I SOKA AUGUST F. undertaking Bachelor of Science in Taxation, I declare that this report is the result of my practical training which I undertook at TANZANIA REVENUE AUTHORITY(TRA) at TABORA REGION which is the Domestic revenue department. I started my practical training at 15^th august 2011 to 7^th October 2011. Frankly I declare that this report is my own work and has not been presented at any higher learning institution.

Student signature

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DEDICATION

I dedicate my field report to my lovely parents Mr.& Mrs SOKA and their family. I am so proud to have their valuable contribution towards my achievements. May almighty God bless them for all of their life.

AKNOWLEGEMENT

Writing an field report is a tough work to be accomplished by a single person, it require support and input from different sources as well as from individual. I am therefore bound to express my sincere thanks for whoever helped me in one way or another to accomplish this work.

First I would like to thank almighty God for making me health throughout my practical training until when I was writing this report. Also special thanks to my lovely parents Mr.& Mrs. Mgombezi for making me undertake bachelor of science in Taxation for the whole period of my study at institute of finance management.

I am highly indebted to express my special and heartedly thanks and appreciation to my field supervisor Dr.Lewis J. Ishemoi for the reasonable helpful and support which made this report to be accomplished and successful.

I would like to extend my special thanks to the management of TRA of Tabora regional office for having given me a chance to undertake my practical training at their organization. special thanks goes to Mr.Paul.L,the regional manager of TRA Tabora, Mr.Elvis. host supervisor, Mrs.Mlolere, H.M. assistance regional manager in debt management and compliance unit, Mr.Muhange , M. assistance regional manager in audit, Emmanuel.M, Mr.Mwaipaja,J, Mr. Ntibakazi,K. Mr.Ramadhan,H and other staff at TRA Tabora regional office. Special thanks to Mr. & Mrs Juma Mgombezi,Ally suleman and Christian mgombezi ,Christopher Kaguo, my beloved sisters Desderia Mgombezi, Fatuma Twahiri and Elizabeth Andengenye who have positive inputs towards the provision with assistance and courage as this report was being prepared.

It is not possible to mention everyone by name for their contribution all I can say is that I give my special and appreciations thanks to all people who by any means have contributed for this report to become successful.

LIST OF ABREVIATION

TRA…………………………… Tanzania revenue authority

TIN…………………………….. Tax identification number

VAT……………………………. Value added tax

VRN……………………………. VAT registration number

FEMS…………………………….Faculty of Economics and Management science.

CPA………………………………Certified public accountant

ISA……………………………… International Standard on Auditing

TIC………………………………Tanzania investment center

NBS………………………………national bureau statistics

DRD………………………………domestic revenue department

ICT………………………………..information & communication technology

PAYE……………………………....pay as you earn

NGO………………………….....non-governmental organisation

EXACUTIVE SUMARY

This field report is all about my practical training taken place at Tanzania revenue authority at Tabora tax region, the main objective of practical training is to integrate the theory studied in the class and the real situation. The main objective of the report is to explain what a student did and learnt during the period of field training, it includes literature review based on analysis of effect of tax auditing in revenue collection in Tabora tax region.

Also the report comprises of data analysis based on the literature review as well as it gives some recommendations to the Institute of Finance management ( IFM) and recommendation to the Tanzania revenue authority and conclusion. The report comprises of five main chapters, first chapter consist of introduction, the introduction explains more about background of the organization, function of the organization, organization structure and TRA vision and mission.

Second chapter consist of literature review on analysis of effect of tax audit on the collection of tax, chapter three explain about work done and lesson learned during the whole period of practical training, chapter four is based on the analysis of the training and chapter five comprises of conclusion and Recommendation to the Institute as well as to the organization.

I have attempted reduce a large amount of information to a manageable size so as not to lose the attention of the target audience of analysis of effect of tax audit on revenue collection. However, I have provided additional source material and references in the annexes to this report, should the reader wish to delve further in the field tax audit.

CHAPTER ONE

1.0 INTRODUCTION

My practical training was taken place at domestic department of TRA at Tabora tax region.

During my field training attachment I performed different tasks based on Audit section as well as Debt management and compliance section.

The purposes of the training is to fulfill IFM syllabus and get exposure to practical issues related to different lesson learned in classes as well as having working experience.

The whole training was facilitated by knowledge obtained from different theory learned in different classes such as computer application, different tax theory but to great extent most of the performed task was made possible and easy by the directions given by TRA staffs at Tabora regional office.

1.1 HISTORICAL BACKGROUND OF TRA

Before the establishment of TRA in the year 1996 revenue collection was under the Ministry of Finance under related three revenue departments which are customs and excise, Income tax and sales tax as well as internal revenue. Through this department the revenue collection was inefficient leads the government budgetary deficit becomes increasing.

The government initiated a number of researches which aimed at achieving economic stability by increasing revenue collection and control expenditure. In late1989’s the presidential commission of inquiry into public revenue and taxation was established and submitted its report in early 1991. One of the recommendations was that the government should setup autonomous tax revenue body which will operate outside the traditional civil services machinery.

In 1995’s the government come out with conclusion to establish such machinery called Tanzania Revenue Authority which was established by act number 11 of 1995 and come into operation in first July 1996. The three revenue departments were bought under one roof to form TRA.

The process now is at advanced stage as a number of process and system have now merged, one stop centre districts which provide all tax services to tax payer under one roof were established and Income tax and VAT department were merged to form Domestic Revenue Department.

TRA Tabora Regional Office was also established in the same year. TRA Tabora administers all district offices which are Igunga, Urambo, Uyui, Sikonge, Tabora urban.

