TABLE OF CONTENTS
CHAPTER ONE
1.1
Introduction
1.2
Administration Of Income Tax
1.3
The Act
1.4
Taxation Concept
1.5
Qualities Of Good Tax System
1.6
Classification Of Tax
1.7
Concept Of Effective Tax Structures
1.8
Statement Of The
Problem
1.9
Objective Of The
Study
1.10
Hypothesis Of
The Study
1.11
Research
Methodology
1.12
Data Analysis
1.13
Limitation Of
The Study
CHAPTER TWO
2.1
Literature
Review
2.2
Canons Of
Taxation
2.3 The Tax
Jurisdiction
2.4 The Tax
Legislations
2.5 Problems
Confronting The Tax Structure
2.6
Taxation During Colonial Period
2.7
Purpose/Uses Of Taxation
2.8
Element Of Tax
2.9
Tax System
2.10 Economic Effect Of
Taxation
CHAPTER THREE
3.1
Research Design
3.2
Sources Of Data
3.2.1 Primary Data Sources
3.2.2 Secondary Data Source
3.3
Population Of Study
3.4
Research Approach
3.5
Research Instrument
3.6
Questionnaire Design
3.7
Samples Selections
3.8
Method Of Testing Hypothesis
CHAPTER
FOUR
4.0 Data Analysis and Presentation
4.1
Analysis Of Tables
4.2
Summary And Presentation Of The Tables
CHAPTER
FIVE
SUMMARY,
CONCLUSION AND RECOMMENDATION
5.1
Summary
5.2
Conclusion
5.3
Recommendations
BIBLIOGRAPHY
APPENDIX
CHAPTER ONE
1.1
INTRODUCTION
A statesman and philosopher
“Benjamin Franklin” observed that “in this world nothing is certain but death
and tax are certain.” Our ancestor spontaneously paid their taxes in kind for
the progress of the community as a whole. Right from independent 1960, the
Nigeria Government seemed to have a definite conception of direction in which
economy should move.
There had been some
economic problems which policymakers had tried to find solution to, from
independence to date. Some of these problems include a high level of un-employment,
rural – to- urban drift with its attendant social amenities among others.
The government, both
federal and state had been looked at as the greatest employer of labour and the
provider of these social amenities like electricity, pipe-borne water, good
roads, hospitals and schools etc. There was also the problem of over-dependence
of the Nigeria economy on foreigners and reliance on foreign resources for
development financing. The much reliance on the oil revenue had earlier blocked
the effective utilization of some internal source of fund, taxes of various
classes which form the major bulk of revenue of the government.
In an effort to combat
some of these problems various government had in their annual budgets
enunciated some fiscal and monetary policies.
The fiscal policies are aimed at both to control certain economic
activities and to generate internal revenue which maybe channel to development
programmes. Various tax laws ordinances and Act had been in operation
since,1904. Inland Revenue Board (IRB) had been established to facilitate
implementation of the law and effective collection of the taxes.
Taxes may be categorized
into income tax, property tax, community tax, capital gain tax, petroleum
product tax, capital transfer tax, excise duties, etc. The most prominent tax
operative in the country is the income tax than better – off-self employed
persons.
Income tax was
introduced first in 1904 in Nigeria by Late Lord Lugard. Previously, Nigerians
cheerfully paid their taxes in kind by rendering free services such as clearing
the bush, digging pit toilets, wells etc. for the benefits of the community as
a whole. Failure to render any services usually resulted in seizure of
property, which might be reclaimed on payment of some money.
1.3
ADMINISTRATION OF INCOME
TAX
The legal history of
personal income tax in Nigeria may be traced to the enactment of the Director
Taxation Ordinance in1940. Under this ordinances, administration officers
administered, the director taxation ordinance unscientifically without any form
of uniformity by levying tax on the income of Africans in the former regions
(Northern, western and Eastern regions) while they taxed the incomes of both
Africans and Europeans in the Federal Territory of Lagos. European in the forms
region were not subject to tax in the region in which they were resident. Cocoa
farmers were the highest tax payer. Known incomes of Africa in those days were
compretively small and revenue must of necessity have been small. Taxation policy
then appeared to be based on a choice between democratization of the tax system
(i.e. the introduction of politicians as representatives into tax system) and
the former was proffered and practiced.
