Tax Audit Triggers; Beware

For those in accounting or auditing profession, the concept “Reasonable Assurance” is a familiar concept synonymous with their day to day activities. The concept entails relevancy of external audit of financial statements for the purpose of reasonably assuring the intended users that such statements reflect true and fair view of financial prospects for the relevant year of income.

The Tax Administration Act (TAA), 2015 provisions empower the Commissioner General (CG) for Tanzania Revenue Authority (TRA) to conduct an audit or investigation of the person’s tax affairs. The purpose of such audit is to ascertain accurate and timely remittance of requisite taxes and compliance with the relevant provisions of tax laws.

However, there are certain factors influencing severity, intensity and periodicity of such tax audits. Such factors are usually referred as “Audit Triggers” which may include;

·        Compliance History;

A taxpayer’s history of compliance or non-compliance with relevant provisions of tax laws may significantly influence severity, intensity and periodicity of tax audit on such taxpayer. For instance, if an audit of the taxpayer’s affairs for the relevant year of income reveals serious instances of non-compliance with tax laws, this will eventually influence severity, intensity and periodicity of subsequent tax audits on such taxpayer.

·        Class of Business;

The class of business that the taxpayer is engaged in, be insurance, banking, telecommunication or charitable activities might influence severity, intensity and periodicity of tax audits on such class of business. For instance, if an audit of tax affairs of one of the players in the banking industry reveals erroneous interpretation of tax laws say treatment of provision for bad debts for income tax purposes, this will eventually trigger audit of tax affairs on banking industry for the purpose of ascertaining such bad debts provision treatment among other purposes.

·        Amount of Tax Payable;

The amount of tax payable by a taxpayer might significantly influence severity, intensity and periodicity of tax audits on such person. For instance, if an audit of tax affairs of a person for relevant year of income has resulted into significant amount of tax payable be corporate income tax, employment related taxes i.e. SDL & PAYE or value added taxes (VAT), this will eventually influence severity, intensity and periodicity of subsequent tax audits on such person.

·        Revenue Collection Target;

Powers have been conferred on the Commissioner General (CG) for TRA to select a person to be audited having regard to any matter that the CG considers relevant for ensuring collection of tax due. It is imperative to note that taxpayer’s selection for tax audit purposes may sometimes have no linkage to his compliance history, class of business engaged in or amount of tax payable by such taxpayer rather than ensuring attainment of revenue collection targets.

Benedict is a Tax Enthusiast focusing mainly on Direct and Indirect Taxation and the Views expressed herein are his own personal views.