As a result of the establishment of TRA and the proper implementation of strategic plans, voluntary tax compliance is growing and performance in Government revenue collection has been increasing each year though of some challenges faced by the organization during the collection.

1.2 DEPARTMENTS OF TRA

Following recent integration of TRA functions, the Authority has four revenue departments which are directly in administration of various tax laws. In addition there are seven supporting departments.

Revenue departments

Domestic revenue department collects revenue from all domestic sources.

Customs and excise duty department, collects international revenue through its taxes which are the Import Duty, Excise Duty on Imports, VAT on Imports, Fuel Levy (Importation of petroleum)

Large taxpayer department, this functions at the head quarter office at Dar es Salaam. It deals with taxpayers with turnover exceeding one billion Tanzanian shillings. Such taxpayers in Tabora are transferred to headquarters for tax purposes.

Tax investigation department this department deals with critical examination of tax payers’ affairs in order to reduce tax evasion.

Each of these departments is headed by a commissioner who is assisted by Deputy Commissioner in performing their administrative and operational functions. And the supporting departments are headed by directors and are assisted by Deputy Directors.

Supporting departments

Finance department this is a core department which collects, account for and report the tax revenues. It also deals with expenditure management.

Human Resources and Administration Department deals with general administration of TRA and enhancing positive working environment and value to employees.

Information and Communication Technology Department this department implements and manages ICT systems so that they are “business-led” and not “technology driven”.

Taxpayer Service and Education Department provide the public with the latest tax information, helping to ensure that tax compliance is as effortless as possible and that nobody falls foul of the tax laws through negligence

Internal Audit Department and Research, Policy and Planning department function from the head office in Dar es Salaam. Officials from the headquarters visit Tabora tax region regularly to accomplish their duties.

Board secretariat and Legal Service Department provides in-house services by handling all cases filed by or against the Authority, coordinating matters relating to the Board, administering tax exemptions and reviewing the laws with a view to recommend amendments to such laws.

1.3 MAJOR SERVICES OF TRA

Basically, TRA’s main role is to administer various tax related laws. TRA activities include checking compliance to such laws. These laws or sections within some laws have revenue related components which should be under TRA’s concern. Some of the laws which are administered by TRA through its activities includes: The Income Tax Act, 2004, The Value Added Tax Act, 1997 ,The East African Community Customs Management Act, 2004, The Stamp Duty Act, 1972, The Road and Fuel Toll Act, 1985, The Motor vehicle (Tax Registration and Transfer) Act, 1972and The Port Service Charges Act, 1973

TRA was established in order to improve tax administration and therefore it was given specific role and functions .the main functions of the Authority are:-

Asses, collect and account for all the central Government Revenue
Administer efficiently all the revenue laws of the central Government
Improve the quality of services provided to tax payers
Promote voluntary tax compliance
Counteract fraud and other forms of tax and fiscal evasion
Advice the government on all matters relating to fiscal policy.
Produce trade statistics and publications

1.4 STRUCTURE OF TRA

The authority which administers a number of taxes is under a chief executive officer (CEO) who is in turn under the supervision and control of Board of directors. The Board of directors is headed by Chair person who is appointed by the president of the United republic of Tanzania. The board is responsible for the formulation, supervision and implementation of the policies of the Tanzania Revenue Authority.

Also it is responsible for advising the Ministry for Finance in fiscal policy of the country and tax matters. The board consists of ten members including the chair person. The ex-officio who sit on the board by virtue of their positions include:-

Permanent secretary-ministry of Finance and Economic Affairs (Union Government)

Principal Secretary-ministry of finance (Zanzibar Government)

Governor of the Bank of Tanzania

Commissioner General of TRA

In addition to the five ex-officio members, the minister for finance also appoints from the public four members to the board on the basis of their professional knowledge, experience and competence in the relevant areas of finance, commerce or economics. The tenure of office for the members is three years and the non-ex officio members can be re-appointed only once.

The Commissioner General is the Chief Executive of the Authority. He is responsible for the day-to-day operations of the Authority subject to the general supervision and control of the Board. The Commissioner General is assisted by a Deputy Commissioner General and heads of departments in performing his duties. Some Heads of Departments are in turn assisted by Deputy Commissioners / Directors at the head office level.

1.5 ORGANISATION STRUCTURE OF TRA TABORA REGION.

TRA Tabora Office is headed by the Regional Manager who is responsible for overseeing all activities at the region and supervision of TRA employees. The Regional Manager is assisted by two assistant regional managers who are responsible to manage the revenue departments. The assistant managers are the Assistant Regional Manager – Audit, Assistant Regional Manager – Debt Management. Under their supervision are other heads of departments who are the Regional Accountant, Regional Supplies Officer and the Regional Human Resources Officer.

Sections are headed by heads of sections who report to Assistant Regional Managers functionally but to Regional Manager administratively. These include, the Head, Debt Management Section, Head, Audit Section, Head, Legal Services Department and other heads of small sections within departments.

1.8 CORE VALUE OF TRA EMPLOYEE

The core values state how employees are expected to relate to their clients, colleagues and the TRA itself, and how they will accomplish their work in the pursuit of carrying out the mission and achieving the vision of the Authority.

