As the Federal Inland Revenue Service (FIRS) in Nigeria continues to enhance tax compliance enforcement, businesses need to be proactive in preparing for potential tax audits. Conducting a tax health check is a prudent approach that enables businesses to assess their tax compliance status and identify areas of improvement. In this article, we will explore the importance of conducting a tax health check and the key steps businesses can take to assess their preparedness for a potential FIRS tax audit.
Understanding a Tax Health Check:
A tax health check is a comprehensive review of a company’s tax compliance and reporting procedures. The objective is to identify any potential tax risks or weaknesses and implement corrective measures to ensure full compliance with tax laws and regulations.
Key Steps in Conducting a Tax Health Check:
- Review Tax Compliance Policies and Procedures:
Begin the tax health check by reviewing the company’s tax compliance policies and procedures. Ensure that all policies are up-to-date and aligned with the latest tax laws and regulations in Nigeria.
- Examine Financial Records and Documentation:
Thoroughly examine the financial records and supporting documentation to ensure accuracy and completeness. Verify that all financial transactions, income, expenses, deductions, and exemptions are appropriately recorded and documented.
- Assess Transfer Pricing Practices:
For multinational companies with related-party transactions, assess the transfer pricing practices to ensure they comply with arm’s length principles and transfer pricing regulations.
- Evaluate Tax Reporting:
Review the company’s tax returns and tax reporting process to verify the accuracy of the information provided to the tax authorities. Identify any discrepancies or errors that may need correction.
- Check for Adequate Record-Keeping:
Assess the company’s record-keeping practices to ensure that all necessary financial and tax-related documents are well-organized, accessible, and retained for the required statutory period.
- Verify Compliance with Tax Deadlines:
Ensure that the company is meeting all tax filing and payment deadlines. Timely compliance with tax deadlines is essential to avoid penalties and interest charges.
- Analyze Tax Positions and Reserves:
Analyze the company’s tax positions and reserves to ascertain that they are adequately supported and compliant with tax regulations.
- Engage External Expertise:
Consider engaging external tax professionals to conduct an independent tax health check. External experts can provide an objective evaluation of the company’s tax compliance status and identify potential areas of improvement.
Benefits of a Tax Health Check:
- Early Identification of Tax Risks:
A tax health check helps businesses identify potential tax risks early, allowing for timely corrective actions to be taken.
- Strengthened Tax Compliance:
By addressing any identified weaknesses, businesses can strengthen their tax compliance efforts and reduce the risk of potential tax audits.
- Enhanced Tax Planning Opportunities:
Identifying potential tax planning opportunities during the health check allows businesses to optimize their tax positions while remaining compliant with tax laws.
- Improved Relationship with FIRS:
Proactively conducting a tax health check demonstrates a commitment to tax compliance, which can foster a positive relationship with the FIRS.
Conducting a tax health check is a proactive approach that empowers Nigerian businesses to assess their tax compliance status and be well-prepared for a potential FIRS tax audit. By reviewing tax compliance policies, examining financial records, assessing transfer pricing practices, and engaging external expertise, businesses can identify potential tax risks and strengthen their tax compliance efforts. As a trusted accounting firm, we encourage businesses to conduct regular tax health checks to ensure compliance with tax laws, optimize tax planning opportunities, and build a culture of transparency and integrity in the Nigerian business landscape.
Remember, a thorough tax health check not only safeguards against potential tax audit risks but also contributes to sustainable growth and financial stability for businesses in Nigeria.
For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at Lagos, Ogun state Nigeria offices, www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.