The Difficulties And Prospects Of Tax Administration In Nigeria


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The Difficulties And Prospects Of Tax Administration In Nigeria


Abstract


Reports have shown that despite the numerous efforts of government and its relevant agencies in the administration of tax in Nigeria, there are still problems in the system such as under assessment of tax payers, tax evasion corruption among tax officials etc. as a result, this study was conducted, analyzing the areas the system has thrived in improving the standard of living and as the source of government revenue for developmental purpose. But the system so adopted shows lots of loopholes and there are needs to be strengthened for better results. This study among other things recommended that more experienced staff should be employed, more training should be given to officials and adequate welfare and remuneration package should be done to sensitive the payers-on the need for them to respond to their civic obligation. Generally, taxation has been recognized as the most effective instrument of fiscal policy.

The administration and operation of taxation in Nigeria as well as other nations of the world are guided and regulated by lows enacted as an Act of parliament or promulgated by decree such that their amendment may be subject to the provision of the constitution on any other legislation of that country. Government all over the world has it as a responsibility to provided basic amenities like good road, electricity, water and above all adequate security for its citizens and forgeable.

However, their needs cannot be satisfied without putting in place by the government a machinery to generate enough funds to finance their projects. It is in the light of above that the researcher intends to investigate the problems and prospects of tax administration in Nigeria, using Abia State Board of Internal Revenue (ASBIR) individuals. They went further to analyze how tax has contributed immensely to the government generation of revenue and how government looks forward to increase in revenue from tax as the year progress.


Table Of Contents


Preliminary Page(s)

  • Title page
  • Approval page
  • Certification
  • Dedication
  • Acknowledgement
  • Table of contents
  • Abstracts

Chapter One

Introduction

  • 1.1 Background of Study
  • 1.2 Statement of problems
  • 1.3 Objectives of the study
  • 1.4 Significance of study
  • 1.5 Research Questions
  • 1.6 Scope/Limitation of study
  • 1.7 Limitation of the study
  • 1.8 Definition of terms

Chapter Two

Review Of Related Literature

  • 2.1 Tax Theoretical Structure
  • 2.1.1 Nigeria Fiscal Federalism
  • 2.2 Tax Reforms
  • 2.2.2 Current Taxation Reforms in Nigeria
  • 2.3 Challenges of the Draft National Tax Poly

Chapter Three

Research Methods

  • 3.1 Research Design
  • 3.2 Area of the Study
  • 3.3 Population of the Study
  • 3.4 Sampling size and Sampling Techniques
  • 3.5 Source of Data
  • 3.6 Instrument of data collection
  • 3.7 Validity of Instrument
  • 3.8 Reliability of the instrument
  • 3.9 Method of data analysis
  • 3.10 Decision Rule

Chapter Four

Analysis And Results

  • 4.1 Data Analysis and Result

Chapter Five:

Summary, Conclusions And Recommendations

  • 5.1 Summary of Findings
  • 5.2 Conclusion
  • 5.3 Recommendations
  • References
  • Appendix
  • Questionnaire

Chapter One


Introduction

This chapter is concerned with the following:

  1. Background of the study
  2. Statement of the problem
  3. Objectives of the study
  4. Significance of the study
  5. Research Questions
  6. Scope of the study
  7. Limitations of the study
  8. Definition of terms

1.1 Background of the Study

Traditionally, taxation is a main source of revenue to government all over the world, tax thus becomes a burden that every citizen must bear to support the government.

According to Olaofa (2008), the government has certain functions to perform for the benefits of those its government. The scope of these functions will depend on the political and economical orientation of the members of the society, their needs aspiration, unwillingness and ability to pay amongst others. Among the traditionally functions of the government is the provision of collective or public goods, goods that cannot be divided among the separate members of the society but which must be used for the benefit of all. Such goods include the maintenance of law and order, defence against external aggression, regulation of trade and business to ensure social and economic justice. As the functions of government increase, the revenue to finance those institution must necessarily increase. Thus, tax is a fact of life which is as old as the institutions of government for a fact, it is said, “tax is as certain as death” (Olarfe 2008).

Abubakar (2008) posits that tax policies represent key resource allocation between the public and private sectors in a country. It is usually imposed on individual and confities that make up a country. The fund provided by tax are used by the state to support certain state obligations such as education system, health care system pension for the elderly, unemployment benefits and public transportation. A nations tax system is often a reflection of its commercial values of the values of those in power.

Adekaula (1997), state that in Nigeria the taxation system dates back to 1904 when the personal income tax was introduced in Northern Nigeria before the unificiaries of the implemented, through the Native revenue ordinance to the western and eastern regions in 1917 and 1928 respectively. Among other amendments in the 1930’s it was later incorporated into direct taxation ordinance No. 4 of 1940. The need for personal income tax promoted the income tax management tax Act. (TIMA) 1961. An amendment followed in 1993 of section 27 now called section 85 other amendment, of PITA were that on 1996 and 1998. Apart from the personal income tax (PIT) other taxes charged in Nigeria include companies income petroleum profit tax, education tax, capital grains tax, information and technology tax etc. Those taxes are collected by different levels of governments depending on their areas of jurisdiction. The essences of amending tax laws is to amend for the loopholes existing in the tax system and to improve on the system of taxation in the country.


