Problems Of Tax Collection In Nigeria

Problems Of Tax Collection In Nigeria

2.1 Abstract Framework

Adebayo( a004) defined taxation is the legal demand made by the Federal Government or State government for its citizens to pay plutocrat on income goods and services. In a less complex society in which the government has many duties and liabilities, the fiscal need of the government are minimum. still, as society becomes complex the need of the people becomes lesser and the government assures lesser responsibility the fiscal requirements of the government becomes great. Accordingly, levies increase and their effect on the frugality becomes more important.

In the history, government has employed taxation as an instrument of regulating the general frugality. Since income duty give large source of public profit. Effect on affectation, severance and social and frugality ideal has come the high consideration in making duty law in Nigeria.

Taxation in an aggregate description is obligatory donation from the people to induce profit for the government; use in fiscal it’s capital design and intermittent expenditure. A celebrity duty authority in his book “ Principle of Public Finance ”Dr.H. Dalton define duty as a mandatory donation assessed by a public authority, in respect of the exact quantum of services rendered to the duty payer in return ” according to Professor Selig man, a duty is mandatory donation from a person to the government to defray the charges incurred in the common interest of all, without reference to special benefit conferred.

From the below conception, the following are thus the global ideal of taxation and avoidance.

To persecute the duty law veritably roundly thereby inhibiting duty elusion and avoidance.

ii. To fete the duty functionary’s as important mortal asset in achievement of the said ideal.

iii. To collect duty according to the law as means as possible and to the laboriously encouraging voluntary capability.

History of Taxation in Nigeria

Taxation is an age long conception which dates lack to the pre-colonial period in Nigeria. levies where paid through different kinds of homemade labour for the entire community benefit. Some exemplifications of similar services are clearing of backwoods, digging of hole restroom, well etc for the benefit of the community as a whole. Failure to render similar services generally resounded in seizing of property which will be claimed only on payment of plutocrat. For illustration, the stylish house at Isenyin, which is inherited by Oyo State Government was said to have been erected between 1916 and 1932 after the Isenyin hoot of 1916, under the supervision of Captain W. Rose, the resident quarter officer and Mr. Yerokun, the case taker.

In 1904, during the social rule, late Lord Lugards government introduces income duty to Nigeria and community duty was being paid in Sokoto caliphate, northerner Nigerian. The constitution of 1917, 1918 and 1928 were latterly incorporated into the Direct Taxation Ordinance of No. 4 of 1940 which replace the native profit constitution. During this period, the board of constituted, comprising of the following-

1) The hearthstone Governor.

2) A representative of elders in each quarter.

3) Any native authority fete by the duty authority.

4) Any vill council appointed by the government.

Characteristic of Taxation

There are three major specific of taxation. There are as follows

duty is mandatory donation assessed by the government on the people abiding within the country. Since it’s mandatory, it also means that person who comes under a duty governance and refuses to pay is liable to discipline.

duty isn’t levy in return for any specific service rendered by the government to the duty payer. An existent can not ask any special benefit for the state in return for the duty paid by him.

duty is a donation to settle the cost incurred by the government of the state, the state uses the profit collected from the levies to give good and social services similar as sanitarium, academy, public mileage service and so on which profit all the people.

Form of levies

The mode of secerning duty by asking a question who pay duty? I’m assessed and fellow pays, them duty come circular.

Direct duty This are levies that are levied on the income, earnings or profit of individualities and business enterprises, and which are actually paid by the person or persons on whom is fairly assessed. This view was aptly endured by John Stuart Mill who define duty as one which is “ demanded from the very person who it’s intended or asked should pay it. In Nigeria, direct levies include the following

i. Personal Income Tax This is a duty on the income of an workers, sole dealer, cooperation and personals.

ii. Company Income Tax This applies to the profit/ income of companies which are generally cooperate profitable.

iii. Capital gain duty This affects companies, individualities and non-cooperate bodies. It’s a duty on the earnings arising from the disposal of particulars of Capital natures.

iv. Petroleum Profit Tax This is a duty outstanding by reality that engage probing for or the birth and transporting of petroleum oil painting on natural gas.

circular duty An circular duty is a duty assessed on employment of goods and services by individualities as well as cooperate persons. It put on one person, but paid party or wholly by another, retaining to “ a consequential change in the terms of some contract or bargain between them ” in Nigeria, illustration of circular duty are as follows

i. Import Duties Tariff

ii. Import Duties

iii. Custom Duties

iv. Excise Duties

Value Added Tax( Handbasket)

At State Government Level

The administration of the income duty law in each of the confederation invested in the State Board of Internal Revenue previous to 1993. The composition of the Board could be different from the state to state. still, with 1993 correction to ITMA the composition is know livery through out the country.

