Personal Income Tax In Development Of Nigeria Economy

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Personal Income Tax In Development Of Nigeria Economy


Abstract


This research presents the results of the impact of personal income tax. The population for the study consists of 100 people which were randomly selected, Data were gathered using a self -constructed questionnaire and the result gotten was analyzed using the simple percentage method. The validity and reliability of instrument were ascertained. The result of the study revealed that people hardly pay their income tax and also personal income tax affects the economic development in Nigeria. Results showed that there is a positive relationship between the contribution of taxes and economic development and that tax revenue has a great impact on the GDP of Nigeria. However it is recommended that Notice of tax returns at the beginning of very financial year should be supported with handbills and poster written in local languages such as Yoruba, Hausa, Igbo and others to also enable illiterates remained to civil responsibilities


Chapter One


Introduction

1.1 Background To The Study

Tax is defined as money that has to be paid to the government by the people according to their profits on goods and services provided. Chris and Elizabeth (2001) also defined taxes as a forced proportional contribution from persons and property levied by the state by virtue of its sovereignty for the support of government and for all public needs.

Generally, taxation can be described as a form of levy imposed on all residents living and non-residents doing business within a tax jurisdiction. It is a civic and patriotic responsibility of citizens to pay taxes imposed which also come to the government as income or revenue yielding device to finance the provisions of socio-economic and infrastructural amenities and also to enhance industrial efficiency.

The history of taxation in Nigeria dates back to the pre-colonial period. According to Lekan and Sunday (2006) before the colonization of the different entities which were later amalgamated under the name Nigeria, there were different systems of taxation existing in the form of compulsory services, contribution of goods, money, labour and so on amongst the various kingdoms, groups and tribes controlled by the Obas, Emirs, Ezes, Attah of Igala, Tor of Tiv, Ohinoyi of Ebira and so on in order to sustain the monarchs.

The various taxes levied by the different ethnic groups by the kings according to Ola (2004) took several forms such as ‘Zakkat’ levied on Moslems for educational, charitable and religious purposes, ‘kudin-kasa’, a form of an agricultural tax levied on utilization of land, ‘shuka-shuka’ levied on the ownership of cattle based on the member of cattle, ‘Ishakole’- contribution of farm products as a form of land tax in exchange for the use of land for agricultural purposes payable to Obas, chiefs and family community heads, community tax payable by all adults in order to execute projects beneficial to the community; ‘Oko-ane’ payable to Attah Igala for hunting in a particular forest, ‘Osusu Imachi-Nkwu’ payable to Ezes in Igbo land by those who harvest palm fruits and are expected to contribute proportion of the harvested palm oil. In Tivland in Benue state certain taxes are paid by couples during marriage ceremonies which are used for various community development projects.

The present form of taxation in Nigeria could be traced to the establishment of a British colony in Lagos on August 6, 1861 and subsequent amalgamation of the Southern and Northern protectorates of Nigeria in 1914.

During the colonial era according to Yerokun (1997), the imposition of any type of tax on citizens (individuals and corporate) took the form of promulgation of laws by the colonial authority. Examples of such law include Native Law ordinance cap 74 of 1917 applicable to Western Nigeria. The re-enactment of the same law in 1929 according to Ola (2004) which for the first time imposed taxes on women resulted in the Aba women riot of 1929. Another law was that of non-natives protectorates tax ordinance of 1931. The ordinance was later repealed and incorporated into the taxation ordinance No. 4 of 1940 and subsequently re-enacted as the Income Tax Ordinance (ITO) 1943.

The above tax laws according to Yerokun (1997) were administered on individuals and corporate entities by various tax and revenue officers in the different provinces and regions. In order to promote uniformity in the incidence of taxation throughout the geographical entity called Nigeria according to Lekan and Sunday (2006), the colonial government in 1958 set up the Raisman Commission. The commission at the end of its work recommended the introduction of uniform basic income tax principles for application in all regions of Nigeria. This recommendation was accepted by the government which incorporated the same into the 1960 constitution of the Federal Republic of Nigeria. This led to the promulgation of the Income Tax Management Act (ITMA) 1961 and Companies Income Tax Act (CITA) 1961.

