Tax governance compliance: An exploratory study of the 50 largest Johannesburg Stock Exchange-listed companies

Abstract

In line with current international sentiment which promotes greater transparency, the King Committee on Corporate Governance in South Africa updated its corporate governance framework through the issue of the King IV Report on Corporate Governance for South Africa, which replaced the King III Report on Corporate Governance for South Africa with effect 1 April 2017. The King IV Report on Corporate Governance for South Africa now specifically includes the formulation of a tax policy and strategy within the ambit of responsibilities of the board of directors and states that the organisation’s tax policy must be ‘transparent’ and ‘responsible’. The objective of the study was threefold: Firstly, to develop a tax reporting framework that incorporates the principles of good tax governance to ensure transparent and responsible tax policies and practices in South Africa. Secondly, to use the developed tax reporting framework to measure the tax reporting performance of the 50 largest Johannesburg Stock Exchange (JSE)-listed organisations in South Africa. Thirdly, to produce a holistic and strategic methodology for South African organisations to employ as a standard and pragmatic approach that incorporates the responsible and transparent tax policy requirements of the King IV Report on Corporate Governance. The study commences with a literature review of established international trends on good tax governance, continues by aligning these international trends with principles from the King IV Report on Corporate Governance for the South African context and concludes with descriptive statistics to measure the performance of South African JSE-listed organisations against these trends. It was found that less than half of the 50 largest JSE-listed organisations comply with more than 50 per cent of the disclosure criteria as recommended by international practice on good tax governance. Only 25 per cent of organisations complied with 65 per cent or more of the disclosure criteria. Of such organisations, 75 per cent are primarily listed on a stock exchange other than the JSE with a secondary listing on the JSE. It is evident that most primarily listed JSE-listed organisations do not meet international criteria of good tax governance. It is therefore submitted that the presented methodology may contribute to South African governance literature.