An Appraisal Of Pay-As You Earn System Of Taxation In Nigeria

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An Appraisal Of Pay-As You Earn System Of Taxation In Nigeria


Abstract


The purpose of this research work is to describe the practical approach to an appraisal of pay-as-you-earn system of taxation with referee to Nssuka local government area. To guide this study, two hypotheses were formulated. A review of literature was down to ensure solid conclusion for the study. A structural questionnaire was developed and administered by the analysis adopted in this research work was chi-square, this method by researcher to ensure that result obtained were real and not by chance.

Based on the above statement some of the major findings include presentation of data and their analysis. The chapter five is discussing a bout the findings made by the researcher and recommendation as well as conclusion.

Conclusively, the researcher will add to the existing literature on an appraisal of pay-as-you0-earn system of taxation. Scope of study and limitation talk about the areas the researcher is going to touch when discussing on the appraisal of pay-as-you-earn system of taxation system are place or area that have been unable to by researched upon to time.


Chapter One


Introduction

1.1 Background of the Study

The global economic recession, which started in 1980’s as a result of decline in the economic growth of industries nation, high rate of inflation, dramatics rise in price of crude oil, increase cost of important a massive building-up of liquidity in the international capital market and unusual fluctuation in commodity prices was not fully felt in Nigeria until 1982, when the developed countries applied a series of restructure monetary and fiscal policies to curtail the a fore-stated problems.

Seventeen years ago, precisely in 1983, the worldbank report that the continuing recession in the industrial world several constrained developed countries growth in 1982. Weakness in the price of oil created difficulties for oil exporting developing countries’’.

Reporting specifically on Nigeria, the bank stated that“ foreign exchange resource declined in 1982 from a level equivalent to three month worth. Investment, equal to about a third of gross domestics product (GDP) in 1980 –1981, has been radically reduced as both foreign exchange and government resource contract (85% of government revenue, both federal and states are direct generated from oil export).

An attempt to wriggle the country out of its financial predicament led to the initially of series of belt-tighten measure since 1982 to date.

These measure include:

Ban on import of a large number of goods, specially taxes on luxury goods, enforcement of trick exchanges control reputation liberalized during the earlier boom, wages and ban on employment in the public sector, increased external borrowing in anticipation of oil income and of late the introduction of value added tax (v.a.t). The impact of the dwindling revenues to the federal government and this ever decreasing portion of statutory allocation to states, has aroused tremendous interest in other source of revenue. Therefore, the hitherto relaxed tax laws are vigorously being enforced while levies of various descriptions are also being in various state of the federation.

Nsukka local government area of Enugu state is not exempted from this nation economic recession. One of the major sources of revenue to the local government, second to statutory allocation from the state and federal government, is the personal income tax (PIT) impose on all taxable persons in the local government. The personal income tax is allocated either through the Pay-As-You-Earn (PAYE) system in which employers of labour deduct tax due from the income of their employees and remit it to the division

In this study, my interest lies in appraising the effective and efficiency of Pay-As-You-Earn (PAYE) as a system of tax collection. The examination of the weakness interest in the system will be carried out and based on empincal observation, make suitable recommendation as to how loopholes in the system could be plugged especially at this time of wide spread awareness of the great potentials of internally generally revenues.


1.1 Statement of Problem

The expectation of the public from governments (local, state and federal) in the developing countries are such that the later are saddle with responsibilities for the provision of various services. The 1979 nigeria constitution sec.16 (a) state. Quite clearly that “the state shall control the national economy in such manner as to secure the maximum welfare, freedom and happiness of every citizen as the basic of social justice and equality of status and opportunities’’.

It is in an attempt to fulfill these expectation and sometimes constitutionals requirement that government rely on, among either source, the imposition of various taxes, weather direct or indirect on the defined taxable persons in their territory. Such tax and poll tax

These taxes are collected at source at source include taxes on dividend interest and rates. Also induction is tax on personal income tax through the Pay-As-You-Earn (PAYE) system has been effective in achieving its objectives of minimizing collection costs and reduction tax evasion while increasing revenue to the local government. We will all look into the problem of the pay-As-You-Earn system and suggest measures to solve such problems that might be identified.


1.2 Purpose of the Study

The purpose of the study can be broken down vas follows:

  1. To ascertain the impact of Pay-As-You-Earn system effectiveness on personal income tax revenue over a period of ten years.
  2. To find out if there is any relationship between the truthfulness of information provided by tax payers in their tax returns and their age.
  3. To find out how the employers perceive the PAYE system and the likely improvement that they would recommend.

On the basis of my findings, suggestion and recommendation will be made which I hope would be benefit to the local government it is also hope that future researcher in the area of the public finance would find the work a valuable source of literature.


