Personal Income Tax Collection And Management In Nigeria (A Case Study Of The Federal Inland Revenue Services Owerri)

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Project and Seminar Material for Accounting


Abstract


It is well known fact that there are numerous problems inherent in the Nigeria Personal Income Tax System. With the present economy, a lot of problem emanated from the assessment, collection and management of personal income tax. Personal income tax is a source of revenue to the government and, therefore, must be saved from the setbacks. Since we are not in an ideal world, the problems associated with personal income tax may not be completely eradicated but can be reduced to a manageable extent. It is intention of this work, therefore, to find some of the hindrances militating against the tax system and to find possible remedies.

Prior to this research work, the writer held the view that people avoid to pay taxes and the beards responsible for tax collection administration are just ignorant of the importance of their task the effects. An in-depth research carried out into the system revealed, among others, people do not show commitment in this respect due to lack of adequate trained personnel in Nigerian laws and other laid down principles are not strictly followed.


Chapter One


1.0 Introduction

This is the introductory chapter of the chapters. is briefly explains the background of the study, statement of the problem, objectives of the study, research questions, statement of hypothesis, significance of the study, scope of the study, limitations of the study and definition of terms.


1.1 Background Of The Study

For development and growth in any society, the provision of basic infrastructure is quite necessary. This perhaps explains why the government shows great concern for a medium through which fund can be made available to achieve their set goals for the society. Government needs money (funds) to be able to execute its social responsibility to the public. Meeting the needs of the society no doubt calls for huge funds which an individual or society cannot contribute alone,hence it becomes the responsibility of government to source for funds to enable her provide these basic amenities to the citizenry who are the beneficiaries. One of the medium through which funds is derived is through taxation.

The advanced learners dictionary defines tax as sum of money to be paid by citizens(according to income, value of purchase etc) to the government for public purposes. Yaru (1999)defined tax as a compulsory contribution whether direct or indirect, levied by a public authority on the inhabitant of a country. There are various classes of tax but all of them are usually classified as direct and indirect taxes. This classification is usually based on the incidence of the particular taxes. Direct taxes are more visible to the tax payers and they include such taxes as income tax, estate duty and property tax levied on the parson (whether individual or no individual).

An effective tax system ought to satisfy the twin purpose of raising maximum revenue and at the same time encourage economic growth and development.An effective tax system, aside from maximizing revenue for development, ought to, if well structured and managed to elicit the feeling of common purpose, joint responsibility of obligation amongst the tax officials in a country. This research is intended to study the hydra-headed problems of tax collection and administration in our tax system and also proffer solutions for improvement.


1.2 Statement Of The Problem

Tax collection no doubt pose lots of challenges in the tax system, the Nigerian situation in general and those Adamawa in particular, seems unique when viewed against the scale of corrupt practices prevalent in country. Under direct taxation as practiced in Nigeria, the major problem lies in the collection of the taxes especially from the self employed such as the businessmen, contractors, doctors, accountant, architects and traders in shop among others in Adamawa state. As observed by Ayua (2001), civil servants and other salaried workers are theonly class of people that actually pay tax in Nigeria. However, even among the salaried workers.


1.3 Objective Of The Study

The objective of the study is to study the effectiveness of personal income tax collection in Nigeria. In specific terms the study is designed to:

  1. Determine the effectiveness of personal income tax collection in Nigeria.
  2. Identify the possible causes of ineffective tax collection system.
  3. Identify ways of ensuring an effective tax system in the country.

1.4 Research Question

This research is aimed at providing answers to the following research questions:

  1. Is the collection of personal income tax in Nigeria effective?
  2. What are the possible causes of ineffective tax system?
  3. What are the possible ways of ensuring an effective tax system in the country?

1.5 Significance Of The Study

This research will be of benefit to students, researchers, government, and the tax officials in Nigeria in the following ways:

This study will help to fill loopholes as regards the literature on personal income tax, hence, aiding the bases for further research in this area. This research will also broader the knowledge of students in the area of personal income tax.

