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Entrepreneurs refine their tax strategies

Entrepreneurs discuss what governments can do to foster growth and innovation, including the design of tax systems

By Karen Lynch

The EY World Entrepreneur Of The Year™ 2017 Award winner, as well as two national award winners run very different businesses and have their own distinct strategies and visions.

In separate interviews with Tax Insights, the three from Saudi Arabia, Australia and Canada draw on their own experiences for advice to other budding entrepreneurs, including how to optimize investment in tax strategies.

Middle East trailblazer

Entrepreneurs are a small but growing breed in Saudi Arabia. The Saudi government employs 70% of workers, but a policy blueprint called Saudi Vision 2030 aims to grow the private sector and diversify beyond the oil industry.

Turki Al Yahya, Founder and Managing Partner of GHC (WHITES Health & Beauty), is ahead of the curve. Nine years ago, he launched the first chain of health and beauty stores in Saudi Arabia called WHITES Health & Beauty.

“As entrepreneurs, we benefit from the infrastructure and business environment that governments, in the main, create: a stable workforce, laws, police, roads, electricity, water.“

Dr. Andrew Walker, Co-executive Chairman, Aspen Medical


Since then, Al Yahya has continued to experiment with combining different aspects of retail in a single shop, for example, stocking high-end brands along with mass-market brands in a unique shopping experience.

Today, GHC’s business has grown to include six subsidiaries, including the original WHITES chain, the more recently acquired Kunooz Drugstores and the National Distribution Company — totaling 250 retail outlets and distribution to another 2,000 points of sale in the kingdom.

“Growing that big in nine years is quite fast, in our part of the world,” Al Yahya says.

Seeds of entrepreneurship

Al Yahya embraces innovation — in his own business, his country and his industry.

“We’ve positioned ourselves as a fashionable, trendy retailer. That keeps us moving and creating and innovating continuously, when it comes to services, categories, brands, products, shopping experience and all aspects of retail,” he says.

And there’s more change ahead. He plans to expand the company regionally and globally, even as Saudi Vision 2030 seeks to attract more, potentially competitive foreign business into GHC’s home market.

Amid all the change, “we need to be flexible and able to move faster than others,” he says.

If Saudi Vision 2030 succeeds, Al Yahya could soon be in good company as the ranks of Saudi entrepreneurs expand. The blueprint includes many initiatives to incentivize and support entrepreneurs and young companies, including the establishment of the General Authority for Small and Medium Enterprises, favorable access to funding and a greater share of national procurement.

“Entrepreneurship is culture, and it needs to be nurtured,” Al Yahya says. “I’m glad to see this culture starting here.”

Navigating tax

Today, GHC and other Saudi companies are not subject to taxation, per se. Rather the focus is on zakat, the obligatory payment of 2.5% on net assets that is required under the Islamic system and collected by the government to support the poor and needy. Also contributing to the cost of doing business are various government fees, such as business licenses and real estate development applications.

“They are not as high as taxation, but we have been experiencing increasing costs for the past three to four years,” Al Yahya says.

Early this year, however, value-added tax (VAT) was approved for some goods and services in Saudi Arabia, seen by some observers as a way to help finance Saudi Vision 2030 amid declining oil revenues. GHC is assessing the potential impact of the new tax’s implementation in January 2018.

“The VAT will definitely have an impact on sales and consumer behavior, but I’m not frustrated about that,” he says. “I believe that any business model should be flexible enough to cater to market changes.”

Going forward, as GHC expands internationally, the company will also have to maneuver the complexities of various and changing tax policies from one country to the next. Internationally, Al Yahya concedes that taxation is not only complicated but can even be employed as a form of market protectionism.

Still, he sees it mainly as a cost of doing business.

“Taxation should never be the obstacle,” he says.

Market opportunity should always be the primary consideration, though some countries’ tax environments will be more attractive than others — especially those with clear and transparent tax rules, he adds.

Extreme health care

Aspen Medical takes health care to extremes. That much is clear from the moment that Co-executive Chairman Andrew Walker picks up the phone in Iraq, where the company has been contracted to help rebuild and run trauma and maternity units on the outskirts of the war-torn city of Mosul.