1.2 Statement of Difficult

Several difficult affect the present day tax administration in Nigeria as will be revealed by this research work. The following difficult appear outstanding.

  1. Many people who collect taxes in Nigeria are not well trained for the job and this lead to huge leakage in revenue generation.
  2. Ignorance sometimes due to high level of illiteracy of the part of payers, ask why they should pay tax.
  3. Shortage of efficient manpower in the revenue department.
  4. There are loopholes in the laws governing the tax administration, the effect or loss of revenue to the government.
  5. Many self employed persons if at all, they pay tax but they do not pay the amount commensurate with their income as generated from business, trade, vocation or as the case may be incidence of tax evasion on the part of some individuals and corporate bodies.
  6. There is loss of government revenue through insuring of take receipts. Many people have been duped and government made power by the sharp practices of the operators.

Therefore, the researchers want to examine the difficulties.


1.3 Objectives of the Study

The purpose of the study includes:

  1. To find out the proportion of taxable adults from both the salary earners and the self employed that pay their taxes and if they do, whether they pay correct amounts.
  2. To find out if the amount of taxes collected are correctly and promptly remitted the government coffers.
  3. To identify the loopholes in the administration of tax in Nigeria the total revenue collected.
  4. To find one the root causes of non payment or inadequate payment of taxes.
  5. To evaluate the extent to which tax proceeds have improved the revenue base of the state.
  6. To offer policy recommendations that shall enhance the efficiency of tax system in the state.

1.4 Significance of the Study

The study could be of significance of the tax authority since it highlights the difficulties of tax administration and the recommendation will help them improve their performance thereby increasing revenue yielding to government.

  1. Tax payers shall know their rights and obligation as with regards to tax.
  2. It is common to discover that a majority of taxable individuals do not understand the whole concept of taxation and this ignorance may be a major reason for their reluctance to pay taxes. This work will in no doubt help to clear such ignorance.
  3. This study shall be great importance to self-employed persons because it will encourage them to keep adequate accounting records of their enterprises and makes tax assessment processes easier.

1.5 Research Questions

This study will be guided by the following questions:

  1. The level of tax evasion by individuals and corporate bodies, can it significantly affect the revenue collected/
  2. Is there any significant relationship between the level of fraudulent practices by tax officials and the amount of revenue collected?
  3. What are the benefit of the self employed persons for making tax assessment processes

1.6 Scope and Limitation of Study

The scope of this study will be administration of tax in Nigeria during which the problems and prospects will be looked at. Also the machinery of tax collection will be covered in brief. This study is limited to Abia State board of internal revenue.


1.7 Limitations of the Study

The difficulties encountered include the following:

  1. The state board of internal revenue delayed in their response to the questionnaire. Some of the respondents refused to fill their questionnaire and so returned them blank.
  2. Another constraint is that of finance with which to travel extensively, make sufficient copies of materials to enable the researcher draw on all embracing conclusion.
  3. The time is not adequate for the study because of combining lecturers with making necessary research for this work.
  4. There is unavailability of a previous (reference) material on the topic.
  5. There is lack of adequate information on the research.

1.8 Definition of Terms

Fiscal Policy:

This is the use of government expenditure taxes borrowing and financial administration for further national economics objectives.

Hypothesis:

These mean an assumption about a certain population parameter which would be tested in order to accept or reject the assumption.

Research:

It is an investigation undertaken to discover something or get additional information about something.

Background:

This explains the organ of a concept.

Tax Liabilities:

These are the taxes payable.

Capital Gains:

These are gains arising on the disposal of changeable assets.

Deferred Taxes:

These are tax liability attributed to timing differences.

Value Added Tax:

These are taxes paid on valuable and services.

Tax Payer:

This refers to an individual or a body corporate.

Tax Credit:

This is the credit provided based on the qualifying capital expenditure acquired by a tax payer.

Tax Authority:

This refers to the apex of agency incharge of tax assessment and collation in a state or at the federal level.

Investment Allowance:

This is given as incentives to certain category of companies for incurring some qualifying capital expenditure especially in the area of agriculture.

Withholding Tax:

This refers to a kind of tax paid through a deviation at some (i.e during payment to suppliers contractors, consultants or other professionals.


Chapter Five


Summary, Recommendations And Conclusion

5.1. Summary

The research was embarked on to examine the problems of tax administration in Nigeria, with Abia State Board of Internal Revenue as the study focus. This was done with a view to establishing the extent to which poor funding has impacted tax administration in Abia State; to find out if lack of staff training has great effect on tax administration in Abia State; to determine if absence of infrastructures has great effect on tax administration in the state; to find out if poor tax collection is as result of the poverty of Abia State taxpayers and to ascertain whether tax administration will be better if separated from the state civil service.

