Tax audit exercise has been saved
Tax audit exercise
When will FIRS adopt risk-based approach in Nigeria?
Protracted tax audit exercises are not in the interest of the Federation nor in the interest of the taxpayer
With the dwindling revenue accruing to federal and state governments as a result of declining returns from sale of crude oil, tax authorities at both federal and state have embarked on a drive to increase collection through taxes. This has led to the adoption of stringent measures which would ensure that companies are up to date with their tax filings, remittances as well as pay correct amount of taxes to complete their self-assessed taxes.
Thus, tax audits remain the primary tool through which the tax and accounting records of taxpayers are reviewed by Federal and State tax authorities to ensure that the correct tax returns have been filed and correct taxes paid in the relevant year of assessment.
It is noteworthy that Federal Inland Revenue Service (FIRS) has demonstrated remarkable commitment towards improving its work processes by instituting modern-day reforms which has resulted in remarkable improvement in FIRS' operational activities. However, tax audits remain an area in which further improvement is still required.
A very significant challenge around tax audits by FIRS has been how to ensure timely completion. In fact, very few tax audit exercises in Nigeria commence and get concluded within twelve months as most span for years before closure.
No doubt, FIRS has a duty to be thorough in its review but this duty need to be balanced with the duty to ensure timely completion of audits. Protracted tax audit exercises are not in the interest of the Federation nor in the interest of the taxpayer. They are not in the interest of the Federation because of time value of money in respect of potential additional tax liability locked up in unresolved tax audit portfolios. They are not in the interest of the taxpayers who need to commit men and materials towards closure of the tax audits as well as incur professional fees retaining tax advisors during the period.
One major factor contributing to the delay in timely completion of tax audits is the adoption of a vouching approach in the examination of a company's accounting and financial records with the aim of ascertaining the level of compliance with the provisions of the various tax laws.