CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO
THE STUDY
There have been calls from several quarters on the need to
restructure the nation’s tax system. Nigeria is a monolithic economy with
strong dependence on the oil sector; this dependence makes the economy to be
vulnerable to external manipulation and adversely affects the planning horizons
in the country. The recent global crisis in the world has brought to the fore
the need to note that this over dependence on oil creates unnecessary shocks
and thus, the need for diversification of the nation‟s resource base and long
term growth path. The oil is an exhaustible resource, while taxation is the
only non-exhaustible veritable source of resource generation to the government
(Oloyede, 2010). Governments impose many types of taxes in most developed
countries, individuals pay income taxes when they earn money, consumption taxes
when they spend it, property taxes when they own a home or land, and in some
cases estate taxes when they die. In the United States, federal, state, and
local governments all collect taxes. Taxes on people’s income play critical
roles in the revenue systems of all developed countries. From the foregoing,
non-oil revenue especially tax has been the mainstay of most developed
countries, in contrast to developing countries that still depend on primary
products. Also, indirect taxes appear to be in vogue in developed countries,
due to higher return, lower administration cost and higher compliance rate,
however, most developing countries still rely on direct taxes with lower
compliance rate (Oloyele, 2010). The Nigerian tax system has undergone several
reforms geared towards enhancing tax collection and administration with minimal
enforcement cost. The recent reforms include: the introduction of TIN (Tax
Payers Identification Number), which became effective since February, 2008.
Automated Tax System (ATS) that facilitates tracking of tax positions and
issues by individual tax payer, E-Payment System (EPS) which enhances smooth
payment procedure and reduces the incidence of tax touts, Enforcement scheme
(special purpose tax officers), all these have led to an improvement in the tax
administration in the country. In the face of unabeting debt difficulties,
coupled with domestic and external financial imbalances confronting them, it is
not surprising that many developing nations 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. Taxation has rightly been
identified as a major tool in the strengthening of domestic resource
mobilization and consequently, the search for ways and means of expanding the
tax base and also strengthening tax administration has been intensified. That
taxation has been one of the most important weapon available to government for
marshalling financial resources is undisputable (Atta-Mills, 2002: Teidi, 2003
and Oloyede, 2010). It is needless to emphasize that the existence of well
defined tax laws alone cannot guarantee the success of tax collection effort.
There must always exist an efficient and effective tax administration as a sine
qua non to successful domestic resource mobilization. According to Surrey
(cited in Atta-Mills, 2002:1), it is increasingly apparent, however, that tax
administration must receive far greater attention if the goals of tax policy
are to be attained. Much of tax policy is being directed to obtaining increased
revenues to enable governments to carry out their economic planning. Yet it is
true in Nigeria that successful administration of some of the existing taxes
would provide a considerable part of the needed additional revenue.
1.2 STATEMENT OF THE PROBLEM
Tax administration in Lagos State has brought a colossal
loss of government revenue arising from tax evasion and tax avoidance both of
which are symptoms of inadequacies in tax planning and administration. The
situation is so bad now that it would not appear an exaggeration to say that
not less than three quarters of potential tax revenue is lost annually. There
are some administrative problems, which hamper the planning of feasible
strategies for improving tax administration in Lagos State to boost the
much-desired revenue drive in the State. The following are some of them: Poor quality
staffs, Inadequate staffing with attendant ineffective staff rationalization,
Tax evasion and avoidance, Bureaucratic bottleneck, Ineptitude on the part of
other arms of government, e.g. failure to demand income tax clearance certificate before granting
government patronage, Inadequate training of staff with a resultant lack of
knowledge of over changing taxes laws, Wrong sitting of revenue offices,
Inadequate office accommodation and associated requirements, Inadequate staff
welfare scheme, Poor communication, Lack of reasonable internal checks, Lack of
information, Extravagant and unreasonable government expenditure pattern,
Irresponsible and envy-provoking life style of people in government, Inadequate
public enlightenment insufficient statistics on population and professions.
1.3 AIMS OF THE STUDY
The major purpose of this study is to examine tax
administration in Nigeria: challenges and prospects. Other general objectives
of the study are:
1. To examine the nature of tax administration in Nigeria.
2. To examine the challenges that is facing the tax
administration in Nigeria.
3. To examine the effectiveness of the assessment,
collection and remittance of tax system in Lagos State.
4. To examine future prospect of Lagos State tax
administration, in the light of better administration for revenue generation.
5. To proffer suitable solutions to the problems facing the
tax administration system in Lagos State.
1.4 RESEARCH QUESTIONS
1. How is the nature of tax administration in Nigeria?
2. What are the challenges that are facing the tax
administration in Nigeria?
3. How is the effectiveness of the assessment, collection
and remittance of tax system in Lagos State?
4. What are future prospect of Lagos State tax
administration, in the light of better administration for revenue generation?
5. What are the possible suitable solutions to the problems
facing the tax administration system in Lagos State?
1.5 RESEARCH HYPOTHESIS
H0: There is no effectiveness of the assessment, collection
and remittance of tax system in Lagos State
H1: There is effectiveness of the assessment, collection and
remittance of tax system in Lagos State.
1.6 SIGNIFICANCE OF THE STUDY
The need for this study bears from the currents troubling
tax administration in Lagos State in particular and in Nigeria, in general.
Therefore, this study seeks to find solution to the problems identifiable
through historical and empirical approaches. The discoveries and suggested
solutions by this research work will be useful to the government and the
taxpayers. Specifically, the Board of Internal Revenue and Inland Revenue found
this project useful. It serves as light unto their path to see structural
problems associated with tax administration and would, however, make it
instructive for them to make amend. It is, however, pertinent to state that the
Lagos State Board of Internal Revenue is the researcher’s main point. The
members of the public already polluted with psychological depression regarding
tax matters would, no doubt, found this study very important because it
addressed this disorder. When they were aware of the importance of proper tax
system and tax payment and the demerits of avoiding and evading tax – which, undoubtedly,
are quite untoward to good tax administration. Finally, it would serve as a
reference material for future research. It would identify the critical
challenges such as corruption and fraud that are confronting the tax system so
that appropriate measure could be taken to tackle the menace. It would serve as
a powerful fiscal weapon to plan and direct the economy by shaping the economy
growth and development of a state. It would serve as national debt and to
provide retirement benefits.
1.7 SCOPE OF THE
STUDY
The study is based on tax administration in Nigeria:
challenges and prospects, a case study of Lagos state Board of internal
revenue.
1.8 LIMITATION OF STUDY
Financial constraint– Insufficient fund tends to impede the
efficiency of the researcher in sourcing for the relevant materials, literature
or information and in the process of data collection (internet, questionnaire
and interview).
Time constraint– The researcher will simultaneously engage
in this study with other academic work. This consequently will cut down on the
time devoted for the research work.
1.8 DEFINITION OF TERMS
Tax: is a percentage of persons’ income or of the price of
goods takes by the government to help pay the benefit received.
Direct Tax: Tax levied directly on the income of individual
and business entities. They can be proportion regressive or progressive.
Indirect Tax: these are taxes charge with price of goods
bought at a particular time. These are taxes that are levied in goods and
services.
Tax Policy: Is a particular course adopted in this case line
of action adopted by the government in respect of taxation. (James S and
Nobles.C.1978)
Assessment Year: Means the year in which the profit of a
business are assessed to tax (Okoruen U.U.1992).
Total Income Tax: The aggregate assessable income for the
relevant year after additional and allowance deduction has been made.
Proportional Tax: all tax payers pay the same percentage of
their income and relative difference between the differences incomes remain
approximately the same.