How to Prepare for a Tax Audit in Nigeria
By Matthew OGAGAVWORIA, FCA
The Revenue Service whether Federal or State periodically will visit your company for tax audit. Some may just be for specific aspect of your business. In Nigeria, the Federal Inland Revenue Service can give you notice of carrying out your firm compliance with the Value Added Tax Act 2007 only. They may also notify you of carrying out a full tax audit of your business and audit may cover Company Income Tax, Education Tax, Value Added Tax, Withholding Taxes, Capital Gains Tax, and Personal Income Tax. Again, the Revenue Service may carry out audit of your business with respect to specialized or sector based taxes such as Associated Gas Re-Injection Act,Deep Offshore and Inland Basin Production Sharing Contracts,Industrial Development (Income Tax Relief),Industrial Inspectorate, National Information Technology Development ,Nigerian Export Processing Zones,Nigeria LNG (Fiscal Incentive Guarantees and Assurances),Oil and Gas Export Free Zones,Petroleum Profits Tax, Stamp Duties and Casinos.
In the same vein, you may have got a notice from the State Internal Revenue Service that they will be visiting your office in the order to carry out tax audit. Do not panic. It is not as bad as it may seem. Yes, the Revenue Man no matter what cannot be your friend. You do not have to make them your enemy too. You only need to be professional in handling such situation. In this piece we offer a few tips to guide you in preparation for tax audit whether with State or Federal Tax Officials.
Acknowledge the Notification for Tax Audit
Once you receive the letter from the Revenue Service, acknowledge receipt of the letter. Call the numbers written on it. Let them know you are ready to seek an appointment with them. If you have all the required document they have stated that they will examine, agree a date for the audit with them. However, if you do not have all or most of the documents that will be demanded during the audit, determine reasonably when you can have them and seeking out an adjustments in the date or a rescheduling of the date of audit with the authorities. In most cases, they will oblige you an extension of them if you can give them concrete reasons. This window gives you opportunity to prepare.
Talk with a Tax Professional
You should seek out the services of a tax professional to guide or represent you during the tax audit meetings. Ideally, members of recognized professional accounting profession bodies like the Institute of Chartered Accountants of Nigeria, Chartered Institute of Taxation are experts in Tax Laws and will be able to give you a professional representation.
Typically, the tax audit notification will point the documents the Revenue Service teams will be reviewing. Get your financial records ready. This will typically include bank statements, tellers, invoices, payment vouchers, general ledgers, financial statements(Balance Sheet, Profit or Loss Statements, Statement of Cashflows), Cashbook, Petty Cash Voucher, Fixed Assets Register, Payroll, PAYE Taxes Paid, Withholding Taxes, Value Added Tax Payments, Rent Receipts, Agreements, Contract Documents, Loan Agreements, Borrowings and any other information that they may have requested.
The documents should be organized year on year and arranged in the order of the schedule of documents the Revenue Service had earlier requested.
It will do you a lot of good to get your Tax Representative to review the documents with you, his advise will guide on information you can keep and those you must necessarily disclose.
Prepare for likely Questions
It is important you have a pre-tax audit session with your tax representative. Your tax representative will prepare an audit guide to you to help you reduce the stress associated with tax audit.
Be Polite & Professional
Do not answer a question you are not asked. Attempt to provide answers to questions. Let the Revenue Authorities understand that you take audit seriously and are willing to make their job easier by cooperating with them within the law.
Watch Out for the following
The Revenue Team will be reviewing your financial transaction, comparing your reported turnover to bank statements, invoices, sales receipts, trace the to your general ledger and final accounts. They hope to find under-reporting. You must have the records that confirm your position.
All expenses that are charged to income will be audited. Particular interest will be expenses that are not receipted. Such include transport and travelling, public relations, entertainments, “general expenses”, normally disallowed, bad debts
The Auditor will review all payroll deductions and obtain satisfaction that appropriate remittance has been made to statutory agencies
The Auditor will also look at Fixed Assets acquisition to determine if tax depreciation claimed are in order, particularly when such assets costs exceeds N500,000 requiring approval with the Inspectorate Department with Ministry of Industry.
In all of these, your tax representative will be able to put you in good stead to point to get the best position of things with the audit. It is worth it in the long run. Consider engaging a tax professional to help with your tax returns to avoid the unpleasant consequences of poor filings that will expose you in the very near future.
Tags: Corporate Tax, Company Income Tax, Personal Income Tax, Tax, Audit, Tax Audit, Tax Consultant, Tax Representative, Tax Advisor
Managing Partner, Matog Consulting
Matthew OGAGAVWORIA, FCA, CFAN
Matthew Ogagavworia is the founder of Matog Consulting, a specialist management consulting firm in Nigeria. With over 19 years of experience that cuts across professional service, banking, oil & gas, capital markets, serving small businesses. His specialties include, recruitment, forensic accounting, sme advisory, accounting advisory, risk management, audit, tax, debt recovery, business plan writing, company secretarial services and training