Iraq may represent one of the more extreme examples of Aspen Medical’s innovative health care outsourcing services, but it is not the only difficult case. In 2017, the company also remains on the frontline of efforts to fight Ebola in West Africa, adds co-founder Glenn Keys, joining the interview from company headquarters in Australia.

Aspen Medical was launched by the longtime friends in 2003, driven by a belief that businesses should use their expertise and capital to help bring about positive change.

The company provides high-quality health care in remote, challenging or under-resourced areas where there is high demand. That could be providing clinical staff in an indigenous Australian community, an ambulance service in West Texas or an aeromedical evacuation service supporting an oil rig.

Wherever it is, Aspen Medical provides complete health care solutions, including people, equipment, consumables, ambulances, pharmaceuticals — “whatever is required,” Keys says.

Aspen Medical’s performance as a company is not always measured in dollars.

In Mosul, for example, “children are being born with great success under the most amazingly difficult circumstances,” Walker says.

Nevertheless, Aspen Medical’s co-chairmen are extremely focused on the business side, as well.

“We’re a for-profit company; that allows us to deliver against what our purpose is, and it makes us very efficient at what we do,” Keys says. In Mosul, for instance, Aspen Medical is working under contracts from the World Health Organization and United Nations Population Fund.

Blind spot

When it comes to taxation, Keys and Walker stress the high cost of tax to any enterprise and the importance of managing it efficiently.

“The more money you can keep in your business, the more you have available for growth,” Walker says, whether for capital expenses, hiring or building technology platforms.

The alternatives include raising equity from investors, whose patience or vision may diverge, or taking on debt and all its covenants. Even a grant can carry with it red tape and compliance requirements that can distract a start-up.

“As an entrepreneur, I believe that governments and government policy actually create the enabling environment for entrepreneurs to succeed.“

Murad Al-Katib, CEO, AGT Food and Ingredients Inc.


Many entrepreneurs neglect tax strategy in the early days of their business, Walker says. One reason is the simple fact that they don’t yet turn a profit.

“The last thing on their minds is tax, and that’s a big trap.” Once successful, entrepreneurs may realize they have made errors and by then it may be too late.

Another reason some entrepreneurs put off tax strategy is that they may not see tax as a cost, because it is paid after profit is calculated.

“Tax is absolutely one of our biggest costs and needs to be carefully considered,” Walker says

When going into an international market, one of his first questions is about the local tax regime. For example, lacking a bilateral agreement between the government of any one country and Aspen Medical’s home base in Australia, “we could end up running a job at a loss, simply because we hadn’t thought about tax properly.”

Keep it simple

Aspen Medical’s co-founders’ advice to governments would be to keep tax policy simple. For most goods and services, they say, a lower overall tax rate would serve their country better than complicated tax incentives aimed at moving markets one way or another

“Having said that, taxes can be used by government to drive innovation that brings entirely new goods and services to market,” Walker says.

Examples include R&D (research and development) grants, tax breaks on wages paid to scientists or software developers and intellectual property regimes that assess a lower tax on the product of new patents.

Keys and Walker speak from experience. In its early years, Aspen Medical benefited greatly from an Australian export market development grant.

“That was absolutely critical to growing our business overseas,” Keys says. “It led to us getting very significant business as export and allowed us to take our innovative service model into a lot of different international settings.”

Aspen Medical also has a cautionary tale to tell. In an early engagement in a Pacific island nation, Aspen Medical left it up to its contractors to handle their own payroll taxes. When some of them neglected to follow through, Aspen Medical was presented two years into the job with a significant tax bill.

“It threatened to sink the company,” Keys says.

Aspen Medical negotiated payment and settled with the government, then dealt with every contractor to recoup the money. But the damage was already done in opportunity costs and other setbacks.

Aspen Medical kept that lesson in mind as it expanded across Australia, the Pacific, Africa, the Gulf region, the UK and the US. The company now employs more than 2,500 professionals.

Along the way, Aspen Medical has followed the advice it gives other entrepreneurs: seek to be tax effective — paying the correct amount of tax. After all, businesses also benefit from government spending that is derived from tax revenue.

