TAXATION AND ITS EFFECT ON THE NIGERIAN ECONOMY
(A CASE STUDY OF ENUGU STATE TAX SYSTEM).
BY
EGWUONWU EUNICE
ACC/2006/249
A PROJECT SUBMITTED TO THE DEPARTMENT OF ACCOUNTANCY
FACULTY OF MANAGEMENT AND SOCIAL SCIENCES.
CARITAS UNIVERSITY.
AMORJI-NIKE, EMENE,
ENUGU STATE.
IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF
BACHELOR OF SCIENCE (B.Sc) DEGREE IN ACCOUNTING.
AUGUST, 2010.
APPROVAL PAGE
This research work has been read, approved and accepted as having met the requirements
and refulations governing the preparation and presentation of project in the deparment
of accountancy, faculty of Management and Social Sciences, Caritas University, AmorjiNike, Enugu for the award of a Bachelor of Science (B.S.c) degree in Accounting.
MR. NSOKE P.U
DATE
Project supervisor
MR. COLLINS C. UGWU
DATE
Head of department
External supervisor
DATE
ACKNOWLEDGMENT
My immense gratitude goes to Almighty God for giving me the knowledge and strength to
produce this project work. May his holy name be ever glorified.
I am greatly indebted to my mum Mrs Egwuonwu Eunice Ogochukwu and my siblings
Chidiebele,Kingsley,Charles, and Obinna for their encourangements and support. In
particular, i would like to thank my colleagues and friends, among them are; Sarah, Cynthia
O., Iyabo, Loveth, and so many others.
I acknowledge the Chairman of Board of Internal Revenue, Mr Chime Felix for his
contribution towards my research work. May the Almighty God bless him.
I wish to thank my project supervisor Mr. Nsoke P.U, who through every aspect of my work,
gave me appropriate guidance and support, and to my HOD Mr Ugwu Collins C. and to my
other lecturers, Mr. Ovute Frank, Enekwe C.I., Mr Agu C., Dr Mrs Sabina Eyisi for their
immense contribution from the begining to end, and also to all final year student of
accountancy department, and to New Jerusalem hostel girls for their support and
encourangement. May God bless you all.
DEDICATION
This research project is dedicated to God Almighty, the creator of heaven and earth. I also
dedicate this piece of work to my wonderful and enduring mother,Mrs Egwuonwu Eunice
Ogochukwu for her tremendous support,prayers, and who single-handedly sponsored me
up to the completion of my study.
May the Almighty God specially and graciously spare her life to reap the fruits of her eternal
investment and unflinching sacrifices on me, here on earth and in heaven abundantly
(Amen).
ABSTRACT
The aim of this study was to investigate on taxation and its effects in the Nigeria economy.
One of the objective carried out by the researcher was to examine peoples perception on
taxation.
Taxation is seen as a tool aimed at improving the performance of the national economy by
such means as altering the balance between current consumption and capital investment.
It looked at the work of other authors in order to make the exercise richer. Their different
views were seen in different books and other materials (journal) which made this study
much better than similar works in this area.
In carrying out this study, the researcher used both primary and secondary data.
Qestionnaries and interviews were used in generating the primary data while the
secondarry data were obtained through library researcher and other sources.
The purposive sample of 147 respondents were randomly selected for the study to avoid
numerous errors in the calculation. From the data collected and analysed, it was evident
that tax collection plays a great role in the development of the Nigeria economy.
Conclusively, discussion, summary, conclusion, and recommendations were made to
achieve the purpose of this work.
TABLE OF CONTENTS
Title page
Approval page
Dedication
Acknowledgement
Abstract
Table of content
CHAPTER ONE: INTRODUCTION
1.1 Background of the study
1.2 Statement of the problem
1.3 Purpose of study
1.4 Significance of the study
1.5 Scope and delimitation
1.6 Definition of terms
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1 Taxation theory
2.2 The objectives and importance of taxation and economic policy.
2.3 Imposition of taxes and income chargeable under various tax laws and acts and the
relevant tax authority.
2.4 Ascertainment of income for tax purposes.
2.5 Types and qualities of taxation.
2.6 Tax effects on the economy.
2.7 Tax effects on production and distribution.
2.8 Tax effecttt on consumption and savings.
2.9 Tax effects on investment and efficiency.
2.10 Tax evasion and avoidance.
2.11 Current charges in personal income taxation.
CHAPTER THREE: RESEARCH, DESIGN AND METHODOLOGY
3.1 Research instruments.
3.2 Sources of data.
3.3 Sampling procedure.
3.4 Statistical treatmente
3.5 Dta analysis.
CHAPTER FOUR: PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA.
