Speaker 1: Hello and welcome to the topic on tax audits and dispute resolution. By the end of this topic, you will be able to understand the meaning of tax audit and tax investigation. You will also be able to explain the objectives of tax audit and tax investigation, and you will also be able to explain the events which may trigger an investigation, and finally, you will be able to understand the investigation procedures. We define tax audit by saying tax audit involves the assessment of a taxpayer's accounts to find out the level of compliance with taxation laws of a country. So this investigation will be important to be able to find out who among the taxpayers has not been able to pay their taxes. So auditing is quite very important, and every country has what we call taxation laws that govern each individual, and they have to be followed. If it is guidelines on how tax should be paid, that guideline must be followed to the letter. So the need for tax audit is to unearth any kind of failure to comply with the laws or the taxation laws of a country. Then we have what we call tax investigation. We are saying it is an investigation by tax authorities for recovery of undercharged taxes. Then we have objectives of tax audit and investigation. Why do we need to do auditing and investigation? Number one is to ensure compliance with tax laws. We have already mentioned that, and basically, other objectives would be to check any form of detection. So we can only be able to detect failure to pay tax through interviewing clients, surveillance, review of taxpayer records, and also analysis of financial information. So once we analyze that information, we can be able to unearth any unpaid tax. Number two is disruption. The objective is aimed at identifying tax objectives and deal with any cartel. So tax authorities have a right to look at people's tax payment documents, and by doing so, if there is any tax that is not paid, then they can disrupt those plans. Remember, cartels come in place to participate in activities that will enable them to evade tax. So the other one is ensuring compliance. Compliance ensures tax evasion loopholes are sealed through stringent taxation laws. So any loopholes that tax authorities may notice, for example, people that are not paying tax or people that are reporting the wrong revenue or the wrong income, with the target that if I report a lesser income, then I will be required to pay a lesser tax. So that kind of investigation, we can be able to ensure compliance has taken place. Now, we have different events which may trigger the investigation. Number one is informers, friends, spouse, former spouse, those are people that can be able to give tax authorities information of anyone that is evading tax. Remember, when people are very close friends, they will only share this information and you may not know who exactly you are sharing the information to, that you have evaded tax. It may be your spouse, it may be your former spouse, and so on and so forth. Then we have the public media, televisions and newspapers, these media outlets will always run stories of people in government, companies that have evaded tax. So through those kind of stories, tax authorities can take up the matter and carry out audit and investigation. The other one is non-compliance detected by a compliance check. So tax authorities in every country will have to do what we call a compliance, tax compliance check. And one way that different countries ensure compliance is you are given a certificate of compliance if you have paid your taxes appropriately. So if you have not paid these taxes, then it means you do not have this certificate. And finally is information relating to company audits. Once you publish this particular information, tax authorities are able to follow up to see whether that information is correct or not. Investigation procedures. Where intelligence has been availed to the tax authorities, then investigation will be commenced. And the steps that are taken by tax authorities in terms of investigation, number one is a preliminary investigation. And this kind of investigation is conducted once allegations are made on tax evasion. So it is important that these allegations are taken keen note on by the tax authorities. So they begin their investigation. Number two is surveillance done on taxpayers, business premises, tax agents and third parties. The aim is to identify the nature of business, taxpayers, documents and other information necessary. So through surveillance, tax authorities can be able to visit business premises. They can be able to send people with undercover cameras to be able to find out what is happening even as they continue to make their sales. They can do surveillance also through tax agents and so on and so forth. Three is notice to investigate. So the taxpayer is given a notice that investigations are going on and is given reasons into why. So there is that notification that is given to whoever has not complied with tax. So you notify them and you give them the reason as to why you have commenced an investigation against them due to failure to pay tax. The tax authorities will on the fourth step also request for documents. These are documents that will act as evidence and proof. You remember the person being investigated may be claiming that they paid the tax. So they will be required to produce relevant documents that are going to show that this was done. Once these documents are received, then the tax authorities on step number five are going to analyze these documents, self-declaration forms. So those ones are also analyzed against the records that the tax authorities have. And once the analysis is done, then we have an activity that interviewing and statement recording. So those people that have been involved in investigation or those people that have alleged that they have not been paying tax, then they can be interviewed. They can record statements in regards to any information that they know. If they believe that they have paid tax, then they are required during the interviews and recording of statements to be able to produce this kind of evidence in order to aid the tax authorities to come into a conclusion. Then after that, we have a finalization of investigation. The investigation team prepares a report recommending civil or criminal charges against the taxpayer. So the investigation is very important. So prepare a report based on the findings that the tax authority have, then they can be able to instigate any kind of charges. That is, if the person that has been accused of not paying tax is found culpable. We have now the issue of dispute resolution tax, and a dispute is a disagreement or the situation where the taxpayer and the tax authorities have different views. I can be saying that I have paid my tax, but the tax authorities have a contrary view in regards to the tax liability. So now we have to look for a way that we can resolve. We can do this through different methods. The first one is what we call litigation. So this is the process of taking a legal action against the taxpayer. So that is litigation. So this process is done through the courts of law. The tax authorities will sue the person that they have deemed that has not paid tax. And for them to prove their case, also they have to submit the necessary evidence. And also another method is alternative dispute resolution. This method involves mediation, facilitated discussions and negotiations, settlement to resolve the tax dispute. So tax authorities can have a sit down with the tax people or the people that have not been able to pay their tax, and they can have conversations outside the court. That's why we are calling it an alternative dispute resolution. And so some of the methods that are used in the alternative dispute resolution, if the person accused of not paying tax agrees that they have not paid tax, then what is likely to happen, you are required now to give the tax authorities a payment plan on how you intend to meet your tax obligations. And that particular slide is going to bring us to the end of our discussion on tax disputes. I invite you to look at practical examples in your country on how different tax disputes have been resolved by the taxation authorities.