“As entrepreneurs, we benefit from the infrastructure and business environment that governments, in the main, create: a stable workforce, laws, police, roads, electricity, water — the whole gamut,” says Walker.

Protein from the prairies

Consider the tiny lentil.

As AGT Food and Ingredients Inc. Chief Executive Officer Murad Al-Katib sees it, this low-key legume is a veritable engine of innovation and growth. In a world that faces increasing health, food security and water scarcity issues, lentils provide a high-fiber, high-protein staple that can be grown without irrigation and can actually help fertilize the soil in which it is planted.

In the late 1990s and early 2000s, the University of Saskatchewan developed natural breeding and seeding techniques suitable for Western Canada’s short growing season and limited rainfall. Suddenly, the tiny lentil became a big deal for Canada, which now produces 65% of the world’s supply.

Along the way, the lentil provided a source of inspiration for Al-Katib to develop technology and process engineering systems to deliver the legumes (also known as “pulses”) in ready form to packers, canners, retailers, makers of snack chips and other links in the global food chain.

Al-Katib founded AGT in 2001 in partnership with the Arbel Group, a processor/exporter of grains and lentils in Turkey, the country from which his parents immigrated to Canada in 1965.

The company he launched represents the intersection of his passions for his home province of Saskatchewan, where agricultural constraints were limiting economic growth, and his experience as a public servant in international exports, where he saw the potential of lentils and other legumes to address growing food requirements in emerging markets.

AGT now processes 25% of the world trade in lentils (not to mention its business in peas, chickpeas, beans, pasta and more).

Enabling enterprise

Taxation has had a not-so-invisible hand in this story of growth.

“As an entrepreneur, I believe that governments and government policy actually create the enabling environment for entrepreneurs to succeed,” says Al-Katib.

Many factors go into this mix, he says, such as small business incentives, R&D credits, and favorable rates for capital gains, dividends and stock-based compensation.

“These are all things that have to be considered when putting in place taxation regimes that encourage small businesses and entrepreneurs as engines of growth for the economy,” he says.

“Some of this, in essence, is rewarding people for what I would call sweat equity,” Al-Katib says.

Foregoing compensation for upside stock return is a foundation of entrepreneurial reward, he points out, since few entrepreneurs get paid well at the start.

“If I look at the work I put in when I started my company, I’d have been getting paid three dollars an hour.”

AGT benefited from a small business preferential tax rate on its first CA$500,000 in net earnings, which encouraged initial investment of money and effort.

“We were risking our own capital, and we didn’t want to pay not only a high corporate tax but also high personal tax rates on our salaries,” he says.

Growing the business

In return, Al-Katib has helped build what has become a multi-billion dollar legumes industry in Canada. AGT also contributes to other countries’ employment and treasuries through its 47 manufacturing facilities on five continents with exports to 120 countries worldwide

Major export markets include India, Turkey and Egypt and other countries where people rely on legumes as a source of protein.

As AGT expanded, Al-Katib recognized that “capital is mobile, people are mobile and technology allows us to locate in multiple jurisdictions worldwide, so tax strategy has been a very important part of our business strategy. We spend a lot of time understanding the regulatory regimes in which we operate.”

The 20% corporate tax rate in Turkey — one of AGT’s main markets today — compares favorably to other countries’ rates, he says. This, and the system’s transparency and predictability, have encouraged AGT to invest hundreds of millions there, including the 2009 acquisition of partner, the Arbel Group.

Fifteen years after Al-Katib founded his company, AGT’s consolidated revenue had grown to CA$1.97 billion (US$1.46 billion). But there is more to the story than growth for Al-Katib.

“The world population is growing at a pace where we’re facing a societal challenge to meet the demand for food,” says Al-Katib.

“I’m a believer that entrepreneurs are not only a growth engine, but will also provide solutions to societal problems like food security,” he says.

His efforts were recognized by the Business for Peace Foundation, which presented Al-Katib with a 2017 Oslo Business for Peace Award for work with international agencies to streamline the delivery of food to Syrian refugees.

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