Core Values for TRA employees:

· Are BUSINESS-ORIENTED and PROFESSIONAL in appearance and approach

· Are FAIR and ACCOUNTABLE for the decisions they make in their areas of responsibility

· Are PROMPT in the delivery of services and are ACCESSIBLE

· Treat taxpayers, colleagues and stakeholders with DIGNITY and RESPECT

· Are HONEST and have INTEGRITY in their dealings

· Are COMMITTED and MOTIVATED to the achievement of TRA goals and objectives

· Are COMPETENT in the delivery of high quality services

1.9 LEVEL OF TECHNOLOGY

The use of Information and Communication Technology (ICT) facilities has a great potentiality to support development and is a key contributor to productivity growth in an organization. Employees are vital players in changing work practices and contribute to the growth of the Authority by utilizing fully the available ICT facilities. TRA uses software such as ASYCUDA++, CMVRS, Motor Vehicle Registration as well as ITAX. These have shown how ICT have great role towards increase revenue collection in a cost effective way.

The provision of seamless communication network for major revenue centers has remarked the increase the use of ICT facilities.

The network, which is the backbone for all revenue systems such as ASYCUDA++, CMVRS and ITAX, has enabled communication and electronic data interchange for Customs outposts such as Tunduma and Kasumulu in Mbeya region also Namanga in Arusha Tax Region.

1.10 TRA CLIENTS

In the course of doing its official business TRA interacts with people and institutions that have interest and stake in the operations of the Authority. These are the stakeholders of TRA and can be classified into two main categories namely internal and external clients.

1.10.1 Internal client

The TRA community, which is composed of mainly employees, form one of the very important resources of the Authority and their contribution to the success of TRA is recognized. TRA management and the Board support employees and in return, employees are expected to demonstrate their ability to live up to the core values for staff.

1.10.2 External clients

These are the individuals and bodies outside TRA whose relationship with the Authority is vital and the basis of existence. These clients include the following: Taxpayers, Tanzanian citizenry, the business community, the donor community, the Government, NGOs and other pressure groups. They are both the means and ends for which TRA was established. TRA anticipates increased demand for better services from its external clients and employees are expected to spare no effort to meet their expectations.

1.11 STRATEGIC DIRECTION AND THE THIRD TRA FIVE YEAR CORPORATE PLAN 2008/09-2012/13

Strategic direction of the Tanzania Revenue Authority is being guided by the corporate plans. Currently TRA is working to implement its third Corporate Plan. The development and preparation of the Third Corporate plan for TRA was necessitated following expiration of second corporate plan in June 2008. The process of preparation took a bottom-up approach which involved sessions with district managers, assistance regional managers and regional managers at the initial stage.

This was followed by sessions that included Headquarters Managers, Heads of departments and their deputies and finally the board directors.

The objective of this sessions was to build up the internal capacity and ownership of the corporate plan through sharing and discussing the challenges and achievements of the second corporate plan and chat out the way forward for TRA to modernize further to improve efficiency and effectiveness.

1.12 TRA’S VISSION

The vision of the Tanzania Revenue Authority is to build “A Modern Tax Administration”

The authority will achieve this through continuous improvement efforts which focus on training, technology enhancement, customer services and enforcement programmes.

The vision is best described through the following features:-

Revenue collection targets to be met consistently.
Service delivery that meets customer expectations
Fair and consistent application of tax laws.
Skilled and qualified staff with high level of integrity.

In order to achieve this Tanzania revenue authority should have proper balance between quality of service delivery and proper enforcement so as to be able to respond to the environmental changes.

1.13 TRA’S MISSION

The Mission spells out what TRA is in business to do and how is it going to do that business. In other words it encapsulates the purpose of being of the Authority and contribution of its employees in building the national economy.

MISSION STATEMENT

“To be an effective and efficient tax administration this promotes voluntary tax compliance by providing high quality customer service with fairness and integrity through competent and motivated staff.”

The mission statement emphases the purpose of the existence of the Authority and the contributions of employees in terms of tax revenue collection which is crucial for the development of the country.

In order to achieve this noble objectives the mission statement emphases the need for collecting in a cost effective way, promotion of voluntary tax compliance among taxpayers and providing quality service to taxpayers in the cause of administering the tax laws.

It under scores the importance of the authority of being equitable, fair and transparent in the application of the tax laws when ascertaining the tax payable.

The mission statement also emphasizes the need for enhancing staff integrity and this is through the implementation of the national Anti-corruption strategy.TRA will also deal with staff integrity issues through its staff code of conduct and its establishment management ethics committee. The mission statement recognizes the need for training and retaining of staff as well as improvement reward to staff for good performance.

CHAPTER TWO

2.0 LITERATURE REVIEW

2.1 EFFECT OF TAX AUDITING ON REVENUE COLLECTION

The Tax revenue authority is responsible to the government and the community for collecting the revenue and ensuring that everyone pays the correct amount of tax.

A tax audit is an examination of taxpayer’s business affairs and financial affairs to ascertain that amount of taxable income should be declared properly and right amount of tax should be calculated and paid in accordance with tax laws and regulations.

The enquiries or audits conducted vary in their complexity. Sometimes involve a phone call or a letter asking taxpayer to provide further information or verification of their claims. In some cases a tax officer may visit taxpayer premises and in some cases taxpayer may be asked to bring all your records for examination.

While a tax audit is normally considered routine, it has gained a reputation of being an extremely nerve wracking process for the taxpayer. However, many government tax agencies attempt to make the process of the tax audit as comfortable as possible for all parties concerned

The idea of a tax audit normally conjures up feelings of anxiety even in persons who believe their tax documents are perfectly in order. While it is true that a tax audit may be called due to some perceived irregularity in one or more returns, it is also true that an audit may be done simply as part of a random sampling. Properly preparing for a tax audit can help ease anxiety and reassure an auditor that a person is ready and willing to cooperate.

