Tax audit and compliance are two words that go together and are interrelated in as much as the field of auditing and taxation is concerned. Many clamour for the right process because of the lack of in-depth knowledge of the concept. In this write-up, we aim to broaden our readers’ minds on this concept and as well, assist those in business without any knowledge of the concept to have a fair understanding of these terms since they are involved in it in their daily business. It will help taxpayers to know the scope of tax audit, tax audit procedures, compliance requirements, taxpayers’ rights and protection, and the penalties for not complying. It also aims at sharpening or reminding our fellow professionals of the insight in this area.
Tax audit and compliance are very vital even to the Nigerian tax framework. Looking at the new enactment of the Nigerian Tax Administration Act and other bodies of establishment Act which aim to modernize tax processes, better compliance and self-participation will expand the tax base just like it is done in other countries.
A Tax audit is the process by which the tax man tries to examine the records submitted in the process of self-assessment, to check and verify if the records are in line in terms of their incompleteness and compliance.
Tax compliance is the process of adhering to the laws, including registration and filing, disclosure and record keeping.
Two Types of Tax Auditing
Desk Review: This is a situation in which the tax man looks at the record submitted. These records include financial statements, the computation of taxes to check whether they are properly computed, or the disallowable and capital allowances are taken into cognizance. In fact, this is a review done in the respective offices of the tax officers.
In-site or Field Audit: This is when the examination of these records for their accuracy in computation and filing is not done in the office anymore but in the payer’s office for confirmation.
Importance of Tax Audit
i. It will surely prevent tax evasion and underpayment.
ii. It encourages self-compliance through deterrence.
iii. It ensures equity and fairness in tax process.
Things that you need to do to be tax compliant
i. Try to register duly for tax and obtain your tax identification details.
ii. File all the required taxes at the right time to avoid penalties. The required taxes include personal income tax, company income tax, value added tax (VAT), and others.
iii. Try to disclose all tax planning strategies to the tax authority.
It is vital for us to know that there are reasons which may be called triggers why tax audits are being initiated in most cases. These might include inconsistencies in tax filing, examination of risk potential in the records of many taxpayers and inordinate demand for tax refund claim.
Important Steps in Tax Auditing
i. A notice and call will be made by the tax authorities which also has to be responded to by the taxpayer/representative.
ii. The reviewing and verification of records will take place.
iii. Audit across multiple tax authorities or jurisdiction will take place. This is as a result of the relationship between various tax authorities. It could also be referred to as information sharing.
Note, in the notice given in tax auditing, it is vital to respond and state clearly the date the notice was received.
It is also necessary to emphasize that when you want to object to any assessment, object to every revenue item by objecting to the amount stated and clearly citing what your position is. This is what makes an objection to an assessment valid.
Tax Payers Right
There are rights that also benefits the tax payer. These are;
i. The institution of tax ombud; Tax ombud is an independent arbiter for taxpayer complaints. When a taxpayer is not satisfied with the decisions of the tax authorities, such a matter can be taken to the tax ombud who will look at the matter between the taxpayer and the tax authorities and give fair judgement.
ii. Advancing rule; This is another method a taxpayer can use to obtain an explanation of how a particular transaction is dealt with by writing to the tax authorities from which the taxpayer will also get feedback. It should be noted that advance ruling are not attended to when the particular transaction is under audit.
iii. VAT Refund Claim: This is a claim by the taxpayer that is to be refunded within 30 days by the tax authorities. This refund can be used to offset any other tax liability. It could be a good plus for the taxpayer.
iv: Issuance of tax clearance within a reasonable time if there is no other tax liability.
Penalties for not complying with Tax policies and Auditing
It is worthy of note that many tax jurisdictions each have their own penalties for failure to comply with tax obligations. Like in Nigeria, it is now stated in the current tax reform that any dealing with an unregistered taxed person without a tax identification number attracts a fine of 5 million naira, that is; awarding a contract to an unregistered person. Failure to file tax cost 100 thousand naira in the first month and 50 thousand naira in the subsequent month.
As a good citizen of a country, you need to apply some best practices in your various dealings, which include;
i. Filing and remitting tax on time.
ii. Engaging with an accredited tax agent, review internal control regularly.
iii. Maintain an accurate up-to-date records.
Also Read: Why Small Businesses in Nigeria Need a Proper Accounting Record
Types of Records that Small Businesses Need to Keep and Importance