4.1 Data analysis,presentation and interpretation.
4.2 Test of hypothesis.
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION.
5.1 Summary of findings.
5.2 Conclusion.
5.3 Recommendation.
Bibiography .
Appendices.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Taxation is the system of raising money in form of taxes paid by the citizens of the country
in return for the services rendered by the government.
It could be recalled that taxation is instituted by God, this is traced back to “Mattew chapter
22 vs. 17-21”, when the Pharisees asked Jesus whether it is lawful to pay taxes or not. The
Pharisees were later told render therefore to Caesars the things that are Caesar’s and to
God the things that are to God.
According to Lekan .S. etal (2006), tax was described and not defined in the statues, but
according to Cambridge international dictionary of English, it is “an amount of money paid
to the government usually a percentage (%) of personal income or company profits”.
According to Okpe I.I (2000) tax is the transfer of resources and income from the private
sector to the public sector in order to achieve some of the nation’s economic and social
goals.
Taxation is universally accepted as a powerful tool in the hands of any government to raise
income for its services and to ensure equitable distribution of income among its citizens.
Therefore, in every modern communities, a large amount of taxation is necessary for a
public expenditure increases to promote social progress, taxation which is the main sources
of funds also increases.
The present tax laws in Nigeria emanated from the Raismais commission in 1957. Before this
time we only had what was called the income tax ordinance for the colonies and which was
rather common in all the colonies and the provisions were very similar. Raim’s
recommendation was the basis of provision in the Nigerian constitution order council of
1960 section 70(1) which conferred an exclusive power upon the parliament to make laws
for Nigeria or any part thereof with certain uniform principles in respect of personnel
income tax.
During 1963 when Nigeria became a republic, the mid-western region was created out of
the western region and they adopted the western region tax law accordingly with the
amendments, the position under the republican constitution of 1963 and that the regions
(now divided into states) assumed jurisdiction over the income tax of person other than
companies. While the federal government assumed jurisdiction over the taxation of
companies, the uniform principles under the income tax management act and the regional
taxes in the federal territory of Lagos.
Thus, after the creation of former 12 states in 27th may 1967, the state assumed the tax
laws of the regions in which they were before the creation of such states. The uniform
principle covered by the income tax management act of 1961 were as follows:
(i) Specifies what income are exempted from tax.
(ii) What constitute income for tax purposes.
(iii) Upholds residence on the basis for taxation or in the alternative, the principal place of
business.
(iv) And recently prescribed the rates of tax and personal reliefs.
1.2: STATEMENTOF THE PROBLEM
There is high incidence of tax evasion and avoidance by tax payers. This may affect the
amount of revenue collectible by the government for the running of administration.
Furthermore, it is hoped that people were wrongly assessed and the assessment sometimes
result to regressive taxation.
1.3 PURPOSE OF THE STUDY
The purpose of this study include the following:
(a) To examine the causes and reasons for high tax evasion and avoidance.
(b) To generate revenue to help the government to finance ever-increasing public sector
expenditure.
(c) To promote social, economic, and good governance through provision of merit goods.
(d) To examine the effect on economy, the high incidence of tax evasion and avoidance.
(e) To examine people’s perception on taxation.
1.4: SIGNIFICANCE OF THE STUDY
The topic “taxation and its effects of the Nigerian economy”, will educate the entire public
on how the federation could encourage economic development and also how a reduced tax
could promote the standard of living of the tax payer and increases his capital formation
and investment thereby, resulting in a higher gross National Product(GNP) of the
economy(country) and also promote the industrial development of the nation and Enugu
state in particular.
The study will be of immense benefit to the following group of persons.
(a) Government of the federation of Nigeria, especially the Enugu
State Government.
(b) The business community for the purpose of companies income tax.
(c) The tax experts especially the practicing professional accountants.
(d) Enugu state university community.
(e) The Nigerian Institute of Management and Nigerian Statisticians.
(f) The economist and financial analysts or capitalist.
(g) The students of Accountancy profession and other allied professions.
(h) The tax-payers, especially the employers of labour and the employees of various
organisations.
(i) Tax researchers.
1.5:SCOPE AND DELIMITATION.
