An Appraisal Of Tax Collection System In Nigeria (A Case Study Of Federal Board Of Inland Revenue Service In Imo State)
An appraisal of tax collection system in Nigeria. The aim and objective of the topic is to critically analyze the assessment and collection procedure of tax in Nigeria. To identify the problems militating against assessment and collection procedure, to know the possible effects of improving assessment and collection recommendation for an effective and efficiency means of assessment and collection of taxes. Finally, to make useful suggestion and advices the government based on the findings.
The significant of this study is that though tax is a nationwide phenomenon, the scope of this study is intended to cover only Imo state; the tax laws in Imo state and the various types of taxes in operation.
Taxation as one of major sources of revenue to the unsuccessful implementation of economic policies on collection procedures for the government. Fraud as one of the problem because most of tax payers in Nigeria falsify their records so as not to be declare high profit and pay high tax . Also most of the taxpayers’ money cannot be accounted for. At times when taxes paid, the tax officials don’t give the government all the monies they reserve some for themselves.
The techniques used in the formulation of the hypothesis are the statistical method which is the chi-0square method was chosen to help in interpretation of the data collection during investigation. The null hypothesis (Ho) is used to determine its acceptance and or otherwise the acceptance of the alternative hypothesis (H1).
The findings in all the project is that the assessment and collection in Nigeria is not effective.
Secondary is that the response of taxpayers in Nigeria connive with tax officials to evade tax.
The researcher’s recommendations in order to boost the present tax collection system in Nigeria is to increase the revenue generated through tax improve tax payers confidence in the government and willingness to pay tax.
Table Of Contents
- Title page
- Table of contents
- 1.1 Back ground of the study
- 1.2 Statement of the problem
- 1.3 Objectives of the study
- 1.4 Research questions
- 1.5 Statement of hypothesis
- 1.6 Significant of the study
- 1.7 Scope of the study
- 1.8 Limitation of the study
- 1.9 Definition of terms
2.0 Literature Review
- 2.1 Introduction
- 2.2 Review of tax laws in Nigeria
- 2.3 Canons of taxation
- 2.4 Provision of income tax management Act (ITMA)
- 2.5 Nigeria tax legislature
- 2.6 The various types of taxes and their legal back
- 2.7 Important of taxation
- 2.8 Federal Board of Inland revenue
- 2.9 state board of Inland revenue-
- 2.10 Local government revenue committee
- 2.11 Nigeria tax structure
- 2.12 Definition/explanation of tax terminology
- 2.13 Assessment of persons and partners
- 2.14 The concept of value added tax
- 2.15 Vatable persons in Nigeri
3.0 Research Design and Methodology
- 3.1 Introduction
- 3.2 Research design sources/methods of data collection
- 3.3 Sources of data
- 3.4 Population and sample size
- 3.5 Sample technique
- 3.6 Validity and reliability of measuring instrument
- 3.7 Method of data analysis
4.0 Presentation and Analysis of Data
- 4.1 Introduction
- 4.2 Presentation of data
- 4.3 Analysis of data
- 4.4 Test of hypothesis
- 4.5 Interpretation of result
5.0 Summary Conclusion and Recommendations
- 5.1 Introduction
- 5.2 summary of findings
- 5.3 Conclusions
- 5.4 Recommendations
- 5.5 recommendation for further studies
An important sacrifice one makes towards the upliftment of one’s country is the payment of tax. Revenue accrued from taxes are used by government to discharge its enormous responsibilities.
Therefore, we can say that taxation is the process or machinery by which communities or groups of persons are made to contribute part of their income in some agreed quantum and methods for the purpose of administration and development of the society.
It is a levy imposes by the government against the income, profit or wealth of individual, partnership and corporate organization. This is why it is often referred to as a civil obligation.
In Nigeria, there are other forms of taxation. Dating back to the days of our great grand fathers where by communities taxed themselves through communal labour to execute community projects or to help the community. This is still practiced in various parts of the country today. In that concept the basis and objectives of taxation are so laudable and acceptable.
It is surprising that people still want to evade it or avoid it completely perhaps; it is the entire system that gives room for evasion, avoidance and other problem of taxation or may be the societal ills and failure that makes people want to evade it. Let us therefore now look at the structure and system of taxation in Imo state and appraise the effectiveness or otherwise and its problem.
