A few weeks ago we discussed how GAAR (General Anti-Avoidance Regulation) could be used by the Indian tax authorities to ‘force’ compliance with tax laws. The government is now taking steps to make tax avoidance a crime, on a par with money laundering as a criminal offence, carrying penalties of unlimited fines and imprisonment.
These changes are consistent with a global plan drawn up by the Finance Action Task Force (FATF), an inter-governmental body to combat money laundering and terror financing, of which India is a member. FATF issued updated Recommendations in February 2012, although many countries had already incorporated these offences in their money laundering laws. Prosecutions in India under such legislation are likely to lead to faster trials as offences are tried in special courts where the onus is on the accused to prove innocence.
There are many organisations that use various expense types, such as travel, entertainment and hotels as a ‘perk’ – a means of giving benefits – to some senior employees while avoiding tax. Unfortunately this tarnishes those that play fair, those who pay taxes where and when due. The key here is to differentiate the former from the latter by ensuring that there are robust processes and systems in place that support auditing and that make information available within seconds, not minutes.
Not only does this place the emphasis on the CFO and the CEO, to ensure that the organisation has strong systems and processes in place to provide compliance, it also places the onus on ALL employees to ensure that they observe such systems and processes if they are to avoid falling foul of this new law!
When accurate and credible information is to hand on a click of a button, people ask fewer questions. Expense On Demand offers such a solution, enabling organisations create a culture that supports compliance with regulation and helps individuals avoid prosecution. For example:
- Expense On Demand allows an organisation to set-up any complex expense policy easily. Many organisations have comprehensive expense policies. Unfortunately, in a paper based system polices may be unenforceable because they require labour intensive manual processes. Expense On Demand reinforces policy and prevents out of policy data entry into the system, ensuring compliance and full visibility of any employee activity.
- Expense On Demand provides a mechanism for auditing expenses such as travel or entertainment in real time. This provides organisations with a mechanism for attributing every expense item to a ‘legitimate business purpose’, including the identity of employees incurring expenses.
- Expense On Demand enables a hierarchical approval process to be put into place to provide greater control over expenses. In operation expenses items that exceed certain limits require approval from a more senior approver such as the Finance Director. This reduces complicity and collusion, and provides an audit trail that enables organisations to defend against the actions of rogue employees. As part of a manual system, such counter-signed approval processes could take days, if not weeks. With Expense On Demand approval takes minutes.
- Expense On Demand allows third party suppliers such as Travel Management Companies (TMCs) secure access to the system. All travel expense activity can be fully audited from the point of request to pre-approval, including the complete archive of e-mail discussions between the traveller and the agent. Once travel is completed, this can be linked to the back end of travel portals such as GDS or LCC, to lock in the audit trail.