Businesses Push for Joint Tax Audits as Tax Authorities Face Coordination Challenges

 

Businesses operating in Nigeria are calling for stronger cooperation between federal and state tax authorities, including greater use of joint tax audits, as companies continue to deal with overlapping compliance demands from different revenue agencies.

The push comes amid concerns that weak coordination between tax authorities can increase the administrative burden on businesses, create uncertainty around tax obligations and, in some cases, expose companies to repeated reviews of similar transactions.

The issue has become increasingly important as Nigeria seeks to strengthen domestic revenue mobilisation while implementing major reforms to its tax administration system.

Businesses want fewer overlapping tax exercises

Companies operating across multiple jurisdictions can face tax-related engagements from both federal and state authorities.

Businesses argue that better coordination could allow relevant agencies to conduct a single, coordinated examination where their areas of responsibility overlap, rather than requiring taxpayers to respond separately to similar requests for information.

A joint audit framework can also reduce the time companies spend dealing with multiple audit teams and potentially lower the cost of compliance.

The concept is not entirely new in Nigeria. The Federal Inland Revenue Service (FIRS) and the Lagos State Internal Revenue Service (LIRS), for example, signed an agreement in 2023 to collaborate on joint tax audits, investigations and information exchange. The arrangement was designed partly to address duplication of efforts and improve cooperation between the two agencies.

Coordination remains a major issue

One of the broader challenges in Nigeria’s tax system is the need to clearly distinguish the responsibilities of federal and state tax authorities while ensuring that relevant information can be shared where necessary.

For businesses, poor coordination can result in duplicated requests, additional documentation requirements and prolonged engagements with revenue officials.

Professional tax advisers have previously identified joint audits and information-sharing arrangements as mechanisms that can help reduce duplication and improve the efficiency of tax administration.

A 2023 analysis of the FIRS-LIRS agreement noted that the joint framework was intended to prevent duplication of tax-related efforts, facilitate information exchange and improve the reliability of taxpayer databases.

Joint audits could reduce compliance costs

Under a properly coordinated system, tax officials from different relevant authorities can work together when examining transactions that fall within their respective mandates.

For businesses, this could mean fewer separate meetings, fewer repeated document requests and a clearer process for resolving areas where tax obligations overlap.

Joint audits can also give tax authorities a more complete picture of a taxpayer’s activities.

This is particularly relevant for companies with operations spanning several states or businesses whose transactions involve both federal and state tax considerations.

However, effective implementation would require clear rules defining the responsibilities of each participating authority.

Transparency and confidentiality remain important

While businesses generally stand to benefit from greater coordination, joint tax audits also raise questions about how taxpayer information is shared and protected.

The FIRS-LIRS arrangement, for instance, provided for the exchange of taxpayer information for tax assessment, collection and recovery purposes, while also emphasising confidentiality and the protection of taxpayers’ financial records.

Tax authorities therefore need strong safeguards to ensure that information obtained during an audit is used only for legitimate tax administration purposes.

Businesses also need clarity on which authority is responsible for particular aspects of an assessment and how disputes will be handled when the agencies reach different conclusions.

Existing framework has precedent

Nigeria has previously attempted to promote greater cooperation between the federal and state tax authorities.

A 2017 collaborative framework involving the FIRS and State Internal Revenue Services was designed to improve cooperation across different areas of tax administration. However, an analysis of the framework noted that implementation was affected by logistical challenges.

The experience highlights an important distinction between establishing a cooperation framework and ensuring that it works effectively in practice.

For joint audits to deliver meaningful benefits, agencies would need compatible systems, reliable taxpayer data, clearly defined responsibilities and effective communication.

Digitalisation could improve coordination

Technology is also becoming increasingly important in Nigeria’s tax administration.

Tax authorities are relying more heavily on electronic records, data analytics and digital taxpayer information to identify discrepancies and assess compliance risks.

Professional guidance on Nigerian tax audits notes that authorities can increasingly rely on electronic records and may request access to accounting systems when determining compliance.

Better integration of databases between federal and state authorities could therefore make it easier to identify information already available to government and reduce unnecessary requests to taxpayers.

It could also help tax agencies identify discrepancies more accurately before initiating physical audits.

Taxpayers still need strong records

Even with improved coordination between revenue agencies, businesses remain responsible for maintaining accurate tax and financial records.

Tax professionals advise companies to keep their tax filings, financial statements, invoices, contracts, payment records and other supporting documents properly organised and readily available.

Businesses should also conduct periodic internal reviews to identify potential inconsistencies before they become issues during an official tax audit.

Good documentation can make it easier for taxpayers to respond to enquiries and challenge assessments they believe are incorrect.

What businesses want from the reforms

The business community’s broader expectation is that tax administration should become more coordinated, predictable and less costly to comply with.

Joint audits could form part of that process by bringing relevant authorities together instead of requiring taxpayers to navigate separate audit exercises covering similar areas.

However, businesses are likely to continue seeking clearer rules on information sharing, audit responsibilities, dispute resolution and taxpayer protection.

For government, stronger coordination could also improve revenue collection by allowing tax authorities to share relevant information and identify compliance gaps more efficiently.

The road ahead

Nigeria’s efforts to increase domestic revenue will require both stronger enforcement and a tax system that businesses can navigate with greater certainty.

Joint tax audits provide one possible mechanism for achieving this balance, particularly where federal and state tax responsibilities intersect.

Previous cooperation agreements show that the framework for collaboration already exists in some areas. The remaining challenge is ensuring that such arrangements are implemented consistently, supported by technology and accompanied by clear safeguards for taxpayers.

For businesses, the objective is straightforward: one coordinated tax process where possible, rather than multiple overlapping exercises that increase the cost and complexity of compliance.

As Nigeria continues its tax reforms, the effectiveness of cooperation between federal and state revenue authorities will remain an important factor in determining how easily businesses can comply with their obligations while government improves domestic revenue collection.

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