Tax Administration In Nigeria, Problem And Prospects

Project and Seminar Material for Economics

Tax Administration In Nigeria, Problem And Prospects


Abstract


This research work is set to identify the effects of tax evasion, tax avoidance on the Nigerian Economy with particular reference to the Lagos State Internal Revenue Services.

This project work is designated to find out the factors responsible for tax evasion in Nigerian Economy. The deviation effects and specifically considers different way in which it could be reduced and controlled in order to meet the present day challenges.

In addition, the study is aimed at revealing the economic and socio­political effects of taxation in Lagos State and highlight to all beneficiaries of this research work the effect of tax evasion in the Nigeria Economy. To proffer possible solutions to this menace, the civil servants and business organizations should religiously discuss their income.


Chapter One


1.1 Historical Background of the Study

This paper examined tax policy in Nigeria. It traced the history of tax in Nigeria and the implementation of tax policy in Nigeria. The paper argued that tax policy has been ineffective over the years. It found that the federal government has been working towards tax reforms. The paper highlighted the flaws in the tax reforms and made recommendations for effective tax system in Nigeria.


1.2 Introduction

A tax administration represents key resource allocator between the public and private sectors in a country, it is usually imposed on individuals and entity that make up a country. The funds provided by tax are used by the states to support certain states obligations such as Education system, Health care system, Pensions .for the elderly, Unemployment benefits, Public transportation, etc. A nation tax system is often a reflection of its communal values or the values of those in power. To create the system of taxation, a nation must make choices regarding the distribution of the tax burden about who will pay taxes, how much they will pay and how the taxes collected will be spent.

In Nigeria, the taxation system dates back to 1904 when the personal income tax was introduced m northern part of Nigeria before the unification of the country by the colonial masters. It was later implemented through the native revenue ordinances to the western and eastern regions m 1917 and 1928 respectively. Among other amendments in the 1930’s, it was later incorporated into, direct taxation ordinances no. 4 of 1940 since then different governments have continued to try to improve on Nigeria taxation system. The general opinion among scholars is that Nigeria’s fiscal regime is characterized by unnecessary complex, distortion largely inequitable taxation laws that have limited application in the formal sector that dominates the economy.

Taxation in every sense is a tool of economic re-enforcement. Most government in the world has always found ways of imposing various taxes on their subjects. This is done with a view to raise funds for its expenditures. Therefore, taxation is a process of levying-and collection by a tax authority with proper jurisdiction of compulsory contribution from individuals, business organizations and corporate bodies, to defray expenses incurred by the government in common interest of all.

Fundamentally, its payment is usually in monetary terms, which the citizen has to pay the government to enable it perform its functions. It may be levied on income or goods or services.

Tax can be defined in various ways;

  1. As a charge or duty imposed by government on income or property. Anyanwura (1999).
  2. As transfer of resources from private public sector in order to accomplish some of a nation’s economic and social goals. Agyel (1988).
  3. A contribution of wealth by citizens of a country, business Organizations and corporate bodies to the government, with the necessary money needed for the provision of social, economical and fiscal services by the government. Fagbule (1982).
  4. A compulsory contribution from a person(s) incurred in the common interest of all without reference to the special benefits provided. Adegboyega (1998).

From the various definitions of tax stated above, the main objectives of taxation include wealth or income redistribution, revenue generation, stimulation or stabilization of economic growth, discrimination against certain types of goods and services with regards to both production and consumption and correction of disequilibrium in the balance of payment etc.


1.3 Statement of the Problem

This research is set to identify the effects of tax evasion, tax avoidance on the Nigeria economy with particular reference to the Lagos State Internal Revenue Services.

Over reliance of government on the sales of crude oil for its much needed revenue has left the opportunities and potentials of taxation untapped. Unfortunately in Nigeria, only the salary earners bear the full burden of income tax, while the private businessmen most times escape such. This is defeating the social, political and economical objectives of income redistribution which is one of the cardinal aims of taxation.

The problem of this research centers on the effects of tax evasion, causes of tax evasion, tax avoidance and the various methods used by payers to carry out these acts and how those acts can be curtailed if it cannot be completely eradicated. In conclusion, a kind of taxation which is based on professionals and self employed persons, given that tax evasion is high with respect to this category of tax payers, it has been suggested that the reduction of evasion would raise considerable revenue yield from this category.

Efforts to increase revenue from this category of tax payers have been hampered by two problems.

The first one is inability to get them assessed properly and in most cases not assessed at all. The consequence is that the revenue from tax is lost while the actual and potential tax payers in this category enjoy a tax free world.

The second problem which makes assessment difficult is lack of information about this category of people, of which many of them do not register their business name and when they do, some do not give genuine information but incorrect and false information, thus, impairing any monitoring, inadequate and lack of information makes tax administration difficult.


1.4 Research Objectives

This project is designed to find out the factors responsible for tax evasion in Nigeria economy. The deviation effects and specifically the different ways in which it could be reduced and controlled in order to meet the present challenges of this nation.

