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Tax Function
Effectiveness
Unlocking value from the Tax function
in Nigeria’s Financial services

April 2021
 Contents
Table of

Contents 1 Introduction 3

2 Industry Overview 5

3 Banking sector 15

4 Insurance sector 18

5 Recommendations 22

6 Conclusion 23

Security Operations Centre (SOC) Proposal

PwC
Introduction

1
Introduction

The highly dynamic local and global tax environment requires a careful
examination of today's tax function. Tax functions may need to change to
better manage risks, address capability gaps, and create value for their
organisations. The process of change poses a challenge for many
organisations. Those in the Nigerian Financial Services (FS) Industry are
not left out.
The aggressive nature of revenue-generating agencies places greater
responsibility on the tax function like never before. The revenue
authorities' actions constrain the tax function, often reducing it to a
compliance-focused unit rather than a potential strategic partner in its
corporate vision and business strategy.
In this survey, we polled major industry players in the Nigerian FS
Industry and analysed their responses. This report highlights the various
areas that may be impeding the tax function's transformation target with
recommendations on steps to take in order to achieve an optimal tax
function.

Tax Function Effectiveness PwC

Unlocking value from the Tax function in Nigeria’s Financial services 4
Industry Overview

2
Sub-sector and Designation of respondents

Respondents were senior level executives from various sub-sectors within the Nigerian FS Industry.

The Banking sector, the largest sub-sector in the Nigerian FS Industry, made up 40% of the respondents. It was closely followed by the
Insurance sector, a growing sub-sector within the FS Industry, at 33%. Pension Fund Custodians sector constituted 13% of the
respondents.

Executive Directors and Chief Finance Officers (CFOs), combined, made up 60% of the respondents. Tax Managers and Financial
Controllers also responded to the survey at 33% and 7% respectively.

14%
Banking 7% 7%
53% 33%
Executive Financial
40% Insurance CFO Tax Manager
13% Director Controller
Pension Fund
Custodians
Others

33%

Source: PwC analysis

Tax Function Effectiveness PwC

Unlocking value from the Tax function in Nigeria’s Financial services 6
Current state of tax functions in the FS Industry

The tax function is constantly evolving, depending on the strategic objectives of the organisation.

Based on the survey, organisations in the FS Industry, especially the Do you have a tax function?
Banking sector, are moving towards creating fully fledged tax functions
that are staffed with about 5 employees in their tax unit.
The evolution of the tax function seems to be driven by the complexity 27%
and volume of transactions. Other factors could also determine the
structure of the tax function, including, but not limited to, the cost versus Yes No
the benefits of having a tax function and the possibility of automating 73%
most of the tax processes and keeping a lean function.

Key Takeaways Size of your tax function?

As an organisation goes through the journey of creating a fully fledged

73%
tax function, it is important that they consider how optimised their tax
function is, as well as identify possible processes that could be
outsourced or insourced.
In the future, the structure of the tax function will change depending on
the type of organisation. Reorganising the function around tasks that
refocus the energy of employees towards more strategic processes 13%
7% 7%
would define a successful tax function.
1-5 None 6 - 10 I do not know
Tax Function Effectiveness PwC
Unlocking value from the Tax function in Nigeria’s Financial services 7
About half of tax functions do not have a documented tax strategy/tax policy

47% of tax functions either do not have a tax strategy or are not aware of one.

A little over half of the respondents (53%) say that the organisation they Does your organisation have a documented tax
work for has a documented tax strategy. 27% of respondents, say that strategy/tax policy?
the organisation they work for does not have a documented tax strategy,
while 20% of respondents are not aware whether or not their
organisation has one.

Key Takeaways
27%

For a function which is supposed to drive value in the organisation, our

survey revealed an absence of a clear strategy for nearly half of tax 53%
functions in the Nigerian FS Industry.
Majority of organisations in the Nigerian FS Industry may have a fully 20%
resourced tax function, but some may have been set up without a
documented tax strategy.
Tax as a function should have a documented strategy that aligns with the
Yes Not Aware Not Applicable
overall business strategy.

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Unlocking value from the Tax function in Nigeria’s Financial services 8
Tax usually has little involvement in Enterprise Resource Planning
(ERP)/Software deployment
An overwhelming majority of tax functions are not compulsorily involved in ERP/software deployment

About 67% of the respondents say that they are either sometimes, How often is tax involved in Enterprise Resource
never or rarely involved in ERP or software deployment. Planning (ERP)/Software deployment?

