The tax revenue authority (TRA) has the mandate to collect tax revenue in Tanzania. For TRA to be able to deliver this mandate, the tax laws give the taxman massive powers. Knowing TRA powers is important. Last week I highlighted some of these powers. But knowing your obligations, your rights, and the consequences of your actions can also help you manage the enquiries more effectively. In this article, I will briefly highlight some of the things you can do to effectively manage tax enquiries.
Know the triggers: Filing or not filing a tax return can trigger an enquiry. Think of an incomplete or inaccurate tax return. If you are a periodic tax return filer, significant growth or decline of tax payable may trigger an enquiry. Inactive EFD(s) can also trigger enquiries. A tax enquiry to your supplier or custom can also flow to you. Tips from informants or whistleblowers can also trigger tax enquiries. Tax audits are normally planned, and the selection of auditees can be random, or risk-based. So, there is a multitude of factors that can trigger a tax enquiry. And these factors can work alone or in combination.
Get prepared: If you are a taxpayer, a potential taxpayer or you are dealing with taxpayers, there is always a possibility that a tax enquiry can pop up, any time. First, you need to understand your various tax obligations. Obligations to register or deregister from a tax system. Obligation to file tax returns, pay taxes and reporting complete and accurate information. The second is to understand various sources of tax risks and establish effective controls that can address the risks. For example, having controls that will ensure relevant documents are kept in a way that they can easily be retrieved even five years later. Also, reconciliation, monthly or annually, of your various reports. How does turnover in your financial statements reconcile with turnovers in your VAT returns, deposits made in your bank accounts or receipts issued using EFD?
Respond appropriately: Once a tax enquiry has been initiated you also need to manage the process properly to reduce both the likelihood and impact of unnecessary tax liability. As a first step, know your rights and obligations in respect of tax enquires, be it an audit or tax investigation. You need to be able to identify the person doing the enquiry. Is he really from TRA? You also need to understand what is being asked for. Seek clarification if you are not sure what exactly is expected from you. Try to find out why particular information or document is requested. This is important although sometimes it can be tricky to get. You also need to know where exactly the requested information should be sent. If it is a call for interrogation or a meeting, where it will take place. Where appropriate agree with TRA on a format that la particular information should be prepared. Most tax enquiries are time-bound. Know the time and deadlines. Then prepare a response to the enquiry. Make sure your response reconciles with other responses or information already in TRA’s hands. You may also find it useful to consult and align internally and externally with your tax consultant, for example, on the response you are providing to avoid possible inconsistencies.
What lessons? Properly document all the information and documents you have provided to TRA. In the light of the findings and questions raised in the enquiry, consider reviewing the effectiveness of your various controls. Think of the areas that need to be addressed so that the same findings do not repeat. Some tax enquiries may end with an assessment of tax. Plan how to resolve the matters early.
By Shabu Maurus, Tax Partner, Auditax International.