Additionally, the study is aimed at revealing the economic and socio- political effects of taxation in Lagos State and highlight to all the beneficiaries of this research work the effects of tax evasion in the Nigeria economy.

To proffer possible solutions to this menace, the civil servants and business organizations should religiously disclose their income from other sources (if any) and the tax authority should carry out their statutory responsibilities diligently.


1.5 Research Questions

This study aim at giving answers to the following questions;

  1. What does the internal Board Revenue (Lagos State) consider as being the major causes of tax evasion?
  2. How does tax evasion affect the financial activities of the Lagos State Government?
  3. Is there any penalty imposed by the Lagos State Internal Revenue Board on tax evaders?
  4. Is there any public awareness on the importance of taxation?

1.6 Research Hypothesis

According to Taiwo (2000) an hypothesis can be defined as a conjectural statement, a postulate or a proposition about an assumed relationship between two or more variables.

The hypothesis for the study is as follows;

  1. Ho: Tax evasion and tax avoidance affect the financial activities of the Lagos State Government.
    Hi: Tax evasion and tax avoidance do not affect the financial activities of the Lagos State Government.
  2. Ho: Absence of social amenities affects tax evasion and tax avoidance.
    Hi: Absence of social amenities does not affect the tax evasion and tax avoidance.

1.7 Model Specification

This research work is basically carried out on the Lagos State Board of Internal Revenue Service which came into existence in 1967. The work covers its historical background, organizational structure and the activities that are being performed by the Lagos State Board of Internal Revenue Service since its inception up to this present time. The data to be used would be based on their records.


1.8 Significance of the Study

The significance of the study under review is not farfetched. One needs not to be told that the degree of the tax evasion is seriously affecting the economy of our nation adversely.

This research work will be of help to the Lagos State Government Internal Revenue Service to reduce the rate at which people of the state evade tax. To enable the Lagos State Government the number of her employees and the type of work they do. This will be relevant to the government in order to check inflation and deflation, reduce inequality of income, encourage price stability in the state, promote health care delivery and most importantly to generate revenue for the Lagos State Government.

The research work is comprehensive and it will serve as a reference for the other people in case there is need to consult it.


1.9 Scope / Limitation of Study

This research work is basically carried out on the Lagos State Board of Internal Revenue Service which carne into existence in 1967. This work will cover its historical background, organizational structure and the activities that are being performed by the Lagos State Board of Internal Revenue Service since its inception up to this present time. The data to be used would be based on their records.

During the process of carrying out this research work, some problems were encountered which make the research work slow and tasking.

The time and financial constraints did not permit a large scope and a comprehensive research work such that other business organization could not be covered for additional information.

The data collection has its own constraints. The instruments used in the collection of the data had their own limitations. The natural bias tendency inherent in personal interviews is likely to have affected the quality of the data.

There must have been an inevitable shortcoming in the construction of the questionnaire because there was poor response on the part of some respondents.


1.10 Method of Data Collection

The relevant data to be used involve primary data collection. The primary data collection could be sourced from the following;

  1. Personal interview from the Lagos State Internal Revenue Service.
  2. Observation from the Federal Board of Inland Revenue.
  3. Survey from the Joint Tax Board.

1.11 Organisation of the Study

The research is made up of five different sections or chapters which are as follows:

  1. Chapter one consists of the historical background. of the study, introduction, statement of the problem, research objectives, research questions, research hypothesis, models specification, significance of the study, scope and limitation of the study, method of data collection, organization of the study and contribution to knowledge.
  2. Chapter two also consists of the literature review and historical background of the study.
  3. Chapter three consists of the research methodology and method of data collection.
  4. Chapter four consists of the method of data analysis and data analysis; interpretation of the results while,
  5. Chapter five consists of the summary, conclusion, discoveries/findings, limitation and recommendations, then the bibliography.

1.12 Contribution to Knowledge

Government should have the will to impose penalty on any person who do not comply with tax law. To this end, revenue courts should be established to adjudicate matters on tax evasion as quickly as possible. There should be attractive conditions of services and adequate tax personnel in terms of quality and staff training should be systematic and on a continuous basis, while adequate accommodation, furniture equipment etc. should be provided.


Chapter Five


Summary, Recommendations and Conclusion

5.1. Summary

The research was embarked on to examine the problems and prospect of tax administration in Nigeria, with Lagos State Board of Internal Revenue as the study focus. This was done with a view to establishing the extent to which poor funding has impacted tax administration in Lagos State; to find out if lack of staff training has great effect on tax administration in Lagos State; to determine if absence of infrastructures has great effect on tax administration in the state; to find out if poor tax collection is as result of the poverty of Lagos State taxpayers and to ascertain whether tax administration will be better if separated from the state civil service.

The work started with the call for the restructuring of the nation‟s tax system. The call has become necessary because the nation‟s dependence on the oil sector has made the country vulnerable to extent manipulations, a situation which has adversely affected the planning horizons in the country. This ugly trend therefore, calls for the diversification of Nigeria‟s resource base and long term growth and development.