Government on its part can use the study in the formation of policies so as to ensure an effective tax system, tax officials in particular will gain better insight on how efficient they should go on with their assignment so as to bring sanity and gain public trust


1.6 Scope Of The Study

For convenience purpose, the federal government Board of inland Revenue Service, located in owerri imo state is to be used for this study. This is because tax officials is hoped to be assessed together here, and moreover it is the researchers place of residence. This study is premised at studying the effectiveness of personal income tax collection by obtaining responses from revenue official of the State Board of Internal Revenue.

Thus, the study was restricted to also identifying the possible causes of ineffective tax system and the possible ways of ensuring an effective tax system in the state. The research covers a period of ten years(from 2001 to 2011), this is because the researcher can effectively lay hand on materials relating to these periods.


1.7 Limitation of the Study

In the course of the study, the researcher encountered some problems. Some of these envisaged problems are:

Financial Problem:

High cost of research materials or instruments and cost of transportation to the board of internal revenue.

Confidentiality:

Some data may be confidential and cannot be released by the tax officials due to its sensitive nature.


1.8 Definition of Terms

For the purpose of this study the following is defined

Assessment Authority:

This is the body appointed by the board for the purpose of assessing tax payable.

Company:

A company is defined by section 3(1) of the act as “any co-operation(other than a corporation sole) established by or under any law in force in Nigeria elsewhere”. The relevant tax authority in respect of company income tax is the Federal Board of inland revenue.

Efficiency And Effectiveness:

Horngreen (1984) defines efficiency as an optimum relation between input and output whereas effectiveness is the accomplishment of pre-date runnined objective. Tax collected can only be said to be effective when a high proportion is actually collected. Similarly for efficiency and assessment should be less than the revenue accruing from such expenditure.

Federal Inland Revenue Service (FIRS):

This is the body set up by section 5.1 of ITA (1979) and charged with the overall administration of companies income tax act.

Income:

There is no statement that defines the word “ income“ in taxation status. However, for the purpose of this study reference is made to section 5.4 (2) (6) of income tax management act (ITMA)1961, which recognizes income as including any amount deemed to be income under the act.

Tax Arrers:

These are assessment of tax during the preceding period whose payment are received at the current assessment period.

Tax Avoidance:

This is the arrangement of the affairs of the tax payer in such a way as to reduce tax payable. Tax avoidance is not a criminal or crime punishable under the law. This was clearly stated in Lord Tumbling declared as follows in his judgement

Every man is entitled to order his affair so that the tax attached under the appropriate tax act is less than is otherwise would be.

According to Longman Dictionary of contemporary English, tax avoidance are Legal way of paying less tax.

Tax Base:

This is simply that object on which tax should be imposed or applies.

Tax Evasion:

Is a fraudulent, dishonest intentional distortions or concealment of fingers by the tax payer in order to reduce the tax payable. It is a criminal and deceitful was of not paying tax or reducing ones tax liability. These offences are punishable under law.

According to Longman Dictionary of contemporary English Tax evasion are the illegal ways of paying less tax.


Chapter Five


5.0 Summary, Conclusion And Recommendation

5.1 Introduction

This chapter focuses on summary, conclusion and recommendations. In this research, an attempt has been made to assess the impact Of personal income tax collection and administration in Nigeria.


5.2 Summary

The researcher in this work devoted a good deal of attention to the structural deficiencies of the Nigerian Tax System in the area of personal income tax collection. We have also tried to ask in our treatment of judicial and legislative approach to tax offences and penalties.

The mess in to which the present Nigerian Tax System has drifted in encouraging the incidence of tax offences and penalties has been documented in this research work.The shortcoming involved in the collection of tax in Nigeria include staffing, inadequate communication system, lack of coordination between government departments, problems of identification of taxpayer place of residence, bad forth tax collections, the collectors, the way the tax collected is spent and the lack of coordination from taxpayer. The various observations were made.

Many tax departments do not have full time instructors with the result that training arrangement for newly employed staff grossly inadequate and unsatisfactory. In many cases new employees are thrown on the job without any formal training and as tax practice is a specialized type of job, they cross which in many cases result in a loss of revenue to the government.

Also, inadequate communication system is one of the factors that hinder collection of taxes. In many of the offices, there are no communication gadgets which are very essential for effective collection of taxes in urban areas. The result is that many taxpayers are never reached before the close of the financial year.
In addition, many of the taxpayers change their address and residence without informing the tax department. Many of them have no fixed office or residential address at which they can be reached.

