The Management And Utilization Of Tax Revenue

Project and Seminar Material for Accountancy / Accounting

The Management And Utilization Of Tax Revenue


Abstract


This research study deals on the “the management and utilization of tax revenue in Enugu State (a case study of Enugu State Board of Internal Revenue Enugu).

To start with, the statement of the problem, purpose of the study, research questions and hypotheses were formulated in chapter one based on the objective of this research work.

The research methodology provides an account for the research design, which serves as a guide for data collection.

It identifies the basis for generating new ideas, information and technology.

The target population being business organization that are taxable operating within Enugu State.

The source of data were also defined, which are primary and secondary data that were collected in the course of the study.

After the research analysis, among the major conclusion are:

  1. Government should educate the public on the important of paying their tax as at and when due and also on the danger of tax evasion and avoidance.
  2. From all indication, it is apparent that greed is the cause of embezzlement of tax revenue so government should device a means of dealing with these greed officials.

Chapter One


1.0 Introduction

1.1 Background of the Study:

In Nigeria Government capital expenditure has continued to rise due to the huge receipt from production and sale of crude oil, increase tax revenue, and the increase demand for public goods like road, communication, power, education and health. Beside there is the increasing needed to provide both internal and external security for all the people and the nation. Available statistic showed that government capital expenditure has continued to rise in the last three decades. For instance government capital expenditure increased from N187. 8 million in 1970 to N10,163.4 million in 1980 and further to N960,900 million in 2008. Unfortunately rising government expenditure has not translated to meaningful economic growth and development as Nigeria ranks amongst the poorest countries in the world (Baghebo, 2011).

Throughout the 1970s and 1990’s much of Public Sector investment which accounted for two third of total investment during the period 1973 – 90 was directed towards promoting economic growth. Unfortunately the growth rate was very poor. For instance the growth rate of real GDP was – 0.3%, -5.4% and -5.1% in 1983, 1984 and 1985 respectively which were inadequate to support a population growth rate of three percent. Similarly in 1993, the growth rate of real GDP was 2.7 percent, and one percent in 1994 which was too low to support the population growth rate of 2.8 percent (CBN, 1996).

Indeed, rapid economic development and improvement in the quality of life have not been realized as many Nigerians are poorer today than they were in the 1960s and 1970s. For instance at independence in 1960, Nigeria’s poverty rate was 15 percent and this translated into about 8 million Nigerians. Forty five years after independence (2005) the population living below the international poverty bench mark of $1 a day was 54.4 percent (Baghebo, 2001; 2011).

The increasing cost of running government coupled with dwindling revenue has left various state governments in Nigeria with formulating strategies to improve the revenue base. Moreso, to improve the revenue base. Moreso, the near collapse of the National Economy has created serious financial stress for all tiers of government. Hardest hit are the state governments all of whom have experienced unusual reduction in their share of the national revenue from the federation account. Despite the numerous sources of revenue available to the various tiers of government as specified in the Nigeria 1999 constitution, since 1970s till now, over 80% of the annual revenue of the three tiers government of movement come from petroleum.

However, the serious decline in the price of oil in recent years has led to a decrease in the funds available for distribution to the states. The need for state and local governments to generate adequate revenue form internal sources has therefore become a matter of extreme urgency and importance. This need under scores the eagerness on the part of state and local governments and even the federal government to look for new sources of revenue or to became aggressive and innovative in the mode of collecting revenue from existing sources.

The increasing cost of running government is becoming alarming some budgets find recurrent expenditures outplaying capital expenditures. This increasing cost of governance has forced some state to formulate other means of improving their revenue base. It is said that up till now the Nigerian economy has not been diversified from crude oil revenue only since the 1970s Nigeria revenue from crude oil stand over 80% of her annual revenue while other sectors such as th`e extractive sector and agriculture has received little or no attention or out rightly abandoned.
recognized this public duty thus: “a tax is an impose by a state on persons who are resident or who earns income with in the state”. In the same vein Olukoya (1993), stated that “fundamentally, however, it is compulsory levy on income, since the decision to pay tax is not that of the tax-payer. No rational human being would voluntarily subject his earnings to tax. People pay tax because the law stipulates so”.