Composition

Sub section 2 gives the composition of the State Board as

a) Three other persons shall be nominated by the Commissioner of Finance of the State on graces.

b) The Directors and Head of Department within the state service.

c) The Director from the State Ministry of Finance.

d) The administrative head of the state service as president. He shall be a person endured in taxation, appointment in from within the state service

e) A legal counsel who shall be appointed from the state ministry of justice.

Functions

The State Board shall be responsible for

a) icing the effectiveness and optimum collection of all levies and penalties due to the government under the applicable law;

b) Appointment, creation, transfer and discipline of hand of the state service.

c) General control of the operation of the service on matters of policy, subject to the provision of the law setting up the service.

d) Making recommendation where applicable to the common duty Board on duty policy, duty reform, duty legislation, duty covenants and impunity as may be needed from time to time.

Technical Committee of the State Board

As an adjunct to the Board, the law( Section 33C of Decree 3 of 1993) also handed for specialized commission of the Board which shall be made up of the following

a) The Chairman of the State Board as Chairman.

b) The Director within the state service.

c) The Legal counsel to the Board.

d) The Secretary.

Functions

The specialized commission shall have power to do the entourages

a) Have powers to integrate fresh staff from within the services in the discharge of its duties.

b) Advice the State Board on all its power and duties as specified.

c) Attend to similar other matter as may from time to time be appertained to it by the Board.

d) Consider each count that bear professional and specialized moxie and make recommendation to the State Board.

Sources of Tax Revenue

An intriguing point of the Internal profit sources of the State is that they’re common. The same profit sources are thus observed from one state to the other with only little variation. The sources are duty- profit sources and no- duty profit sources. The differences between the two sources is that where as the duty profit are dependent on levies assessed by the state, the non-tax profit resource are independent of levies and hence of the duty executive ministry available to the state.

An illustration of non-tax profit is income earned from state enterprise like property, development pot, casing estates, government granges etc. Although a good number of similar public enterprises haven’t really generated substantial profit to state resources. There are thus fairly lower factors of the internal profit sources of the countries. Other exemplifications of non-tax profit are subventions, gift or donations by state aborigines. The large element of internal sources of countries ’ profit is the duty- profit sources.

There’s a long list of these levies and figure. A typical state list of duty- profit sources include-

Direct Assessment

ii. Pay As You Earn( PAYE)

iii. motorist Licence figure

iv. Motor Vehicle Licence

Entertainment duty

vi. Stamp duties and Penalties

Significance Of Taxation

Taxation as one of the measures that help the nation frugality has the following significance-

a) Taxation is assessed to induce profit for the government to meet its capital and intermittent expenditure.

b) It reduces inequalities of income; the more you earn, the more you pay.

c) To increase affair and employment.

d) To awaken communal liabilities among citizens.

e) duty is in financial policy measure affectation, deflation and depression.

f) It encourages and protects new diligence.

g) It discourage the consumption of dangerous product or foods similar as beer, tobacco etc

Duty Impunity

In Nigeria, there are some types of income that are fully exempted from duty duty. Their inflows are those from-

Social clubs

ii. Cooperative society

iii. Mosque and churches

Profit of trade union

Fund raised by Original government

Civil Government talent finances.

donation to approved institutionse.g. pension and public providence finances.

Review Of Taxation Problems In Nigeria

Challenges of the Tax collection and Administration in Nigeria Today

In a council by the Chartered Institute of Taxation of Nigeria, as part of Nigeria’s 50th Anniversary festivity, Naiyeju,J.K.( 2010) punctuate the colorful Challenges of the Tax collection and Administration in Nigeria Today as follows

i) executive Challenge utmost of the Tax authorities( especially the States and Original Government) warrant the asked institutional capacity to administer effectively. The levies under their horizon( capacity in terms of staffing, chops, payment pay, other backing, computer and IT structure etc).

ii) Compliance Challenges For hole,Non-compliance of employers to register their workers and remit similar levies to applicable duty authorities. For Handbasket, a lot of Handbasket collected aren’t remitted while numerous shirk the duty in the metropolises and pastoral areas.