1.4 Statement of the Hypothesis

The following hypothesis were made as a guide for this research

Hypothesis one
  • Ho: The effectiveness of the Pay-As-You-Earn system has not affected personal income tax revenue.
  • Hi: The effectiveness of the Pay-As-You-Earn system has affected personal income tax revenue.
Hypothesis Two
  • Ho: There is a relationship between the truthfulness of information provided by tax payers in their tax returns and their age.
  • Hi: There is no relationship between the truthfulness of information provided by tax payers in their tax returns and their age.

1.5 Significance of the Study

The significance of adequate revenue for a developing economy such as that of Nigeria cannot be over emphasized. This study is being conducted with a view to exposing the inherent weakness on the Pay-As-You-Earn system of taxation. The suggestion and recommendation made on how loopholes in the system could be plugged. Especially at this time of widespread weakness of the great potential of internally generated revenue would be very beneficial to the governments. The local government will find it very useful in drawing up revenue and other methods of taxation which will in turn check the ever dividing revenue to the government.


1.6 Scope of Study

The study shall be confined to an examination of the Pay-As-You-Earn system as in weather it is an efficient and effective method of personal income tax (PIT) collection in NSUKKA local government. It thus excludes any other system of tax revenue through Pay-As-You-Earn system with other tax revenue shall be evaluated only for the purpose of comparison.

The study was limited by the following constraints:

  1. There was shortage of relevant texts journal and documentaries on the subject of Pay-As-You-Earn system.
  2. Some of the answers given and opinions expressed in response to question were subjectively based due to different personal experience.
  3. A study of this nature require longer period of time than was actually available to me.
  4. There is this general problem that many Nigeria do not like to disclose their earnings.
  5. Finance available for this study was inadequate considering its scope and my financial standing as a student.

1.7 Definition of Terms

Basis Period:

The period in which the income of a taxpayer is assessed for the purposes.

Assessable Income:

Income of a taxpayer from all sources in a given basis period less all allowable deductions and nontaxable income.

Preceding Year Basis:

A basis period by which income of a tax payer in the year proceeding the year of assessment is assessed.

Actual Year Basis:

A basis period by which income of a tax payer in the proceeding the year of assessment is assead in that year.

Year Of Assessment:

The government financial year in which the income of a taxpayer is assessed for tax purpose.

Chargeable Income:

Assessable income less all reliefs.

Reliefs:

Deductible allowance granted to a taxpayer by the law in a relevant year of assessment.

Tax Evasion:

An illegal act of paying less tax than ought to pay.

Tax Avoidance:

A legal act by a tax payers to pay less than he ought to pay.

Tax Returns:

Relevant data supplies by a tax payer for the purpose of assessing income.

Tax Deduction Card:

A document used in the Pay-As-You-Earn scheme in which total allowed relief’s are stated.

Tax Emergency Card:

The card temporarily used before the tax deduction card are made available to the employer by internal revenue division.


1.8 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows

  • Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
  • Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
  • Chapter three deals on the research design and methodology adopted in the study.
  • Chapter four concentrate on the data collection and analysis and presentation of finding.
  • Chapter five gives summary, conclusion, and recommendations made of the study

Chapter Five


Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study was to examine the appraisal of pay-as-you-earn system of taxation.

In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of teachers perception on the internal control system as a factor appraisal of pay-as-you-earn system of taxation.


5.2 Summary

This study was undertaken to examine the appraisal of pay-as-you-earn system of taxation. The study opened with chapter one where the statement of the problem was clearly defined. The study objectives and research hypotheses were defined and formulated respectively. The study reviewed related and relevant literatures. The chapter two gave the conceptual framework, empirical and theoretical studies. The third chapter described the methodology employed by the researcher in collecting both the primary and the secondary data. The research method employed here is the descriptive survey method. The study analyzed and presented the data collected in tables and the hypotheses were tested using the chi square to test hypothesis. While the fifth chapter gives the study summary and conclusion.


5.3 Conclusion and Recommendations

In this project we studied the appraisal of pay-as-you-earn system of taxation. Tax payers may follow laws they know or trust to produce good results. Government and tax administration’s strategy aimed at creating confidence in their credibility and their capacity is rewarded with higher tax morale. The subject of taxation has received considerable intellectual and theoretical attention in the literature. Taxation is one of the most volatile subjects in governance both in the developing and developed nations. Tax refers to a “compulsory levy by a public authority for which nothing is received directly in return” (James and Nobes, 1992). According to Nightingale (2001), “a tax is compulsory contribution, imposed by government, and while taxpayers may receive nothing identifiable in return for their contribution, they nevertheless have the benefit of living in a relatively educated, healthy and safe society”. She further explains that taxation is part of the price to be paid for an organized society and identified six reasons for taxation: provision of public goods, redistribution of income and wealth, promotion of social and economic welfare, economic stability and harmonization and regulation.


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