The resources raised from tax are used by the authorities (governments) to run the affairs of the state. In under developed economics the money realized through taxation is too meager as compared with other developed world.

This results in shortage of capital. Therefore, the problem of capital formation in the under-developed economics, as it relates to public finance are broken down into three (3) main parts:

The first concerns the financing of social overhead investment, which must be undertaken by the government. The second deals with an intermediate zone, in which the actual investments or projects are in private hands, but the funds are made available through government finance (public finance/fund). The third deal with the necessary incentives to private investments, both domestically and internationally. The instruments which are used to grant these incentives, to the private investments, are taxation and other fiscal measures.

In the above three (3) directed towards maximizing savings, mobilizing revenue for productive investments and directing or monitoring them so as to serve the purpose of a balanced development programme.

Lawal (2007), “Taxation is this: a system of mobilizing and moving resources between the different sectors of the economy. It is an instrument for redistribution of wealth among the people in an economy”.

Whenever tax matters are in discourse, it pre-supposes the existence of a higher authority in any given socio-economic system.

To this end, tax is a universal liability and one cannot avoid the payment of tax just by avoiding the use of any amenity built with tax money. It is essential therefore, for one to understand that some amenities have inclusionary factors. One cannot say, for instance, that does not want to benefit from national health services, electricity or water supply etc which have exclusionary factors. One can always avoid paying water or electricity bills just by abstaining from the use of it.

Further more, it is impossible to measure the amount of benefits derived by (A) from national defence as against that derived by (B). In order to ensure equity, therefore, (A) and (B) should pay the same amount as tax. The general determinants of the amount payable by each will now be their income. Lawal (2007), said “it should be realized that in most countries today, the government has become the greatest spender of money. Taxation has not only influenced the economy of these countries, it has also, become an important instrument of economic policies. Thus, an increase in government spending (tax money) rightly involves a corresponding decrease in individual spending.

Enugu State board of internal revenue is the agency or department of government that is responsible for tax collection in Enugu State. This board itself is an annex of the state ministry of finance, and the economic development and utilization of the tax revenue is their reasonability. The board has the power to assess and subsequently collect taxes from persons, institutions, organizations etc which are taxable within Enugu State, its area of jurisdiction. However, this is with the exception of united liability companies member of the armed forces, the police etc which are within the federal government exclusive list.

In less developed economics like Nigeria, the government is finding it increasingly difficulty to marshal the necessary resources in the right place at the right point in time. Bird et al (2000)” in under developed economics, tax resources account for about (10-15) percent of national income while it goes up to 30-40 percent in advanced countries it is this, common knowledge that the less developed counties is the lower in ratio of tax payment to national income. This is as a result of ignorance of the main objective of taxation as well as the prescription of the efficiency or other wise of the management and utilization of tax revenue by the government. Hence these conditions must exist to ensure efficiency in income taxes.

  1. Existence of a money economy
  2. High standard of literacy among tax payers.
  3. Proper accounting records of tax proceeds
  4. Voluntary compliance by the tax payers
  5. Political stability
  6. Honest administration of tax revenues.

These aforementioned conditions are often lacking in many cases. In essence, if a tax system is seen to be effective, it pre-supposes that efficient and self –accounting structure has been put in place to ensure maximum benefits for instance, some people argue that tax should be used to check unnecessary diversion of wealth and savings into land, inventories, building and other investments held for speculative or prestigious purposes. However, in as much as the government may levy some taxes to check the excesses of some individuals (i.e by reducing their disposable income). It should also use taxes as an economic catalyst. Nowadays, the term “tax-payer has expended to include both women in salaried employment and others with an identifiable source of income.

Furthermore, tax policies should be formulated in a way to encourage private initiative in commerce and industry. Another problem in taxation that should receive our due attention is public resistance against civic obligations, especially taxes. It has now gotten to a stage where government employs the service of armed forces and even price fighters to do the job of tax collection so as to crush the resistance of tax defaulters.

But people should not wait to be coerced before they can perform their taxes. How could we make the equation balance? Even civilization has not given the city people needed education on the purpose of taxation. Some opinion leaders contend that is it unwise to make sweeping generalization on people’s negative attitude to tax.

