Examination Of The Effectiveness Of Tax Identification Number (TIN) In Combating Tax Evasion In Nigeria

Project and Seminar Material for Accountancy / Accounting

Abstract

The study was carried-out to examine the effectiveness of Taxpayer Identification Number (TIN) in combating tax evasion in Nigeria (case study of Lagos State board of internal revenue). The related literatures were reviewed. The population of study comprises the total revenue before TIN (TRBT), total revenue after TIN (TRAT), internally generated revenue before TIN (IGRBT) and internally generated revenue after TIN (IGRAT). A number of statistical tools including descriptive statistics, correlation analysis and Auto Regressive Distributed Lag (ARDL) Model were used to analyse the data and test the hypotheses formulated. The (ARDL) Model revealed that, the internally generated revenue (IGR) before the introduction of TIN within (1997-2007) was not significant. Also, it was revealed that the introduction of TIN within (2008-2018) has witnessed a tremendous increase of internally generated revenue in Lagos State, rejecting the null hypothesis that TIN does not militate against tax evasion in Nigeria (case study of Lagos State board of internal revenue). The study recommended that a holistic tax education should be carried out in order to keep the teeming taxpayers abreast of Taxpayer Identification Number programme in the state and also more registration centers should be created for ease of access and registration of taxpayers for the taxpayer identification number programme as oppose to one and only registration center in Ikeja to consolidate the TIN programme in the State.

Chapter One

Introduction

1.1 Background to the Study

Taxes, and tax systems, are fundamental components of government revenue generation. Brautigam (2008) noted that taxes underwrite the capacity of states to carry out their goals. They form one of the central arenas for the conduct of state-society relations, and they shape the balance between accumulation and redistribution that gives states their social character. Thus, taxes build capacity to provide security, meet basic needs or foster economic development and they build legitimacy and consent, helping to create consensual, accountable and representative government. A key component of any tax system is the manner in which it is administered (Naiyeju, 2010). Bahi and Bird (2008) states that no tax is better than its administration, so tax administration matters a lot, and an essential objective of tax administration is to ensure the maximum possible compliance by taxpayers of all types with their taxation obligations. Unfortunately, in many countries, tax administration is usually weak and characterized by extensive evasion, corruption and coercion.

In many cases overall tax levels are low, and large sectors of the informal economy escape the tax net entirely (Brautigani, Fjelftand and Moore, 2008). A nation’s tax system is often a reflection of its communal values and the values of those in power (Ross, 2007). Thus, to create a system of taxation, a nation must make choices regarding the distribution of the tax burden and how the taxes collected will be spent. In democratic nations where the public elects those in charge of establishing the tax system like Nigeria, these choices reflect the type of community that the public or government wish to create. Parkin (2006) states that in countries where the public does not have a significant amount of influence over the system of taxation, that system may be more of a reflection on the values of those in power as governments use different kinds of taxes and vary the tax rates. This is done to distribute the tax burden among individuals or classes of the population involved in taxable activities, such as businesses, or to redistribute resources between individuals or classes in the population.

Taxpayer Identification Number (TIN) is a 10 (ten) digit number that is unique to each taxpayer in Nigeria, for every individual and corporate organization i.e. taxable entities that earn a steady income. The Taxpayer Identification Number (TIN) is a platform which will harmonize taxpayer identification and registration in Nigeria; it will create closer linkage between the various tax authorities in Nigeria and, will aid corporation, information sharing and increase revenue generation accruing to all tiers of the governments (JTB Bulletin, 2011). Taxpayer Identification Number (TIN) is an initiative of the Joint Tax Board (JTB) in collaboration with the Federal Inland Revenue Service (FIRS) and the 36 State Boards of Internal Revenue (SBIR). It is an electronic system of taxpayers’ registration, which would uniquely identify all taxpayers and would be available nation wide. The Joint Tax Board (JTB) is provided with the responsibility (as amended in section 8(q)(d) of the Personal Income Tax Act and section 8(q) of the Federal Inland Revenue Service establishment Act 2007), to ensure collaboration in the issuance and administration of Taxpayer Identification Number (TIN) to all taxable entities. It equally creates a national platform for the registration and allocation of an identification number to all taxpayers to aid effective tax administration process. However, it is a well known fact that tax administration in Nigeria has been faced with issues and challenges ranging from non- identification, registration and compliance of taxpayers. This inherent problem is also associated with the implementation of Taxpayer Identification Number (TIN) program in our tax system.