This topic, taxation and its effect on the Nigerian economy(A case study of Enugu state tax
system and economy) should have been expected to cover all the 36 states of the
federation and Abuja and the entire economy but the writer intends to limit this topic to
only Enugu state due to financial handicap, distance and time constraints.
Therefore, since the same tax Acts are applied throughout the federation Republic of
Nigeria, the study of Enugu tax system and economy shall be deemed to serve other states
of the federation. Thus, the writer will rely heavily on the board of internal Revenue and
state ministry of finance and Economy planning since they have adequate information and
data on the government of Enugu state of Nigeria, thereby covering all the local government
areas of the state.
Since there are often changes in the tax laws of Acts both at the state and federal level of
government, the writer may wish to visit the chief inspector of taxes of some urban and
rural local government areas in the state in other to confirm the information or data so
collected from the Board of Internal Revenue and the state Ministry of Finance and
Economy Planning.
1.6 DEFINTION OF TERMS.
I.T.M.A: Income tax management Act of 1961, which deals with chargeable income and how
they are administered.
C.I.T.A: Companies income tax Acts of 1979 which deals with profit chargeable in respects to
companies.
P.I.T.D: Personal income tax degree/Act of 1993 as amended deals with profit chargeable in
respect of individuals.
HYPOTHESIS: It is an idea or suggestion put forward for reasoning or explanation .subject to
confirmation or rejection.
LAW OF TERRITORY: This means any enforce in a particular territory example, state, or
country.
METHODOLOGY: It is the science or study of methods or ways to be adopted in a given
direction.
TAX EVASION: This means trying to escape tax liability by an individual.
DIRECT TAXES: This means that taxes are levied on income and property of individuals or
group of individuals who bears their full burden.
INDIRECT TAXES: These are the taxes levied on goods and services and are paid by
individuals by virtue of their associating with the goods and services.
EARNED INCOME: It is the income which the tax payer actually earned, which may require
mental and physical exercise such as salaries, wages, e t c.
UNEARNED INCOME: This income accrue whether or not the tax payer is there or not,
example, rent, interest, royalties, and dividends.
OTHER INCOMES: It is the income which comes once in a while and they are not regular,
thereby undetermined example, gift of windfall income, lottery winnings e t c.
REFERENCES
Lekan, S. (2006). Taxation Principles And Practice In Nigeria. Ibadan: Publishing
Company.
Okpe, I.I. (2000). Personal Income Tax In Nigeria.Enugu: Ochumba printing and Publishing
Company.
Ola, C.S. (1981). Income Tax Laws For Corporate And Unincorporated Bodies in Nigeria.
Ibadan: Heinemann Educational Books Limited.
Osita, A.(2004). Taxation And Tax Management In Nigeria . Eungu: Meridian Associates.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.1
TAXATION THEORY
Here, it is very vital to give further consideration to the problems which faces all
government with regards to impositions of taxes in financial terms and understanding the
effects of such actions in real terms. The main purpose of taxation policy must be to impose
taxes in such a way that they do the least possible damage or create the greatest possible
advantage to the country as a whole.
living in an organised and orderly society, for if this not done, the miscreant produced
through the inequality in the system will be a source of constant irritation to the wellbeing
of the who even have.
Thus, it is not merely a coincidence that over the years increase properly, although
this obviously cannot be taken to imply that increase in taxation itself automatically produce
greater prosperity rather it can be designed to facilitate the improvement of the economic
and social infrastructure of a country and this in turn may produce long-term benefits of a
substantial but uncertain nature which merely transfer purchasing power from one set of
people to another could if the wrong choice is made have equally substantial bet adverse
result indeed.
According to Osita A. (1999), taxation is hence the most important source of revenue
to the government. Owing to the inherent power of the government to impose taxes, the
government is assured at all times of its tax revenue no matter the circumstances. With
modifications as a result of different manifestos of opposing political parties, the
government’s ability to impose taxes is unlimited.
Furthermore, taxation could be too authoritarian and centralized in the sense that
there may be a point beyond which further increase would result only from a system of
government which is undesirable in itself.
In the year 1904, a first form of tax was levied by Lord Lugard in Northern Nigeria. It
was known as the community tax. A first tax law was introduced and called the “Native
Revenue Ordinance” 17 in 1917. In 1918, the N.R.O was extended the south and it was only
applicable in Benin and Abeokuta.