Key Takeaways
The tax function is one of the biggest consumers of financial and
non financial data due to the increased demand brought about by Always
multiple compliance and reporting obligations. The new global
regulations around tax transparency and collaboration among tax 27% 33%
Sometimes
authorities such as Foreign Account Tax Compliance Act (FATCA),
Country by Country Report (CbCR) and Common Reporting
Standard (CRS) have amplified the demand. 7% Rarely
33%
The increased compliance and reporting obligations have made it
imperative for the tax function to be involved in ERP development in Never
order to eliminate the negative impact caused by time consuming
manual processes, labour-intensive data collection that is prone to
Source: PwC
errors.

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Unlocking value from the Tax function in Nigeria’s Financial services 9
Tax functions not involved in the development of new business or product lines

For nearly half of the organisations surveyed, getting the tax function involved may be an afterthought when it
comes to innovation and product development

About 74% of tax functions surveyed confirmed the lack or limited

involvement in strategic tax planning and making their organisation's How involved/embedded is the tax function in
products more tax-efficient, both for the customers and the tax business operations and the development of new
outcomes for the business. business or product lines?

Key Takeaways

The tax function needs to be more involved in the making of strategic

decisions and planning rather than being involved after the decisions
have been made, which could be very costly to unwind. 27% 47% 27%
When making significant changes to the business's operational
structure, such as product development, restructuring, new business
lines, etc; organisations need to ensure that the tax function is Always Sometimes Rarely
involved in the entire process.

Source: PwC Analysis

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Unlocking value from the Tax function in Nigeria’s Financial services 10
Tax risks faced in the FS Industry in Nigeria vary in order of importance

Organisations in the FS Industry face increased likelihood of unplanned financial losses in their operations

Based on the survey, exposure to additional tax assessments and

lack of automated tax processes rank as the key concerns that Tax risks and order of importance:
most tax functions have to deal with.

Additional tax assessment and penalties 1

Key Takeaways

The FS Industry is characterised, among others, by high volume of Manual tax processes 2
transactions, manual tax processes and operations that cut across

Tax Risks
multiple locations. Meeting statutory deadline 3

This makes organisations operating in the FS sector prime targets Competent tax personnel 4
for tax administrators and regulators thereby exposing them to
additional tax assessments from the multiple audits.
Lack of tax processes 5
Managing tax risks is increasingly becoming less technical. It
requires the tax expert to be strategic and possess skills such as Unclear tax objective 6
technology awareness, innovation, cross-industry knowledge, etc.

Source: PwC Analysis

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Unlocking value from the Tax function in Nigeria’s Financial services 11
Tax-related Key Performance Indicators (KPIs)

As a budding strategic partner in achieving the firm’s overall corporate goals, the Tax Function also measures its
performances in some critical areas.

Tax Functions in the FS Industry monitor the listed tax related Key Takeaways
KPIs in the graph below closely because it would likely cause Our survey reveals a misalignment between the priority of risks
severe losses or outright failure when not adequately monitored. and some of the tax function's KPIs. ETR, for instance, is an
The survey shows that “optimizing Effective Tax Rate (ETR)” and income tax ratio; meanwhile, the main threats, based on our
“Timeliness of filings” were considered as the most important survey, are around transaction taxes, such as Withholding Tax
KPIs for the tax function. (WHT) and Value Added Tax (VAT). Thus, if a strategy is not
driving a business's KPIs, it ends up setting defective KPIs.

Tax risks and order of importance:

Optimise Effective Tax Rate (ETR) 1

Timeliness of filing 2

Actual taxes paid to budget 3

Innovation, including adoption of technology solutions and associated training 4

Measures of efficiency and effectiveness via enhancements to processes,… 5

Actual tax savings to budget savings 6

Total tax operating costs as a percentage of operating costs 7

Source: PwC Analysis

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Unlocking value from the Tax function in Nigeria’s Financial services 12
Areas of possible additional tax exposures during tax audit

In relation to tax audits, some taxes pose greater likelihood of leading to additional tax liabilities/significant
exposure than others.

From our survey, transaction taxes such as WHT and VAT are industry characterised by high volume of transactions, multiple
high up the list of taxes with a greater probability of leading to locations, and prone to tax risks with manual tax processes. Other
additional tax liabilities/significant exposure concerning tax audits. taxes, based on their level of impact, are stamp duty, Companies
Income Tax (CIT), and Transfer Pricing (TP).
Key Takeaways Our findings show that many organisations in the FS Industry do
not have sophisticated and robust technologies to manage
Transaction taxes such as WHT and VAT are high up the list of transaction tax risk exposure efficiently. Despite they knowing the
taxes with a greater probability of leading to additional tax various tax regulators make specific requests each tax audit
liabilities/significant exposure to tax audits. Not unusual for an cycle.

