Businesses should undergo periodic health checks, just like people to guarantee survival. Tax health checks have never been more necessary than now when the Zimbabwean government through Zimbabwe Revenue Authority (ZIMRA) has automated almost all of its revenue collection systems. The government is also targeting the informal sector (which thrives in highly inflationary environment) to increase revenue for the consolidated revenue fund. The need for tax health checks is also heightened by uncertain tax positions inherent in our laws and the need for companies to continually review their businesses in view of recent legal precedents on combative matters.
Businesses that intend to endure their owners need to proactively consider policies which will help alleviate challenges that may arise from the revised tax collection measures by assuming periodic tax health checks
Why conduct tax health checks
A tax health check is a review of a taxpayer’s tax records to ascertain the level of compliance with applicable tax legislation. The exercise may also involve measuring the potential tax risks and assessing recommendations for enhanced compliance. The exercise may aid 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 department (if available) 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 invest in. Although some other considerations typically prevail in determining whether to acquire or not, the importance of the tax health check in ascertaining the actual liabilities of the existing business cannot be overemphasized.
- For tax payers who apply for refunds, this is to avoid a situation where a supposed tax refund reverses into a tax debt for the taxpayer. Taxpayers that intend to apply for tax refunds also need tax health checks given that the associated audit exercises that legally precede refunds, are usually overly intensive and covers all tax types.
- It may result in a tax saving opportunity when as organisation correct its own wrongs in time before audits and investigations by the tax authority. Thus, based on the findings from a tax health check, a taxpayer can design an effective strategy for implementing a robust tax risk framework that identify and mitigate tax risks in the organisation.
The rising need for tax health checks
Recently, companies operating in Zimbabwe have been faced with increased level of tax risks. Tax risks is the risk that transaction and events will have unintended and adverse consequences. The increased tax risks are not unconnected to some uncertainties, doubts and changes in our tax laws and regulations.
Tax health checks are a cost-effective way to proactively manage tax risks and avoid potential exposures. Tax payers are advised not to wait until they receive audit notifications letters from the tax authorities before conducting tax reviews, just as it is advisable not to wait until the outset of an illness before going for a medical check-up.