It is also possible taxpayer tax return has been audited without their knowing about it. The Tax Office receives information from a number of sources as a matter of course. For example, banks are required to give the Tax Office details of how much interest each account held with them has earned. Using this information, it is a simple check (audit) to see whether or not taxpayers have declared that interest in their return.

There are many documents that should be on hand for a tax audit. These should include all records of expenditures and income, receipts for any items that were used as tax deductions, bank and credit card statements, and tax records from previous years. Experts recommend organizing these documents by date and by type, so that they are easy to pull up as needed. If documentation is missing, try conscientiously to get new copies; banks and credit card companies will usually provide copies of old statements, but it may be more difficult to get copies of receipts for cash transactions or charitable donations.

Some experts recommend preparing both personal and business information for a tax audit, even if only one area is being questioned. This will show that a person is engaging in total transparency, and can sometimes prove quite helpful. If personal receipts help validate or clarify a business situation that an auditor is questioning, it helps to have this information nearby.

Experts strongly recommend avoiding being rude, argumentative, or lying during a tax audit. Not only is this behavior likely to make the process more difficult for everyone, it may actually harm a taxpayer's case. On the other hand, it is important to be clear and stand ground on issues; if a tax auditor is unfairly insinuating that a person is lying or engaging in illegal behavior, this is inappropriate behavior that can be reported to his or her boss.

As part of the review process, tax agencies may use a policy of randomly selecting a few returns for auditing. When this is the case, there are normally not any punitive measures involved. The taxpayer simply brings along copies of the filed returns for the period cited, along with support documentation, and meets with a representative of the tax agency. If all deductions and earnings can be supported with documentation, the matter is considered complete.

2.1.1 Objectives of Tax Audit/ Investigation

Ensure arithmetical accuracy of all figures in the accounts and computation that is to detect transaction which are altered or do not match with the business.

Ensure compliance with the tax laws, rules and regulations

Secure more measure of voluntary tax compliance.

Collect taxes that could have been lost to the government when tax payer understates their income and no audit has been conducted to them.

Collect information about the taxpayer that could be stored for future retrieval and use.

Provision of an avenue to educate tax payers on various provisions of the tax law.

2.1.2 Pre Tax Audit Planning

According to International Standard on Auditing (ISA 300) Planning means developing a general strategy and detailed approach for the expected nature, timing and the extent of Audit. In other words planning involves resources required, time lines, skills required to do the job. During audit plan the auditor should consider the followings:

Industrial Analysis

Company’s Profile: Registered Address, Date of Incorporation , Nature of Business, Shareholding Structure, Shareholders, Names of Directors, Associate and Subsidiaries Companies etc

The company’s Consultants and Professional Advisers e.g. Bankers, Auditors, Solicitors, registrar

Review of Previous Tax Returns-Withholding Tax, Value Added Tax ,Company Income Tax, PAYE, Self Assessment

Ratio Analysis-Profitability, Liquidity, Efficiency and Leverage ratios. The objective of ratio analysis is identify risk area for tax audit focus example understatement of Income, overstatement of expenses, overvaluation of stock, creation and maintenance of secret reserves

Review of Previous Assessment and Payments

Ascertain the total number of Staff needed for the assignment

Determine skills required

Likely time of completion

Indentify Other logistics that may be required

Anticipated challenges

2.1.3 Tax Audit Evidence

Sources of Audit Evidence : It is imperative that the Auditor obtains sufficient and appropriate audit evidence on which to base his opinion/ basis of his recommendation. As this will form the basis of any tax duty assessment and bearing in mind that the tax dispute resulting from the audit exercise may lead to litigation. Sources from which the auditor can obtain evidence include:

Verification/Physical Examination of Assets

Third parties confirmation example Bankers, neighbours.

Management Representation/Interview of Key/ Principal officers of the Company.

Financial Records, Books of Accounts and Financial Statements.

Minutes of Meetings and Board Resolutions.

Title Documents and Agreements.

Verification of transactions.

Tax Returns.

2.1.4 Tax Audit Working Papers/ Files

In line with International Standard on Auditing (ISA 230) Working papers should record the auditors planning, the nature, the timing and the extent of the audit procedures performed and the conclusion from the audit evidence.

Appropriate audit evidence obtained from the tax payers’ records and that will aid proper assessment of the tax payer to tax must be collected on written papers (working paper files), computers, CDs, Flash Drive.

Other documents such as Vouchers, Sales Invoices, payment receipts, Immigration returns, employment contracts both for Nationals and Expatriates should be well documented and photocopies taken for record purposes.

Industry knowledge is also important in evaluating documents presented by tax payers for audit. Data gathered must be in line with known facts about the industry or sector and large deviations must be properly scrutinized.

2.1.5 Focus of Audit Plans

The Authority audit resources are not sufficient to audit all taxpayers. Accordingly, audit plans focus on the effective and efficient use of audit resources, through the management of risk and adherence to enforcement strategy. In preparing the plans, the Authority considers risks associated with the following:

Collection and remittance of tax;

Erosion of existing tax revenues from loss of voluntary compliance;

Changing technology;

Changing business environments;

Changes in the legislation, policies or procedures of United republic of Tanzania government that have an impact on the taxes administered by the branch;

Changes in the plans and goals of the ministry.

2.1.6 Tax Audit Control.

Tax audit control deals mainly with issues of quality output at the end of the assignment. It therefore will focus on what must be done and what to avoid in order to ensure quality output.

Every assignment must have a team leader who is responsible and accepts responsibility for the final quality of the job. Here the issue of competence and exposure is pertinent.

