An official investigation by the National Bureau of Revenue (NBR) to confirm information or find fraud and incorrect tax returns is known as a tax audit. The NBR has the authority to pick tax returns to review both at random and on purpose. A tax Audit is a procedure carried out by the Authority to audit the commercial records or other information or data related to a Person conducting Business, according to the VAT Law. The Tax Audit may be conducted by NBR at its office, the subject person’s place of business, or any other location where the subject person does business, stores items, or maintains records. Essentially, it is a formal audit of the business’s sales and purchase ledgers, as well as its VAT ledger. Physical examination of Purchase Tax Invoices and Sales Tax Invoices for the Tax Period, as well as trial balance reconciliation with standard rated sales, Zero rated sales, out-of-scope sales, and Exempted Sales. This guarantees that all debts are paid off and that all taxes are collected and paid to the government within the allotted time limit. Companies are required to file VAT returns, which must be correctly prepared and documented with the exact values in the appropriate boxes. You can obtain assistance from the tax agents and get it completed within the allotted period. Most importantly, the tax owed must be paid in full and discharged on or before the deadline. If you previously employed a licensed tax agent, he will ensure that the company conforms with NBR VAT laws (that your dealings are made valid and legitimate and you carry out a safe and clean business.)
Gearing Up for Tax Audit
By organising the accounting and return filing with the aid of a tax consultant, the company can get rid of its anxiety about a tax audit. Following the advice of qualified advisors will provide businesses with more confidence to handle the tax audit. The following suggestions can help firms be ready for tax audits:
Examining the System
Businesses must make sure that there are no discrepancies in any documents since tax auditors investigate all transactions that are related to taxes. Businesses can evaluate their systems with the assistance of seasoned tax consultants to make sure that the transactions are being recorded correctly.
A Tax Calculations Review
To make sure they are adhering to the VAT laws, the firms must concentrate on the input and output tax estimates. Your consultant will make sure you are according to VAT Law.
Examining VAT Returns
Businesses that have registered for VAT are expected to submit their VAT returns online using the NBR site. The process of filing a VAT return comprises entering the values of sales, purchases, output VAT, input VAT, and other transactions online into the appropriate boxes on the VAT return form on the NBR portal. Businesses may make sure that the returns are submitted correctly by working with the best advisors.
Corrective measures
The results of a VAT audit conducted by authorised tax agents before notification of an NBR audit may be as follows.
- The entity’s management will receive the Accounting Archiving Report and Accounting Data Adjustment Report along with observations and recommendations for improvement.
- If amendments to the tax periods are required, voluntary disclosures will be created and submitted to NBR.
- Adjustment will be made in the following tax period if the impact of the VAT is less than the voluntary disclosure requirement.
Benefits of employing a consultant
- Businesses that adhere to NBR regulations on VAT will not be subject to fines or penalties.
- The business will be ready for the NBR audit.
- During the audit phase, management may have questions about NBR rules and VAT reporting.
NBR audit method
Advisory of Audit: At least five days before the scheduled audit date, the company will get a notice. Details such as the audit schedule, location, parties involved, and the cause (if any) will be included. The procedure will start when the auditor(s) and the company meet at the scheduled location and time.
By letter, registered mail, email to the address provided by the person being notified, posting on the premises of the taxable person, or any other method that may be agreed upon by the person and the authority as a means of notification and correspondence.
- The Authority must outline the potential repercussions of interfering with the Tax Auditor’s performance of his duties in any notification of a Tax Audit it sends.
- When a Tax Auditor is assigned to conduct a Tax Audit as per the Law, he is required to give written notice to the following parties:
- The occupational renter of the premises, if he is present when the Tax Audit is initiated.
- In the absence of the occupational tenant, the person who appears to be in command of the property.
- In any other situation, the notice must be displayed prominently on the Premises.
Right to Conduct Tax Audit: Unless the Director-General decides to audit a business outside of regular business hours in an unusual scenario, the tax audit must be undertaken during NBR working hours.
- The Authority may check the Premises, the Documents available at the Premises, the Assets that are available at the Premises, and the Accounting Systems used by the Person subject to Tax Audit to perform a Tax Audit.