This is because some people are more interested in seeing the right application for tax money rather than deliberate refusal to pay tax. Quite often, there is a missing link between the tax collectors, the officials of the Board of Internal Revenue, and the point of payment into Government Treasury. And so much money has in this way been diverted to private pockets.

In principles, all adults from the age 18 years and above, but not above the age of retirement, if the tax payer is a salary earner, are liable to pay tax. But in practice, it is only those that have known source of income that the law expects to pay tax. However, every adults is a potential tax-payer and is consequently required to pay tax as a way of encouraging people to work for a living.

Every year, budgets are drawn within having a reliable estimate of expected tax revenue. Nevertheless, tax is still expected to improve the economic life of the state and the nation at large.


1.2 Statement of the Problem:

A good number of government projects over the years have been abandoned because of reasons, which are not clear to the citizens of Enugu State. Some of the projects include road, water and electricity. Ore recently, civil servants in the state have not been receiving their salaries as at and when due. The non-payments of salaries have caused untold hardship to those groups of workers.

Inquires as to the causes of the uncompleted projects, non-payment of salaries etc have received conflicting answers. The government claims that the citizenry of Enugu State reluctant to pay their tax. In Enugu State, civil servants are about the only group who pay their taxes as at and when due.

In view of the above elected reasons, the researcher was prompted to conduct this present researcher study aimed at determining the various reasons why the government do not collect enough revenue which will assist her in providing these essential services to the people of Enugu.


1.3 Objectives of the Study

The general objective of the study was to examine the management and utilization of tax revenue in Nigeria.

The specific objectives include:

  1. To examine the relationship between petroleum profit tax and the Nigerian economy.
  2. To examine the Impact of Personal Income tax on the Nigerian economy.
  3. To ascertain the effectiveness of company income tax on the Nigerian economy

1.4 Significant of the Study:

It is hoped that the study will be of immense assistance to:

  1. The government to see the need to carry the people along in planning the programs and projects to be executed with the tax money.
  2. It is expected that collectable revenue from taxation will rise, if the government would fully implement the recommendations of this study.
  3. Perhaps with the enhancement of government. It is hoped that the study will be valuable to the tax management, as it will enable them to be aware of the several techniques available with which they can use to utilize the tax revenue in their organization.

To the government, the financiers, the revelation because it will expose the obstacles and limitations of the techniques of management and utilization of the tax revenue being apply by one organization which they utilize. It is also believed that if effective techniques are used in management and utilization of tax revenue, every naira spent by the government will yield a naira worth of social benefits. Thus the government objective of tax revenue for all the years might be a reality.

For citizen, who pays tax the study will enable them to believe the justification of the taxes, which they paid as they will enjoy optimum social benefits for every naira levy.

Finally, this research report will enable students of management especially Accountancy Student to have an in depth knowledge of the techniques of utilization, tax revenue available to non-profit making organization especially those funded and controlled by the government. For the student of accountancy, this research, project will help them to understand the audit of government organization when the government relinquishes such audit over to certified public accountants.


1.5 Research Questions:

The researcher carried on to the extent of interviewing some personnel in Enugu State Internal Board of revenue to acquire fact concerning the management and utilization of tax revenue in Enugu State.
An attempt was made to find solutions to the following questions.

  1. How is the tax collection machinery in Enugu State at question?
  2. Are the amenities provided by the government in comparison to tax collector?

1.6 Research Hypothesis:

In line with the above objectives the following null hypotheses were formulated:

H01: There is no significant relationship between petroleum profit tax and gross domestic product.

H02: There is no significant relationship between personal income tax and gross domestic product.

HO3: There is no significant relationship between company income tax and gross domestic product.


1.7 Scope of the Study:

Scope and limitation of the study; when embarking on a case study like this or any research work of that matter. It is proper to be liberal in data absorption because any information you got could be critical to the study. For this purpose, this study was intended to cover all the tax units, agencies including zonal tax offices in Enugu State to give a clear picture of the study.