1.2 Statement of the Problem

One of the problems of tax administration in the three tiers of government in Nigeria is the improper identification of tax bases by the three tiers of government. The inability of the government to properly track all income by individuals and corporate entities eligible to pay tax has contributed to the decrease in revenue accruable to the government (Ross, 2004) The constitution of the Federal Republic of Nigeria 1999 as amended 2010, provides an approved list of taxes and levies accruable to the three ties of governments respectively, but there are several court cases in respect of some tax bases often between the Federal and some State governments for instance, the case between the Federal and Lagos State government on tax consumption.

Hence, the need arise to assess the effects of application of the taxpayer identification number on internally generated revenue and tax payment in Lagos State.

1.3 Objective of the Study.

The main objective of the study is the examination of the effectiveness of tax Identification Number in Combating tax evasion in Lagos state, Nigeria.

1.4 Research Questions.

What is the meaning of Tax Identification Number?
What is tax evasion?
How effective has Tax Identification been in Curbing tax evasion?
What is the effect of Tax Identification Number on Tax evasion in Nigeria?

1.5 Significant of the Study.

This study will help in finding solution to the effect of Tax Identification Number on Tax evasion in Nigeria.

1.6 Scope of the Study.

The study focus on the examination of the effectiveness of Tax Identification Number in combating tax evasion in Lagos state, Nigeria.

1.7 Statement of Hypotheses

HO1: Taxpayer Identification Number does not have significant effect on total revenue of Lagos State before the introduction of TIN programme.

HO2: Taxpayer Identification Number does not have significant effect on total revenue of Lagos State after the introduction of TIN programme.

Chapter Five

Summary, Conclusion and Recommendations

5.1 Summary

The research was carried out to examine the effectiveness of Taxpayer Identification Number (TIN) in combating tax evasion in Nigeria (case study of Lagos State board of internal revenue). This has been proven theoretically and statistically or scientifically in chapter four and the results were consistent with apriori expectation, theories and canons of taxation and literature of past studies.

Empirically, internally generated revenue before and after the introduction of tax payer identification number (TIN) were employed as independent variables to ascertain the level of dependency of total revenue realized by Lagos State board of internal revenue which was used as proxy for tax evasion (dependent variable). From the empirical analysis, some findings were made. The findings are hereby summarized as follows:

The correlation result revealed a positive relationship between internally generated revenue and total revenue realized by Lagos State board of internal revenue both before and after the introduction of tax payer identification number.
The Auto Regressive Distributed Lag (ARDL) Model result suggested that the introduction of tax payer identification number (TIN) had a significant positive effect in combating tax evasion in Lagos State.
The result also revealed that before the advent of tax payer identification number, the total revenue realized by Lagos State board of internal revenue was very low when compared to what was realized after the introduction of tax payer identification number.

5.2 Conclusion

In examine the effectiveness of Taxpayer Identification Number (TIN) in combating tax evasion in Nigeria (case study of Lagos State board of internal revenue), this study adopted two different models, the first model showing the relationship between tax payer identification number and tax evasion in Lagos State before the introduction of (TIN) and the second model showed the relationship between tax payer identification number and tax evasion in Lagos State after the introduction of (TIN). From the empirical results obtained in chapter four, it is only suffices to conclude that tax payer identification number (TIN) has contributed to the curbing of tax evasion in Lagos State.

The study revealed that the internally generated revenue (IGR) before the introduction of (TIN) within (1997-2007) was not significant. Also, it was revealed that the introduction of (TIN) within (2008-2018) has witnessed a tremendous increase of internally generated revenue in Lagos State. So, we reject the hypothesis that stated that tax identification number does not have a significant effect in curbing tax evasion in Lagos.

Therefore, authorities and governments at all levels should collaborate to ensure the successful application of taxpayer identification number system in Nigeria, in terms of funding, personnel and platforms for the deployment of the system nationwide.

5.3 Recommendations

As a result of the findings of this study, the study recommended the following:

A holistic tax education should be carried out in order to keep the teeming taxpayers abreast of Taxpayer Identification Number programme in the state. Such as the benefit they can derive from registration for the taxpayer identification programme.
More registration centers should be created for ease of access and registration of taxpayers for the taxpayer identification number programme as oppose to only one registration center in Uyo.
There should be incentives for the Tax officials that are involved in the implementation of the programme to boost their productivity.
The State Board of Internal Revenue should be properly equipped to be able to carry-out the Taxpayer identification programme in Lagos State.
The enforcement unit of the State Revenue Board should be properly empowered to monitor, enforce and prosecute any errant tax defaulters who fail to comply with the Taxpayer Identification Number programme in the State.

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