The work pointed out the enormous benefits which the developed countries have continued to reap from tax administration because taxation has remained the mainstay of most developed economies which are not endowed with mineral resources.

Also unveiled is the fact that over the years, Nigerian tax system has undergone several reforms tailored towards enhancing tax collection and administration with minimum cost. Some of these reforms include: Taxpayers Identification Number, Automated Tax System as well as E-Payment System.

The research has also shown that in the face of debt difficulties with domestic and external financial imbalances many developing countries the world over have been forced to adopt stabilization and adjustment policies which demand better and more efficient methods of mobilizing domestic financial resources with a view to achieving financial stability and promoting economic growth.

The work pointed out benefits to be derived from an efficient and effective tax administration to include:

  1. Helping to generate or mobilize more revenue, thereby enabling governments to achieve greater financial reliance and facilitating the pursuit of growth oriented structural adjustment programme.
  2. Forestalling the need for the introduction of higher taxes or new taxes and also makes it possible for the elimination or reduction of burdensome taxes without reducing yield.
  3. Facilitating the adoption of simple and easy-to-administer tax laws, thus rendering non compliance more difficult.
  4. Enhancing the ability of the governments to effectively enforce taxes with potentially high revenue yield.

The statement of the problem show-cased the challenges of Nigeria tax system, which include:

  1. The location of assessment and collection functions within the tax administration.
  2. Frequent changes in the tax laws.
  3. Linkage of tax administration with the civil service.
  4. Non-compliance strategy.
  5. Multiple taxes.
  6. Absence of equity in tax administration.
  7. Lack of motivation and remuneration.
  8. Tax avoidance and evasion.
  9. Corruption.

The chapter two of the work reviewed some related literatures, postulated hypotheses which were tested using the chi-square method. The chapter ended with a theoretical framework.

Chapter three gave an insight into the background of Lagos State Board of Internal Revenue the study area. It looked at the origin, structure, functions, achievements and problems.

Chapter four was mainly concerned with data generation and analysis. It showed how data were generated and where. It also gave a detailed statistical analysis of the data using chi-square method.

Finally, the work ended with summary, recommendations and conclusion


5.2 Recommendations.

Based on the observations, findings and analysis made by the study, the following recommendations have been made:

  1. The government of Lagos State should increase the budgetary allocations made to the Board of Internal Revenue of the state to enable it carry out the task of tax administration. Poor funding has been the greatest setback of the Revenue Board; as a result tax administration will be rejuvenated with adequate funding.
  2. The Board of Internal Revenue of Lagos State should put in place a scheme of training and retraining of staffs in order to achieve efficient and effective service delivery. No establishment or organization can attain the desired level with a crop of staffs deficient in the required skill to execute the functions of the organization.
  3. The government of Lagos State should provide the necessary infrastructures for the people to enable them adopt positive attitudinal change towards tax payment. Taxpayers regard infrastructures as signs of good governance and judicious utilization of resources.
  4. Effective checks should be adopted to obviate further leakage of revenues. It has been established that the dwindling state of revenue is due to the fraudulent and other sharp practices of the staffs of the State Internal Revenue Service, With Proper supervision and rendition of returns corruption among the staffs will be meaningfully reduced.
  5. The authorities of Lagos State Internal Revenue should mount an aggressive public enlightenment programme to educate the taxpayers accordingly. Use of Radio jungles, Bill Boards and sensitization at the rural areas should be adopted as means of reminding taxpayers that one of the obligations of a good citizen is timely payment of taxes.
  6. A package of incentives has to be lined up for staffs of the State Revenue Board as this would help to bring out the best in them by boosting their morale and enhancing their interest and productivity.
  7. Above all, the administration of tax in the state should be made autonomous. This is one of the ways efficiency and effectiveness would be enhanced. The bureaucratic bottleneck of the Civil Service is a cog in the wheel of development of tax administration in Lagos State. The Revenue Service should therefore, be given autonomy for better performance.

5.3. Conclusion

The work was embarked on to establish whether poor funding is the cause of low rate of returns from taxation; to find out whether lack of staff training is the cause of poor revenue collection; to determine whether absence of infrastructures is responsible for poor revenue from taxation; to find out if poor tax collection is because of pronounced poverty among the taxpaying public and to ascertain if tax administration will be more efficient when separated from the civil service.

The study however, discovered that poor funding is a great problem and the cause of low rate of returns from taxation.

The study uncovered that lack of the necessary training of staffs is the cause of poor revenue collection in the state.

The study also revealed that absence of infrastructures is responsible for poor revenue collection in the state.

The study has equally shown that the poverty of Lagos State Tax payers in not responsible for the poor tax collection, but the corrupt tendencies of the staffs of State Revenue Board.

The research discovered that tax administration will be more efficient if separated from the state civil service because of the latter‟s inherent bureaucratic bottlenecks.


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