Withholding Tax (WHT)

Value Added Tax (VAT)

Stamp duty

Companies Income Tax (CIT)

Transfer Pricing (TP)

Source: PwC Analysis

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Unlocking value from the Tax function in Nigeria’s Financial services 13
Low technology adoption for tax compliance

In spite of widespread technology adoption in managing several aspects of operations in the Nigerian FS Industry,
technology is yet to be leveraged in managing taxes.

Only in managing payroll has technology been widely adopted for material focus for tax functions. However, CIT could be automated
tax compliance. Other taxes such as CbCR, TP, Stamp duty, CRS when there is logic to the computation process.
are new areas of focus, and most tax functions may not have
gotten around getting technology to deal with them, although that Though WHT seems to be one of the highest tax exposure areas,
option is available. it is clear that organisations in the FS Industry lack a robust
technology system in
Key Takeaways managing it. It is important to note that applications are available
to automate the WHT compliance process to free up the tax
Organisations may not have thought that it is possible to function of
automate their CIT, preferring to stick to manual computations' time-consuming manual exercise.
status quo. Invariably, CIT computation often seems to be a

To a large extent

Somewhat

Very Little

Not at all
Payroll WHT CIT Common Reporting Country by Country Stamp duty TP
Source: PwC Analysis Standard (CRS) Reporting (CbCR)
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Unlocking value from the Tax function in Nigeria’s Financial services 14
Banking Sub-sector
A closer look at one of the FS Industry’s
key players

3
Banking sub-sector Highlights

The Nigerian banking landscape is well-developed and relatively

competitive, consisting of an array of local and international banking
and financial institutions. Tax functions in the banking sector are
receiving more attention as organisations move to align their processes
with global best practices.

The Economist Intelligence Unit (2020) forecasts the volume of mobile-

payment transactions to continue to rise rapidly over the next few years.
As the volume of transactions continue to rise, embedding the tax
processes would save organisations from potential threats that arise
from volume of transactions among others.

We summarise key highlights from the banking sub-sector as revealed

in our survey, focusing on the structure of the tax function, rate of
technology adoption, involvement in business development and key
performance indicators (KPIs).

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Unlocking value from the Tax function in Nigeria’s Financial services 16
Key survey highlights in the Banking Sub Sector

KPIs

Timeliness of filings is one KPI common among

100% of organisations surveyed in the banking
sector.

Involvement in Other KPIs, considered by at least 67% of

Technology
Structure Strategy Business organisations surveyed in the banking sector, are:
adoption
Development ▪ Optimise Effective Tax Rate
The banking sector Having a tax Despite sector-wide Our survey reveals ▪ Actual taxes paid to budget
is moving towards strategy to drive the adoption of a that, only in managing ▪ Measures of efficiency and effectiveness
a fully resourced goals and objectives separate tax function Payroll has via enhancements to processes, workflow,
strategic tax of the tax function is with a clear tax technology been documentation, and collaboration
function as our crucial to strategy, an adopted among firms ▪ Innovation, including adoption of
survey shows organisations in the overwhelming in banking sector.
technology solutions and associated
100% adoption rate banking sector. majority of Other equally
of a separate tax 100% of organisations (67%) important tax training.
function compared respondents say do not involve the obligations, such as
to 73% for the FS their tax function has tax function in WHT, CRS, SD, Actual Tax savings to budget savings and total
Industry. a well documented business CbCR, CIT & TP, are tax operating costs as a percentage of operating
tax strategy, well development. mainly manually costs, however, were only a critical success
above the industry driven, our survey factor to 33% and 17% of respondents
average of 47%. shows.
respectively.

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Unlocking value from the Tax function in Nigeria’s Financial services 17
Insurance Sub-sector

4
Key survey highlights in the Insurance sub-sector

According to The Economist Intelligence Unit (2020), although Nigeria's

insurance sector contributes little to the national economy, it has the
potential to grow quickly. The insurance sub-sector could benefit from
greater level of product innovation, consumer awareness and operational
oversight.

Fitch Ratings (Q4 2020) forecasts that Nigeria’s insurance sector will
enjoy a period of growth and development over the medium and long
term, albeit interrupted by a slower pace of growth in 2021 due to the
effects of the coronavirus pandemic. An optimised tax function is crucial
in achieving forecasted growth and development.