The above legislation (ITMA and CITA) 1961 were later repealed and re-enacted as the Personal Income Tax Act (PITA) 1993, and the Companies Income Tax Act CAP 60 LFN, 1990 respectively. As a result of the work of the Tax Laws Review Commission, these laws have been reviewed and updated and are included in the laws of the Federal Republic of Nigeria 2004. The current law that governs the administering of Personal Income Tax (PIT) is the Personal Income Tax Act Cap. P8 LFN 204 which imposes tax on incomes of individuals and corporations.

Tax according to Nightingale (2000) under any jurisdiction is discriminatory in the sense that it is assessed on persons or property based on profits/incomes or gain, the benefit derived by citizens from tax payment is without reference to the contribution of individual tax payers. In line with this, according to Ariwodola (2000) it is accurate to say that the primary objective and purpose of taxation in most nations of the world is essentially to generate revenue for government expenditure on social welfare such as provision of defense, law and order, health services and education. Revenue from taxation can also be spent on capital projects otherwise called consumer expenditure, creating social and economic infrastructure which will improve the social life of the people.

In Nigeria today, tax administration has been a challenge Naiyeju, J.K. (2010) highlight the various Challenges of the Tax collection and Administration in Nigeria Today as Administrative Challenge, Compliance Challenges, Lack of Equality, Challenge of Multiple taxes, Poor Taxation Drive by tiers of Government, Challenge of Bad Governance, Challenge of Corruption and Challenges of Human Capacity Building and Training.

The aim of this research project is to look into various constraints faced in the administration of Personal Income Tax and examine its economic benefits to the development of Lagos State. Also, proffering solutions as regards strategies to be adopted by revenue authorities for expanding the Nigerian tax net to improve tax collection drive.


1.2 Statement Of The Problem

Personal Income Tax is a global and wide topic that undisputedly requires investigation and provision of possible solution to the problems associated with effective administration of tax. Most of the Tax authorities (especially the States and Local Government) lack the desired institutional capacity to administer effectively the taxes under their purview (capacity in terms of staffing, skills, salary pay, other funding, computer and IT infrastructure etc).

Non-compliance of employers to register their employees and remit such taxes to relevant tax authorities. Many evade the tax in the cities and rural areas. SMEs, informal sectors and even big companies carry out evasive practices.

The bulk of PIT today are paid by only the employees. Politicians, the rich, professionals and the privileged, few are not equitably taxed. Multiple taxes is still a major problem besetting our tax collection and administration.

Poor Taxation Drive by tiers of Government: The political economy of revenue allocation discourages a proactive revenue drive, especially by the states and LGs. They heavily rely on their share of the oil revenue.

Challenge of Bad Governance: Taxpayer are not encouraged to pay more taxes because there is no visible evidence of good governance.

Challenge of Corruption: The tax collection and administration is often prone to corruption. The corruption risk erodes the tax yield and confidence in the system. Challenges of Human Capacity Building and Training: At the States and Local Governments, there is dearth of capable hands to administer the relevant taxes efficiently.

The identified problems can be summarized as follows;

  1. Poor tax administration
  2. Tax evasion
  3. Corruption of tax collectors
  4. Noncompliance with tax laws by tax payers

1.3 Objectives Of The Study

The main objective of this study is to evaluate the impact of Personal Income Tax on economic development of Lagos State.


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Frequently Asked Questions


Is personal income tax a source of revenue for Nigeria state governments?

The aim of this paper is to assess the contribution of personal income tax as a source of revenue for state governments in Nigeria.. Data for the analysis were derived from published secondary sources.

How many tiers of government in Nigeria have tax administration?

Overview of Tax Administration and three Tier of Government in Nigeria. Institute of Chartered Accountants of Nigeria Student’s Journal, 12 ( 2), 7-15. Oluwakayode, E.F. & Arogundade, K.K. (2011).

Do indirect taxes cause inflation in Pakistan?

The results further demonstrated that major tax revenue is generated by indirect taxes, which cause more inflation that directly hits the working class of Pakistan. ResearchGate has not been able to resolve any references for this publication.

Which model gives better forecast of total tax revenue of Pakistan?

For the forecasting of total tax revenue, we used components of tax revenues such as direct tax, sales tax, federal excise duty and customs duties. The results of this study revealed that among these models the A.R.I.M.A. model gives better-forecasted values for the total tax revenues of Pakistan.

Is personal income tax a viable source of revenue?

