Creating an effective tax system necessitates the collection of taxes on a regular, consistent, easy, and affordable basis. Taxes are backed up by legislation. In Nigeria, tax laws are the enactment of rules and regulations relating to tax revenue and the many types of taxes. The purpose of this study was to evaluate the administration of personal income tax (PIT) in the state of Akwa Ibom. The research was conducted using a quantitative descriptive research design. This study enlisted the participation of 50 members of the tax authority’s personnel. The information for this study came from two different sources: primary and secondary sources. The study’s findings revealed that the state of Akwa Ibom’s tax officials are efficient in their administration of personal income tax. Banks and other alternative collection techniques have a considerable impact on Optimal Tax Revenue, according to the multiple regression equation.
Background of the study
“Any obligatory payment to government imposed by law without direct benefit or return of value or a service, whether it is labeled a tax or not,” according to the Nigerian Tax Policy (2016). (p. 1). Taxation is viewed as a civic and patriotic responsibility of citizens, as it provides a consistent major source of revenue for the government to defray its expenditure on social amenities, infrastructure, and the security and safety of life and property both within and outside the country [Adeyeye, 2009, 2013; Angahar & Alfred, 2012]. Taxes, according to Bello (2001), are mandatory government levies on citizens’ income, consumption, and capital for the goal of producing revenue.
According to the literature, the proportion of personal income taxes to overall revenue collected by the Nigerian government has been abysmal and is on the decline (Chartered Institute of Taxation of Nigeria [CITN], 2010; Kiabel & Nwokah, 2009; Nzotta, 2007). One of the causes has been attributed to a low degree of tax compliance. According to Modugu, Eragbhe, and Izedonmi (2012), inadequate tax compliance is a problem.
The “compliance puzzle,” as described in literature, is a difficult phenomena that occurs in many countries, particularly in developing economies. According to Alabede, Ariffin, and Idris (2011a), the issue of inadequate tax compliance has garnered worldwide attention, prompting empirical and theoretical research. Low tax compliance has become a thorn in the side of Alabede et al (2011b).
They claim that the situation has resulted in a steady drop in the government’s tax revenue. The federal government’s non-oil tax revenue fell from over 43.7 percent in 1977 to around 13.2 percent in 2008. (Central Bank of Nigeria, 2008). Furthermore, according to CBN (2008), the ratio of personal income tax to GDP increased between 1999 and 2007.
and it hasn’t moved beyond 1.6 percent since 2008. The highest percentage was in 2003 (1.6%), while the lowest were in 2000 and 2006. (1.0 percent ). This pattern demonstrates Nigeria’s underperformance in the area of personal income taxation. In addition, according to Price Waterhouse Coopers (PwC2012 )’s “Ease of Paying Taxes Ranking,” Nigeria is placed 138th out of 183 economies in terms of tax payment ease.
All of this suggests that taxpayer compliance in Nigeria is a problem.
To assure compliance, a mechanism known as “responsive regulation” was devised in the late 1800s. According to Ayres and Braithwaite (1992), the new proposal offers a broader view on assuring compliance because it incorporates other tactics, such as education and persuasion, in addition to deterrent tax measures. The goal of responsive regulation is for tax authorities to alter their monitoring and enforcement activities in response to taxpayer behavior, so they know when to punish or persuade them (Braithwaite, Murphy & Reinhart, 2007; Murphy, 2004). It was suggested that using a cooperative and persuasive strategy in conjunction with deterrent tax measures would assure optimal tax compliance and, as a result of the findings, Other factors considered in this model include taxpayer characteristics such as attitude, social and psychological makeup, and the context in which non-compliance with tax laws may arise (Murphy, 2005). The components of a good tax system include tax policy, tax laws, and tax administration. These three aspects of the tax system are expected to work together to help the country achieve its economic goals. The National Tax Policy (2016) lays down the foundations for the Nigerian tax system’s orderly evolution. Among other things, the Policy is expected to fulfill the following specific objectives: I serve as a guide for the administration and review of the tax system;
(ii) act as a point of reference for all stakeholders in the tax system; (iii) establish a benchmark against which stakeholders will be held responsible; and (v) provide clarity on the roles and responsibilities of stakeholders in the tax system.