For CIT, numerous of SMEs, informal sectors and indeed big companies carry out fugitive practices.

iii) Lack of Equality The bulk of hole moment are paid by only the workers. Politicians, the rich, professionals and the privileged, many aren’t equitably tested.

iv) Challenge of Multiple levies It’s still a major problem besetting our duty collection and administration.

v) Poor Taxation Drive by categories of Government The political frugality of profit allocation discourages a visionary profit drive, especially by the countries and LGs. They heavily calculate on their share of the oil painting profit.

vi) Challenge of Bad Governance Taxpayer aren’t encouraged to pay further levies because there’s no visible substantiation of good governance.

vii) Challenge of Corruption The duty collection and administration is frequently prone to corruption. The corruption threat erodes the duty yield and confidence in the system.

viii) Challenges of Human Capacity Building and Training At the States and Original Governments, there’s dearth of able hands to administer the applicable levies efficiently.

Duty Refund

A duty refund or duty rebate is a refund of levies when the duty liability is lower than the duty paid. When a duty is over paid, the law requires it be reimbursed. Section 23 of FIRS( Establishment Act) 2007 makes provision for duty Refund to eligible taxpayers. The Act gives FIRS the power to make duty refund after proper auditing. A devoted account is to be set up by the AGF and funded from the Federation Account grounded on approved budget. The Tax refund is to be made from this account. Payment should be made from this account within 90 days.

Issues

The specified 90 days commences from the time a claim is made. What if the claim is frivolous? It’s presumed the claim will be registered to avoid difficulties. The service is to decide on who’s eligible for refund. This may be illegal to a licit taxpayer if there’s overdue detention. There’s no time- frame quested for the duty inspection instigated by a claim for duty refund.

Prospects of Tax Collection and Administration

In a council by the Chartered Institute of Taxation of Nigeria, as part of Nigeria’s 50th Anniversary festivity, Naiyeju,( 2010) punctuate the prospects ahead in respects to the Tax collection and Administration in Nigeria. These are in line with the recommendations of the council as follows

The Current National Tax Policy Bill and remaining four duty Bills should be passed into laws by the National Assembly.

The collection and Administration of Personal Income Tax, other levies and impositions( in the approved list of collection) Act 1998 should be removed from the first schedule of the “ FIRS( Establishment Act) 2007 ” to conform with our financial federalism.

duty Compliance Strategy should be bettered drastically, at all situations of our duty collection and administration. A bill to establish duty court should be passed by the State.

The duty collection and administration should be strengthened, especially at the countries and original government situations in a manner analogous to the vittles of FIRS( Establishment) Act 2007. This will given also more autonomy and allows also to make capacity for effective duty collection and administration.

Enthrone Good Government to evoke voluntary duty compliance.

Government should ameliorate the current profit allocation system so as to encourage the taxation drive of the state and original government.

The preface of the present duty refund system is significant step in the right direction. The FIRS, should demonstrate good intention by making prompt refund of levies over paid by genuine taxpayers.

Companies, small, medium and big, are advised to keep proper and complete records of their business deals to move the FIRS duty adjudicators for their duty refund claims

The duty authorities too, should be more careful and objective in their assessment to avoid taking redundant duty from the taxpayer to warrant duty refund at a after date.

State and original government duty authorities should retain training end motivate high position professed labor force to administer levies in their governance.

Corruption threat – mitigating strategies must be developed for the duty collection and administration

-Effective service delivery

– law of Conduct for staff,

– Internal Control,

– warrants and impulses

– Whistleblower protection; and

– regulation against loose practices.

– Corruption auditing

In conclusion, as we go into post 50 times of our independence, all profitable citizens must be committed to meeting their duty obligation while the government must be serious in the discharge of its liabilities to the governed. duty elusion and corruption must be seen as social and profitable leprosy on perpetrators. Entrance to our public services and good effects of life must be shut to duty evaders and loose citizens. Good taxpayers and honest citizens must be adequately price( Naiyeju,J.K. 2010).

Theoretical Frame

Original government system in Nigeria needs a moderate quantum of fiscal autonomy to be suitable to discharge its liabilities effectively. Public profit in a civil system assumes that there are benefits to be deduced from decentralization. Public profit decentralization occurs when lower categories of government have statutory power to raise levies and carry out spending conditioning within specified legal criteria. This is appertained to as the Lapping Authority Model proffered byDeil.S.Wright( 1978) on Intergovernmental connections. Public profit decentralization occurs when important of the plutocrat is raised centrally but part of it’s allocated to lower situations of government through some profit- participating formula else known as executive decentralization.

The main reason for decentralization is anchored on allocation sharing or effectiveness grounds so it’s possible to advance argument for decentralization in Nigeria where there are numerous ethnical groups.