1.14 THE ACT
In most federal constitutions, fiscal powers are
shared between the federal government and the state governments. The raise man
fiscal commission of 1958 recommended throughout Nigeria the introduction of
basic principles for taxing incomes of persons other than limited liability
companies. This recommendation was embodied in the (constitution) order in
consul 1960 and formed the basis of the income tax management act in 1961
hereinafter referred to as the Act, the main provisions of the Act, which is
not a complete statue but which deals with fundamental income tax principle
applicable to the whole country relate to:
i.
The basis of
computing income of individual’s families’ estates and trusts.
ii.
The
determination of residents for tax purposes that is, how do you determine who
has power to assess and collect taxes from Mr. x and Mr. y.
iii.
The treatment of
provident and pension fund.
iv.
The treatment of
capital allowance for plant and machinery including building used for
generating income.
v.
The types of
expenses, which are allowed or not allowed for income, tax purpose.
vi.
The treatment of
losses incurred in a trade, business, profession or vacation. Profits are
taxable but losses are not. The treatment of losses incurred in a trade of
business if found reasonabled must be
allowed but losses from gambling is not allowed.
vii.
The incomes,
which are exempted from taxes, must be identified by government and under what
section of the law are they exempted. Income due to charitable organization
public schools is not taxable but the income generated by a Baptist church in
respect of rent on buildings should be taxed.
1.15 TAXATION CONCEPT
Income tax is one of the major sources of revenue of
all governments (federal, state and local government) in Nigeria, and it is a
factor to be reckoned with in the
local, state and federal government budgets. The taxes collected, come back to
the taxpayers in form of social amenities. Income tax has encouraging such
companies.
Pioneering industries which produce goods locally
are encourage and they generally enjoy tax holidays for a minimum of three
years. Besides dividends received from such companies are not taxed. This
package serves as a good tax incentive to encourage industrial production.
Only the federal government can designate companies
as pioneers, if they can satisfy certain conditions including profitability
income tax reduces the net returns on investments and also decreases the
balance available for private savings. It is an all-rewarding subject which
affect the lives of nearly everybody and no major accounting or legal problem
can be satisfactorily solved without a consideration of its tax aspects.
Taxation is particularly important to businessmen,
who enjoy the benefits of water supply, electricity and land allocation. Income
tax has its premiums and dependent relative relief affect the social structure
of the whole country. The fiscal effect is that the cost of collecting these
taxes by the government is considerable. Professional fees paid by tax payers
to accountants and the cost of unpaid employers in deducting tax under the
Pay-As-You-Earn [PAYE] system and handling the taxes so deduced to the
government is also enormous.
Income tax also has some effect on population
movements and the extent of business carried on. A state with a low income tax
rate (since there is no uniformity in all the states) will find that more
people are moving into that state while traders will leave states with high
income tax rate or engage in various schemes of tax avoidance and tax evasion.
The importance of income tax is also shown by the fact that once of the
problems inherent in any federal system of government is the allocation of
taxing power between the federal and state government. In 1957, in an attempt
to formulate a good bases of powers, a two-member fiscal commission known as
the Raisemen Commission was appointed to study and to make recommendation as to
the allocation of taxing powers between the regional and the federal
government. The commission rendered its principal report in June 1958, which
contained suggestion (almost entirely adopted) as was found in constitution and
cover the entire filed of taxation.
