Improving Tax Audit And Investigation In Nigeria

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Improving Tax Audit And Investigation In Nigeria


Abstract


The study focused on improving tax audit and investigation using Federal Inland Revenue Service (FIRS ) Lagos State as case study. 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 Pearson correlation Statistical Tool (SPSS v.2.3).

Findings from the test revealed that there is a significant relationship between tax audit and investigation in Nigeria in GDP. More also, the results show that tax audit and investigation aid resolving of the problem of tax evasion in Nigeria. The study recommends that there is a need for tax audit department autonomy to be able to carry-out their responsibility effectively as specified in Federal Inland Revenue Service Establishment Act 2007. Also, Tax audit should be carried out on a routine basis to prevent tax evasion and extreme tax avoidance by the tax payers.


Chapter One


Introduction

1.1 Background of the Study

Taxation worldwide constitutes a major source of revenue to the government for the funding of their capital and recurrent expenditures.

Taxation is defined as compulsory levy imposed directly or indirectly by the government of a state against the income, profit and wealth of the individual partnership and corporate entities for the purpose of providing social amenities to the people. For example, reduction in taxable person (or household) income by the amount paid as interest on home mortgage loans result in greater construction activity and generate more jobs. Udokang (2011 p. 5).

Taxation in Nigeria was consistently operated from the date of independence in 1960. Before 1940 Ordinance Lord Luggard has introduced income tax in Nigeria in 1914 which was known as community tax. Since then, the development of income tax has been greatly influenced by the provision of the 1954 constitution, which relates to the sharing of income tax revenue among tiers of government in Nigeria. Udokang (2011 P.1).

In recent times, there has been the urge for tax authorities in Nigeria to carry out spontaneous and sporadic tax audit and investigation on taxpayers especially corporate bodies suspected of tax evasion or tax delinquency. In doing so, the tax authorities in discharge of their duties as contained in the enabling tax laws, adopt various methods in tackling taxpayers. The taxpayers on the other hand, are quick to resist any additional tax burden that might drain their pockets. While tax authorities do have powers to conduct tax audit and investigation on taxpayers to ensure that the revenue due to government are not lost by way of false returns, these powers are however, not without legal Limit-Tax Audits and investigations are very complex and tasking processes and as such Tax Managers and their consultants must understand the rules of the game.

The Federal Inland Revenue Service (FIRS) is made up of six directorates which are: directorate of value added tax, directorate general of training and research, directorate of income tax, directorate of tax payers service, directorate of tax accounting unit and directorate of tax clearance certificate. The Federal Inland Revenue Service is a body charged with the responsibility of administering federal government taxes in Nigeria. The body has power of administration and collection over the following taxes, company income tax, petroleum profit tax, education tax and capital gained tax, personal income tax of residents of federal capital territory and account for amount so collected. The need to train and re-train officers on the technical aspect of these duties to enable them to be effective and efficient in the discharge of their responsibility is very necessary. Federal Inland Revenue Service has a lot of practical problems in the process of carrying out their duties of an assessment and collection of taxes.


1.2 Statement of the Problem

Government introduces taxation primarily to raise revenue to facilitate the adequate provision of basic amenities, security and favourable investment environment. However, these objectives called for a desperate need for identifying the problems/challenges associated with tax audit and investigation in Nigeria. In Nigeria the incident of tax evasion is very high. It is apparent that one major problem of tax audit in Nigeria is the weak administrative machinery, which makes it easy for tax defaulters to go unpunished or with minimal punishment. The problem of tax audit is how to simplify and enforce the provisions of tax laws and evolve an optimum tax structure that will aim at achieving desirable social goals and generally enhance voluntary tax compliance. Income tax administration has a complex operation, this is the reason the introduction of the self assessment system and the establishment of administrative machinery of tax audit and investigation are welcome development. No tax can conform to expected standard of equity, if it cannot be administered with a high degree of effectiveness.

Therefore, this research aims at improving tax, audit and investigation in Nigeria in terms of tax revenue and gross domestic product from 2005-2014.


1.3 Objectives of the Study

Based on the research work, the objectives of the study are geared towards achieving the following:

  1. To identify the possible relationship between tax audit and investigation in Nigeria.
  2. To identify the process which self assessment system help to reduce the problems of income tax administration in Nigeria.
  3. To identify empirically the weaknesses of tax audit and investigation in Nigeria.
  4. To examine whether tax audit and investigation helps in the reduction of tax evasion in the Nigerian tax system.
  5. To examine the extent to which tax audit and investigation assist voluntary compliance by the tax payers.

1.4 Statement of Hypothesis

The following hypothesis was drawn up to enable the researcher formulate variable for the study:

  • H0: There is no significant relationship between tax audit and investigation in Nigeria in terms of tax revenue and Gross Domestic Product (GDP) (from 2005-2014).
  • H1: There is significant relationship between tax audit and investigation in Nigeria in terms of tax revenue and Gross Domestic Product (GDP) (2005-2014).

