INTRODUCTION
Sometimes, tax audits are conducted because there is information available to the tax authority which triggers tax audits. However, this information has to be authenticated especially because it is from different sources. There are many providers of this type of information.
For this post, the providers of the information can be grouped into two depending on whether the information is paid for or not.
The information provided is:
- Paid for.
- Free information.
PAID FOR INFORMATION
This is information that the tax authority procures from the public or it is generated by tax officers who are employed to solely look for the information for example revenue protection police.
The following are some of the persons that provide information that may trigger general tax audits.
a) Tax authority intelligence units
In most tax authorities, there are special intelligence units that are created specifically to gather data for revenue loss protection. In many cases, the people working in the units are employees of the tax authority.
The special intelligence units seek information about tax evasion and tax avoidance and relay it to the tax authority. The targeted taxpayers are audited for tax compliance.
b) Professional investigators
There are people whose profession is gathering information which they then pass to the tax authority. The tax authority will investigate the cases. In case the information is found to be authentic, the people will be compensated.
For example in Kenya, the Kenya Revenue Authority (KRA) pays investigators a certain percentage of the amount of tax raised resulting in any information they provided.
c) Informers
This is information that is received by the tax authorities. The informers do not operate any legal business but they provide the information intending to receive a potential personal gain.
For example, information that may be received from bank employees.
Tax authority intelligence units, professional investigators and informers are not the only persons who provide information to the tax authorities that are paid for. There are very many other persons.
FREE INFORMATION
There are very many sources of information that is provided to tax authorities for tax purposes and the information is free. Some of the sources of free information are:
a) Betrayal by jilted lovers
Many people when they are emotionally engaged with their lovers to reveal a lot of information. The information availed may become their undoing later when the relationships end especially if they are not taxed compliant.
In case of the affair going south, the parties concerned may be reported to the tax authorities for revenge purposes.
b) Betrayal by unhappy spouses
In cases where marriages are dysfunctional, one party may report the other to the tax authority about their tax compliance status.
This is done purely for revenge purposes. This is especially in cases where one party feels that because the directors in those companies; they may be in trouble in the future because the companies are not taxed compliant.
c) Dissatisfied employees
When some employees are not satisfied with their working conditions or compensation and they feel that their employer or the management are over-compensated, they may feel obliged to act.
The employees may report their employer’s tax operations to the tax authority especially in cases where the employer is not tax compliant.
d) Sacked employees
When employees leave work, some may leave disgruntled. As a way of hitting back, the employees may report their former employer to the tax authority especially in cases where the employer is not tax compliant.
This is done for revenge purposes.
e) Media publicity
Many times, there is a media focus on how well some taxpayers are doing. The taxpayers may be talking about their success stories to encourage others or to promote their businesses.
The media may also be talking about it as a news item. This information will be available to the tax authority who may want to check whether the taxpayers are paying tax.
f) Insurance claims
Sometimes after tragedy, the taxpayer may be paid huge insurance claim amounts. The paid claims may not reflect earnings that the taxpayer was reporting to the tax authority before the tragedy. The claims will raise interest from the tax authority and this may trigger a tax audit.
g) Whistleblowers
These are people whose main activity is reporting on a specific issue that adversely affects society. For example, some social activists monitor what is happening in the country’s tax industry. The information provided to the public may trigger tax audits by the tax authority.
h) Educational research
Many students especially those studying in institutions of higher learning conduct research that may result in findings that need to be examined further by the tax authority.
For example, many tax authority employees are continuing with formal education at institutions of higher learning. The results of their research studies may trigger tax audits by the tax authority.
i) Studies by government bodies
Research is a key development component by most governments. Tax being one of the key contributors to government revenue attracts a lot of research focus by the government.
Any research findings that may result in findings that point out to lower tax compliance many trigger tax audits by the tax authority.
j) Research by tax authorities
Most tax authorities have a research department whose central aim is to conduct research whose findings are utilized to inform on various tax decisions.
Some of the decisions that the tax authorities make are tax audit decisions especially industry audits.
k) Market surveillance by tax authorities
Surveillance of the tax industry and its components by the tax authority is a day to day activity. The results of the surveillance will inform on the particular areas where there is actual or potential loss of tax revenue. This may trigger tax audits.
l) Monitoring by government agencies
Tax authorities collect tax on behalf of the government. However, tax remains the responsibility of the government. Therefore, the government is interested in what is happening in the tax industry and continues to monitor the industry using other government arms. Results of the monitoring may trigger tax audits.
m) Country scandals
Sometimes, information that affects the tax industry is missed by all organs of the government only to be revealed in a corruption scandal, money laundering or any other scandal. When the information is available, the tax authority may use this information for tax audits.
n) Citizens of goodwill
Some citizens are genuinely concerned about the welfare of their country. The people will go out of their way and report any cases of actual or potential tax revenue loss to the tax authority. This information will be authenticated and if found reliable, there will be a tax audit.
These are not the only source of free general external information that may trigger tax audits. There are many other sources.
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