The Nigeria constitution enacted by two-third vote
in each house of the federal parliament through this provision had been silent because
of military government, major reforms could be affected through decrees. The
federal government has exclusive jurisdiction over import, export and excise
duties, mining, royalties, purchases and sales taxes on the most commodities
and taxes on the income and profit of all limited company is the state
governments on the other hand have exclusives jurisdiction over purchase and
sales taxes on product like; palm oil, palm kernel, rubber, cocoa etc. It is
evident that the federal government has the greatest bulk of the revenue and
remains independent of the state control. Since the state governments have
inadequate resources to fulfill their responsibilities for agriculture,
education, road, health, etc the 1960, 1963 constitutions provided formulae whereby
substantial shares of the federal revenue were re-distributed to the state, the
imbursements to the state government are not sufficient for the state
government to fulfill their development needs, hence they depend on the federal
government for most development programme.
In discussing taxation as a tool that provide
internal revenue, mention must be made of the effects and demerits a
disincentive to work, for example, on marginal earnings. Taxation may better
enterprise from increasing productivity especially if a business man feels that
the more money he earns, the more tax he pays. Taxation could encourage
inflation, for example if the price of the basic or essential commodities are
increased, there will be demand for high wages and if granted, this could lead
to higher prices and so inflation set in.
Taxation may divert economic resources depending on the elasticity of
demand for the relevant product. For example, if there is a purchase tax on
butter and the price of butter goes up, people may like to purchase margarine.
Despite all these effects, adequate tapping of this source of finance cannot be
blocked.
1.16 QUALITIES OF GOOD TAX SYSTEM
A good tax system must posses the following
qualities
a.
It must be
enforceable and acceptable.
b.
It is possible
to verify returns for incomes and of claims for relief
c.
It must not
invite distionesty by allowing deductions that cannot be verify
d.
It must satisfy
the public as regards it fairness to make it acceptable
e.
A tax that is
unacceptable to the public invites evasion and high cost of collection and
enforcement.
1.17 CLASSIFICATION OF TAX
Tax may broadly be classified as direct and indirect
tax. Direct tax means a tax borne by a person on whom it is legally imposed,
for example, income tax, profit tax and capital gain tax. Indirect tax is a
tax, that he burden is not expected to fall upon the person who actually pays.
For example, customs duty, excise duties, an entertainment tax. Incidence of
tax is very important in formulating fiscal policy so as to enable the
authority to know the efforts of any tax imposed. By incidence of taxation, one
means the ultimate bearing of taxation and by impact one means the touch on the
person itself. For example taxes, the
impact and incidence are borne by the person assessed. One cannot shift either
of them but in the indirect taxes the incidence is usually upon the person
assessed. In this case, the impact is on tax payer. The consumer pays for the
tax in form of increased prices.
1.18 CONCEPT OF EFFECTIVE TAX STRUCTURES
An effective tax structure ensures proper harnessing
of the internal sources of finance. But it is found that tax had not crated
enough revenue to the federal, state and local government. And also, some the
need for foreign exchange was provided by oil sales, the various government had
neglected or not full tapped the revenue from taxes. Following the depletion of
foreign exchange and this “oil glut”, a turn in the direction would be to see
ways to effectively tap military administration had done in intensifying its
effort in revenue generation through taxes and development levies.
Almost all the state government and the federal
government have strived to come up with balanced budget in their annual
budgets. Since taxes comprise the major bulk of the government revenue, this
mean an increase in various classes of tax. In doing this various tax laws and
enabling decrees have been into operation to give legal backing to the
collection of taxes. This study thereof attempts to appraise the Nigerian tax
structure with a view of seeing how effective is generating the required
finance for development. There may be required reforms to be made on the
various tax an the overhauling of the whole machinery.
Effective tax structure would not only depend upon
the promulgation of tax law/decrees and enactment of acts but would depend
among other things, on the honesty and integrity for evasion and the adequate
and training of the personnel entrusted with such function. Various campaigns
have been maintained by both federal and state governments to the general
public in an effort to enlighten them on the need for tax payment. This is a
step in the right direction as it would reduce tax evasion and default and
increase revenue.
