Tax Policy On The Performance Of Revenue Profile Of Nigeria (A Case Study Of Nigerian Customs)
This study focuses mainly on the tax policy on the performance of revenue profile of Nigeria in Nigerian custom service. The study was conducted in Lagos capital of ikeja of Nigeria. The main objective of the study was to identify the challenges of tax policy and administration in Nigeria. A total of 150 respondents of the Internal Revenue Service (IRS) were included in the study. The results revealed that high tax rates, numerous taxes, multiple taxation by the government, influx of fake tax officials, complex tax systems, and bribery/corruption are the main challenges facing tax systems and administration. It was also revealed that the current tax policy in Nigeria actually have great impact on small businesses as it has its negative and positive impacts. The findings and recommendations of the researcher will help in building a strong and better tax policy system in Nigeria, if taken seriously by government and the general public so that revenue from tax policy to the government can be increased. More tax officials should also be employed to educate small business owners on the need to pay their taxes, as well as all the procedures necessary for filling a tax return in order to eliminate complications when administering taxes.
1.1 background of the Study
The Nigerian Tax System has undergone significant changes in recent times. With the help of various studies and research done by tax experts, tax laws are being reviewed with the aim of repelling outdated provisions and simplifying the main ones. Under current Nigerian law, taxation is enforced by the 3 tiers of Government, i.e. Federal, State, and Local Government with each having its sphere clearly spelt out in the Taxes and Levies.
Adam smith (1976) in his book said that ‘tax is a ability imposed upon the essence by a public authority, to pay specified amount within a specified period.
The definition point towards one direction that is the characteristic of tax, firstly, it is compulsory contribution imposed by government on the people with her jurisdiction since this is a compulsory payment, any person that refuses to pay a tax is liable to punishment. Secondly, it is also a compulsory payment imposed by the government agent on people that is able to pay. And thirdly, a tax is a payment made by the payer which is used by the government for the benefit of the citizens. Fourthly, a tax is not levied in return of any special service rendered to the tax payers by government. Thus tax payers cannot get any special benefit from government in return.
Tax policy seeks to provide a set of guidelines, rules and modus operand that would regulate Nigeria tax system and provide a basis for tax legislation and tax administration in Nigeria. Tax administration which also refers to the implementation of tax policy, including tax payer compliance with tax rules, it enumerates the monetary chargers imposed by government on individuals, companies, transactions or properties for the purpose of revenue generation. However, tax revenue mobilization as a source of financing developmental activities in less developed economies has been a difficult issue primarily because of various forms of resistance, such as evasion and corrupt practices attending to it. These activities are considered as sabotaging the economy and are readily presented as reasons for slow or none development of the country. Government collects taxes in order to provide non-revenue services such as infrastructure, education, health, communications system etc, providing employment opportunities and essential public services (such as maintenance of law and order) irrespective of the prevailing ideology or the political system of a particular nation (Worlu and Nkoro, 2012).
In Nigeria, the contribution of tax revenue has not been encouraging, thus expectations of government are being cut short. Corruption, evasion, avoidance and tax haven indicators are strongly associated with low revenue (Attila, Chambas, and Combes, 2008) and indeed, corruption functions like a tax itself. According to Adegbie and Fakile (2011), the more citizens lack knowledge or education about taxation in the country, the greater the desire and opportunities for tax evasion, avoidance and non-compliance with relevant tax laws. In this respect, the country become more adversely affected due to absence of tax conscience by individuals and companies and the failure of tax administration to recognize the importance of communication and dialogue between the government and the citizens in taxation related matters.
In the face of resource deficiency in financing long term development, Nigeria has heavily resorted to foreign capital such as loans and aid as the primary means to achieve rapid economic growth. Thereby, this has accumulated huge external debt in relation to gross domestic product and serious debt servicing problems in terms of foreign exchange flow and as such, majority of the populace live in abject poverty. Government has expressed concern over these and has vowed to expand the tax revenue in order to meet its mandate. Kiabel and Nwokah (2009) argue that the increasing cost of running government coupled with the declining revenue has left all tiers of government in Nigeria with formulating strategies to improve the revenue base. Ndekwu (1991) noted that more-than-ever before, there is a great demand for the optimization of revenue from various tax sources in Nigeria now. This probably influenced the decision of the Federal Government of Nigeria (FGN), which in 1991 set up a study group on the Review of the Nigerian Tax System and Administration. This review is what subsequently led to the development of the Comprehensive Tax Policy.
1.2 Statement of Problem
the reasons for reform and the decision to develop a National Tax Policy could therefore be traced back to the structure of the existing tax system and some of its inherent problems such as: the increased demand to grow internally generated revenue, which has led to the exercise of the powers of taxation to the detriment of the taxpayers who suffer multiple taxation and bear a higher tax burden than anticipated; insufficient information available to taxpayers on tax compliance requirements, which created uncertainty and room for leakages in the tax system; multiple taxation by government at all levels, which impacted negatively on the investment climate in Nigeria.
