Procedure, Problem And Prospects Of Personal Income Tax Administration In Nigeria (A Case Study Of Oyo State Board Of Internal Revenue)
Procedure, Problem And Prospects Of Personal Income Tax Administration In Nigeria (A Case Study Of Oyo State Board Of Internal Revenue)
Chapter One
1.0 Introduction
There has been in existence various tax policies before enactment of the direct tax ordinance by Fredrick Lugard in 1946.
However, the deficiency of the ordinance was dealt within 1950 through the introduction of basis principles of taxing income of individual other than Limited Liability Company.
The original purpose of taxation was to raise money to finance public expenditure since 1940 it has also became accepted that “taxation is one of the instrument used by government of the day on managing the economy” assessment of taxes on an individual in Nigeria purposely to achieve the set of objectives. It is also required to ascertain the effective and efficient execution of tax machinery set up by the Nigeria government to administer takes in Nigeria, these are Federal Board of Internal$ Revenue (F.B.I.R) and State Board of Internal Revenue (S.B.I.R). Proper personal income administration avoidance which is very common and rampant in Nigeria.
Personal income tax is charged on all income which accrues to people residing in Nigeria. It is also levied on all income arising within Nigeria no matter where the tax payer resides or his / her nationality.
The Oyo State Board of Internal Operates under both the Personal Income Tax Law of 1962 as amended by Personal Tax Law (Amendment) Edict 1962 (Edit Number (1) of 1977 and other federal tax law.
1.1 Background of the Study
The background of taxation as a whole dated back as far a biblical days when the European Colonized were in government of Nigeria. The payment of the tax was made by money based on flat rate per head, later other forms of revenue like stamp duty, capital gain tax and betting business commission were also introduced business commission were also introduced and embraced by our people.
The decrees and acts that are in we as follows Finance (Miscellaneous taxation provision) No 2 decrees 1997. The Federal military government hereby decrees are as follows:
- The personal income tax decrees 1993
- The company’s income tax of 1999.
- The petroleum profit act of 1959.
- The value added tax decree 1993.
1.2 Statement of the Problem
In the previous year, the government machinery in tax administration encounters a lot of problems.
The problem of personal income tax nowadays is the sources of income. People have been engaging in avoidance and evasion of tax from time to time since the Board Inland Revenue Imposed taxation.
However, the major problem confronting tax, administration in Nigeria particularly the Internal Revenue Board of Oyo state is highlighted below:
Inability to provide adequate and appropriate guidelines and interpretation of legislation to the tax payer.
Problem faced by the tax collectors in order to know the exact amount of individual income from each source of income.
Inadequate orientation of the tax payer about the importance and usefulness of tax especially for people in rural area.
Problem of tax avoidance and evasion, which is yet t0 be cured by the state Internal Revenue Board.
1.3 Research Hypothesis
For the purpose of this research work, the researcher attempted to find out the validity of the following hypothesis
Ho (NULL HYPOTHESIS); The high rate does not bring about the tendency to evade or avoid tax in Nigeria particularly in OyoState.
Hi (ALTERNATIVE HYPOTHESIS); The high tax rate brought about the tendency to evade avoids tax in OyoState.
1.4 Purpose of the Study
The aim of this project is to know the procedure, problem and prospect of personal tax administration in Nigeria and also to know whether the high rate of tax bring about evasion avoidance tax.
1.5 Scope of Study
The scope of this study deals with the areas of the study project i.e the area they will cover. The scope of this study is strictly restricted to personal income tax administration on OyoState under PAY – AS – YOU EARN SYSTEM (PAYE) and directly assessed income of self employed individuals.
The exercise will cover a period of four years 1999 to 2002 so as to highlight the rend for better analysis of data that will be obtained. So that reasonable conclusion could b e drawn from it.
1.6 Limitation of Study
The most prominent constraint is the high level of illiteracy among tax payers. It has in one way on the other contributed to the wrong computation of tax.
Another factor is the total ignorance of tax payer in keeping proper accounting records.
Adequate accounting records of business man and other self employed people is not kept for the tax authority to examine.
There is also difficulty in study due to dishonesty by staff and this increase corruption in tax system.
In conclusion, having consigns out with in the available time limit and on the basis of available data.
It’s worth nothing that the quality of this research work was not reduced as a result of these barriers but rather the resource available was effectively and efficiently used.
1.7 Significance of the Study
This research work will make an analytical review on personal income tax administration in Nigeria. The operation of the PLTA law and the procedure, problem and prospect of the research work. It is intended to show the effectiveness of the tax collectors and effect of avoidance and evasion on revenue collection from the tax payer and highlight the purpose of taxation.
1.8 Definition of Terms
Direct Tax:
Is the tax that is leveled on income of individual and business firms which is actually paid by person on whom it is legally imposed.
Indirect Tax:
Is the tax levied indirect on people as they are levied on goods and services.
Stamp Duties in Nigeria:
Stamp duties are takes on instrument or every written document.
Fixed Duties:
This is one of the duties which do not vary the consideration for the document.
Unearned Income:
Is the opposite of the earned income and they are income not derived as a result of an individual direct effort of includes investment income such as dividends rent premium.
Tax Evasion:
Is when a tax payer will fully or intentionally failed to report a source of taxation income or seeks to reduce his tax authority.
Tax Avoidance:
It is any endeavor on the part of the tax payer to reduce his tax liability by taking specifics advantages of the provision of the law.
Executor:
It includes any person administration the estate of a diseased person.
Personal Relief and Allowances:
These are the reduction allowance to individual for a year of assessment.