Other factors that engender quality output include ethical requirement such as Integrity, Objectivity and Independence, Gift acceptance, Conflict of interest.

Adherence to time Schedule

Close Monitoring of Audit Staff

Proper documentation of Audit Evidence

Obtain management representation in written form

2.1.7 Post Audit Meeting/Review

A post audit meeting should be held immediately after the end of the field audit between the tax auditor and the taxpayers and their representatives at the taxpayer’s premises.

The purpose of this meeting is to obtain any further understanding information or document that may be available only from the taxpayer’s management and to answer t arose during the outstanding questions the field audit work. The minutes of the meeting should be documented in writing, signed by both parties.

The tax auditors will thereafter in their office preparatory to the final report undertake Analytical review, Third party confirmation, verification, Collection of Information obtained in the filed and Analysis of Data and Documents. This Exercise is central to the final audit report.

2.1.8 Staff Conduct on the Job –Professional Ethics

In carrying out the assigned duties, tax audit staff are expected to exhibit high level of; Integrity, Independence, Objectivity and Impartiality, Confidentiality and Professional Secrecy, Competency as well as Neutrality.

2.2 TYPES OF TAX AUDIT.

There are two types of tax audit as explained bellow:

2.6.1 DESK TAX AUDIT.

This involves examination of taxpayer’s information obtained in the revenue office without having any further inquiries outright during the exercise. The major records found in the revenue authority are the major base for this examination.

Criteria used to select taxpayer for desk tax audit

Turnover criteria, this criteria can be overviewed in various perspectives some of them are; nature of the business ( manufacturer, whole seller, Retailer), similar type of the business ( relate to the business location, population surrounding the business)

Sectorial criteria, in this criteria tax auditor should examine how those sector are performed during the year of income and how are they generating income throughout the year.

Zonal criteria, this criteria is much related to the human resource allocation of tax experts, those region which are potential in collecting revenue more experts are allocated in order to increase efficient revenue collection.

Profit level criteria, normally a tax payer can have a good or bad habit on reporting their profit. Some of them report a continuous loss and other report an incremental profit in some of the year.

For those reporting losses continuously a question of fact must arise that how are they discharging other commitment like administrative expenses as well as wages and salary? Why they are not considered bankrupt or liquidated thus loss maker must be subjected to tax audit like other profit maker.

2.6.2 FIELD TAX AUDIT

This is the extension of desk tax audit on this tax officer visit taxpayer’s premises for detailed examination. In undertaking field audit an Auditor should be careful enough to accommodate the understanding between the taxpayer and the audit team.

Reason for field tax auditing.

Being not satisfied wit the submitted data to the revenue authority and looking for support of already submitted data to the authority.

Any other reasons which can relate to the original books of accounts.

Criteria used to select taxpayer for field tax audit

Turn over criteria under this criteria a tax auditor is interested on the fluctuation of the turnover.

Third part information, tax payer can be selected for field audit and among the major sources are; Media, government agencies like TIC, NBS. And public in general.

In reviewing third part information taxman should be careful and those information must be accompanied with the fact which can be evidenced in the court.

Procedure to be taken before jumping to field tax audit.

Inform the taxpayer on the intended task to be taken in his/her premises on date, number of staff to be held, area to be covered ( eg.to know how are the stocks measured).

Scrutinize taxpayers information which are found in the revenue authority in order to prepare questionnaires which are specific to the required information and to orient to the taxpayer business as well to specify the mind in a needed tax legislation eg.income tax acts

CHAPTER THREE

3.0 ACTIVITIES PERFORMED AND LESSON LEARNT.

Practical training took place at the Tanzania Revenue Authority Tabora region Office. Within TRA the departments involved were the Tax Audit Section and Debt Management Section. The following are duties and lesson learned.

3.1. MOTOR VEHICLE REGISTRATION SECTION

3.1.1 TRANSFER OF OWNERSHIP OF MOTOR VEHICLE.

Transferring the ownership of motor vehicle is an activities conducted by TRA for the purposes of endorsement of ownership officially to the person currently owned a particular motor vehicle.

When a person purchased a motor vehicle then the buyer must change the ownership of the card in order for the card to have his/her name.

During the task I used to ask the taxpayer about the Tax Identification Number (TIN) of the motor vehicle, registration card of the motor vehicle, business contract which shows that there was transaction made between two parties and the deposit sleep, then after that the tax payable was computed.

I learnt that when a person purchased the motor vehicle from another registered person he must change the ownership of the card within 30 days in order to have the ownership of the motor vehicle. I also noticed that some of the taxpayer they don’t transfer the ownership due to low education on the important of changing the ownership of motor vehicle as well as low education on the procedure of changing the ownership of the motor vehicle.

3.1.2 ANNUAL MOTOR VEHICLE ROAD LICENSE RENEWAL.

The motor vehicle road licenses should be renewed at every year. The owner of road license should come with expired license, copy of registration card of the motor vehicle, copy of deposit sleep, copy of insurance and the motor vehicle inspection report in order for the renewal process. A taxpayer is required to fill the MV40 form which is for the renewal of the licenses, after two days the renewal will be complete.

From the task I learnt that the motor vehicle road licenses should be renewed at every year by submitting the necessary document such as expired road license and the motor vehicle inspection report, if the motor vehicle is for the business purposes owner should pay annual revenue for every year.

3.1.3 Motor vehicle inspection patrol

Motor vehicle inspection is done in order to collect tax from those owner of motor vehicle who evade tax as well as those who delay in payment and interest and penalty was imposed to those found to be non compliant with tax laws.