In 1928, the Native Revenue Ordinance was introduced into the Eastern Region. In
1929, a flat rate of 2% total earned income and of corporate profit was levied. In 1939, an
ordinance was passed into bill known as company’s income tax ordinance(CITO) which
meant to guide companies. In 1940, another tax law, (Nigerian Income Tax Ordinance) was
introduced. This took care of book corporate and non-corporate residence in Nigeria. In
1940, the first commissioner of taxes was appointed and it was from the period that Nigeria
started having tax laws.
Income tax was first introduced in Great Britain in 1911 by Patt with the intention
that it would be a temporary levy. Consequently, it was being re-introduced annually till
when it was discounted in 1915. It was however resumed in 1942 and till date it is still in the
order.
In Nigeria, direct taxation was forced to develop in the Northern parts before the
advent of the British while indirect taxation through custom duties tolls attained a high level
of development in Yoruba kingdom of the southern-west and Igbo of the southern east.
Direct taxation was applied first in the North because Islam by enjourning the devout to give
a portion of their income for charitable or religious purposes, provided a religious basis for
taxation.
Furthermore, the highly organised administration of the Emirs reached down to the
village level, facilitated the imposition of taxes. In the southern areas, because of the small
size at the kingdom and difficulties of communication, toll was levied on trade between
kingdom and between towns. Tributes of presents were often made by kings, but the main
source of wealth remained in-direct taxation.
The tax system was highly developed in the North pre-1900. The zakka, a title paid
on crops and livestock has its origin in the korari, the kurdan kasa was a tax like a capitation
tax paid by farmers, a plantation tax , shikka-shukka was paid on all crops not subject to
zakka and Jangali or cattle tax was levied on livestock. Smith, weavers, dyers, leather
workers, freymen, gamblers, prostitutes, salt makers, canoe men, hunters, fishermen were
liable to special tax.
Similarly, special taxes were levied on a special product like date palm, beehives and
on a certain luxury crops like onions, tobacco and sugar-cane. When the British came in
1900, there was a formalised system of taxation comparable to that in the North. The Ijebu
and Ondo kings relied on tributes toll and arbit vary levies from their revenues, while in
Ibadan, Oyo and Ife, there was a system of annual levies, special contributions at special
festivals, fees, presents and tribes unusual land rent, payment for personal services and
contributions of food. At Abeokuta, the main revenue came and contributions of food. At
Abeokuta, the main revenue came from tolls, fines, death duties, presents and licenses,
while in Bani a large customary taxes existed.
In the Igbo areas of the east, the tradition of direct taxation to a central authority was nonexistence.the community paid taxes in kinds by rendering free services such as clearing the
bush, digging pit toilet, wells and so on for the progress of the community.
The British colonial government enacted the national revenue proclamation No.4 of 1904,
under which Lord Lugard sort of simplify the complex array or northern taxes, ensure equity
and social justice in the system of taxation and enhance efficiency in the fiscal
administration. The system of taxation was on the annual value of land of produce thereon,
profit of trade and manufacturer the flocks and Lords of pastorist and other listed sources of
incomes. It was an ended trust on 1906 and then 1917 on the Native Revenue Ordinance.
Therefore, based on the request of H.R Paulines finding and consequent authorization by
London towards the end of 1918, Lord Lugard continually introduced taxation in Yoruba
areas of Egba land and Ibadan. In Benin the son of exiled king Orerami, accepted the
imposition of direct taxation in 1917. The imposition of direct taxation in the west involved
computation of many tributes and exaction into single payment of province and Ilesha
division voluntarily asked to be included in the system but in Abeokuta, direct taxation was
resisted with much resistance in which lives were lost and a lot of property destroyed
calmmating in Maxwell commission of 1918. In Ibadan, Ife, Oyo, tax exemption was
unbroken by Oba’s and in Egba land by Ogbonies. By 1920, the Native Revenue Ordinance
have been extended to all the west.
In the east, direct taxation had a more chequered fact. Direct taxation had been introduced
in the south eastern region in 1966 but it was quickly withdrawn for lack of support. It was
not until 1927 that Lord Lugard succeeded in extending the Native Revenue Ordinance to
the area east of the Niger. However, the resistance was stiff and opposition popular. The
Aba women riot 1929 sparked off by rumours that women were about to pay taxes, that is
an indication of the strength of feeling in the east against tax payment.
