Tax health checks: How important can they be?

Like individuals, businesses should undergo periodic health checks to ensure their survival. This is particularly crucial in the current economic landscape, where the Nigerian government is striving to generate substantial non-oil revenue. With a targeted non-oil revenue of ₦5.51 trillion in 2020, businesses need to proactively address tax compliance and potential risks. This becomes even more pressing due to the uncertainty surrounding tax positions in the country’s laws and recent judicial precedents on contentious tax matters.

In this context, a tax health check serves as a comprehensive review of a taxpayer’s tax and accounting records to assess compliance with relevant tax laws. The exercise aims to quantify potential tax exposures, identify areas of improvement, and evaluate strategies for enhanced compliance. The purpose of a tax health check includes:

  1. Preparation for Tax Audits or Investigations: Conducting a tax health check before receiving a tax audit notification is a proactive approach. It allows businesses to review their positions and strategize for potential issues that may arise during the audit. Waiting for an official audit notification may limit the ability to adopt proactive strategies to manage tax risks effectively.
  2. Assessment of Tax Function and Processes: The exercise can also evaluate the effectiveness of a company’s tax function and processes. This includes a review of the composition of the tax unit to ensure it is adequately staffed with personnel possessing the necessary knowledge and experience to meet the demands of the tax function.
  3. Tax Due Diligence for Mergers and Acquisitions: A tax health check may take the form of tax due diligence, especially in the context of mergers and acquisitions. Potential investors can assess the tax status of an existing entity they plan to acquire. While other considerations play a role in the decision-making process, understanding the actual worth and potential tax liabilities of the target business is essential.

In summary, a tax health check is a proactive and strategic approach for businesses to navigate the evolving tax landscape, manage risks, and ensure compliance with tax laws. Given the government’s increased focus on non-oil revenue, businesses should consider periodic tax health checks as part of their overall risk management and compliance strategy.

For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Inner Konsult Ltd at at Lagos, Ogun state Nigeria offices, You can also reach us via WhatsApp at +2348038460036.