In order to meet the aforementioned expectation, the national tax policy should be in accordance with the taxation principles, which are the foundations of an effective tax system. All existing and future taxes are expected to align with the following fundamental features, according to the Guiding Principles of the Nigerian Tax System: I Equity and fairness; (ii) Simplicity, certainty, and clarity; (iii) Low compliance cost; (iv) Low cost of administration; (v) Flexibility; and (vi) Sustainability [National Tax Policy, 2016]. This is in line with Adam Smith’s tax canons, which emphasize the importance of equality, clarity, convenience, economy, simplicity, productivity, and efficiency in a healthy tax system [Uremadu & Ndulue, 2011].
Statement of the problem
Personal income tax administration has existed as long as there has been taxation. It makes a significant contribution to the revenue earned by taxation. It has never been easy to persuade all taxpayers to adhere to a tax system’s requirements. Because most of the old difficulties persist and new considerations are posed by developments such as self-assessment, the global economy, and electronic trade, tax compliance is likely to become a more important part of tax policy. These issues have policy consequences for the administration of the tax system. Administration of personal income taxes h These issues have policy consequences for the administration of the tax system. Technology, globalisation, serious environmental issues, and the world’s population all influence tax policy, particularly in emerging countries. It could suggest that the “one size fits all” policy is no longer relevant. Taxes should be collected on a regular, consistent, easy, and affordable basis to produce a good tax system. To put it another way, a good tax system comprises two key components: taxation principles and tax administration. Neumark and Heller advocated for taxation principles. As a technical administrative principle, Heller developed cost-effectiveness, tax compliance, economic efficiency, harmonisation with other policies, income redistribution, and ability to pay. Many social, economic, and political aspects influence the efficiency of tax administration. Tax administration is supposed to offer tax gap measurements, random audits, and rigorous risk monitoring (OECD, 2017, p.62). The globalization of the world makes it impossible for tax officials to keep track on everything at the same time. As a result, tax authorities have the option of balancing tax rates and tax bases. Tax administrations, on the other hand, use information and communication technology (ICT) to increase tax revenue. Effective and efficient tax administration is required. The most popular definitions of these terms are that the tax administration is successful when it achieves a high degree of voluntary tax compliance and efficient when its expenditures are minimal in comparison to the income received (the core focus of this study). According to the OECD’s guidelines on the principles of good tax administration, effective tax administrations must understand and follow revenue authorities’ goals and problems. The main responsibility of revenue authorities in this regard is to ensure that tax regulations are followed. As a result, this research was carried out to analyze the state of personal income tax in Akwa Ibom.
Objectives of the study
The purpose of this study is to evaluate the administration of personal income tax in the state of Akwa Ibom. Specifically, this research aims to:
- Determine a system of assessing personal income tax that encourages inhabitants of Akwa Ibom state to pay voluntarily.
- Determine the efficiency of the PIT collecting process in order to maximize tax income.
- The extent to which tax regulations are applied by tax officials in order to achieve the best possible personal income tax rate.
Significance of the study
The research would allow tax policymakers to rethink their approach to collecting personal income taxes. It will enable the state’s tax authorities to devise more effective methods of tax collection and remittance. The study’s conclusions will inform the study’s users about the state’s personal income tax administration.
- What are the PIT methods that motivate citizens of Akwa Ibom state to comply voluntarily?
- How effective is the state of Akwa Ibom’s personal income tax collecting system?
- How effective is the implementation of personal tax laws in maximizing personal income tax revenue?
H0: In the state of Akwa Ibom, the tax officials are ineffective in enforcing tax legislation.
Ha: In the state of Akwa Ibom, the tax authorities are effective in enforcing tax rules.
Scope and delimitation of the study
The purpose of this research is to look into the concept, application, and administration of personal income tax in the state of Akwa Ibom. Other sorts of taxes include corporate income tax, petroleum tax, and value added tax, among others. However, the focus of this research will be on personal income tax. Furthermore, the results of this study are restricted to the case study chosen for this study. The state board of internal revenue of Akwa Ibom was chosen for this investigation. As a result of this decision, the findings of this study may or may not be applicable to other Nigerian states. However, it creates a research void that can be filled by other researchers.