1.5 Research Questions

The following research questions were formulated:

  1. What is the possible relationship between tax audit and investigation in Nigeria?
  2. Does self assessment system help to reduce the problems of tax administration in Nigeria?
  3. Does tax audit and investigation reveal weaknesses in the Nigerian tax system?
  4. Does tax audit and investigation help in the reduction of tax evasion in the Nigerian tax system?
  5. Does tax audit and investigation assist voluntary compliance by tax payers?

1.6 Significance of the Study

The study will afford us the opportunity to the concept and theory of tax audit/investigation and it roles on revenue mobilization, and the various means by which government has been using tax to generated revenue, and the important role of taxation in drawing the development agenda and planning the economy of the country. The study will also put forward relevant recommendations on improvements that could be made on the current practice of tax audit and investigation. The study will also provide an assessment of the transparency and integrity in carrying out the tax audit process in its current state. It will provide a clear picture of the level of efficiency and effectiveness of the existing tax audit/investigation practice in the Federal Inland Revenue Service in the Lagos Metropolis. The findings may also serve as a good reference source for further research into the tax audit.

It will also be useful to the member of the Chartered Institute of Taxation of Nigeria (CITN) who may wish to use it for future research and to the student, and researchers for further research study on the theory of tax audit and investigation.


1.7 Scope of the Study

The scope of this study borders on improving tax audit and investigation. The study will cover the possible relationship between tax audit and investigation in Nigeria. It will identify the process which self assessment system help to reduce the problems of income tax administration in Nigeria. It will identified empirically the weaknesses of tax audit and investigation in Nigeria. It will examine whether tax audit and investigation helps in the reduction of tax evasion in the Nigerian tax system. The scope of the study is delimited to Lagos State Region.


1.8 Limitation of the Study

This study could have covered a wider area, but was constrained by finance and time. Due to financial constraints, the researcher was not able to cover a wider scope. Additionally, most tax payers were unwilling to provide information about the study since most believed that the result of a tax audit and investigation on their books and tax payment was confidential and therefore were not very willing to provide all or the relevant information needed for the project. Finally, some respondents were not keeping proper records of their business activities and therefore could not give adequate and correct information on the effect of taxation on their business activities and the rippling effect of tax audit and investigation on the economy of Nigeria.


Chapter Five


Summary, Conclusion and Recommendation

5.1 Summary

The study focused on improving tax audit and investigation using Federal Inland Revenue Service (FIRS ) Lagos State as case study. It examined whether tax audit and investigation helps in the reduction of tax evasion in the Nigerian tax system.

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 Pearson correlation Statistical Tool (SPSS v.2.3).

Findings from the test revealed that there is a significant relationship between tax audit and investigation in Nigeria in GDP. More so that An average Nigerian has no faith in the government and will not want to entrust their resources to the government as such payment of taxes will be ranked among the least obligation they owe to the government at all levels.


5.2 Conclusion

Tax audits and tax investigations are considered to be complex and tasking processes thus tax authorities and their consultants must understand the ‘rules of the game’.

The study revealed that tax audit and investigation has significant effects on revenue generation in Federal Inland Revenue Service. This implies that tax audit and investigation ensures arithmetic accuracy of all figures in account and computation in taxpayers records; tax audit ensures compliance with tax laws, rules and regulations by the taxpayers.

The study also revealed that there is a significant relationship between the increase in the revenue base of the government and tax audit and investigations in Nigeria. However, tax audit has a positive relationship with the revenue generation in Federal Inland Revenue Service. This means that an increase in tax audit increases revenue generation from taxes; an increase in tax audit increases tax bases for the government and an increase in tax audit reduce tax fraud in the tax system. This is in part in agreement with Yongzhi (2005) who concluded that, there is a positive relationship between the audit and the voluntary compliance.


5.3 Recommendation

From the findings of the study, the following recommendations are made:

Tax audit department should be given autonomy to carry-out their responsibility effectively as specified in Federal Inland Revenue Service Establishment Act 2007.

Relevant tax authority, tax auditors, and FIRS staff should have full knowledge of modern audit tools like, Computer Aided Audit Tools (CAATs) to enhance performance and maximum tax revenue generation. The importance of tax revenue to the government cannot be over emphasized especially now that government over dependence on oil revenue is failing due to global drop in crude oil prices. All relevant authority should encourage tax audit for increase in tax revenue, in order for government to keep up with its obligation to her citizen.

Tax audit should be carried out on a routine basis to ensure that actual revenue collected is what the relevant tax authority remits to the government. Tax audit prevents tax evasion by the tax evaders and avoiders. Internal mechanism to check and monitor the staff of the tax audit department should be put in place to minimize the level of corruption and enhance effectiveness of the tax audit.


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