Accounting For Withholding Tax Operation In Nigeria: Its Relevance And Adequacy (A Case Study Of Federal Inland Revenue Service, Ilorin)

Project and Seminar Material for Accountancy / Accounting

Accounting For Withholding Tax Operation In Nigeria: Its Relevance And Adequacy (A Case Study Of Federal Inland Revenue Service, Ilorin)


Table of Content


  • Title page
  • Certification
  • Dedication
  • Acknowledgement
  • Table of Content

Chapter One

Introduction

  • 1.1 Background of the Study
  • 1.2 Statement of Research
  • 1.3 Objective of Study
  • 1.4 Justification of Study
  • 1.5 Hypothesis of Study
  • 1.6 Scope and Limitation of Study
  • 1.7 Plan of the Study

Chapter Two

Literature Review

  • 2.1 Definition and Objective of Taxation in Nigeria
  • 2.1.2 Classification of the System in Nigeria
  • 2.1.3 Canons of Taxation
  • 2.2 Nature and Objective of Withholding Tax System in Nigeria
  • 2.3 Income to Which Withholding Tax in Applied and Tax Applicable
  • 2.4 Duties of Parties involves in Withholding Tax
  • 2.5 Administration and Implementation withholding Tax in Nigeria
  • 2.6 Determination of Relevant Tax Authority
  • 2.6.1 Withholding tax return and income exempted from tax
  • 2.6.2 Offence and Penalties
  • 2.7 Advantages of Withholding Tax System
  • 2.7.1 Contentious Issue on Withholding Tax
  • 2.7.2 Distinction between Withholding Tax and VAT

Chapter Three

Research Methodology

  • 3.1 Research Methodology
  • 3.2 Research Design
  • 3.3 Types and Method of Data Collection
  • 3.4 Method of Sampling
  • 3.5 Population and Sample Size
  • 3.6 Method of Data Analysis
  • 3.7 Statistical Techniques used in Data Analysis

Chapter Four

Data Presentation and Analysis

  • 4.1 Introduction
  • 4.2 Data Analysis and Interpretation

Chapter Five

Summary, Conclusion and Recommendations

  • 5.1 Summary
  • 5.2 Conclusion
  • 5.3 Recommendation
  • 5.4 Limitation of the Study
  • Reference

Chapter One


Introduction

1.1 Background of the Study

The responsibilities of government toward its citizen include provision of infrastructure facilities security important welfare development project, to improve the standard of loving to promote economic development etc. It is quite obvious that such activities will only be possibly carried out through the support from an efficient and effective financial base.

The financial base can be gotten from various sources including “Taxation”.

Taxation can simple be define as the concept and science of imposing tax as the citizen (Sun Ni 2009). Tax in the other hand is a compulsory levy imposed by the government through its agents and for which it is not bound to offer service or consideration (Ola 2006).

Tax is levied on income (individual) profit (enterprise and companies). Capital (capita gain tax) and consumption (tariff) of a subject (citizen). Basically, taxes are classified into direct and indirect taxes. This classification is based on how the taxes are paid.

Direct taxes are levied on individual or institution examples of direct taxes in Nigeria are personal income tax (including PAYE) company income tax, capital gain tax, withholding tax.

Indirect taxes are levied on manufacturers or wholesalers and importance of goods is passed on to the ultimate consumers in the form of price increased. Indirect taxes include customs duty, exercise duty, stamp duty, vat etc. (Ola 2006).

There are many types of tax system in Nigeria, which include personal income tax, company income tax, capital gain tax, vat, withholding tax systematic.

This study intends to examine the tax system known as withholding tax system as well as its relevant and adequacy. Withholding tax is an advance payment of income tax. It is deductive at the point of neither payment nor when credit is taken, whichever comes earlier for the specified activities. Any cooperation or incorporated body who is a recipient of the payment or the credit for the specified activities or services is therefore liable to suffer tax (Ola 2006).

Withholding tax can also be tax collection device that can be built into any type of tax. It is a system in which a debtor is empowered by law to withhold a certain percentage of the money due to his creditor and pay it over to the government in lies of the tax to be paid lat and on that sum by the creditor. It is deductible as source (Ishola 2010).
The withholding tax system was introduced by section 9 (21c) of degree 98 of 1979 and section 4 (5) of decree 80 of 1977. The purpose is to bring the prospective taxes payer to the tax notices. There by widening the income tax base. In other words, withholding tax system is used to track down tax payers and the income which may otherwise not be reported by them.

