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Tuesday, December 12, 2017
CSR and Tax: Two important means to Sustainable Development

CSR and Tax: Two important means to Sustainable Development

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Is it possible for a company to avoid tax and at the same time call itself socially responsible because it is has an impressive CSR budget? Some argue that money saved by paying less in taxes can be put to work far more usefully by corporations, who can invest it directly into jobs, training and opportunities, and other ‘good works’, than by governments, who tend to spread it too thinly to provide tangible benefits to local communities.
I do not agree, for two reasons:

First, I think we start getting into great complexities when there is any link between social investment and taxes. I think the two should be completely separated. Taxes are usually paid on income after taking out all ‘allowable’ expenditure. I think companies can always include money spent on social investment projects as part of such expenditure. This means it comes out of their gross earnings and the company is then taxed on its net earnings. This is why we advise that social investment should be linked to business objectives, so that they can genuinely be part of project costs. Even a company’s pure philanthropic activities can be treated as costs before tax.

Second, I think it encourages bad habits in governments when companies take over their responsibilities. Companies and individuals pay taxes so that governments can provide public services. It is not for companies to say: because governments won’t do what they are supposed to do with their tax dollars, we will take over their role. They should join with other citizens to ensure governments do what is right.

Ultimately, however, making this an argument about taxes versus social investment completely misses the point of what CSR should be about. It’s not about either, or. CSR is about your entire approach to business: It’s about making corporate decisions that will generate important long-term benefits for the country in which you operate. Such as employing local people over expatriates; using local goods and services rather than importing from abroad; and training local people in the skills you need.

If a company believes its CSR policy justifies paying less tax, then it has missed the entire point of CSR. Paying your fair share of tax is socially responsible, as is making a tangible benefit to the communities in which you operate. Genuine CSR is a about aligning your own corporate objectives with the legitimate aspirations of the host country. It is about partnership and having the right kind of conversations with governments and with society. This is what ensures a more profitable and sustainable business in the long-term.

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