The east was the first to introduce a comprehensive regional finance law –the finance law
No.1 of 1956. The west followed soon with the income tax No.26 of 1957. The North
retained the 1940 Direct Taxation Ordinance (DTO) as amended in 1948 and therefore in
1962 when it promulgated the personal income tax No.6. the federal territory retained the
income tax ordinance (as amended) of 1943 till 1957 when it reduced the structural
modification in law.
The recommendations of the Raismen Fiscal Commission were embodied in the Nigerian
constitution order in council of 1960 and formed the basis of the income tax management
Act 1961. The Federal government retained control on the taxation of individuals in the
federal territories and companies throughout Nigeria, while the regional government
obtained their revenue from taxes on income of all persons within their regions whether
Native or expatriates. Furthermore, custom duties and sales were to be collected by the
federal government, while the regional government retained export tax on motor vehicles,
fuel revenues from exercise and custom duties on tobacco.
2.2
THE OBJECTIVES AND IMPORTANCE OF TAXATION AND ECONOMIC POLICY
Taxation is essential in financial matters and its objectives includes influencing the
disposition and availability of real resources. The primary purpose of taxation is to enable
the government to command the real resources it requires to perform certain functions on
behalf of the inhabitants of the country as a whole. The need of national defence for
instances, requires that the government shall be able to control resources that the
government shall be able to control resources of labour and capital (including land)
sufficient to supply and operate the weapons that are deemed necessary for this purpose.
Therefore, the real cost of defence is the output that those resources would produce if used
for other purposes , but the cost can be measured in practice only by the transfer of
purchasing power from individuals to the government as represented by the financial
payments made to that effect. It will be shown later that there is no need for equation
between the tax paid by an individual and loss in purchasing power in real terms.
Secondly, taxation can be used as a tool aimed at improving the performance of the
National Economy by such means as altering the balance between current consumption and
capital investment. For instance, a man who would otherwise use the whole of his
purchasing power for current consumption may by taxation be forced to handover in
respect of a part of it to the government, which may then decide to use some of it to
increase its own capital investment. In doing so, the government has altered the
discomposition of real resources although not necessarily by the amount that the purely
financial information suggests. However, it is extremely difficult to isolate taxation as a
casual factor in any economic variation because so many other factor are not at work and
are inextricably interwoven.
The economic and taxation policies adopted by the government should be economical and
rates of taxes should be low, so as to increase peoples investment, provide employment
opportunity, increase the standard of living and encourage economic development. It must
also be admitted that government may damage the economy by taxation policies which
produce the wrong redisposition of resources. However, attempts have been made to
analyse the effect of particular taxes in real terms, by theoretical reasoning which takes
accounting change into consideration. One of the disadvantage of this, is that such attempts
are dependent on the consumption written into them and assumptions may not be
sufficiently realistic, especially at greater realistic to produce greater complexity in
theoretical exercise. It may well be that it is misleading to assume that all other factor will
remain unchanged, in so far as taxation policy may be effective only when linked with
consistent policy.
Thirdly, taxation is used to transfer purchasing power from one section of the commodity to
another, in the example of burntee holding factory, payment may have been made by the
state to employees who were unable to find other jobs in the period in which the factory
was in operation at real terms. Those employees while leasing in the short term to
contribute to National output, are able to share in the benefits of that output to the same
extent of other people’s ability, to ensure that those benefits is reduced.
2.3 IMPOSITION OF TAXES AND INCOMES CHARGEABLE UNDER TAX LAWS AND ACTS AND
THE RELEVANT TAX AUTHORITY.
This chapter aimed at analysing the laws which governs taxation. The following are the
various legislation imposing tax on individuals and corporate bodies in Nigeria. In a nutshell,
the types of taxes covered by those legislations are named here under.
i
Income Tax Management Act of 1961 as amended to date.
ii
The Companies Income Tax Act of 1961. The act was repealed and replaced by the
company tax act of 1979.
iii
The Industrial Development (Income Tax Relief Degree of 1971).
iv
The Capital Gains Tax Decree of 1967.
v
The stamp duties ordinance of 1958
vi
The Income Tax (Armed Forces and other Persons) special provision degree of 1972.
vii
capital transfer tax act of 1979.
viii
Special levy on Air travel outside Africa 1983 and special pre-operation levy on
companies incorporated for more than six months and has not commenced
business. These are contained in degree No 4 of 1985 (finance miscellaneous
taxation provisions) decree of 1985.
ix
The Petroleum Profit Tax Act of 1959 as amended.
