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Tax Audits and Reviews
This is the process where URA conducts an official examination/review of the organisation’s or an individual’s accounts and financial information to ensure they are being reported accurately, correctly and in completeness according to the tax laws. This includes among others verifying whether:-
- All the income received by the client has been declared.
- The client is entitled to the deductions, credits or tax offsets being claimed.
- The client correctly withheld and reported all amounts they are obligated to.
- The client correctly calculated and reported any other tax-related obligations.
Benefits of Tax Audits and Reviews
- They enable URA identify inconsistencies or risks about some activities, transactions or industries which are communicated to the client so that they may be corrected before they negatively impact the client’s compliance profile;
- They enable URA identify errors made during declarations and provides client an opportunity to voluntarily disclose the correct information.
- During the reviews and audits, URA provides sensitization and guidance on ways to help the client comply with tax obligations e.g. application of a law, tax records management etc
- Audits and reviews may enable the client to identify internal control weakness’ within their business and as such take corrective action;
- Before an audit is conducted, the client will be informed of the intention to audit and this gives them an opportunity to voluntarily disclose any information that they may have reducing on the amount of time the audit will take or avoid penalties for non-disclosure.
- Under no circumstances should an audit staff solicit, suggest, enlist, or accept any gift, pay, bribe or gratuity for any audit or review assignment or work.
- It is a requirement for every audit staff to report taxpayers or their agents who suggest, offer or give our bribes;
- Failure to provide the necessary documentation or information requested by URA within the agreed timelines and without formal communication, may lead to escalation of the case for punitive measures;
- Because audits and reviews are based on risk profiling, the client should always ensure they meet all their tax obligations accurately and correctly to reduce their risk profile. Tax obligations in all aspects of tax compliance include registration, declaration, payment etc.
Methods of Tax Audits and Reviews
Desk Issue Audit
Field Issue Audit
|Types of Audits|
There are majorly three types of audit conducted by URA and these include:
1. Special Projects Audit: this is an audit that is organised by URA as a separate project for a target or specific group of taxpayers in a given period to verify compliance in the sector.
2. Refund Audit; this is an audit initiated to verify a taxpayer’s claim for a tax refund from URA. This audit takes place prior to processing the refund claim.
3. De-registration Audit; this is an audit that is initiated to establish the accurate tax obligations or liabilities in cases of cessation of business, winding up or uncertainty. This audit focuses on determining taxes due and any other pertinent issues so that the taxpayer can be officially removed from the taxpayer register.
Once a client’s account has been selected for audit, the client will be notified in writing. URA will send a letter confirming the audit and more details like:
- Specific records needed: the law requires a taxpayer to retain records used to prepare tax returns, which generally should be kept for seven years from the date the tax return was filed. If records are kept electronically, URA may request for addition of other types of records. The auditor can guide the client in determining what can be accepted to ensure compatibility with URA.
- Please note: The length of each audit varies depending on the type of audit, the complexity of items being reviewed, the availability of information being requested,the availability of both parties for scheduling of meetings and the final agreement or disagreement with the findings.
- Venue for the audit: this can be either at the URA office or the client’s place of abode.
- Period of the audit: URA will give a time frame for the audit with clear start and end dates.
However; the URA staff who will be conducting the audit should have clear and valid identification from URA. In case of doubt the client can contact their tax office for verification.
Selecting an account for audit does not always suggest that an error has been made. Accounts for auditing and review are selected using a variety of methods such as below:-
- Information and Document matching (where taxpayer records do not match the information declared).
- Related examinations; that is, accounts may be selected for audit when they involve issues or transactions with other taxpayers(such as business partners or investors, whose accounts were selected for audit).
- Receipt of third party information by URA that greatly impacts the accuracy, correctness or completeness of a taxpayer declaration.
|Rights of a client during an Audit include:|
- A right to professional and courteous treatment by URA staff.
- A right to privacy and confidentiality about tax matters related to the client business.
- A right to know why URA is asking for information, how URA will use it and what will happen if the requested information is not provided.
- A right to representation, by oneself or an authorized representative e.g. an accountant.
- A right to agree or disagree with the findings from the audit.
- A right to object and appeal disagreements, both within URA and before the courts
An audit can be concluded in three ways:-
- No change: An audit in which URA and the client have substantiated all of the items being reviewed and results in no changes. The client will be asked to sign the examination report or a similar form depending on the type of audit conducted.
- Agreed: An audit where URA has proposed changes, the client understands and agrees with the changes and audit findings then he or she is asked to sign the examination report or a similar form depending upon the type of audit conducted. However, if money is owed, there are several payment options available and the URA staff will discuss the options and provide guidance to the client where necessary.
- Disagreed: An audit where URA has proposed changes and the client understands but disagrees with the changes. They will be asked to sign the examination report or a similar form depending upon the type of audit conducted stating their disagreement. The case will be escalated to the manager who may request for further review of the issue; and depending on the outcome, the client may agree (in this case follow the agreement procedure) or still disagree and will be required to formally object and appeal the findings.
Disclaimer: This catalogue is only a guide and should not be substituted for the Tax Laws, Rules and Guidelines. Always refer/consult the appropriate Tax Laws