By Abdulateef Olatunji ABDULRAZAQ, Founder, Taxmobile.Online and Principal Partner, AOA Professional Services
Tax health check is a review of a taxpayer’s tax and accounting records to ascertain the level of compliance with relevant tax laws, quantifying the potential tax exposures(if any) and evaluating recommendations for improved compliance.
The Nigerian tax environment is dynamic. Regulations are constantly evolving (Finance Acts 2019, 2020 and currently 2021).
To keep pace with the changing business landscape, businesses, therefore, must thoroughly assess their tax structures, tax positions and tax compliances on an ongoing basis, to ensure that the overall tax positions are backed by adequate support, compliances are monitored and matters that are under litigation (if any) are dealt with appropriately.
A tax health check provides an assurance that tax implications for a certain period, an area of compliance or a speciﬁc transaction are identiﬁed, duly addressed and appropriate actions for risk mitigation are taken. Conducting such health checks on a periodic basis will help in managing tax risks, ensure appropriate compliance, result in better preparedness for tax audits and strengthen tax positions.
Step By Step Guideline for Conducting a Tax Health Check
1. Understanding your business: The first step in a tax health check is to understand your business and the industry it operates.
2. Determining the scope of work: It is important to set the scope of work to enable you to work effectively and efficiently. For example, your scope of work could include but is not limited to the following:
a) Review of Audited Financial Statements
b) Review all contracts/transactions for the period under review to confirm their tax implications.
c) Review all tax returns for compliance
d) Review all tax correspondence with the tax authorities.
e) Review all tax payments and ensure all tax receipts are properly filed.
f) Prepare Tax Health Check Report and discuss it with key business stakeholders (management).
3. Set a timeline: It is important to set a project timeline to facilitate the completion of a tax health check exercise at the appropriate time and deliver the report accordingly. A timeline should be allocated to each task.
4. Gather adequate data: Ensure all data gathered are adequate, complete and free of errors.
5. Analyze the data: Data is the foundation upon which this new digital tax world is being built, and the quality of the outcomes that result will depend on the quality of the data that goes in. To match what governments are doing and stay one step ahead, companies must look at the tax function thoroughly.
6. Identify risks and concerns: Identify risks that could be triggered by the lack of documentation and non-compliance with the relevant tax laws.
7. Identify opportunities: Perform a comprehensive review of tax reconciliation to ensure all opportunities to reduce tax liability or to obtain a refund of overpaid tax are identified.
8. Create your tax report: Suggesting remedies in areas of risks and ways to ensure tax compliance.
9. Implement the result: This may sound needless, but from my over 18 years of practice, some companies delay the implementation of tax health check results till later. In most cases, a delayed implementation leads to no implementation or even sanctioned implementation when tax authorities come knocking on your doors. Thus, the implementation of results must be immediate.
Why should we conduct a Tax Health Check
For every business decision, reasons and benefits must be clearly stated. As a business owner/decision-maker, you most likely want to know the importance of conducting a Tax Health Check.
1. Establish any inherent tax risks through an in-depth and systematic review of your books of accounts.
2. Establishing any risk of, and quantifying any potential back-taxes discovered during a review.
3. Providing advice on the mitigation and settlement of any tax liabilities including engagement with the Revenue for a favourable settlement plan.
4. It facilitates tax planning and management.
Tax risks include the risk of paying more or less tax than legally required. Damage to reputation resulting from such errors may cause additional costs which are difficult to measure. Errors in assessing the tax effects of transactions may lead to wrong business decisions.
For many companies, the tax is a cost factor that may be important for their competitiveness. Tax risks consist primarily of compliance, transactional, operational, and reputational risks. These are good reasons for the board to get involved in the management of tax risk.
Taxpayers need to meet their tax obligations as prescribed by the tax laws and related regulations/by-laws. Even though you may believe that you are a good taxpayer, the complexity of the tax laws may leave you at risk of unaccounted-for tax exposures.
Consequently, a business or individual should regularly review its compliance with the relevant laws. Non-compliance may result in penalties or even prosecution.
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More About Author:
Olatunji is the founder Taxmobile.Online and Managing Partner/CEO of AOA Professional Services. Prior to this,Olatunji worked as Director,Tax & Regulatory Services at Nolands Nigeria Professional Services, Senior Manager -Tax,Regulatory & Advisory Services at Saffron Professional Services.
The information contained herein is general and is not intended, and should not be taken, as legal, accounting or tax advice provided by Taxmobile.Online Inc to the reader. This information remains strictly the opinion of Taxmobile.Online Inc.
The reader also is cautioned that this material may not apply to, or suitable for, the reader’s specific circumstances or needs, and may require consideration of other tax factors if any action is to be contemplated. The reader should contact his or her Tax Advisers before taking any action based on this information.
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