i THE INCOME TAX MANAGEMENT ACT OF 1961 (ITMA)
The law regulates personal income tax throughout the federation. This regulations
especially laid down the procedures for determing the income of an individual for tax
purposes and establishes residence and the basis of assessment of individuals and recently
regulates rate of tax and the reliefs claimable by persons. It is now referred to as Decree
104 of 1993.
ii THE COMPANY INCOME TAX ACT (CITA) OF 1979
This regulates the assessment and collection procedures for all corporate bodies other than
those in the production of crude oil or gas. This categories of corporate bodies are taxed
under the petroleum profit tax Act (PPTA) of 1959 and will be examined later.
iii THE INDUSTRIAL DEVELOPMENT (INCOME TAX RELIEF) DECREE OF 1971.
The decree were not imposing tax as such but provided for incentives by way of exemption
from tax, all companies that might be accorded a pioneer status by the federal ministry of
commerce and industry.
Pioneer status were granted to manufactures of a certain products which are considered in
terms of being the first in the country or for some importance of technology. Such
companies were given a tax holiday for three years in the first instance and for two more
years in the second instance that is maximum of five years.
iv CAPITAL GAINS TAX ACT (CGTA) 1967
This imposes tax on the profit derives from the sales of capital items, property shares in
companies, other than Nigerian government securities. The rate of tax is 20% out of the gain
after deducting the original cost of the assets less incidental expenses of acquisition and the
expenses of sales.
v STAMP DUTIES ORDINANCE OF 1958
They regulate the transactions which are subject to ad-valorem (according to the value)
duties to give them legal backing and for purposes of revenue. Under this ordinance, those
matters which falls under the region’s jurisdiction to legislate upon were collected by the
states and those under the federal. Example, stamp duties for registration of capital of new
companies, are collected by Federal Board of Inland Revenue.
In the 1979 Nigerian constitution, stamp duties were put in the interest of uniformity. It is
interesting to note that the act is now being reviewed to stream line the various rates there
in with a view to have some uniformity rates.
vi THE INCOME TAX (ARMED FORCES AND OTHER PERSONS SPECIAL DECREE OF 1972
When it becomes necessary to hand-over the taxation of individuals in the federal
government of Nigeria, had to retain the taxation of certain officers and persons who are
deemed not to be resident in Lagos or any state for that matter for taxes purposes. These
are the Armed Forces personnel, external officers, police officers and of recent, nonresident individuals deriving income from anywhere in Nigeria and the residents of the
federal capital territory of Abuja. The provisions of this decree are similar to those of the
personal income tax.
vii CAPITAL TRANSFER TAX ACT OF 1979
This is intended to tax capital being transferred from one person to another other than by
outright sale. Capital is deemed to be transferred to another person when the owner dies
but the transferor bear the tax burden thereon.
Gifts of property from father to children during life time are deemed to be capital transfer
which are liable to tax, the law is actually out to catch people who are really wealthy.
Viii SPECIAL LEVY ON AIR TRAVEL OUTSIDE AFRICA 1983 AND SPECIAL PRE-OPERATION
LEVY ON COMPANIES.
The special levy on air travel is in fact a consumption tax on those who can afford the travel
outside Africa. It is not an airport levy as it is being assured but it is being collected at the
airport for the time being. It is also intended to tax those who draw on the nation’s foreign
exchange by having to travel outside the country and for which Nigeria had to look for
foreign exchange to pay for such travel.
Ix THE PETROLEUM PROFIT TAX ACT (1959) AS AMENDED TO DATE
This Acts regulates the income tax on the oil producing companies including the Nigerian
National Petroleum Corporation(NNPC). The oil producing companies are in joint venture
with NNPC to produce crude oil for sale. The crude oil jointly produced is then sold at price
officially approved by the government through the NNPC. The sale of crude oil less the cost
of sales and overhead cost, less allowance provided by this act represents what is regulated
as chargeable profit.
The oil companies also pay rent and royalties based on the concessional rights granted to
them and the amount of oil produced. It is essential to note that the government derives its
revenue mainly through taxation and the revenue from oil. NNPC is of course, the biggest
tax payer by virtue of its share of the joint venture and the proportion of oil it has to sell.