This involves physically going to where the motor vehicle is found. During the inspection I used to ask for the income tax sticker, motor vehicle license and for those who bought the motor vehicle from another registered person I used to ask for the transfer of ownership. During this task we found that some of the owners of the motor vehicle were not renewing their road licenses and others where found that they are not paying the tax on due date as well as some motor vehicle have been registered for private car are used for the business purposes for that case penalty was imposed.

Through the task I learnt that motor vehicle inspection patrol is very important since there are some owner of motor vehicle does not comply with tax laws until they are forced to pay, therefore if there is no inspection patrol there will be great loss of revenue generated from motor vehicle. There are some owners are not paying tax on due date until the inspection is done.

3.2 DRIVING LICENSE SECTION

3.2.1 Issue provisional driving license.

Here the taxpayer must have a Tax Identification number which is provided by the authority for free, during this task I used to enter into the system TIN and I confirmed by entering the first name then other detail of applicants was taken such as biometric data (photo, fingerprint, signature) then I saved the data and submit to the main saver and wait for four minutes for validation after validation payment notice of tsh 10,000/= was printed and after payment provisional driving license was issued.

During the task I learned procedure on issuing provision driving license by using the system by entering TIN in the system and then confirm by entering first name and then take biometric data submit to the main saver and wait for four minutes for validation then after validation print payment notice of tsh 10,000/= and after the applicant had made payment issue provisional driving license.

3.2.2 Conversion of driving licenses.

This was done to those taxpayer who own old driving license, the data of the owner of old driving license was posted into the system by entering TIN in the system then biometric data was taken and posted to the main saver for validation after validation then classes of driving license (driving class/license class) after that process the owner of driving license was supposed to go to police for certification of classes.

Through the task I learnt how to convert the old driving license to smart card by using the system by entering TIN and then biometric data after that save to the main saver and wait for validation and posting the classes of license into the system and allow the applicant to go to police for certification of the classes.

3.2.3 Delivering of driving license.

The applicant must pay tsh 40,000/= as a fees of license and after payment the smart card was printed after that personalization and quality checking was done then delivering the driving license through the system.

I learnt that the applicant of driving license must pay tsh.40,000/= as payment for fees and before giving the driving license smart card it should be delivered into the system for personalization and quality checking.

3.3 TAX AUDIT SECTION

3.3.1 Risk analysis to tax payers.

The taxpayers are classified according to the risk of paying tax. There are four rank of risk which are zero rank which implies that there is no risk of evading or avoiding tax, 1^st rank low risk of not paying tax, 2^nd rank medium risk of not paying tax and 3^rd rank high risk of evading tax is high.

During the task I passed through the documents of tax payer and things considered during the task were determination of the size of the business, rate of payment, date of commencement of the business, report from external Auditor if any, level of fluctuation of amount in paying tax, computation of depreciation allowances and expenditure declared incurred wholly and exclusively for the purposes of the business. If taxpayer fall under forth rank there is need of comprehensive audit and if he /she fall on the remained rank then partial audit can be done

I learnt that for tax audit to be conducted smoothly tax payer should be classified in rank according to their risk of evading tax, by doing so then those who need special attention can be easily identified and hence comprehensive audit can be done for them. I also learnt that there are four rank which I didn’t realized before which are zero rank, low rank, medium rank, high rank on which a taxpayer is classified.

3.3.2 Case selection and preparation.

After risk profiling process then selection of case to deal with for tax audit should be done and this was considered much on audit plan as well as audit program these two things help to specify to whom to conduct simple audit or comprehensive audit, when to conduct and for how long as well as mode of conducting tax audit. For those taxpayers with law risk and medium risk of evading tax desk audit was conducted and for those with high risk comprehensive audit and investigation was conducted.

After the selection of the case the preparation of that case was done by gathering information from different sources to be used in a particular case .the information was gathered through passing return of income and other sources like third party information and entry meeting with taxpayer was done during this stage.

During the task I learned on how to prepare the case by grouping the taxpayer into level of risk of evading tax then select high risk for comprehensive audit and low and medium for simple audit/desk audit. I also learnt that tax audit must be planned and programmed so as to be conducted in efficient and effective way.

3.3.3 Summarization of findings and execution of audit program.

The data collected from different sources was summarized in the micro soft excel such data was bank statement as well as invoices book, after summarization of data then execution of the data was done by interpreting the collected data and evaluation of the information gathered.

Through the task I learnt that the collected data must be summarized and interpreted as well as evaluated in a manner that no confusion may arise from the collected data and evaluate on how the collected data may lead to reach conclusion easily.

3.3.4 Discussion with taxpayer/interview with taxpayer.

During the task tax officer and taxpayer with their representative was conducted based on the findings obtained from different sources and after reaching conclusion on the discussed matters the assessment was issued and audit report was prepared which shows the coverage of the tax audit.

Through the task I noticed that some tax payer understate their taxable income without knowing then after discussion on the matters and reaching conclusion the new assessment was issued and taxpayer was supposed to pay that amount of tax within prescribed time.

3.3.5 Ratio analysis.

This is very important procedure on tax auditing on determining the risk areas for audit focus, during the task different ratios was computed such as profit ratios and their interpretation was done. Some tax payers do not have supporting document in their return of income then the ratio of another business with the same kind of nature was computed and that ratio was used to impose amount of tax to those who missing supporting documents.

Lesson learned due to this task was on how applicability of ratios for tax auditing purposes and how those taxpayer missing the supporting documents must be audited carefully by using other business of the same nature in order to arrive at fair tax liability.