The low level of education and poor relationship
between tax payers and tax authorities has been suggested as accounting for
poor revenue generation. Mass literacy campaign would help to enlighten the
populace among the rural dwellers is that the government is not doing anything
in form of development with tax they pay. This may be little true since
development with taxes they pay. This may be little true since development
cannot be concentrated in the urban areas. A good development programme would
embrace the rural areas. Federal Board of inland revenue has been establish by
the federal government as an organ charged the full responsibilities of tax
assessment and collection.
Tax laws has been enacted and had been in operation
so may years back to data, still there are cases of default or evasion. Full
implementation of these laws would deter people from evasion. It should be
emphasised that if income tax contribution to recurrent revenue and capital
budget is to be increased, and if the growth is the Gross National Product
(GNP) of the country, and the Gross Domestic Product (GDP) of each state is to
reflect in tax yield, tax payers must be educated to develop a fear of tax
evasion.
1.19
STATEMENT OF THE PROBLEM
Income tax is one of the major source of revenue of
all governments in Nigeria. The problem however are:
How effective the tax structure is in he harnessing
the internal sources of finance?
The social effect of reliefs to the whole economy
and the effect of taxation to the economy. One may ask, does the problem of tax
evasion depend on inefficient tax structure and to what extent the government
finds it possible to execute it’s programmes due to short-fall in income tax.
1.20
OBJECTIVE OF THE STUDY
The objectives of the study focus on the country’s
tax structure and laws/acts to date and it’s effectiveness in revenue
generation. Since the country is facing foreign exchange depletion, the need arises,
for an accounting student to appraise the tax system as a tool for the
provision of the much needed internal fund for development. The country depend
solely on the external sources of finance.
It will offer an opportunities to recommend some of
the findings from the study of policy-makers in economic development planning
and findings. It will also suggest more effective machinery in developing a
good tax structure and necessary reforms to the existing tax laws. For the
student, it will be academic exercise to discuss at length when tax issues are
brought up for public opinion which will be helpful to economic development.
For the Nigerians the study will help to educate them on the need for tax
payment and reduction of the rare of tax evasion. This revenue generated from
tax will increase.
1.21
HYPOTHESIS OF THE STUDY
The objective of the study is on the effective tax
structure in revenue generation, the following constitute the hypothesis for
the study:
i.
The tax laws and
decrees have been helpful in deriving the required funds.
ii.
Decrees/laws
accounted for law revenue from tax.
iii.
Tax structure is
progressive in nature
iv.
Tax structure is considered the major
principle of good tax
v.
Tax structure
makes tax payment convenient
vi.
Tax evasion and
avoidance are responsible for law revenue from tax.
vii.
Unqualified and
untrained tax officials under the tax administration.
1.22
RESEARCH METHODOLOGY
a.
Research Population
The research population consist the officials in
some States Internal Revenue Department Lagos, and Federal Inland Revenue
Department (FIRO) Lagos, and many Nigerians who are tax payers.
b.
Data Collection
Data are collected from two sources namely:
Primary and Secondary Sources. The data from primary
source were accumulated from extensive use of questionnaires. Oral interview
was also conducted for additional information. The secondary sources is mainly
on published data and pass research project on the topic.
1.23
DATA ANALYSIS
This involves simple statistical analysis of data
collected, like chi-square distribution. Theoretical explanation will also be
adopted in the research work. The result obtained from the analysis is expected
to have serious policy implications to both the public and government.
1.24
LIMITATION OF THE STUDY
The study has limitation in the area of gathering
reliable data. There is limitation of getting reliable data for the research.
The study is limited by the refusal of the public and tax official to supply
the researcher all required data and information. Surprisingly enough, most tax
officials refuse to fill the questionnaires because they want their directive
from the top (i.e. the top officials) to do so.
Click “DOWNLOAD NOW” below to get the complete Projects
FOR QUICK HELP CHAT WITH US NOW!
+(234) 0814 780 1594
Login To Comment