Shell development comes close to NNPC in terms of volume of operations and tax yield. The
petroleum profit tax act of 1959 provides the greatest tax or revenue yield for the whole
country and when talk of oil boom, such booms are earned through the efforts of these oil
producing companies because the more oil they sell, the more their income and the more
tax they pay to government. Because of the political and the industrial importance, it is
assumed in the world that NNPC being the major partner in the joint venture has to play a
leading role in the marketing and the politics of oil. The minister of petroleum and energy,
therefore makes pronouncements from time to time on pricing and Nigeria’s stand in
relation to other world, produces of oil. It has to be remembered that when Nigeria is
adopting its oil policies, they must always try to see that such policies are in conformity with
the pronouncements of organization of petroleum exporting countries (OPEC) which Nigeria
is leading member of.
X VALUE ADDED TAX (VAT) DECREE 102 OF 1993.
This act regulates the imposition of tax on some selected goods and services manufactured
in or imported into the country. The decree repealed sales tax in the country.
INCOME CHARGEABLES
Section 2 (1) to (4) PITD 1993 defines the categories of individuals chargeable to tax in their
respective state of resident.
In the case of an individual, other than an itinerant worker and persons covered under
paragraph (b) of sub- section (1) of this section, tax for any year of assessment may be
imposed only by the state in which the individual is deemed to be resident for that year
under the provisions of the first schedule of this decree and in the case of persons referred
to in sub-section (1) (b) of the section tax shall be imposed by the Federal Board of Inland
Revenue. In the case of an itinerant worker, tax may be imposed for any year by any state in
which the itinerant worker is found during the year provided that :in an assessment for any
year upon an itinerant worker credit shall be given against the tax payable, but not
exceeding the amount thereof, for any income tax already paid by him to any other tax
authority or the same year and collection of so much of any tax imposed in a territory on an
itinerant worker for a year of assessment as remains unpaid on the itinerant worker leaving
that territory during that year shall remain in absence during his absence from that territory,
and if he returns to that territory having during his absence paid tax in some other territory
for that year, credit shall be given against any unpaid tax in the first mentioned territory, but
not exceeding that unpaid amount, for the tax paid in that other territory.
In the case of a village or other indigenous community, tax may be imposed for any year by
the law of the territory in which that community is to be found and such taxes may be
charged on either the estimated total income of all its members or the estimated total
income of those of its members whose income it is impracticable in the opinion of the
relevant tax authority to assess individually.
In the case of income of a family recognised by any law or customs in Nigeria as family
income in which several interests of individuals members of the family are indeterminate or
uncertain, tax may be imposed only by the territory in which the members of that family
who customarily receives that income in the first instance in Nigeria usually resides.
In respect of the cost of any passage to or from Nigeria incurred by the employee and in
respect of the maintenance or education of a child, if the income tax law of the relevant tax
authority provides that any sums received by the employee during a year of assessment
shall be deducted from the personal relief to be grated to him for the next following year,
any compensation for loss of employments so much of any amount of rent or allowance, the
employee is treated as being in receipt equal to the annual amount deemed to be incurred
by the employee under section 4 of this decree, so much of the amount of rent allowance
paid by employee to or an account for the employee not the exceeding in amount the rate
prescribes under sub-section and the amount not exceeding N2,436 per annum paid to an
employee in respect of motor vehicle allowance.
For the purpose of this section, “allowance” include any sum paid or payable in respect of
expenses and any sum by an employer at the disposal of an employer and payed away by
the employee. “income” includes any amount deemed to be income under this act, and the
gains or profit arising from any other person for the use or occupation of property under
any assessment thereof being rent paid or expressed to be paid in advance shall be deemed
to accrue to the recipient from day to day over the period for which such rent has been
paid. It follows, therefore that provided where said period exceeds five years, the whole
amount of the rent so paid or expressed to be paid in advance shall be treated as accruing
evenly from day to day over five years commencing on the first day of that said period,
employment includes any services rendered by any persons in return for any gains or profits
.
In this section, “dividend” means in relation to a company not being in the process of
wounding, or liquidated, any profit distributed whether such profits are of a capital nature
or not including an amount equal to the nominal value of bonus, shares, debentures or
securities to the shareholders.
RELEVANT TAX AUTHORITY (RTA).
According to Osita .A. (1999), the tax authority which has the jurisdiction to collect a
particular tax in Nigeria is referred to as Relevant Tax Authority. This may be the Federal
Board of Inland Revenue, State Board of Internal Revenue and the Local government
Revenue Committee.
Relevant Tax Authority (RTA) is defined in section 100 of the PITA:
(a)
In relation to an individual for a year of assessment, as the tax authority of the
territory in which the individual is deemed to be resident during that year.