3.3.6 Stock verification.

This task involve visiting taxpayer’s premises for more detail needed for the tax audit purposes, during the task I used to I ask taxpayer on the opening stock, purchases during the year as well as closing stock for that particular year, then I took opening stock and add purchases during the year then I subtracted with closing stock for the particular year the different obtained was regarded as sales during the year and comparison with those declared in the tax invoice if they correspond.

I learnt that computation of revenue can be done through stock verification by taking opening stock add purchases then less closing stock the different obtained is regarded as revenue for that year.

3.3.7 Recalculation of depreciation allowances.

Depreciation is allowed to be deducted in computation of taxable income for the depreciable assets used wholly and exclusively for the purposes of generating taxable income. During the task I used to pass through the computed depreciation allowances by taxpayer to determine if the depreciable assets were classified according to their pool as per third schedule of income tax act 2004.

I learned that depreciable assets used wholly and exclusively their depreciation should be deducted in computing taxable income, according to section 17 of income tax act 2004 require that depreciation allowances for the depreciable assets employed wholly and exclusively for generating business income for a particular year is allowed to be deducted.

3.3.8 Assessment of expenditure incurred for the purposes of business.

The expenses allowances should be computed as according to the income tax act which require those expenses incurred wholly and exclusively for the purposes of generating business income to be allowed to be deducted as at section 11 up to section 19 of the income tax act. During the task I passed through the declared expenditure to determine if were incurred wholly and exclusively for the purposes of generating business income for the particular year of income.

I learned the application of section 11 up to section 19 of the income tax act 2004 on computation of allowable expenditure which was incurred wholly and exclusively for generating business income and those expenses incurred which were non allowable was added back to the business income.

CHAPTER FOUR.

4.0 DATA ANALYSIS.

Tax audit is an examination of tax affairs by the Tax Office to see if taxpayer have done what are required to do under the tax laws, including whether they have declared all the assessable income they received and they entitled to the deductions and tax offsets claimed on tax return.

Auditing works needed a lot of analytical and problem solving skills more than other sections within TRA. This is because the works were challenging and a ‘good audit’ meant a lot of dedication to the clients’ records and careful use of skills. Taxpayers normally cheat so as to pay less tax, it is the duty of an auditor to discover such errors and judge whether they are out of fraud or mistakes.

During the practical training I noticed that tax audit should be a routine process since everyday taxpayer innovate new ways on minimizing their income so as to reduce the tax liability.

Tax audit have played great role on the collection of revenue due to the fact that the targeted area were audited and tax was collected accordingly therefore tax audit should be a continuous procedure which will be a spring board towards the effective collection of government revenue.

4.1 Gap between theory and practical training.

There was slightly different between theories learned in the class and the practical training.

The basic gap between theory and practice is that theory provides a general and wider base of knowledge to prepare one for practice in his/her profession; where as practice provides one with the specific skills and knowledge to effectively handle whatever it is that he/she is doing as a professional. Because of this, theory will often equip one with much more than he/she might need in effectively carrying out his job. This is essential in helping one to have broader perspective and hence be able to critically analyze issues with a wider and deeper approach.

Also theory does not include issues such as human relations that is how to relate with fellow employees while in the practical training most of the time you are dealing with matters daily.

Another gap between theory and practice is mainly about coping with the changing organisation aspects such as technology. Normally technology changes faster than theory do. Organisations are introducing new technology which is up dated as compared to theory’s response to changes.

The current institute curriculum provides another gap between theory and practice. An example of this is the timing of important subjects that are to be applied during practical training for instance tax Auditing and investigation are important for one to know before heading to practical training.

4.2 TRA working environment

Generally, the working environment at TRA is friendly and independent. All interns got support from TRA employees as teamwork, cooperation and helping each other is the main focus which makes me exited with the working environment. Friendship made by employees to taxpayers makes comfortability as it easily welcome enquiries. The office arrangement of chairs and offices easily enabled close relationships and easy advice from co-workers. Employees were free to apply their skills independently and pass only cases beyond their work limit. However, the Audit Office works were fully supervised by the assistant regional manager Audit section and team work was the best strategy of the office. This may be explained by the loads of works found at the office and the high need for accuracy.

4.3 Problem faced during the practical training.

The support and friendly environment of TRA Tabora made me comfortable and have fewer problems. Among of problem faced was to be placed in a single section for the most of the time regardless of many sections in TRA due to the fact there were few staff supervision.

Another problem faced was electricity cut off, this posed a big problem since the sever was un able to conduct the network system in turn bring trouble to staff who was In need of network to access ITAX system and lead to floodgate of works such as posting of VAT return into the system.

Also there were problem of network failure, sometime the electricity was present but the sever fail to connect network which lead more trouble.

Shortage of working tool such as computer facilities this lead to use private computer in order to complete the available works while the use of private computer was restricted.

Low education to taxpayer was another problem, this was noticed when the taxpayer have issued notice to inform him to submit some documents started to afraid as if they are going to be embarrassed some were hiding information concern their business

4.4 Practical training expectation.

4.4.1 Professionalism: before going for practical training it was expected that interns would be treated as professionals and that the organisation is set to act professionally and help employees build and develop their careers. As usual government employees do not focus much on professionalism but rather on mere performance of duties. TRA is quite different from other Government institutions as management was seen to clearly focus on enforcing the pre-stated core values for employees. However career development was not highly emphasized but rather employees were not given much room for furthering their studies.

4.4.2 Cooperation and Involvement.

At TRA a lot of cooperation from staff was seen however, access to the organisation was limited. Students were not involved in weekly conferences contrary to what was expected. Also cooperation from management was by hierarchy. It was not easy to meet management unless a high need exists.

