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In recent years, the global business landscape has witnessed a significant transformation in sustainable and responsible practices. This shift is driven by the increasing demand for transparent and ethical behaviour from stakeholders. PwC India recently conducted a market survey on insights into Indian businesses and their sustainable practices towards tax transparency between April 2023 and July 2023 of 229 respondents from India, from diverse industries and sectors such as industrial manufacturing, financial services, construction and engineering, technology media and telecom, pharmaceuticals and life sciences. The participants of this survey included tax heads, sustainability/ESG heads, CFOs, and CXO-level executives.
The study focused on gathering insights into how Indian companies are weaving tax considerations into their overarching ESG framework and to assess the awareness and perception regarding this crucial aspect. Our inquiry extended further into various facets, encompassing respondents' net-zero commitments, the strategies employed to attain these commitments, importance of tax transparency and other global framework and disclosures, the impact of carbon taxes on their supply chains, and the policy interventions deemed vital for the implementation of robust ESG practices.
Key Highlights
- 50% Indian businesses surveyed have made a net-zero commitment, among these 48% aim to achieve this by 2030, this indicates that net-zero ambitions run high indicating a sense of urgency and ambition among Indian businesses to address climate change and transition to a low-carbon economy.
- 67% expect an impact of carbon taxes on their supply chain - a call for action to integrate a holistic digitised carbon measurement system across their value chain to address regulatory requirements in the short term and drive long term competitive advantage.Businesses may restructure their business models and reorient their production with strong ESG focus as the regulatory systems are getting progressively activated.
- Additionally, transparency on taxes paid across various jurisdictions can help companies mitigate risks and capitalise on the opportunities associated with evolving carbon tax frameworks
- Indian businesses demonstrate a strong sense of urgency to address climate change - also expect an enabling tax/financial incentive framework to adopt technological solutions
- Over 59% of the respondents stated that there is a need to incentivise ESG interventions through various policy interventions, while 34% recognise a more balanced approach of taxes and incentives, which is a common global practice.
- 93% respondents believe tax incentives are relevant/very relevant for the adoption of ESG practices. While a majority (86%) corporates are interested in leveraging tax incentives for environmental preservation, 54% intend to use it for diversity and inclusion and 37% for social vulnerability - reiterating the positive impact tax incentives have on sustainable development.
- ~50% of the respondents agree that the reputational aspect is a key driver for tax transparency, improvement in ESG profile and score (44%) is the second most important factor for promoting tax transparency. Around 34% see it as an opportunity to build sound market relationships and trust.
- This indicates that businesses in India realize the potential benefits of proactively sharing information about their tax practices and recognize the link between tax transparency and overall sustainability and societal responsibility
- Tax is the largest societal contribution that companies make, as such Tax Transparency is a powerful medium to articulate the value-accretive nature of corporate actions - driving positive economic growth and enhancing shareholder value
- This also indicates that businesses recognise that sustainable economic growth and sustainable business practices go hand in hand - responsible tax behaviour is a key pillar.
- Tax transparency is a topic of critical interest for stakeholders - Over 70% of participants stated that shareholders and regulators are interested in tax transparency practices of a company.
- The noteworthy interest displayed by employees (50%) reveals a growing awareness among the workforce in India (internal stakeholders) regarding the broader impact of tax practices on the organization's image, financial stability, business valuation and individual livelihoods.
- Though corporates recognise the importance of tax transparency, the practice of publishing a tax transparency report (TTR) is still in an emerging stage - 75% of the respondents do not publish a TTR. Only 23% of companies use Global Reporting Initiative (GRI) 207/other standardised tax transparency related reporting practices, indicating limited adoption of international reporting standards and transparent tax disclosures
- Businesses can avoid unnecessary controversies and disputes by being tax transparent rather than waiting for these disclosures to be mandated by regulators or legislation.
- The Survey highlights that there is a significant shift towards tax transparency in Indian businesses, aligning with global ESG trends.
- 48% businesses plan to do voluntary tax transparency in the next three years through disclosure of total tax contribution (TTC).This highlights the significance of tax transparency in promoting responsible corporate behaviour, stakeholder trust, and sustainable development.
- 47% businesses stated that Tax Strategy is an important disclosures for Tax Transparency. This indicates that given the increasing focus on tax governance and compliance in India, it is crucial for companies to have a well-defined tax strategy.
- 61% of respondents state they have a tax governance structure in place, this suggests that Indian companies consider tax as a vital metric for business decision-making and building trust among stakeholders.
The intrinsic link between tax transparency and ESG principles is becoming increasingly evident. Indian businesses are recognising the importance of integrating tax considerations into their sustainability strategies, demonstrating a commitment to responsible corporate conduct and societal contribution.
Sambitosh Mohapatra
ESG Leader, PwC India
Tax has two sides like a coin – on the one hand, it is a mandatory social contribution and on the other, it is a cost like any other cost. Businesses discharge their obligation by paying their fair share of taxes while optimising their tax costs. This balancing act requires a high level of governance and strategic approach which businesses follow. When shared transparently with the public at large through a Tax Transparency Report, it becomes the ‘tax story of the company’.
Sanjay Tolia
Chartered Accountant
Tax transparency related disclosures on a voluntary basis by businesses, based on global best practices, may serve as an effective tool to demonstrate responsible tax behaviour and its societal contribution. Voluntary disclosure of key tax metrics by leading companies shall put pressure on the peer group to make similar disclosures and conform to responsible tax approaches in the matter of taxation, fostering better and fair tax practices and compliance with limited use of the regulatory stick.
Rahul Garg
Chartered Accountant
Key Takeaways
The survey suggests an increasing trend towards more comprehensive and voluntary adoption of tax disclosures in the coming years. This aligns with global practices and the evolving expectations of stakeholders. Such transparency in tax matters is not only critical for businesses to demonstrate their commitment to responsible corporate behaviour but also for the overall integrity of the tax system.
The survey findings emphasise the need for policy interventions to incentivise ESG practices and support companies in their sustainability efforts. Coordinated policy measures, combining green taxes and incentives, are not only important but would also be effective in achieving the climate goals India has set for itself.
Our survey also highlights that only 23% of companies use GRI 207 in their tax reporting, indicating limited adoption of international reporting standards. One of the reasons for this could be the voluntary nature of such disclosures currently in India. In this regard, it is important to highlight that tax transparency in countries like the UK and Australia has already gained momentum in recent years, with governments making a concerted policy push towards enhanced tax transparency by businesses.
When businesses are transparent about their tax contributions, on one hand, it demonstrates their commitment to support the growth and development of the country and, on the other, it encourages competing businesses to be similarly responsible for their tax matters. Thus, transparency fosters responsible tax behaviour, trust and positive public perception, ultimately benefiting both business and society.
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