- The Tax Auditor must obtain the Director-prior General’s written approval and a permit from the Public Prosecutor to enter the portion of the Premises where the Premises or portions thereof are used as a residence to carry out the provisions of Clause (4) of Article (17) of this Law.
- The occupational tenant of the premises, or, in the absence of the occupational tenant, any Person the Authority considers to have control over the premises, shall provide the Authority with all reasonable facilities necessary for the effective exercise of its powers under this Article, following Clause (1) of this Article.
- Tax Auditors may be accompanied to any Premises by any other Authority representative they deem necessary for the efficient execution of their duties under this Decision.
- The permit provided by the Authority as well as the permit received from the public prosecutor, in addition to the evidence of identity, must be presented each time a tax auditor is asked to do so to conduct a tax audit at a person’s premises according to Article (12) of this Decision.
1. The Company that is the subject of a tax audit, as well as their attorneys and tax agents, are expected to offer the auditors executing their job complete cooperation.
2. The authority may request a re-audit if anything suspicious is discovered in the audit results that could affect the tax return.
3. The audited party has the right to request the tax auditors’ credentials, such as professional identification cards, to assess their legitimacy.
4. The audited individual has the right to request a copy of the notification and any relevant papers, as well as the right to attend auditing operations that take place away from official locations.
A tax audit is essentially the government’s evaluation of a business about its accountability as a taxable entity. The NBR is conducting this audit to make sure that all debts are settled and that all taxes are collected and paid to the government within the allowed time frames. The government also evaluates a company’s compliance with the obligations related to its operations under the tax rules. The auditor may request original and/or copies of business records and may also request samples of goods and other assets that are currently on hand.
Following records must be kept for a tax audit:
- A list of every purchase and import of goods and services.
- Every tax invoice and other related paperwork for receiving goods or services.
- Received, all Tax Credit Notes and substitute documentation.
- Provided alternate documentation and tax invoices.
- All issued Tax Credit Notes and substitute documentation.
- Records of goods and services that have been utilized for purposes other than business and that show taxes paid for such items.
- Records of goods and services bought but not subject to the input tax deduction.
- Goods and service export records.
- Records of adjustments or corrections made to tax invoices or accounts. Information on goods imported into the state, including customs declarations and supplier invoices.
The NBR may request any additional documents they think necessary during an audit to determine the tax obligations, therefore this list is not exhaustive but rather superficial.
The National Bureau for Revenue, the final constitutional body in charge of managing and collecting federal taxes, is infamous for ineffectively discouraging non-compliance on the part of taxpayers. If a registrant is found guilty of non-compliance, various laws and regulations enacted by the Ministry impose harsh consequences, such as prison sentences and other monetary fines.
It is always preferable to carry out a VAT health check-up or tax audit review in your company to avoid the possibility of VAT non-compliance. Finding discrepancies between your organization’s tax policy and the proper course of action following the tax regulations is the goal of a VAT audit study. Since it will prepare your company for a VAT Audit, it is wise to argue that a tax audit review is more of a must than an option.
Understanding the root reasons for non-compliance can help you handle them in the present and the future. It will assist you in locating the areas that need to be corrected while guaranteeing the accuracy of taxes paid. The NBR has provided taxpayers with several choices for correcting their errors before the assessment process, such as submitting a form for Reconsideration or a Voluntary Disclosure depending on the circumstance.
- Maintain VAT Compliance
The audit will enable a review of previously submitted VAT returns to locate any inaccuracies, minimise the chance that the Tax Authority would discover non-compliances and levy larger fines against businesses as a result. Early detection of mistakes or non-compliances is crucial because it enables businesses to implement the proper corrective actions (such as where applicable, a Voluntary Disclosure plan), which can spare them from paying greater fines in the case of an official tax audit by the Authority.
- Enables cost-saving
The possibility of unintentional double payment of VAT, improper VAT being charged by the suppliers, etc. will be reduced thanks to due diligence procedures, which will also help lessen the likelihood of facing fines from the Tax Authority.
- Prepares for the future
By having all the necessary information on hand and being organised, businesses can prepare for official tax audits and prevent mistakes that could arise from last-minute hurriedness.
- Support the nation’s economy
The likelihood of fraud being committed by the business is significantly decreased as compliance is carefully monitored.