Unfortunately, a person may have more than one place of residence and this may give him the opportunity of doing tax liability by being unstable as he has more than one residence. In Nigeria members of the upper socio-economic group are for more quality of major tax evasion and avoidance than average people are, because the upper class seeks to enjoy immunity from tax prosecutions. Also, though the public perception of tax evasion and other tax offences should be taken into account, when forming social and legal policy, the Nigeria public does not seem to appreciate sufficiently the negative effect of tax evasion and other related tax offences. Moreover the penalty provision which introduce a long time ago consisting of small lump sum fines, lack sufficient determined magnitude to increase taxpayer compliance or to discourage or prevent the taxpayers inclination toward evasion or avoidance which may seem more profitable these in a period of booming economy. Also, the attitude of our tax officials has been mainly passive, more especially towards the enforcement of the penalty provisions.

As P.S.A. Leyode has revealed himself a senior tax official1 We (tax officials) very rarely use the criminal penalties. No one is known to have convicted and imprisoned for giving incorrect information for aiding, abetting, assisting, counseling, inciting or inducing a taxpayer to deliver fable returns where such fraudulent intent is established.
Nevertheless, whether view one have of the economic; social and moral seriousness of a payment of tax, there remains the question as to what possible reasons are there for evasion and other tax offences and what legal sanctions or different are provided? Furthermore, lies also the issue of what the law in this area should take and what investigation powers should be granted to revenue agencies.


5.3 Conclusion

Taxation is considered to be one of the most reliable resources of revenue available to the government. It is still doubtful however, if our tax law after several years of amendment, experience can stand or have met the test of time. It is in some of these areas, and particularly personal income tax management under the tax law that this study tried to observe that our law on the subject required perhaps some overhaul. This as shown becomes significantly necessary as our dear nation cannot afford to continue the high loss of tax revenue due to fault, some of which can be attributable to the law itself. The statutory provision for offences and penalties per se are insufficient. Thus, something more or on in addition has to be done by the law if a positive and reliable tax system is to be fostered.


5.4 Recommendation

Having considered some of the main set back in our tax system there is need to advance certain recommendation which may bring about some improvement in the system. Human resources or manpower alone will not be enough without their effective training to force their enormous and sophisticated tasks taking consideration the rapid socio-economic changes. Also, there is need to introduce computer technology to assist the workers in the computation, collection and alteration as the case may be of task scale exemption and relate.

The taxpayer should be finding the properly assessed and payment too should be made properly. This can be achieved not necessarily by imposing punishment but by introducing measures which will make it possible for the tax authority to assist the reasonably accurate taxable income be done within the assistance most if all cases. Thus it suggested can be done with the assistance of the taxpayer concerned.

The assessment and collection by tax administration have direct boring on prevention of tax evasion. It is the view of many people that the loss of revenue caused by widespread tax administration. Inefficiently involve many issues, it could be the administration machinery itself, the personnel etc. The tax authority should be granted more power in aid of assessment, for example the right to forcible entry when necessary into companies’ offices and other taxable person to examine document. They should also be given the right to the rough bank of suspected evaders or on the alternative, all banks should be under duty to inform tax authority request any income standing in the account of any taxable person.

One other area of practical importance that requires review is the need for a reasonably fair remuneration or tax package for our tax administrators as the will minimize cases of unfair assessment of the taxpayer as a possible connivance in the name of bribe corrupt means. Elimination of undesirable administrative deficiencies which many frustrate the objective underlying taxation necessary, the structure is to effectively play its role in the socio and economic development of the country as expected. The present trend in which tax legislation are not coherent enough as they are being influenced in some way by a selfish is not the best unfortunate as it may hamper the suggestion measure way or the other.

Fair assessment of the taxpayer as pointed earlier demand absence of arbitrariness but the present system in which the tax official raises assessment based on the best judgment is arbitral and requires readdress for a proper and fair assessment as suggested. The demand that there be a measure or standard set or lay down and not to be left at the whim and caprices of the taxpayer of the officials. Closely connected with the fair assessment of the taxpayer, the payer should be made by the government to feel the tax he pays is channeled to the provision of infrastructure facilities.


Personal Income Tax Collection And Management In Nigeria (A Case Study Of The Federal Inland Revenue Services Owerri)


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