Place of Residence:
Is a place available for individual domestic use in Nigeria on a relevant day
Tax:
Is a compulsory levy imposed on eligible citizen corporate bodies as well as goods and services to enable the government to finance its activities.
Taxation:
Is the tax paid into government purse from the income derived from business, trade, employment, petroleum, and profit etc.
Tax Policy:
This is line of action adopted by government in respect of taxation. It should be noted that taxation is one of the major fixed policy instruments used in regulation the economy booting, investment, resulting, inflation etc.
Tax Administration:
This is concerned with interpretation and application of tax laws.
Tax Rate:
Is the amount of tax payable per unit of tax base.
Tax Base:
Is the object on which tax are levied.
Tax Person:
Any individual or body of individual and any corporation, trust or executor was having any income which is chargeable with tax under the prevision of personal income tax act (PITA) 19o61.
Tax Authority:
As a person or body of person responsible under the law of a territory for the imploring tax on the income of individual and companies and for the administration of tax law.
Year of Assessment:
This is the running for a period of twelve months (12) from 1st January to 31st December.
Assessment Income:
It is the amount of income from each source in the year immediately proceeding the year of assessment.
Tax Effort Index:
Is a measure of personal income tax performance.
Chapter Five
Summary, Conclusion and Recommendation
5.1 Summary
The main purpose of this research work is find out the procedure, problems and prospect of personal income tax in Nigeria using Oyo State Board of Internal Revenue as a case study. The data needed were collected from the Board i.e the administration section in Ibadan, Oyo State.
The data were collected by administering questionnaire to staff and personal interview. The areas used covered in the research assessment, collection and enticement of personal income tax, the problem facing the board and the hypothesis tested. The attitude of the briefly discussed below. The attitude of the public to the tax officials has been a major problem of revenue collection.
Member of the public do run away from tax efficient to evade payment of tax because of the high rate of tax imposed on the tax payer.
There are cases of assault on tax officers by members of the public even charms are used to harass these officers. This makes the officers to perform their duty with fear and favour of self security. Inadequate number of qualified event staff is also a hindrance of effect tax collection of ax.
There are few inspectors of tax. In such cash, the study is being delegated to tax assistant to man some station. Some of which are not exposed to real trainings. This has exulted in how avenue collection it is obvious that some tax payer find it difficult to understand what constitute an income. As a matter of fact tax payer do not what a tax payer system is ability and what rights and obligations they have under income tax law.
Although some deliberately falsify their source income (fail to disclose in full) owing to this, most income are either over estimated for tax purpose. Assessments are determined mostly by in direct methods (best judgment assessment).
This indirect method often produces less satisfactory results and these generate frictions and all feeling between tax payer and tax authority.
Few cases of fraud and embracement of fund bear been discovered on the part of revenue officers. In most cases serious chaplainry actions have been taken to those found guilty.
This also constitute to a drain in revenue collection of the state in the case of payer and other withholding taxes, most agent who collect the avenue fails to remit them as required by the law. They use it for their own selfish interest.
Inadequate working materials are another problem militating against the success of the avenue collection in the state only two have functional vehicles. Other have graded and cannot be repaired done to short age of funds.
The effort of this that very few areas are often covered in the collection drive.
Tax laws are expected to be the guidelines for tax officers Vic – visa. However it technical language make it difficult for both the tax payer and tax officers to understand.
Besides, the recruit rate of tax is too high, 20% in every naira, above #400,000 will not only tend to evasion but tax avoidance.
5.2 Conclusion
From the analysis given so far, it is crystal clear that if tax officers, tax payers and government can perform their duties and obligation as required by law. Then there will be little problem in administration of tax into state. The personal income tax has to be given “human touch” because any given variable man is the most unpredictable. If the government can match the collection effort of tax officers with the judicious use of the revenue collected, then voluntary compliance on the part of the tax payers can easily be achieved ands cast of legal prosecution, time and effort wasting will be minimized while revenue collection will increase.
5.3 Recommendation
i. Staff Development and Motivation:
There should be constant training and retaining of staff to keep up to date in tax laws and its provision. Staff should be motivated to work harder. The issue of loans at the end of the year should be taken seriously suitable qualified candidate should be recruited to reinforce the present work force. Each zonal and distrait office should be headed by experienced officer with good records of efficiently.
ii. Prompt Remittance of Revenue Collection:
The agents responsible for collection of payer and all others withholding taxes should be adequately informed as to when to remit the money collected to the government and failure which should be quickly prosecuted in accordance with the law so as to serve as deferred other in order to alleviate the level of fraud and embezzlement.
iii. Tax Education:
The state should provide an avenue for enlightening the tax payers in the state by organization seminars and public campaign on “understanding tax law mass media such as radio, television and newspaper can be used to explain the provision of the law. The zonal and district officers should be provided with facilities for assisting tax payer in completing their return forms such as writing materials and guide for completing the forms.
Tax payer should be taught on how for keep simple records of various type of business and to encourage them to seek help from relevant tax officers’ o their tax problem.
iv. Provision Adequate Working Facilities and Materials:
The government should provide adequate working materials, if vehicles are provides more areas will be enrolled normal roll which increase collection in the state. Also the researcher recommends that the federal government should review present tax rate of 20% on income #40,000 and above so as to encourage voluntary compliance.
v. Penalties and Prosecution:
Adequate and equitable system of penalties sections and prosecutions that is affecting of used is a necessary ingredient of good tax administration. All tax avoids and evaders should be thoroughly prosecuted and all other forms of dishonesty in terms of payment and collection of revenue should be thoroughly dealt with so as serve as deterrent for other people.
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