According to the IMF, personal income tax is a viable source of revenue that has the potential of boosting the local economy. It disclosed this in a report titled, ‘Personal Income Tax Has Untapped Potential in Poorer Countries.’

Do low-income countries need a personal income tax?

According to the IMF, in most low-income countries, personal income tax is still in its infancy, and revenue from this source averages only 2.5 per cent of GDP in these countries, which is partially a result of narrow tax bases.

What is the progress of personal income tax in developing countries?

“In examining the progress of the personal income tax in developing countries, we distinguish between observable tax policy changes and broader economic changes. Policy changes have targeted top and bottom statutory rates as well as the level of exempt income.

Can digitalisation of tax administration boost revenue?

It added that improvements in tax administration could play a potential role in boosting revenues, and the accelerated shift into digitalised services could also pave the way for better income tax design and enforcement in these countries.

How is tax administration done in Nigeria?

Tax administration in Nigeria is vested in the three tiers of government. Taxes payable to the Federal Government are administered by the Federal Inland Revenue Service (FIRS), while those payable to the State Governments are administered by the State Boards of Internal Revenue (SBIRs) of the thirty- six states of the Federation.

What are the different types of taxes in Nigeria?

Local Governments also administer rates and levies collectible by them through their various councils. There are a good number of taxes payable by persons doing business in Nigeria. These include companies’ income tax, personal income tax, capital gains tax, value-added tax, education tax, technology tax, stamp duties, and withholding tax.

What is the relationship between the three tiers of government in Nigeria?

This relationship involves the division of political authority among the three levels of government, hence, the need of specific functions to each level. It is no news that the relationship between the three tiers of government in Nigeria has been somewhat shaky, filled with resentment that leads to cases settled in the Supreme Court, etc.

How many members are there in the Federal Parliament of Nigeria?

The Nigerian constitution defined it to consist of a chairperson and 37 members (a member from each of the 36 states and the federal capital territory). NOTE: Revenue is shared vertically across the federal, state, and local governments and shared horizontally between state, and local governments.

What factors affect direct taxes in Pakistan?

Equation (1) is used to find out effect of corruption, political instability, trade openness, real per capita income and inflation on direct taxes in Pakistan. The second equation describes how corruption, political instability, trade openness, real per capita income and inflation affect indirect taxes in Pakistan.

What is inflation and its impact on Pakistan economy?

Inflation And Impact On Pakistan Economy Economics Essay. Inflation refers to a rise in prices that causes the purchasing power of a nation to fall. Inflation is a normal economic development as long as the annual percentage remains low; once the percentage rises over a pre-determined level, it is considered an inflation crisis.

How Inflation affects tax revenue?

Increase in tax revenue is greatly responsive to change in inflation [ 20, 21]. Indirect imposition of taxes on commodities creates inflation in the economy which is responsible for the reduction in purchasing power of the people and also tax collection. Inflation puts inverse impact on direct as well as on indirect taxes in Pakistan [ 22, 23].

Why is tax collection shrinking in Pakistan?

The results indicated tax collection shrinks due to increasing corruption, inflation and political instability while trade openness and real per capita income boost tax revenues. The study suggested important policy implication for increasing tax collection in Pakistan.

What will be the government revenue in Pakistan in 2021?

Government Revenues in Pakistan is expected to reach 5000.00 PKR Billion by the end of 2021, according to Trading Economics global macro models and analysts expectations. In the long-term, the Pakistan Government Revenues is projected to trend around 5500.00 PKR Billion in 2022, according to our econometric models.

What is the most accurate sales forecasting method?

Multivariable Analysis Forecasting Concept: If you are looking for the most sophisticated and accurate forecasting method, multivariable analysis forecasting is an excellent pick. It incorporates factors from other sales forecasting techniques, including opportunity stage forecasting, sales cycle length, and individual rep performance.

How do you forecast the revenue of a industry?

For instance, when forecasting revenue for the retail industry, we can forecast the expansion rate and derive income per square meter. When forecasting revenue for the telecommunications industry, we can predict the market size and use current market share and competitor analysis.

What is the Delphi model of revenue forecasting?

It is based on the premise that several experts can make a better forecast than one person in various fields. There is no secrecy in the technique, and communication is allowed between the experts. The Delphi method is a revenue forecasting model that uses surveys and questionnaires to forecast future sales. 

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