However, due to time financial and administrative constraints, the scope of the study was limited to Enugu State Board of Internal Revenue Headquarters situated at the secretariat Enugu.
Furthermore, the senior and junior staff of the board, tax collectors and selected tax payers were interviewed.


1.8 Limitation of the Study:

The research earlier had the intention of covering all the government owned revenue expenditure in the Eastern State of Nigeria, however, time and financial constraints have hindered this intention. The study is limited to board of internal revenue Enugu.

It is believed by the researcher that the techniques used by these revenue expenditure closely approximate general practice. The accuracy and effectiveness of the report is hindered by lack of earlier studies on the topic. This made the review of related literature very difficult the researcher had to reduce some of the technique applicable from the work.


1.9 Definition of Terms:

Payee:

Pay as you earn income tax on wages and salaries deducted periodically as income tax. It is a good example of convenience.

Import Duties:

These are duties that are levied on imported items.

Export Duties:

These are goods that are levied on exports.

Exercise Duties:

These are known as those duties imposed on goods and services produced and consumed locally.

Value Added Tax:

This is an indirect tax. It is a consumption tax. The different between sales and profit is known as

VAT:

Vat is comprises of output vat which are vat chargeable to goods and services while input vat are those vat chargeable to goods and services that are purchased but on vatable persons.

Vatable Persons:

This is an importer, it can be an individual or group

Input vat:

purchasing

Output vat:

Selling

Convenience:

Taxes should be collected at a time convenient to the taxpayers.

Incommensurate:

This means not of size, importance and of quality. That is to say that, the amenities provided by the government are not of size, importance and of qualify. The government should try as much as they can to make it commensurate.

Property Tax:

This is known as tax levied on certain types of property such as land and building.

Tax Incidence:

This is the burden of tax responsibility that falls in the individual, institute or organization paying the tax.

Tax Evasion:

This is a criminal act because the offender makes false claims and declarations to the tax authority so as to pay tax.

Tax Avoidance:

It is known as the legal organization in order to minimize their tax liability.

Tax Payer:

The payer is the individual, institution or organization that has the duty to pay tax.


Chapter Five


Summary of Finding, Conclusion and Recommendations

5.1 Summary of Findings and Conclusion

Major findings of this study revealed that there is a significant relationship between Petroleum Profit Tax and the growth of the Nigerian economy; there is a significant relationship between Non Oil Revenue and Gross Domestic Product and there is no significant relationship between Company Income Tax and Gross Domestic Profit.

Apparently, the place of taxation in a nation building has been described as irreplaceable. According to economic analysis, taxation remains a strong socio-political and economic tool for economic growth and national prosperity. Although the issue of tax leakages is of global concern the Nigerian situation seems inimitable when viewed against the scale of corrupt practices prevalent in Nigeria. As pointed out by Reynolds (1963), since tax is a principal source of government revenue, if persons are able to escape by legal or illegal means, the theoretical equity of the tax to a large extent is lost, and so, tax evasion and avoidance to a large extent depress the effectiveness of the government in enhancing economic growth and development. (Sanin, 2005 and Nzotta, 2007).

Also, the provision of basic infrastructure is quite necessary for development and growth of any society, and it is only by a good and an efficient tax system can a nation achieve its social responsibility. However, the poor state of the present economic growth rate in Nigeria is pointing to the direction of tax leakages in the form of avoidance and tax evasion (Kiable and Nwokah, 2009) which the government could minimize if proper tax reform strategies are established. In addition, this study reveals that the most fundamental challenges with respect to tax leakages is expedited by the lack of good governance on the part of the government which highly discourages the populace from complying willingly with their tax obligations.


5.3 Recommendations

The following policy recommendations were proffered from the findings of this study.

  1. Government should endeavour to provide social amenities to all nooks and crannies of the country as this will boost the level of tax compliance in Nigeria.
  2. To enhance the tax base of government, employment opportunities should be created and a good environment for entrepreneurship and innovation to thrive made using tax proceeds.
  3. Also the government should engage in a complete re-organization of the tax administrative machineries in order reduce tolerable problems of tax evasion and avoidance.
  4. Finally, the culture of good governance should be embraced by the government so as to secure the loyalty of the populace to good tax culture.

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