Withholding tax is among other things nothing more than a collection, machinery to curb tax evasion.

It is not a separate tax on its own suffices is to say that it is a payment on account of income tax and is available as set off against tax assessment of relevant periods. It is common knowledge that the percentage of voluntary compliance with the law on taxation matters by the citizen and indeed corporate bodies is very negligible and the need for government to generate as which revenue as possible is imperative.

This justified the need for the law on withholding tax system.


1.2 Statement of the Problem

Before the introduction of withholding tax system, the government realized with great concerned the increase in incidence of tax evasion among recipients particularly landlords and shareholders.

Similarly, the ineffective manner of deducting tax from board of directors’ members of the companies especially those who hold multiple O. chains directorship was equally of great concern to the government.

This study provides answer to the following questions:

  1. Has the implementation and administration of tax fully understood by the practitioners?
  2. Does the system (withholding tax) bring effectiveness in deducting from the recipient?
  3. Has withholding tax system brought any good to Nigerian economic?
  4. Can anything be done to improve its adequate and relevance in Nigeria tax system?
  5. Is there any punitive measure for the tax evader put up by the government?

1.3 Objective of the Study

This study will examine the relevance and adequacy of the withholding tax system in Nigeria with the aim correcting uniformed impression about its implementation.

The need to understand the withholding tax operation in Nigeria cannot be over emphasized the study will include the need for effective and efficient financial base for the government as imperative. The study will also look into how withholding tax is efficiently managed in order to generate adequate revenue from the source. Other specific objective includes.

Explain to taxpayers, the public and other interested parties on how the withholding tax operates.

  1. Give other important aspect in the implementation and administration of the system.
  2. Attempt to evaluate the adequate of the system in line with its stated objectives.

1.4 Justification Of the Study

The study should the immense benefit to the tax payers, public and corporate organization that suffer the tax. The more they were informed the more livelihood of understanding and appreciation of the usefulness of the system and more importantly the less they lively to evade tax.

The study served as a mechanism or tool for investment decision-making process for the investors. Finally, the study is set to reawaken government to their responsibility by making necessary amendments and additional provision to the withholding tax law in Nigeria.


1.5 Hypothesis of the Study

A test of hypothesis is a rule that specifies for each possible setoff observation what to accept or reject the null hypothesis i.e. HO and HI (Alternative Hypothesis).

In line with the above statement the hypothesis that will be tested is HO: – The withholding tax system has no significant impact on the economic development in Nigeria.

HI: – The withholding tax system has significant impact on the economic development in Nigeria.
HO: – There is significan6t relationship between the incidence of tax evasion development and introduction of withholding tax in Nigeria.

HI: – There is significant relationship between the incidence of tax evasion and introduction of withholding tax in Nigeria.


1.6 Scope of the Study

The scope of the study will be restricted to the federal Inland Revenue service Ilorin. The emphasis will be placed on the impact of the bard of Inland Revenue on the Nigeria tax system. This study will make revenue to the provision of various tax laws, which Confer the Federal Inland Revenue Service the authority to withhold tax and withholding tax account. Without any doubt there are limitations to this study. Due to starter time frame. This study is restricted to Federal Inland Revenue Service, Ilorin. Another Constraint is Finance couple with accessibility to some information and Material.


1.7 Plan of the Study

The study will be divided into five chapters,

  • Chapter One contains, Introduction, this will give the general background of the research work, statement of the problem, Jurisdiction of the study, Objective of the study ,, research question, hypothesis of the study, scope of the study.
  • Chapter Two contains, the literature review; reviewing of related works of different authors, research in related field, journal e.t.c
  • Chapter three deals with Research methodology, this will include method data collection, population of the study sample and sample size and method of data analysis.
  • Chapter four contains data analysis of presentation, this will deals with data presentation, analysis and interpretation.
  • Chapter Five contains the summary, the research work, draw conclusion and make recommendation

1.8 Definition of Terms

Withholding Tax System:

It is a method of collecting tax at source from a certain source of income (such as Individuals, rent, interest, royalty, director’s e.t.c.)

Individual:

Are under the tax jurisdiction of the state tax authority where individuals resides except individual like non-resident, resident of Abuja (FCT) member of the Police and Armed Forced and external affairs officers who are under the Jurisdiction of the Federal Inland Revenue Service (FIRS)

Rent:

As from 1994 year of assessment to date the rate of tax on rent is 10% both on companies and individuals.

Interest:

On bank pass-book saving account with balance less than N50, 000 is exempted.

