TAX ADMINISTRATION IN NIGERIA: CHALLENGES AND PROSPECTS (A CASE STUDY OF LAGOS STATE BOARD OF INTERNAL REVENUE)

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.