In the current uncertain environment where the government is facing a budget crunch, every business owner should be alert to the dreaded taxman’s call. The tax collectors are just doing their job, they have neither malice nor prejudice against anyone. The tax officers are facing a tax collection target and like any person facing a specified target must cast the net wide in order to catch all opportunities for revenue collection. Businesses are more likely to face a tax audit than any other period simply because the government needs to collect more revenue. It is the worst time for a business owner to be subjected to a tax inquiry. Tax collectors too face an uphill task realizing tax revenue from businesses on a threadbare budget.
When a letter from the tax authority lands on the desk of a business owner, it normally causes panic in the office. Tax demand ranks high among disruptive events in SME business. Tax investigations cause foreboding and confusion. The process is administratively expensive and directs the effort of staff from the business into compiling forgotten documents from years past and making unending visits to the tax offices of the tax authorities. The possibility that mistakes will be unearthed, and tax liability determined piles pressure on owners’ small businesses. When a letter from the taxman lands on your desk, do not panic. Call a tax expert. A tax expert is equipped with knowledge and experience to advice you on the way forward immediately.
The Taxman has access to sufficient information about any registered business to determine issues of compliance with the tax code. The tax portal of every business contains information on location, contacts, type of business, ownership details, tax obligations and copies of all tax filings for the years the online tax system was in place. In any year, even before a business files its annual income tax, information on sales, purchases, salaries, rent, and comparative information uploaded over the years is available in the portal. Queries from tax authorities can come on specific demand for tax where self-assessed tax has not been paid, general compliance check, inconsistencies in VAT returns, import verification, excise verification, tax investigations on one or two issues or in-depth audit. The business owner must approach any of these queries as serious as the other. What started as a usual compliance check usually ends up as a yearlong investigation that turns the business records on its head.
Business owners must understand that there is no urgency in responding to tax queries. The queries normally state the period within which a response must be received. Making frantic calls and hastily putting together incomplete information is detrimental to the case. Tax queries do not normally get concluded in a rush unless the business owner agrees with all the claims and pays all tax amounts demanded. Since tax demands are normally estimations made with basic information, the amounts demanded are usually in multiples of the actual tax liability. Tax experts who have handled many tax queries understand this reality and analyze the tax inquiry letter for areas of objection and areas of agreement. Response to tax queries should be done meticulously with attention to detail. Documents should be cross referenced and explained sufficiently.
Tax officials are in the business of collecting revenue and jump at situations where there is easy win and avoid situations where their targeted taxpayer has such detailed records that the eventual collection will be less than the cost of the review. A well-prepared response with detailed evidence saves both the tax collector and the taxpayer time and effort.
The tax law is too complex for ordinary taxpayers to devote time to peruse and understand. Each major tax component is an Act of Parliament which is amended through the Finance Act in the Budget. What any taxpayer should be conversant with are the statutory deadlines for filing tax and the penalties for non-filing and non-payment. The taxpayer would be served well by a good tax accountant whose sole business is giving advice on tax matters. Such accountants are alert for any new developments and familiarize themselves with new tax issues as they are released.
At the tail end of tax investigations, the taxpayer may satisfy the queries of the taxman and is let off the hook with a tax compliance certificate. That is however the exception rather than the rule. Mistakes in accounting for and filing taxes cannot be avoided. The taxman will probably find such errors and a tax bill will be issued against the taxpayer. The taxpayer assisted by the tax expert can and should negotiate for a payment plan. The payment plan should take into consideration the ability to pay without threatening the going concern of the business.
All businesses should have a tax plan to reduce overall tax liability and match tax payment with the cash budget. The tax plan should include avoiding unnecessary penalties and interests on statutory filings. All taxes should be filed before the given deadlines. Payroll taxes, VAT, Installment Taxes and annual income tax returns have definite deadlines beyond which stiff penalties and interests accrue. An understanding of tax procedures, methods and templates is necessary in preparing and filing tax returns. It pays to consult a tax advisor early to avoid tax penalties, interests, audits and investigations.
The Content of this article is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. The author does not purport to know the circumstances of any business or individual. For targeted advice to your business situation contact the firm.
Salah Abdi Sheikh is the Managing partner at Josiah, Salah & Associates. He contacted at email@example.com
+254 725 018 830 / +254 780 018 830
Kenyatta Ave, Hughes Building, Second Floor, Suite 1
P. O Box 5360 - 00100, Nairobi - Kenya