LIRS Tax Audit Exercise: Are Your Books in Shape?

Introduction:

The steadily plummeting revenue accruing to the Government annually has led to the need to diversify the country’s revenue generation portfolio by exploring prospects of non-crude-oil-related revenue generating activities and undertaking thorough well-thought-out measures to block revenue leakages in the economy. Hence, the attempts being made to tighten the country’s fiscal policy measures and to fish out non-conforming taxpayers.

The most common method by which the Government ensures compliance with tax policies is through conduction of a tax audit after which a report would be prepared by the auditors and upon which an assessment may be made, or sanctions meted out.

State Tax Audit Exercise:

The Lagos Internal Revenue Service (LIRS) by virtue of powers granted to it under Sections 47(4) and 48(4) of the Personal Income Tax Act (PITA) regularly undertakes tax audit exercises (Audit) whereby it verifies the income of individuals as well as the books of account of an organization and other relevant documents. The LIRS may, for the purpose of making such verification require any individual to provide relevant information within a specified time, and failure to comply will attract sanctions.

An audit may be triggered by a variety of factors including unreported income; excessive charitable donations; excessive losses; excessive deductible expenses; and too little profit. To kickstart an Audit, the LIRS would usually send an Audit Notification Letter to the organization under review, highlighting what the audit would cover (usually all or any of Personal Income Tax, Withholding Tax, Levies, or fees) and listing documents to be provided by the company to be audited. Commonly requested documents include duly stamped and signed copies of the organization’s: Audited Financial Statement, Management Account, Bank Statement, Staff monthly and annual Payroll, Expatriate Payroll, Evidence of Gratuities, NHIS and NHF, etc.

The Audit is usually conducted for the purpose of information gathering and not for the purpose of raising an assessment. However, based on information gathered and reports presented by auditors, a tax assessment may be raised subsequently by the appropriate department of the LIRS. Any assessment raised may be objected to and appealed in the usual fashion and in line with the provisions of the PITA.

It is criminal to conceal relevant information or to attempt to offer a bribe to an auditor in the course of a tax audit and relevant officers may suffer punishment where such an offense is committed. Also, an Additional Assessment may be issued where it is found that an initial assessment was issued based on incomplete or falsified information

Conclusion:

We encourage organizations to engage the services of external auditors to tidy up books and accounts and to ensure that there are no loose ends in case of a surprise audit by the tax authorities, in order to avoid payment of interest and penalties and possibly additional taxes which could have been easily avoided.

Please do not treat the foregoing as tax advice as it is only an expression of our Tax Information Service. All enquiries should please be directed to our TaxThursday Desk at resources@taxaide.com.ng; +234 700 TAXAIDE or any of our following personnel:

   Adeola Adefuye
Associate a.adefuye@taxaide.com.ng  
         Bidemi Olumide
Partner b.olumide@taxaide.com.ng  

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