Royalty:

Where a payment such as interest or royalty is due or payable to a person, the payer shall at the date which the payment is made or credited whatever first occurs, deduct tax there from at the rate of 10% of the gross interest and 15% of the gross royalty (year 2005) and pay over the amount deducted to the tax authority.

Directors Fees:

Section of the PITD 1993as amended stated that, where any payment of directors fees become due or payable to a person, the payer at the date when the payment is made or credited, which ever first occurs, shall deduct from tax at the rate of 10% (year 2005)


Chapter Five


Summary, Conclusion and Recommendations

5.1 Summary

The relevance and adequacy of withholding tax system in Nigeria have been examined. It can be seen that the introduction of withholding tax system in Nigeria has to do with incidence of tax evasion and that there are punitive measure put up by government so as to reduce the evasion of taxes.

It is also discovered that withholding tax system has significantly improved the government income generation in Nigeria likewise the introduction of withholding tax system improve Nigeria economy growth by encourage the incentive to saving than consumption.


5.2 Conclusion

Government generates much revenue from taxes but very little amount is being realized due to tax evasion. The main objective of introduction of withholding tax system is to check the incidence of a tax evasion among tax payers particularly landlords and shareholders.

Introduction of withholding tax is to make the payment of tax less burdensome to the recipient of the income subjected to such dedication.

It can also be said that the withholding tax system introduced to create additional source of income for the government both at the state and federal level.

When the income on which withholding tax is deducted at source is finally brought to the notice of the tax authority and appropriate tax is computed, credit is given for the withholding tax is deducted at source on the presentation of the original withholding tax receipt (tax credit note). The tax payer is then required to pay only the balance of the tax due after the final determination of the tax liability and grant for the withholding tax suffered at source.

The relevant tax authority empowered to collect the withholding tax is the federal in land revenue service in the case of companies and the state board of internal revenue in the case of individual and enterprises. The two organs have power to penalize companies and individuals who fail to deduct or remit deductable withholding tax.

Withholding tax system has been able to make its mark among the various revenue source of government. The tax system apart from being less painless to the recipient of income. It has enabled the tax official gain clearer in sight to the feasibility or higher potential revenue from tax. This has greatly added the planning and execution of government project of providing basis need and services to the member of the public.

Finally, the withholding tax system can this be said to the tax system which should be allowed to continue and its survival should be encountered in the process of its administration.


5.3 Recommendation

For the survival and development of the withholding tax system in Nigeria, the following recommendation needs to be taken into consideration.

The tax authorities should embark on a well coordinated and effective’s public enlighten on the programs. This should be armed at raising the level of awareness and improving the compliance rate.

From the study the research discovered that the tax levy did not bridge the gap between the high income earners and low income earners in Nigeria. This needs corrections so government needs to distribute the wealth, evenly among the rich and the poor.

Government should also be serious about the implementation of system in Nigeria as well as penalty for non payments so as to prevent or eradicate the tax evasion.

The income generated from the withholding tax system should be judiciously used by the government so as to encourage the recipient of the affected income to pay the tax due and discourage tax evasion or avoidance. Staff quality to talk of official tax administration in Nigeria without good quality personnel nothing could be embarked upon and attainment of high education level in tax related field should be encouraged.

Staff inducement is necessary in order to encourage them to be more dedicated to their assignment. There is also the need to improve the welfare of the tax administrators in terms of pay packages and other fringe benefit to dissuade them from temptation of caning for their personal pockets at the tax authorities both state and federal level need to be kept up to date and accurately. This may also include the computerization of all the tax process a complete change from the manual system, this will improve the rate of data processing and enables the establishment of more controls.

If the above recommendation were taken into consideration there will be improvement in the administration implementation of the Nigeria tax system particularly the withholding tax system.


5.4 Limitation of the Study

The researcher was faced with constraints one of the constraints is time. The time schedule for this research is relatively short compared with the relevance and important of the topic. Also other constraints are finances the cost of transportation browsing the FIRS website and printing and photocopy of document relevant to the topic is not adequate.

Accessibility to some information and materials is hindered in the organization, some information is treated confidential and showed interest not to divulge it third party.


Accounting For Withholding Tax Operation In Nigeria: Its Relevance And Adequacy (A Case Study Of Federal Inland Revenue Service, Ilorin)


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Accounting For Withholding Tax Operation In Nigeria: Its Relevance And Adequacy (A Case Study Of Federal Inland Revenue Service, Ilorin)


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