The work started with the call for the restructuring of the nation‟s tax system. The call has become necessary because the nation‟s dependence on the oil sector has made the country vulnerable to extent manipulations, a situation which has adversely affected the planning horizons in the country. This ugly trend therefore, calls for the diversification of Nigeria‟s resource base and long term growth and development.

The work pointed out the enormous benefits which the developed countries have continued to reap from tax administration because taxation has remained the mainstay of most developed economies which are not endowed with mineral resources.

Also unveiled is the fact that over the years, Nigerian tax system has undergone several reforms tailored towards enhancing tax collection and administration with minimum cost. Some of these reforms include: Taxpayers Identification Number,

Automated Tax System as well as E-Payment System.

The research has also shown that in the face of debt difficulties with domestic and external financial imbalances many developing countries the world over have been forced to adopt stabilization and adjustment policies which demand better and more efficient methods of mobilizing domestic financial resources with a view to achieving financial stability and promoting economic growth.

The work pointed out benefits to be derived from an efficient and effective tax administration to include:

  1. Helping to generate or mobilize more revenue, thereby enabling governments to achieve greater financial reliance and facilitating the pursuit of growth oriented structural adjustment programme.
  2. Forestalling the need for the introduction of higher taxes or new taxes and also makes it possible for the elimination or reduction of burdensome taxes without reducing yield.
  3. Facilitating the adoption of simple and easy-to-administer tax laws, thus rendering non compliance more difficult.
  4. Enhancing the ability of the governments to effectively enforce taxes with potentially high revenue yield.

The statement of the problem show-cased the challenges of Nigeria tax system, which include:

  1. The location of assessment and collection functions within the tax administration.
  2. Frequent changes in the tax laws.
  3. Linkage of tax administration with the civil service.
  4. Non-compliance strategy.
  5. Multiple taxes.
  6. Absence of equity in tax administration.
  7. Lack of motivation and remuneration.
  8. Tax avoidance and evasion.
  9. Corruption.

The chapter two of the work reviewed some related literatures, postulated hypotheses which were tested using the chi-square method. The chapter ended with a theoretical framework.

Chapter three gave an insight into the background of Abia State Board of Internal Revenue the study area. It looked at the origin, structure, functions, achievements and problems.

Chapter four was mainly concerned with data generation and analysis. It showed how data were generated and where. It also gave a detailed statistical analysis of the data using chi-square method.

Finally, the work ended with summary, recommendations and conclusion


5.2 Recommendations.

Based on the observations, findings and analysis made by the study, the following recommendations have been made:

  1. The government of Abia State should increase the budgetary allocations made to the Board of Internal Revenue of the state to enable it carry out the task of tax administration. Poor funding has been the greatest setback of the Revenue Board; as a result tax administration will be rejuvenated with adequate funding.
  2. The Board of Internal Revenue of Abia State should put in place a scheme of training and retraining of staffs in order to achieve efficient and effective service delivery. No establishment or organization can attain the desired level with a crop of staffs deficient in the required skill to execute the functions of the organization.
  3. The government of Abia State should provide the necessary infrastructures for the people to enable them adopt positive attitudinal change towards tax payment. Taxpayers regard infrastructures as signs of good governance and judicious utilization of resources.
  4. Effective checks should be adopted to obviate further leakage of revenues. It has been established that the dwindling state of revenue is due to the fraudulent and other sharp practices of the staffs of the State Internal Revenue Service, With Proper supervision and rendition of returns corruption among the staffs will be meaningfully reduced.
  5. The authorities of Abia State Internal Revenue should mount an aggressive public enlightenment programme to educate the taxpayers accordingly. Use of Radio jungles, Bill Boards and sensitization at the rural areas should be adopted as means of reminding taxpayers that one of the obligations of a good citizen is timely payment of taxes.
  6. A package of incentives has to be lined up for staffs of the State Revenue Board as this would help to bring out the best in them by boosting their morale and enhancing their interest and productivity.
  7. Above all, the administration of tax in the state should be made autonomous. This is one of the ways efficiency and effectiveness would be enhanced. The bureaucratic bottleneck of the Civil Service is a cog in the wheel of development of tax administration in Abia State. The Revenue Service should therefore, be given autonomy for better performance.

5.3. Conclusion

The work was embarked on:

  1. To establish whether poor funding is the cause of low rate of returns from taxation;
  2. To find out whether lack of staff training is the cause of poor revenue collection;
  3. To determine whether absence of infrastructures is responsible for poor revenue from taxation;
  4. To find out if poor tax collection is because of pronounced poverty among the taxpaying public and to ascertain if tax administration will be more efficient when separated from the civil service.

The study however, discovered that poor funding is a great problem and the cause of low rate of returns from taxation.

The study uncovered that lack of the necessary training of staffs is the cause of poor revenue collection in the state.

The study also revealed that absence of infrastructures is responsible for poor
revenue collection in the state.

The study has equally shown that the poverty of Abia State Tax payers in not responsible for the poor tax collection, but the corrupt tendencies of the staffs of State Revenue Board.

The research discovered that tax administration will be more efficient if separated from the state civil service because of the latter’s inherent bureaucratic bottlenecks.


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