FIRS TAX AUDIT: WHAT YOU NEED TO KNOW

THE FIRS

The Federal Inland Revenue Service (FIRS) is an establishment of the Federal Government of Nigeria, saddled with the responsibility to administer taxes and collect the taxes due from all registered companies (either domiciled in Nigeria or offshore) that generate revenue from Nigeria. That said, all registered companies are obliged to file all relevant tax returns and remit all taxes (Corporate Income Taxes and Transactional Taxes) to the Federal Government of Nigeria through the FIRS.

TAX AUDIT

Tax audit is a process whereby tax returns filed by taxpayers are assessed in accordance with the provisions of the law. A tax audit involves an examination of a taxpayer’s tax returns to establish that the financial information at the base of the tax returns is reported correctly and completely. Under the self-assessment regime, taxpayers are expected to file returns monthly, quarterly, and yearly depending on the nature of taxes being filed.  The taxpayers must willfully declare taxes and file returns with the FIRS.

The Federal Inland Revenue Service, in their way of checking the compliance level of the relevant taxpayers, may decide to carry out it’s compliance check through the following:

  • Desk Audit: This is the type of audit process whereby the tax officer reviews the documents submitted to the tax authority monthly or annually in line with the provisions of the tax law.
  • Field Audit: This is an audit process whereby tax officers directly examine the documents submitted and question the taxpayer onsite.

STAGES OF TAX AUDIT PROCESS

A typical tax audit process comprises of the pre-audit stage, field audit stage and post-audit stage:

  • Pre-Audit Stage:This involves the tax audit planning stage and consists of the following activities;selecting taxpayers; notifying taxpayers of tax audit exercise and selecting tax audit teams.
  • Field Audit stage:This commences on the agreed date in the taxpayers premises and signifies the beginning of the tax audit cycle. The activities at this stage are carried out in the premises of the taxpayer. The service of the assessments and demand notices on the ttaxpayer signifies the end of the audit cycle.
  • Post Audit Stage:This consists of activities relating to the collection and appeal procedure and it covers: payments, objections and appeals by taxpayers based on the provisions of tax laws.

MAJOR AUDIT TRIGGERS

The following are the major audit triggers and risk exposures to taxpayers:

  1. Significant fluctuations in assessable profits;
  2. Significant capital allowance and unutilized capital allowance claim;
  3. Value Added Tax (VAT) and Withholding Tax (WHT) refund claim situation;
  4. Huge cost deductibility claim( huge bad debts provision or written off situation);
  5. High expenses to revenue ratio;
  6. Related party transactions;
  7. Restatement of Audited Financial Statement;
  8. Business restructuring, mergers, and acquisition situation;
  9. Double taxation agreement claims;
  10. Un-reported revenue as well as inconsistent information between the AFS and Tax returns submitted to the tax authority etc.

We have listed below 10 noteworthy key notes when it comes to a FIRS Audit;

  1. The Company’s Audited Financial Statement.
  2. The Trial Balance.
  3. Bank Statements.
  4. Revenue Ledger.
  5. Direct Cost Ledgers.
  6. OPEX + CAPEX Ledgers.
  7. Related parties ledger (where this applies to you).
  8. Supporting payment Ledgers.
  9. Relevant tax returns filed with the FIRS.
  10. Evidence of remittances.

All the above-mentioned documents are the most important documents taxpayers will provide to the FIRS during the FIRS Tax Audit. The list is a concise one as it varies with the nature and the kind of the company’s business.   

For more enquiries, please contact: Adekunle Adekojo (a.adekojo@taxaide.com.ng, +234 70 618 2513), Ayodeji Mustapha (a.mustapha@taxaide.com.ng, +234 808 885 3534), Deborah Balogun (d.balogun@taxaide.com.ng, +234 903 206 9093) or Angela Apeh (a.apeh@taxaide.com.ng, +234 902 206 6961).