Why Do Taxpayers get tax audit challenges in Nigeria Now. – Related to this are tax audit and investigation in Nigeria, types of tax audit and objectives of tax audit.
Tax Audit Query:
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This article however, wants to highlight to you, how you got to this tax audit mess. Therefore this post aims at educating you on why you get tax audit and how to avoid it. It also deals with what tax audit involves, what it costs you and the tax audit remedies.
Consequently, if you are a tax payer – individual or corporate this article is for you. If you are a tax official, you will enjoy this posts, and if you are a professional in practice or a student of taxation, this article is equally for you. Are you ready to go on now?
To start with, What is Tax audit?
In my previous article I discussed the issue of tax query, and made you to understand that tax query if not well handled could lead to tax audit. What then is tax audit? Tax audit is a special audit on the taxpayer. It’s always carried out by staff members of a tax authority. It’s a verification of tax matters relating to entries in any taxpayers books of records, documents, accounts and returns as specified from time to time by the revenue authority.
Why Do Taxpayers get tax audit challenges in Nigeria Now.
Tax audit is an integral part of the tax self assessment scheme/regime which empowers the tax authority to always come around a taxpayer at least once in two years to check for accuracy, completeness, adequacy of the tax computations and payments.
I know that the point is getting clearer to you. Before the self assessment regime, the tax authority imposes tax on tax payers following certain procedures. But the self assessment regime is one that allows the tax payer to assess himself and pay accordingly. So as a follow-up check on the tax payer, the tax authority sends out its staff periodically to check if the returns and payments made by the tax payer is true, accurate, sufficient, and complete, and if the calculations and the documentations resulting to such tax figures are accordingly correct.
From the above narration, you understand that tax audit is a normal thing in the tax processes of a country. But the point I’m making is that there are issues why the tax authority must follow you up immediately you make your tax returns. There must be reasons for this, and what are these reasons.
You must get tax audit if during the tax query the followings were not resolved.
(1) High OPEX Ratio ( Operating Expenses Ratio):
You must explain why you do not make profit if your operating expenses covers over 95% of your revenue leaving little or nothing for tax purposes. It’s expected that a business man would run his business in such a way that he should make gain. He is not in business to make loss. Therefore if this persists the tax authority must find out why. Do you know why? The tax authority is interest in knowing whether your business fulfils the ‘going concern’ principle.
Why Do Taxpayers get tax audit challenges in Nigeria Now.
(2) Basis of deductibility:
The tax authority would want to find out if the OPEX are so relevant to your business income. So they check that, the expense is wholly for the business, exclusively for it, very necessary for the business and reasonable too.
(3) Fluctuation in the assessable profit over the years.
A normal decline in business could be noted. But where the accounting variables are tampered with or manipulated, it gives unreasonable assessable profit over time. If you do this the tax authority will know. Now you can imagine what happens if you continually report loss; the tax man will come for verification.
(4) High value of VAT and Withholding Tax (WHT):
You must understand that both VAT and WHT are proportions of the turnover. It actually means that whenever VAT or WHT is grossed-up, the original turnover figures are obtained. Therefore, whenever the tax authority has the figures for VAT or WHT, there is no hiding place again. It actually indicates that the figures contained in your returns are not accurate, i.e. they are understated. The tax man must visit your office for verification.
(5) Going Concern Effect:
If your business is still going on well, and every tax issues are well handled, you don’t have any problems. But when the organisation is showing signs of discontinuation either in liquidation or any other form of restructuring, the tax man must come around to assess the tax implications on every of such activities in relation to the incomes that come to the stakeholders.
(6) Tax Planning Effects:
This may involved deliberate policies and approaches to avoid tax at a large scale or to evade tax. Where there are transfer pricing schemes amongs the related parties in the operations of the business, the tax man gets irritated and must come to find out whether or not these activities are not reducing your tax liabilities against the tax laws.
Why Do Taxpayers get tax audit challenges in Nigeria Now.
Do you know what the problem is?
- One of the problems is that you think you are smart
- You ignored the tax queries
- You think you can do it on your own
- And you don’t have a tax consultant
- You have inherent spirit of manipulation
- And many other things.
But do you know what this tax audit has cost you?
It has cost you your reputation
When the tax audit comes they stay in your office for about 3 days and by that they use your facilities, including time and staff that will attend to them. If they find simple facts, you can settle out of court, otherwise, your case could be referred to the tax investigation unit. The tax investigation will tend to find your criminality level and may charge you to court for such findings. Check for my write-up on tax investigation for what will happen to you.
The way out of urgent tax audit exercises:
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Deacon Anekperechi Nworgu, a seasoned economist who transitioned into a chartered accountant, auditor, tax practitioner, and business consultant, brings with him a wealth of industry expertise spanning over 37 years.