4.5 New things learned.

4.5.1 Employees promotion and networking.

For the sake of career development, networking is very important. Within TRA itself, it does not only matter how hard one performs the duties but also how one communicates his hardworking to the relevant people in his career field. This is best done through networking employees and use it as a basic tool for advancing their career whether within TRA or outside it.

4.5.2 Career and skill development

In choosing an organisation for being conducting field, one should also see the possibility of developing his/her career into a professional level. This is important for one’s success and attainment of higher positions. TRA has a well defined scheme for educating its employees. However it does not sponsor employees in several studies such as CPA. Some organisations do not offer good opportunities for advancing career. TRA is also good for career development due to the existence of competitive employees with highest qualifications. This is good for challenging other employees to further their studies.

4.5.3 TRA culture

TRA is one of the organisations which have rich organisation cultures. One of the most prominent practices is being smart this implies that they are specific in their plan also they were bound by the time limit which lead to the achievement of the plan.

4.5.4 Relevance of TRA for my practical training

Practical training attachment to TRA was relevant in development of my career. TRA offered a good opportunity for me to have good Knowledge of taxa. Theory itself is not enough, it has to be accompanied with practice and this was achieved by being attached to TRA.

CHAPTER FIVE

5.0 CONCLUSION RECOMMENDATIONS

5.1 CONCLUSION.

A practical training experience is very important for bridging theory and practice. Practical training that lasted for two months was an opportunity for putting into practice all skills obtained during classes. This has helped in shaping my professional towards development of my career. Revenue collection, organisation culture, accounting, behaving in an organisation, work experience are things offered during my training. A success story of training at TRA is also attributed by the support received from TRA staff which includes the challenging works they assigned. As practical training is part of the Institute curriculum under the Faculty of Economics and Management sciences, it was itself important and compulsory for the course.

Career development is a necessity for any student. TRA was a good place in advancing my career. Networking, exposure and work experience from TRA have all contributed in upgrading the most professional qualifications. The importance of practical training should not be underestimated by anyone. Students by their side should recognize the essence of its importance.

5.2 RECOMMENDATIONS TO THE INSTITUTE OF FINANCE MANAGEMENT

A lot of things were experienced as part of training at TRA. Some were absolutely new while others were common. It is good that those areas that were not covered in class should be included then so as to improve gaps between theory and practice.

Practical training placement process was generally good due to the fact that a lot of experience has been obtained. However there are few things seen as gaps which need some consideration. Listed below are the recommendations concerning handling gaps in teaching theory and practice and those concerning the placement process.

5.2.1 Improving the gaps in teaching theory and practice.

- Inclusion of software packages into syllabus; most of subjects being taught at the Institute are based on manual operations contrary to the current level of technology. All organisations nowadays have personalized software that automates most of the routine activities.

Software packages and computer should be taught so as to prepare students to meet such programs in their work setting. Popular packages are like MYOB, EPICOR, ASYCUDA++ etc and software includes such software as the one I used at TRA i.e. ITAX,

-Duration; Practical training duration should be extended from 8 weeks to 12 weeks for comprehensive learning. The eight weeks I spent were very interesting but unfortunately not enough to learn all the organisation aspects. At least a long time will help make a significant change in the organization’s works. A long duration will also help organisation judge students’ performance for employment consideration.

Ø Opening career centre at FEMS; when it comes to practical training most students underestimate the importance of proper placements for their career. The same thing happens to undergraduates, they need a lot of career information after they complete their studies. Most popular Universities have such centre already established; it will be good that FEMS considers establishing one. Such centre should be responsible for securing practical training placements as well as giving critical advice to students and graduates concerning career and this centre should have full time working staff.

-Internship plans; The Office of the Practical Training Coordinator should make sure students submit plans prior to going for practical tarinings. Such plans should indicate departments within an organisation where the student is willing to work. This is due to the fact that it has been a common situation that students encounter a lot of problems in their practical training such that they find themselves ending up in one department contrary to their expectations. The same thing happened to me. Such plans should be signed by Practical Coordinator ready for submission to the organisation management upon arrival.

-Partnership with organisations; FEMS should establish well defined partnerships with organisations for easing placement process. The government should be asked to provide permanent places for training in its institutions. Private enterprises should be asked for partnership with the Institute in matters concerning with practical training. The future of such undertaking is easing students’ troubles they face when looking for placements.

In the same manner, practical training placement should be the sole responsibility of the Office of The Practical Training Coordinator.

By use of interviews or academic performances, all students should be allocated places which were found beforehand by the office. This will add meaning to the office’s existence and help students smoothly secure placements.

5.3 RECOMMENDATION TO THE ORGANIZATION

I here recommended the following to the Authority:

To provide tax payers with education on tax matters such as the benefit of paying tax and the cons of not paying tax so as to reduce the problem of non compliance of taxpayers.
On other hand the government should make accountable and reasonable expenditure on the revenue collected from tax so as to increase the moral compliance with tax laws to taxpayers

REFFERENCES.

http://www.wisegeek.com/how do I prepare for a tax audit.htm

Tanzania Revenue Authority website – www.tra.go.tz

TRA, (2006), Audit Manual, TRA

Hand book on Tax administration and structure in Tanzania 6^th edition august 2008, by Tanzania revenue authority

Hand book on Cash intensive business Tax audit technique guidelines version one (DRD audit division), 2001

BongoLeo

Wednesday, January 1, 2014

FIELD REPORT DOCUMENT

TABLE OF CONTENT

DECLARATION