However, Elimination of multiple taxation is therefore of major concern at all levels of Government; lack of accountability for tax revenue and its expenditure; lack of accountability for tax revenue and its expenditure; lack of clarity on taxation power of each level of Government/encroachment on the powers of one level/state by another; lack of skilled manpower and inadequate funding, which led to the delegation of powers of revenue officials to third parties, thereby creating uncertainty in the tax system and increasing the cost of tax compliance; use of aggressive and unorthodox methods for tax collection; the non refund of excess taxes to tax payer, due to the lack of an efficient system arid funds; the non-review of tax legislation, which had led to obsolete laws, that do not reflect Nigeria’s current realities; and the lack of a specific policy direction for tax matters in Nigeria and the absence of laid down procedural guidelines for the operation of the various tax authorities.
Furthermore, other problems plaguing Nigeria’s tax system have not been adequately tackled for many years. One of the reasons for this was Government’s heavy reliance on revenues derived from oil, as a result of which little or no attention had been given to revenue from other sources, such as taxation.
1.3 Objective of the Study
In-order to achieve the purpose of this research, the following is the objectives of the research:
- To identify the challenges tax policy on the performance of revenue profile of Nigeria in Nigerian custom service.
- To investigate the impact of value added taxes.
- To examine the performance of revenue in Nigeria
- To identify ways of properly addressing the challenges of Nigerian tax policies.
1.4 Research Question
In order to achieve the objectives stated above, the following research questions were used as a guide in achieving the objectives of this research:
- What are the various challenges facing tax policy on the performance of revenue profile of Nigeria in Nigerian custom service?
- What are the impacts of value added taxes?
- To what extent is the performance of generated revenue in Nigeria?
- What must be done to address the challenges of tax policies in Nigeria affect small business?
1.5 Significance of the Study
This study gives a clear insight into the various ways in which tax policies in Nigeria can be executed efficiently and how some taxation policies in Nigeria can be properly tackled. The study also gives a clear insight into the various causes of why revenue and tax reform fail in Nigeria as well as the challenges of the tax policies in Nigeria.
The findings and recommendations of the researcher will help in building a strong and better tax policy system in Nigeria, if taken seriously by government and the general public. The challenges of taxation in Nigeria are outlined in-order for drastic measures to be taken to tackle these challenges and meet the prospects of the general public so that revenue from tax policy to the government can be increased.
1.6 Scope of the Study
This research focuses mainly on the tax policy on the performance of revenue profile of Nigeria in Nigerian custom service. The study only torches on the performance and challenges tax policies in Nigeria and how it can affect the Nigerian custom and order government agencies.
Based on the findings of this study other possible researchable areas may include studies on the various challenges of other forms of tax such as the Value Added Tax (VAT), Capital gains tax, Import and Export duties tax. Etc. Further research can also be done on curbing tax evasion in Nigeria
The research is limited to the tax policy on the performance of revenue profile of Nigeria in Nigerian custom service. The researcher in the course of carrying out this study is the cause of delay in getting data from the various respondents. Most respondents were reluctant in filling questionnaires administered to them due to their busy schedules and nature of their work. The researcher found it difficult to collect responses from the various respondents, and this almost hampered the success of this study.
1.7 Chapter Scheme
- Chapter one of this study includes the general introduction, background information about the study, statement of the problem, objectives of the study, research questions, scope of the study, significance of the study, and the limitation of the study.
- Chapter two reviews all relevant literatures relating to the study as well as the researcher’s views concerning previous studies on the challenges of tax policies.
- Chapter three includes the methodology applied in collecting and analyzing data, population definition, study site, and limitations.
- Chapter four presents the results of the study as well as data analyzed, and the interpretation of the analyzed data.
- Chapter five includes a summary of the study, conclusion and recommendations based on the findings from the study.
Findings, Conclusion and Recommendations
This chapter includes the findings, conclusion and recommendations of this study. All findings by the researcher on the tax policy on the performance of revenue profile of Nigeria in Nigerian custom service are stated clearly in this chapter as well as conclusion and recommendations on the study. All findings, conclusion, and recommendations for this study are based on all data analysed from questionnaires filled by respondents for this study.
5.1 Summary of Findings
The first objective of the study was to identify the challenges of tax policy on the performance of revenue profile of Nigeria in Nigerian custom service.
According to the study, the researcher succeeded in achieving this objective by developing both closed and opened ended questionnaires to business men and women who pay their taxes and fully understand how tax is administered in Nigeria. The study revealed that tax policies in Nigeria are faced with numerous challenges, as it was rated between poor to average by the respondents when asked to rate the policies used in administering taxes in Nigeria (see table 11).
