Just like people, businesses should also undergo periodic health checks to guarantee survival. Tax health check have never been more necessary than now when the Nigerian Government has proposed to generate non-oil revenue of ₦5.51 trillion in 2020. The strategic revenue growth initiatives of the Federal Government set out its intention to increase revenue from non-oil sources. The need for tax health check is also heightened by uncertain tax positions inherent in our laws and the need for companies to constantly review their transactions in view of recent judicial precedents on contentious tax matters.

Consequently, businesses that intend to outlive their proprietors need to proactively consider strategies that will help mitigate challenges that may arise from the renewed tax collection drive by adopting periodic tax health checks. In this article, we have examined the significance of tax health check and highlighted the need for taxpayers to adopt proactive strategies to mitigate potential tax risks.

Purpose of a tax health check

A tax health check is a review of a taxpayer's tax and accounting records to ascertain the level of compliance with relevant tax laws. The exercise may also involve quantifying the potential tax exposures and evaluating recommendations for improved compliance. The exercise may serve the following purposes:

  • It may be conducted as part of preparations for an upcoming tax audit or investigation exercise. In this context, the health check will involve reviewing the company's position to decide on the strategy for resolving the issues that may be raised by the tax authorities during the audit. However, it is not usually a good idea to wait for tax audit notification letters before conducting health checks. This is because it might be too late to adopt proactive strategies to manage tax risks by the time a taxpayer receives the audit notification letter.
  • The exercise may also be conducted with a view to assessing the robustness of a company's tax function and processes. Through the exercise, the composition of the tax unit can be reviewed to ensure it is adequately staffed and that such personnel have the requisite knowledge and experience to meet the demands of the tax function.
  • A tax health check could also take the form of a tax due diligence, where a potential investor evaluates the tax status of an existing entity it intends to acquire. Although some other considerations typically prevail in determining whether to acquire or not, the importance of the tax health check in ascertaining the actual worth and/or the potential tax liabilities of the existing business cannot be overemphasized.

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