A summary of key findings from our survey is presented on areas such

as the structure of the tax function, strategy, the rate at which the tax
function is involved in business development and key performance
indicators (KPIs).

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Unlocking value from the Tax function in Nigeria’s Financial services 19
Key survey highlights in the Insurance Sub- sector

KPIs

Major KPIs in the Insurance sector:

• Optimise Effective Tax Rate (ETR)
• Timeliness of filings
• Actual taxes paid to budget
Involvement in Other KPIs include:
Structure Strategy Business Technology adoption • Total tax operating costs as a
Development percentage of operating costs
Organisations in the Considering the fact Participation of tax Our survey reveals that there is a • Innovation, including adoption of
insurance sub-sector that a majority of functions in business low technology adoption rate in technology solutions and
may yet to see the organisations do not operations and the managing some of the most associated training
need for a separate have a tax function. development of new common taxes by organisations
tax function. It's not a surprise that
business or product in the Insurance sector. Two KPIs, though monitored in the
the number of FS Industry, are not considered
Our survey showed lines is nonexistent; Only 20% of respondents said
organisations without critical success factors in the
that majority of 80% of respondents they leveraged technology in
a documented tax Insurance sub-sector. They are:
organisations (60%) say they are managing both payroll and WHT.
strategy in the • Measures of efficiency and
in the Insurance sometimes involved, All the respondents indicated that
insurance sub-sector
sector do not have a
the rest are rarely they do not leverage technology effectiveness via enhancements to
is 80% compared to
tax function. Just in managing other taxes such as processes, workflow,
47% in the FS involved in their
27% of organisations TP, CIT, CRS, CbCR and Stamp documentation, and collaboration
Industry. firm’s innovation
in the FS Industry do
process.
duty. • Actual Tax savings to budget
not have a separate savings.
tax function.

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Unlocking value from the Tax function in Nigeria’s Financial services 20
Recommendations
& Conclusion

5
Recommendations

01 03 05
Align tax strategy with
business strategy
02 Innovation processes
should occur with
04 Creating continuous
Learning & Development
significant participation opportunities for staff
Tax function first needs to
from Tax
establish a comprehensive Set KPIs defined and Deploying an integrated Tax professionals of the future
strategy for the function that is driven by metrics The tax function should be solution will be highly proficient in data
aligned to the overall business involved in its organisation’s analytics, technology, process
strategy. Based on the With a documented tax innovation process and Tax functions need to re-evaluate improvement and change
business’ objectives, Tax can strategy, processes and other major changes to how data and related documents management. Thus, the need to
make decisions that focus existing measures should be guarantee its ability to meet are received, processed, and invest in upskilling members of
attention more directly on the assessed to ensure ability to local and/or global retained while adding value the tax function. This helps in
key factors that best drive determine performance and compliance obligations. It through strategic decision making. attracting and retaining the
success. A tax strategy aligned success in the identified helps organisations avoid Tax functions should focus more talent needed to deliver on
with business strategy areas. Setting appropriate potential pitfalls and missed on data mining for deep insights Tax’s goals and objectives.
significantly reduces KPIs that reflect the business opportunities. Participating and also leverage technology for
reputational risk and tax strategy allows the in every step in the process efficiency. According to a PwC’s
disputes. organisation to identify gaps also drives overall client satisfaction survey,
between actual and desired operational effectiveness for document management and
results, leading to a more the organisation and the tax electronic workflow of tax
accurate evaluation of the function. processes saved time, increased
effectiveness of its strategy. efficiency, and led to improved
controls for 83% of respondents.

Tax Function Effectiveness PwC

Unlocking value from the Tax function in Nigeria’s Financial services 22
Conclusion

The tax functions of organisation in FS Industry have

experienced significant disruption and will continue to
experience the disruption due to the increased tax
compliance and regulatory reporting. Tax functions that
insist on old or traditional ways of doing things risk losing
both relevance and competitive edge. Our survey reveals
that tax functions can use the disruption as an opportunity
to examine ways to improve their performance and explore
what is possible.

Finding what works for you requires thoughtful consideration

of the tax strategy, target operating model, tools, processes,
and skills that will be required to address your immediate
priorities and get ready for what is ahead.

Tax Function Effectiveness PwC

Unlocking value from the Tax function in Nigeria’s Financial services 23
 Contacts

Kenneth Erikume
[email protected]
+234 805 609 9622
Adedoyin Amosun
[email protected]
+234 802 301 4931

Tiwalade Otufale
[email protected]

Thank you +234 703 322 7756

Tim Siloma
[email protected]
+234 706 562 1030

pwc.com/ng

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