If you are in business, you probably have experienced a TRA audit. If not, you need to remember that just like death and taxes, a TRA audit is a sure eventuality. Since the Biblical times, tax collectors have not had the warmest of public affection. I still remember reading of Jesus calling Matthew, a tax collector, to become his disciple, much to the disapproval of the public.
For my friends at TRA, it is just the nature of the job. But it is my hope that I can demystify tax audits, show some common grounds between taxpayers and the TRA and offer some tips on how taxpayers can best prepare for such interaction.
Naturally, no one running a business wants to spend any more time than is necessary dealing with a tax audit. But taxes have to be paid correctly, and timely - and whilst no one expects you to be enthusiastic about it, tax audits have to happen as a control to make sure that taxpayers are complying with their tax obligations.
Much as the process can be adversarial, in principle there should be some degree of common interest between the taxpayer and the TRA. One is that you want to pay your appropriate amount of tax.
Some use the term ‘fair share’, but the bottom line is you want to pay your legally required amount of taxes. If you are a responsible business or person, then you will want do so to enable government to continue provide public goods and invest in the country’s collective capital. TRA wants this too, they want you to pay the right amount of taxes (and hopefully no more).
The tension of course comes where differences arise whether in relation to technical interpretation or supporting documentation - also not helped, if the relationship is fraught with suspicion on both sides (from the side of the taxpayer that the TRA’s interpretations / approach are strongly driven by revenue targets, and from the side of the TRA as to the probity of the taxpayer).
The ultimate common interest is that both parties have a vested interest in the continuation of the business; the owners as they wish to generate profits, and the TRA because they will want you to continue to pay taxes. If taxpayers were poultry, TRA should be interested in the eggs, not the meat - certainly we do not want taxpayers to feel like chickens with their heads cut off - and to this end, the best approach has to be a collaborative one.
It is in the interest of all parties that the audit is run on an efficient basis so that it consumes the least amount of time possible. From the taxpayer’s perspective, the imperative is to maximise time running the business. Equally, the TRA auditors also want effective use of time as they have plenty of other taxpayers to visit, tons of administrative functions to attend to, and no interest in going through the slow process of dispute resolution.
When a tax dispute goes through the appellate process the cost both to the taxpayer and TRA is significant, whether in terms of time or money, and ideally disputes would be resolved wherever possible with the appellate process being a last resort. In addition, excessive delay in conclusion of an audit might risk punitive interest and penalty costs, which could cripple a business and even threaten its very survival.
Against this background, how do you manage the risks? The first imperative is to understand that preparation does not start when you get a notice from TRA saying they will be visiting next week. Instead, preparation means that you think of tax compliance as an integral part of the business.
Are you filing your VAT returns on time? Do you file your statement of estimated tax payable and revise if appropriately every quarter? Are you withholding tax appropriately? What about your payroll taxes, are you computing the taxes correctly and remitting these on time?
How about social security contributions and other payroll obligations? Any doctor (or vet, given our reference to chickens) will tell you that the most effective intervention happens before the symptoms of the disease surface.
Against this background, taxpayers would be well advised to engage their advisors to carry out a tax health checks or review. And, if such review does identify omissions, we recommend that you declare and rectify these upfront - an approach, that will not only reduce the penalties, but also create goodwill.
What you do not want to do is sit on the fence, as experience tells me that “the chickens will come home to roost”!
Samwel Ndandala (email@example.com), Tax Manager – International Tax Services, PwC Tanzania.