Tax Audit and Investigation: trigger points and mitigative measures
The frequency of tax audits and investigations, in recent times, by the Federal Inland Revenue Service (FIRS) and the various State Boards of Internal Revenue (SBIR) has been on the increase. This could be attributed to the efforts of the government to diversify its revenue from oil revenue to non-oil revenue sources, of which taxation forms a major part.
The Federal Government of Nigeria currently has projected to increase its non-oil revenues over the coming years as highlighted in the 2017 to 2019 Medium Term Expenditure Framework. For example, non-oil revenue in the 2017 budget is projected at ₦2.95trillion. This represents about 60% of the budgeted revenue of ₦4.94trillion for 2017. It is expected that the expansionary government spending programme from 2017 onwards would drive growth in the non-oil sector and, ultimately, profitability and tax base of companies in the face of current economic challenges.
As a result of the ambitious non-oil revenue target, the relevant tax authorities (RTAs) have intensified efforts to meet their set targets. Achieving the targets would require broadening the scope of tax coverage and driving continued compliance by taxpayers through timely tax audits and investigations.
This article is intended to deepen taxpayers’ understanding of tax audit and investigation processes, and provide insights on how to effectively manage expectations.
Tax audit and investigation in Nigeria
Tax audit entails a review of taxpayer’s records to ascertain compliance with the relevant provisions of the Nigeria tax laws. This review is usually carried out within a 6 year period from the date of submission of the relevant returns. However, where the tax authority suspects fraud, neglect or wilful default, an investigation may be conducted without any time limit.
Tax audit and investigation should be an area of great concern to taxpayers, since if it is not properly managed, the outcome of the exercise could have a negative impact on their reputation and operations. This is in terms of the penalty and interest that the RTA may impose on additional tax liabilities (except companies income tax and education tax) established by the audit.
Prior to the introduction of the self-assessment scheme, there was no specific provision in Companies Income Tax (CIT) Act for tax audit and tax investigation. However, the CIT Act, based on subsequent amendment, empowers the FIRS to carry out tax audit or investigation of tax payers’ books of accounts and records.
Thus, under the self-assessment tax filing regime, the RTA would need to periodically review and verify the tax returns submitted by taxpayers by way of an audit and / or investigation. The exercise essentially is meant to enable the RTA satisfy itself that the relevant returns submitted by the taxpayer agree with the underlying records and are sufficient for the purpose of determining the taxable profits of the taxpayer and, consequently, the tax payable.
The above is an excerpt from “Tax Audit and Investigation: trigger points and mitigative measures” written by KPMG Nigeria’s Adedayo Ojo and Oluwatosin Sunmola. Download the full article here