall understanding of the financial and non-financial taxation impacts of those decisions on the business and stakeholders to achieve optimal ‘post-tax’ business and community outcomes.