Effectiveness Of Taxation In Nigeria In Comparison With Other Nations Of The World

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Effectiveness Of Taxation In Nigeria In Comparison With Other Nations Of The World

Abstract

This study was carried out to examine effectiveness of taxation in Nigeria in comparison with other nations of the world. Survey research design was employed for the study and with the aid of convenience sampling method, 80 participant was selected as the respondent for the study. Well structure questionnaire was issued to the enrolled participants of which 77 of the instrument were retrieved and validated for the study. Data was analyzed in simple percentage using frequencies and tables. Hypothesis tested was conducted using Chi-Square Statistical Tool (SPSS v.2.3). Findings from the study revealed that Effective taxation can regulate or help in combating Inflation, regulate consumption and savings, helps in promoting economic growth and development and can aid government to provide social amenities. Futhermore the result of the study showed the similarities/differences between Nigeria taxation and other country such that in Nigeria Withholding Tax is paid as an advance payment of income tax which is the same in other country. However the rates differ based on self-assessment performed. More so, In both Nigeria and her counterpart, Company Income Tax is imposed on companies. In Nigeria the C.I.T rate is 30% of the total profit of the company while in U.S.A the rate is 25.7% Finally the study revealed that poor taxation system could have some implication such as reduction in the amount of public services supplied by the government and could as well threaten the government capability to finance public expenditure. The researcher therefore recommends that government should ensure the tax revenue generated from PPT and CGT beimproved upon so that the revenue can be used in providing infrastructure for the citizens; government should use tax policy more as a macroeconomic policy not just as a tool for revenue generation as this will result to long run sustain economic growth and tax revenue.

Chapter One

Introduction

1.1. Background of the Study

Taxation to every country is bedrock for revenue generation which when adequately carried out could lead to a speedy socio economic development just like in the advanced nations of the world. Ariwodola (2001) described tax as a compulsory levy imposed by the government authority through its agents on its subjects or his property to achieve some goals. Arnold and Mclntyre, (2002) define tax as a compulsory levy on income, consumption and production of goods and services as provided by the relevant legislation. Tax is a charge imposed by government authority upon property, individuals, or transactions to raise money for public purposes. This definition is however imperfect. The study of the teachings of Christianity, Islamic and other prominent religions in the world shows that tax is a religious duty based on social and civil responsibilities (Agbetunde 2004). They all support and encourage tax imposition either to redistribute wealth or to finance government project. The Nigerian tax administration is in line with the British model of tax administration since 1960 and has been operating this up to 1990 when the self-assessment scheme came into play which seems similar to the American model of tax administration system (Adesola 2004). The British model of tax administration assumes tax payers are incompetent as to tax process and tax authorities do not rely on information supplied by tax payers. Returns of the tax payer are carefully verified through the application of the American model in reference to the rigid British model. The American model despite the advantages that can be derived from its application has not found a good place in Nigeria because all the phenomenon that made it a success in America such as voluntary compliance system, competence of tax payer, efficient data processing system which aids detection of fraud are still not present the Nigeria context. Consequently disadvantage has adversely impacted on local government tax system since they are part of the ruling process in the state. Such impact has generally been based on problems associated with collection, assessment and returns procedures in the local government area. There is doubt on how efficient the tax authority and other bodies participating in the collection of tax and make returns to the local and state government. In an economy like Nigeria where great reliance is placed on one source of revenue by the state government, the understanding and appreciation of the significance of tax as a source of revenue is of paramount importance. This is not only to enable one the opportunity to examine potential revenue generated in the state but to enable the decision makers and government to appreciate the need for administration changes within the context of tax system. In this study, effort was made to assess Lagos State tax administration system and how it could serve as a veritable tool for revenue generation of the state. The result of the study shows that tax administration affects the revenue generated by the government and that there is a significant relationship between tax administration, tax policies and tax laws.