Oates( 2003240) contends that “ there are surely reasons, in principle to believe that programs formulated for the provision of structure and indeed mortal capital that are sensitive to indigenous of original conditions are likely to be more effective in encouraging profitable development than centrally determined programs that ignore these geographical differences ” There’s a great relationship between decentralization and profitable growth and geste for profitable fundamentals within the decentralized governance is a matter that remains an empirical issue and conversations must be country specific.

Kim( 1995) quoted in Oates( 2006) has shown that in his mode of explaining rates of profitable growth, profit decentralization that there are positive and statistical significant change, using a sample of countries. His results also shows that, other effects being equal, more public profit decentralization was associated with more rapid-fire growth in GDP per capita during 1974- 1989 period.

Prud ’ homme( 1995) on the other hand, argues that decentralization can increase difference peril stability, undermine effectiveness and encourage corruption. He maintains that original authorities, for illustration, have many impulses to take over profitable stabilization programs. The instrument of financial and public profit programs are better handled by the central government.

Oates( 2003) opines a contrary view that the principles of centralization is expensive because it leads the government to give public goods that diverge from the preferences of the citizens in particular areas( regions, businesses, countries, original governments). He also argues that “ when these preferences vary among geographical area, a invariant package chosen by a nation ’ s government is likely to force some points to consume further of lower than they would like to consume.

According to Tanzi( 1995) the interpretation of both Oates and Prud ’ homme assumes that subnational government situations formerly live, hence the pivotal problem becomes which of the being government situations ought to be responsible for particular forms of spending.

The function of government can be divided into three- allocation, distribution and stabilization function( Musgrave 1959). Using this position, stabilization and distribution functions are anticipated to be under the peripheries of the central government while lower government undertakes allocative functions. Hence, any spending and trying opinions that will affect the rate of affectation, position of severance,etc. are more handled at the centre, while other conditioning that will affect social weal are more effective if accepted by subnational governments.

Theoretically, the compass of benefit is the base for allocating liabilities governments. Public goods and services which are public in nature( foreign affairs, terrain, immigration and defense) should be handed by the central government while those whose benefits are substantially localized should be assigned to the lower situations of government. Quasi-private goods or intermediate goods and services similar as administration, health and weal services should on account of effectiveness delivery, be assigned to lower situations of government( Vincent.O. 2001).

Studies on duty and public profit rallying in Nigeria have shown a high degree of centralization. According to Emenuga( 2003), the allocation of profit to the categories of government has not cleave rigorously to the expenditure conditions of each league, therefore the civil government has come a fat- spending unit while other functions, he proposes the determination of a league ’ s share through the aggregation of its introductory expenditure requirements.

To reduce the gap between duty power announcement liabilities, two types of profit sources are allocated to each league. These are independent profit sources and direct allocation from the confederation to which centrally collectable earnings are paid. Original government also receives allocations from state Internal Earnings. An agreed formula for perpendicular profit sharing is used in participating finances from the confederation account.

Another crucial issue in the practice of public profit rallying in Nigeria is how to distribute the bloc share from the confederation account among the constituent units of each league i.e. among the 36 countries and the 774 original governments. This is called vertical profit sharing.

In Nigeria, there are four orders in the perpendicular allocation list – civil, state, original governments, and the special fund. The allocation to the Federal Capital Territory( FCT) is reckoned for under the special fund which is administered by the civil government.

Original Government Finances and profit Application

Public profit mobilisation is one of the most keenly queried issues in Nigeria. A comprehensive review of the reports of the colorful commissions and government programs from the 1946 Philipsons commission to the conditioning of the National Revenue Mobilisation, allocation and financial commission established in 1989 could be set up in Kayode( 1993), Emenuga( 2003) and Ekpo( 2004).

Original governments in Nigeria admit statutory allocations from the two advanced categories of government( civil and countries). At the present, profit sharing formula, original governments admit 20 per cent from the confederation account. They’re also statutorily entitled to 10 per cent of countries ’ internally generated profit. As respects to Value Added Tax, original governments admit 30 percent in 1998. This was participated to original governments, on the following base equivalency( 50 per cent) population( 30 per cent) and derivate( 20 per cent).

In 1999, original governments entered 35 per cent of the Handbasket proceeds. The civil government controls all the major sources of profit like import and excise duties, mining rents and royalties, petroleum deals duty, petroleum profit duty and companies income duty among other earnings sources( see table 1). Original Government levies are minimum hence this limits their capability to raise independent profit and so they depend solely on allocation from the confederation account.

important of the profit collected by the civil government and distributed among the different categories of government using the perpendicular profit allocation formula is from the confederation account. But the civil government seems to exercise too important control over its distribution. So numerous deductions are made from the total profit collected before the rest is distributed according to the sharing formula.