Lifestyle tax audit Investigation.

Tax investigation of taxable person’s lifestyle is a very effective tool in the hands of government to reduce corruption. Lifestyle audit is an effective way to stop corruption in Nigeria.  With lifestyle audit taxation can become a very efficient and useful tool in curbing sleaze through embezzlement and fraud.

The tool is tax investigation, tax investigation is a mechanism that when properly harnessed can achieve mitigation and reduction of public persons sleaze and public spending.

Tax investigation is used in many tax jurisdictions to combat and bring down organized crimes thereby discouraging the misappropriation of public funds and money laundering.

Section 35(3) of the Federal Inland Revenue Service Establishment Act, 2007 reads ‘in conducting any investigation under subsection 2 of the service, the service may cause investigation into the properties of any taxable person, if it appears to the service that the lifestyle of the person and extent of the properties are not justified by his source of income’

The FIRS can in the fulfillment of its mandate to the state, initiate tax investigation on any taxable person in so far as the persons income and properties does not justify his or her lifestyle, whether or not a formal petition has been lodged.

Tax investigation can be initiated on any citizen where his or her expenditure relating to his  asset acquisition, car purchase, investments and or any asset so owned by the taxpayer cannot be factually reconciled to his salary, benefits and allowances.

This is where data mining and the use of data analysis and financial engineering tools come to play.

This kind of lifestyle audit is simple and easy to commence and has the potential of recovering the tax component of stolen money back to government coffers.

The only requirement to commence lifestyle Audit is for the FIRS to step up its game and enlighten the populace of the need to send in petitions of public officials who seem to be living beyond their means.

The lifestyle tax Investigation unit will rely heavily on block chain technology where available. A national asset register will also assist in determining the difference between income of the taxpayer and his lifestyle expenditure.

This approach will go a long way in discouraging public sector stealing. The same approach can also be applied to private sector businesses that may be involved in money laundering.

The beauty of lifestyle tax audit investigation as a tool for fighting corruption are:

• This approach does not need to wait for whistleblowers or any petition to be reported for tax investigation to commence. See section 23(1) of FIRSEA 2007.
• The prima facie evidence required to commence investigation is the lifestyle inflation of the taxable person.
• Tax investigations are not statute barred as long as suspicion of wrong doing persist. Tax investigation can be reopened even after six years if new information of wrong doing is discovered.
• The onus is on the taxpayer to justify his earnings in relation to properties owned and income source.
• It is a deterrent, a strong deterrent to corruption.

Take Away

The utilization of tax investigation to combat financial crimes, sleaze in the public service is in expensive, achievable and has the potential to increase the counties revenue.

What is required is the technology, the forensic tax accountants, cyber and digital forensic experts together with the willingness of the tax authority to act.