1.1 Background Of The Study
The Nigeria tax system is basically structured as a tool for revenue collection; this is a legacy from the per-independence government. Base on 1948 British tax laws and have been static since enactment. The need to tax personal income through out the country prompted the income management Act (ITMA) of 1961 in Nigeria personal income tax (PIT) for salaried employment is based on a pay as you earn to the 1961 ITMA Act
Federal board of Inland revenue was established in Imo state after the creation of the state in 1976. the major purpose of establishing this board was for collection and administration of tax system in the state and ensure that the revenue generated from tax are paid in the federal government account. As this board is been instituted in every states in Nigeria (i.e. 36 states) is to ensure successful implementation of economic policies and tax policies on collection procedures and also to made payment of tax easy for tax payers in the state but still it have not been easy to collect taxes. To many, tax payers do not declare actual income especially self-employed persons.
As the concept of taxation, the basis and objectives are so laudable and acceptable by every citizen of the state yet it is surprising that people still want to evade tax. Tax as we all know is levy imposed by the federal government against income, profit or wealth of individual, partnership and corporate organizations. This is why it is often referred to as an obligation.
1.2 Statements Of Problems
Taxation as one of the major source if revenue to the nation has suffered a lot of set back due to the unsuccessful implementation of economic policies on collection procedures for the government.
A lot of problems where inherent with tax collection system in Nigeria which will be highlighted below and this research intended to solve problems and make suggestion on how to improve on the present collection system.
- Assessment of self-employed person is one of the major problems because self-employed people don’t declare their actual income so that the government won’t tax them much.
- Most tax payers in Nigeria falsify their records so as not to declare high profit and pay high tax.
- Most of the tax payers money cannot be accounted for.
- At times when taxes are paid, the tax officers don’t give the government all the money but reserve some for them.
1.3 Objective Of The Study
This project was aimed at identifying the following objectives.
- To critically analyzed the assessment and collection procedures.
- To identify the problem militating against assessments and collection.
- To know the possible effects of imposing assessment and collection of taxes in Imo state.
- To make recommendations for an effective and efficient means of assessment and collection in Imo state.
- To make useful suggestion and advise to the government base on the findings.
- To make useful of the revenue generated to provide social services.
- Tax can be sued to encourage or discourage import, export, production and consumption by varying its rate.
- Tax and government expenditure can be used to counter inflation or reflect the economy.
1.4 Research Questions
For the purpose of this study, all the analysis shall be utilized to test the formulated hypothesis both primary and secondary data.
- Is the present tax collection system efficient?
- Do you subscribe to the fact that the present tax collection system should be reviewed?
- Do you encounter problems in the course of your tax drive to evade the rural areas?
- Does lack of manpower affect tax collection?
- Have you in any way been over taxed?
- Do you disclose tax information to the tax officials?
- Are you satisfied with what the government is doing with the tax you pay?
- So you know how much you pay as tax?
- Do you declare true income to tax authorities?
1.5 Statement Of Hypothesis
This study is aimed at analyzing the assessment and collection system and the factors aiding and militating against them.
- Null hypothesis (Ho): tax assessment and collection in Nigeria system is not effective.
Alternative hypothesis (Hi): Tax assessment and collection in Nigeria system is effective.
- Null hypothesis (Ho): the response of taxpayers in Nigeria is not encouraging.
Alternative hypothesis (H1): the response of taxpayers in Nigerian is encouraging.
- Null hypothesis (Ho): Tax Payers in Nigeria Don’t Connive with the Tax Officials to Evade Tax
Alternative hypothesis (H1): Tax Payers in Nigeria Connive with the Tax Officials to Evade Tax.
- Null hypothesis (Ho): tax payers in Nigeria are not satisfied with what the government does with revenue generated from tax.
Alternative hypothesis (H1): tax payers in Nigeria are satisfied with what the government does with revenue generated from tax.
1.6 Significant Of The Study
Tax plays an important role in the country i.e. Nigeria society. A lot of benefits are derived from taxes. It is an essentials feature of government structure and component of fiscal policy. some of the benefits’ are:
- To generate revenue for the provision of essential service such as maintenance of law and order, roads, and construction of bridges, education, health care and public utilities.
- To redistribute income: this is achieved by the use of revenue accruing from taxation in providing social services which benefit the poor than the rich and by imposition of tax a certain goods enjoyed more by the rich.