The study went ahead to reveal that high tax rates, numerous taxes, multiple taxation by the government, influx of fake tax officials, complex tax systems and bribery/corruption are the main challenges facing tax systems and administration in Nigeria (see table 12).
In view of all these challenges identified in the course of carrying out this study, it also came to light that a bigger challenge the government might start facing in the future is massive tax evasion, as most respondents indicated that since they are not comfortable with tax administration in Nigeria, they try every opportunity they get to evade tax (see table 8).
According to the study, majority of the respondents do not pay their taxes regularly, because they are not comfortable with tax administration in Nigeria, hence they see taxation as a big burden and constraint to their businesses (see table 7).
The second objective of the study was to identify and investigate the impact of value added taxes on small business.
The researcher however, succeeded in achieving this objective in the study by asking the right questions to the people who actually feel the impact directly (small businesses), since most of the tax laws and policies are relevant to small business owners. According to the study, it was revealed that the current tax policy in Nigeria actually have great impact on small businesses as it has its negative and positive impacts. One major impact of Nigeria’s tax policy is multiple taxation (see table 15).
Multiple taxation which is a feature in the Nigeria tax policy is indicated to be a burden to small businesses as organizations are taxed as well as employees in the organization. The Nigeria tax policy has opened a lot of ways for fake tax officials who exploit small businesses for their selfish reasons to operate comfortably, due to the inability of the government to develop a tighter control measures in administering taxes. This has created a loophole where revenue meant for the development of the economy now go to the pockets of crooks who pose as tax officials (see table 15). Another big impact revealed by the study is stunted growth to small businesses brought about by the new policy (see table 15). Due o the state in which Nigeria’s economy is now, some of the tax laws like education tax, industrial training tax etc do not encourage small businesses to grow. Some small businesses are small in nature-both financially and operationally, hence they need a lot of time to cover initial costs they incur, and these tax policies do not allow for them to recover fully. However, if businesses fail, then the economy is in trouble. As the government try to increase its revenue it might destroy the main engine that runs the economy.
The third objective of the study was to identify ways of addressing the challenges tax policies and administration in Nigeria face.
The study revealed that in order to tackle these challenges properly and squarely, the government must create a committee to draft new tax policies that favor small businesses in Nigeria, simplify the existing tax system and policies in Nigeria, give free or cheap tax consultancy to small business owners, draft tax policies that will encourage human capital, reduce tax rates for small businesses in particular as well as exempt small businesses from paying numerous kinds of taxes in the system (see table 19). It also went ahead to reveal that another way of addressing the challenges of tax policies and administration in Nigeria is to educate small business owners on the need to pay their taxes as this will go a long way in changing the perspective of those who intentionally evade taxes (see table 19). Establishment of tighter control measures will also go a long way in eliminating fake tax officials as well as reduce bribery and corruption. Other ways of tackling the problem is to use tax proceeds from small businesses to develop development programs for small businesses.
Evidence from this study and other from economic research indicates that tax policies—and, in particular, regressive tax policies—do indeed influence the performance of revenue profile in Nigerian custom, when it comes to working, investing, saving, and entrepreneurship. Perhaps most importantly, high and increasing marginal taxes contribute to lower rates of economic growth, reduced rates of personal income growth, lower rates of capital formation, lower than expected aggregate labor supply, and reduced entrepreneurship.
In short, high and increasing marginal tax rates reduce economic growth by creating strong disincentives to hard work, savings, investment, and entrepreneurship.
Tighter control measures should be put in place to eliminate the activities of fake tax officials who exploit small business owners in Nigerian custom and steal from the government. Tax policies in Nigeria cannot succeed fully in improving the economy and developing small businesses if fake tax officials keep hampering the activities of tax administrators and making tax payers to lose faith/trust in the government of Nigeria and choosing tax evasion.
A committee should be set up to look into how best they can incorporate a more friendly tax policy for small business owners, since the current policy is not favorable to them. Tax practitioners, small business experts and economist should come together and draft a better tax policy that does not only favor small businesses, but also brings constant revenue to the government for economic development.
The government of Nigeria, federal, state and local governments should develop a more simple tax system that eliminates red tape, delay and complications. More tax officials should also be employed to educate small business owners on the need to pay their taxes, as well as all the procedures necessary for filling a tax return in order to eliminate complications when administering taxes in Nigeria.
Tax rates should be restructured to fit small businesses as well as encourage new businesses. The current tax rate charged to small businesses is not favorable as most businesses still struggle to survive due to increased tax rates, small businesses do not have much retained earnings to develop new products, be innovative and creative and employ more Nigerian youths.
A special trust fund should be set up for small businesses in Nigeria. Tax proceeds from small businesses should be used exclusively for small business development as this will go a long way in economic growth and small business development.
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