1.2. Statement of the General Problem

Ineffective taxation has greatly hampered Nigeria’s economic development. Most advanced nations in the world today do not joke with their taxation system as they have an effective tax system. There are minimal cases of tax evasion in these nations and that why they are more developed when compared with their African counterparts. Nigeria tax policies have seen many organizations evade tax or pay less than what they are supposed to pay which has greatly affected the internally revenue generated to enhance development.

1.3. Objectives of the Study

The following would be the aims and objectives of the study

  1. To compare Nigeria’s taxation system with other Nations of the world.
  2. To examine the effect of an effective taxation system.
  3. To identify ways Nigeria taxation system can be improved upon.
  4. To examine the implications poor taxing in Nigeria.
  5. To recommend ways of reducing tax evasion in Nigeria.

1.4. Research Questions

  1. What are the similarities and difference between Nigeria’s taxing system and their counterparts?
  2. What is the effect of having an effective taxation system?
  3. What are the ways our taxation system can be improved upon?
  4. What are the implications of poor taxing in Nigeria?

1.5. Research Hypothesis

  • H0: Nigeria’s taxation system is not effective
  • H1: Nigeria’s taxation system is effective

1.6. Significance of the Study

This study would be beneficial to the government in helping them draft a holistic tax policy that would help boost revenue and ensure development. This study would also be of importance to researchers and students who are interested in Nigeria taxation system and its comparison to other countries of the world.

1.7. Scope of the Study

This study is restricted to the effectiveness of taxation in Nigeria in comparison with other nations of the world.

1.8 Limitations of the Study

Financial constraint

Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint

The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

Chapter Five

Summary, Conclusion and Recommendation

5.1 Summary

This study was carried out to examine effectiveness of taxation in Nigeria in comparison with other nations of the world. It compared Nigeria’s taxation system with other Nations of the world. The study identified ways Nigeria taxation system can be improved upon. It examine the implications poor taxing in Nigeria. It recommend ways of reducing tax evasion in Nigeria.

Survey research design was employed for the study and with the aid of convenience sampling method, 80 participant was selected as the respondent for the study. Well structure questionnaire was issued to the enrolled participants of which 77 of the instrument were retrieved and validated for the study. Data was analyzed in simple percentage using frequencies and tables. Hypothesis tested was conducted using Chi-Square Statistical Tool (SPSS v.2.3).

5.2 Conclusion

Ultimately, taxation has not only contributed to the Federal Government only but has become an important instrument in regulating most economic activities and has been an instrument for control of money in circulation. In view of this, taxpayers must be persuaded to pay their taxes regularly.

Findings from the study revealed that Effective taxation can regulate or help in combating Inflation, regulate consumption and savings, helps in promoting economic growth and development and can aid government to provide social amenities.

The result of the study showed the similarities between Nigeria taxation and her counterparts such that In Nigeria and her counterpart Withholding Tax is paid as an advance payment of income tax. The rates differ based on self-assessment performed. More so, In both Nigeria and her counterpart, Company. Income Tax is imposed on companies. In Nigeria the C.I.T rate is 30% of the total profit of the company while in U.S.A the rate is 25.7%.

Findings from the study revealed that poor taxation system could have some implication such as reduction in the amount of public services supplied by the government and could as well threaten the government capability to finance public expenditure.

5.3 Recommendation

Based on the findings of this study, the following recommendations were proffered.

  1. To boost economic growth in Nigeria, government should ensure the tax revenue generated from PPT and CGT should be improved upon so that the revenue can be used in providing infrastructure for the citizens.
  2. The government should use tax policy more as a macroeconomic policy not just as a tool for revenue generation as this will result to long run sustain economic growth and tax revenue.
  3. Government should ensure all tax loopholes are minimized or blocked and corporate and individual tax evasion should be properly investigated and sanctions meted out.
  4. Government should ensure that taxation is properly managed in a manner that will accelerate economic development in the country.
  5. There is also need for the Nigeria government to restructure the tax system to meet the demands of the 21st century.

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