- To stabilize the economy: tax can be used to encourage or discourage import; export production and consumption by varying it rate lower rates are use for encouragement and vice versa.
- To discourage consumption of certain goods; also this is a function of the weight of the tax burden.
- To control the economy, tax and government expenditure can be sued to counter inflation or deflate the economy.
1.7 Scope Of The Study
The scope of this study is intended to cover only Imo state; the tax law in Imo state and the various type of tax in operation, although tax is a nationwide phenomenon.
1.8 Limitation Of The Study
This study will confirm itself to how effective the system has been, the problem associated with the assessment and collection of taxes. Due to the lack of time and financial constraints, federal Inland Revenue services in Imo state was chosen as a case study.
The researchers answer affected by Luke Warm attitude of some tax officials and tax payers who don’t want to assist researchers.
Researchers were not conveniently to access the forms and financial records.
1.9 Definitions Of Terms
Tax is a term that is being defined by various people according to their view or perception to the subject matter.
According to Huge (1987), tax is defined as a compulsory contribution imposes by a public authority irrespective of the exact amount of service rendered to the payer in return.
Agyei (1985) defined taxation a the transfer of resources from private sector to the public sector in order to accomplish some of the nations’ economic and social goals.
this is the person or body of persons responsible under a law of a territory imposing tax on the income of individuals, for the administration of that law.
Personal Income Tax:
according to Ola (1987) personal income tax is tax levied on employees’ income record by individual in Nigeria. It is regulated by income tax management (ITMA) 1961 as amended.
Companies’ Income Tax:
according to Ola (1987) companies income tax levied on profit made by companies excluding companies engage on petroleum activities. It is governed by the companies’ income tax (CITA) 1979 and amended.
this may be defined as the illegal method practiced by tax payer’s to reduce his/her tax liability.
this is permissible at law; it can be defined as deliberate legal action on the part of the tax payers to pay less than he/she should have paid.
Provisional Tax Assessment:
this type of assessment is raised at the beginning of the year. It is not based on the audited report of the company but rather on the exact amount the company paid in the immediate past year. It is a collection procedure to raise fund for the government prior to the announcement of the annual budget.
As the name goes, it is not based on the audited account of the company but on the best of judgments of the assessing officers which is guided by some rules.
this is collection procedure whereby a company is allowed to assess itself based on their audited reported and pay whatever he gets.
this is a system whereby the assessing officer uses the audited account of the company to assess them to tax in accordance with the law.
5.0 Summary, Conclusion And Recommendations
The aim of this chapter is to summarize its findings and give recommendations which will benefit both tax officials and tax payers and the effective way tax collection system in Nigeria can be improve.
5.2 Summary Of Findings
The findings are:
- That tax assessment and collection in Nigeria is not effective.
- The response of tax payers in Nigeria is not encouraging.
- That taxpayer in Nigeria connives with tax officials to evade tax.
Other findings are:
- The tax officials do not receive returns from the tax payers at the appropriate time.
- That the assessment of self-employed person is not that accurate because they do not declare their exact income for tax assessment.
- Some taxpayers do not know how much they pay as tax.
This study is aimed at appraising the present tax collection system in Nigeria with the view of recommending areas where necessary and making changes if possible.
To represent a constructive appraisal, types of taxes collected were ascertained including the method by which they were collected. In the course of this study, it was uncovered that the present tax collection system is:
- Deduction at source
- Government assessment method
- Back duty assessment
- Tax clearance methods.
All these methods are carried out by the federal, state and local government revenue units to generate revenue through tax. They are however not loudly implemented.
In the final analysis, it is suggested that taxes could be collected by communities and the center receive percentage of such collection to show the federal characters as practiced in developed countries.
Having analyzed the data gathered and merged with findings, the researcher is well positioned to state without hesitation, meaningful recommendations in order to boast the present tax collection system in Nigeria. In relation to findings made from this study, the following recommendations are which in the long run will serve as a measure for improving the tax collection system in Nigeria, increase the revenue generated through tax, improve tax payers confidence in government and willingness to pay tax.
a. Tax receipt:
To unsure that tax collected gets to the government, all tax receipts should be banked with central bank of Nigeria and issued to the accountant general of the federation on request and also he should sign receipt withdrawal cheque.
Tax receipts in its current use should be known and identifiable by all. In fact, it should be devised and the tax paying public should be aware of fake receipts in order to differentiate it from the original receipt. Whenever a change is made, the date should be recorded and the specimen of the original be kept. All completed used receipts should be returned to the store keeper and should be used for the demand of new issues from the head office (accountant general).
b. Revenue Administration Compliance:
To enhance compliance to pay tax and to restore tax payers’ confidence in the government:
- All government should prepare and public its audited account (i.e. consolidated revenue fund statement) in national/state daily newspaper annually showing all the receipts and payments for the year.
- Government projects on communities should be based in the percentage of revenue generated from such communities and the tax payer’s level of compliance to pay taxes due to the government.
- Enlightenment programmes should be organized for tax paying public on the relevance of tax to the public sector.
- Tax administrators should be sent ford further training so that they can improve themselves so as to be able to face modern challenge. Also there should be a strong campaign against embezzlement of public fund.
c. Tax Collection System
In order to achieve greater revenue generation through tax:
- The remuneration of tax collectors should be encouraged to enable them perform their duties effectively and efficiently.
- Their condition of service should be improved to enable them resist bribery and corruption.
- Revenue collectors should always be accompanied by law enforcement agents to help enforce the law and also save them fro tax payer’s assault.
- Tax authorities should employ qualified accountant to be in charge of tax collection so that technical aspects like computation of B.OS assessment tax relief and company income tax could be sorted out easily.
- To enhance a better enforcement and generation of taxes through the capital gain tax, there should be an established capital market where revenue collections would now be and see these assets sold and bought and for which capital allowance have already been provided for before and should only be sold on the approval of the assessment authority whose jurisdiction covers the place of residence of the seller.
- Tax administrators should be lectured on the amendments of the tax laws made in order to enhance their ability to interpret the enabling laws and properly discharge their duties.
- A centrally computerized bank should be established to service all revenue collection units.
- Payment of taxes should be done with a certified bank cheque made payable to the federal/state ort coal government account irrespective of the amount involved.
During the research work, it was observed that the present tax system is characterized by a lot of tax delinquencies.
- Tax evasion is very pronounced here. Since the tendency to evade tax is a calculated attempt to cheat and fraudulently refuse to do or perform one’s civil responsibility as a citizen of this country. It is against the law of the country. Therefore, whenever tax officials catch those taxpayers who indulge in this act, they should report to the appropriate quarters. Moreso, with the introduction of the “anti-corruption bill”, any person who offers to any public officers or being a public officer accepts any gratification as an inducement or a reward for obtaining from performing his official act assessing correctly. Also if the public officer will be guilty of an offence and shall on conviction be liable to five years imprisonment with hard labour.
- The anti-corruption and should be made available to all public officers due to that they can digest the contents and be guided accordingly. Also they can use it as evidence when ever they want to arrest default taxpayers since ignorance to the law is not an excuses.
- Tax officials who are sent to assess the self-employed persons should be careful in dealing with them so that they don’t get themselves implicated with malpractices. These self-employed persons enter into artificial transaction with the role aim of avoiding tax. Children and infants are named as directors of businesses wile vehicles are registered in the name of infants and women bearing false addresses which cannot be trade to the owners. Some highly placed self-employed persons are aided by their accountants to practice tax avoidance by the submission of factious accounts for tax purposes.
- The government should organized seminars; symposium so that tax officials would be aware of most of this happenings and this will enlighten them more and make them more grounded in their profession. They should exercise due care and skills in handling their jobs.
- Most tax assessors are dishonest while the tax payers don’t give true information about income and projects. On the part of government, atimes they embezzles the tax revenue. When this is done, they tend to suppress data for taxable citizen. The government should encourage taxpayers to perform their civil responsibility by carrying out meaning projects for the development of the community so that the taxpayers will see what the government is doing with their money.
- Think when this is done; taxpayers won’t hesitate to pay tax since they now know it is for the good and benefit of all.
5.5 Recommendations For Further Studies
Users of this research work should still enlarge the case study. They should extend their case study to go beyond tax offices in Owerri. They can extend to all the tax offices in the federation to see if they can get a different opinion.
Also the hypothesis tested was done at 5% level of significance and 2 degree of freedom. They can also test at 2% level of significance and see what the result will be favourable or not.
An Appraisal Of Tax Collection System In Nigeria (A Case Study Of Federal Board Of Inland Revenue Service In Imo State)
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