(b)
In relation to an executor, as the tax authority of the territory in which the deceased
individual was not deemed to be resident or would have been deemed to be
resident, if the provisions of this Act had been in force prior to the date of his death.
(c)
In relation to a trust or settlement.
i
where all the income of the trust or settlement for the year of assessment arises in
one territory, the tax authority is that territory.
ii
where the income of the trust or a settlement arises in more than one territory or in
any other case of the Federal Board of Inland Revenue.
(d)
In relation to a partnership for a year of assessment, the tax authority of the territory
in which the principal office or place of business is situated in Nigeria on the first day
of the year or on the day it was first established.
(e)
In relation to a village or indigenous community, the tax authority of the territory in
which the community is to be found.
(f)
In relation to a member of the Armed Forces the Federal Board of Inland Revenue.
2.4
ASCERTAINMENT OF INCOME FOR TAX PURPOSES
This aimed at explaining the methods and basis used in ascertaining the income that is
chargeable to tax. For the purpose of ascertaining the income or loss of any individual for
any period from any source. Therefore, there shall be deducted outgoing any expenses or
any part thereof, wholly, exclusively, necessarily and reasonably incurred during that period
and alternatively borne by that individual in the production of the income. In certain
instances, it is possible to have an individual receiving income from employment as well as
incomes from trades or business. In case like this, all the person’s income will be aggregated
and taxed at the appropriated rate of tax.
After allowing the expenses wholly, exclusively necessarily and reasonably incurred in
getting the income and allowing for income exempted from tax, allowance and reliefs are
given to the tax payer as follows for 1998:
(a) Currently, (from 1998) personal allowance is #5000 plus 20% of earned income for
disable person , addition to personal allowance, a disability allowance of #3000 plus 20% of
earned income, whichever is higher is also granted.
Earned income need be defined at this juncture as “income from employment, trade,
vocation or profession” but does not include investment income such as dividend, rent and
interest.
(b) An individual whose marriage has been dissolved may claim up to #3000 in respect of
alimony paid to a former spouse under an order of a court of competent jurisdiction.
(c) There is also the children allowance of #2500 per child up to a maximum of four (4)
children maintained by the tax payer in any year of assessment such child is subject to the
condition that the child is aged 16 or below. Either parent may claim children allowance
separately or jointly subject to a maximum total number of 4 children. A widow who
remarries, may claim children allowance in respects of children born by her and the
deceased husband.
(d) The Act also provides for a deduction of #2000 an allowance in respect of dependent
maintained by the tax payer subject to a maximum of two persons in a preceding year.
(e) Relief is granted to the tax payer for premium paid in respect of life assurance policy on
the life of the tax payer or the spouse. All restrictions relating to relief for premium on life
assurance policy have been removed with effort from 1st January 1996
(f) Allowance is granted to persons in employment. Rent allowance is granted to an
employee in respect of rent allowance paid to the employee. With effect from 1st January
1996, rent allowance is granted to the tax payer to the extent of the actual allowance or
10% of the basic salary whichever is lower, subject to a maximum of #150,000.
After the deductions above, assessments are then raised on each individual, and tax payers
are given sixty days maximum after which payments becomes due in accordance with the
notice of assessments. If there are objections after assessments, these are resolved in
accordance with the provisions of the law.
The project writer informed that the areas where tax officers have bottle neck in their
discharge of their duties is the assessments of businessmen and it is known that most
businessmen do not declare all their business contracts and therefore their total income for
tax purposes is reduced. Normally all expenses are articulated to be deducted from income
by these businessmen, but the question then is, are all the expenses qualified for
deduction? The test for allowable expenses is that such expenses must have been incurred
wholly, exclusively, necessarily and reasonably for the production of the income being
assessed. It appears to the project writer that Acts included the words “necessarily” and
“reasonably” because of the flow for high spending by our businessmen. An expenses which
does not in the opinion of the relevant tax authority appear reasonable as a deduction or a
deductible expenses. For example, where a business man decides to buy two cars , one pickup van and one Mercedes car and tells the tax authority that two cars are used for the
purpose of his business. It is apparent that the cost of Mercedes car will not be allowed for
deductible because it is not a necessarily and reasonably incurred in earning the assessable
income.
2.5
TYPES AND QUALITIES OF TAXATION.
TYPES OF TAXATION:
DIRECT TAXES AND ITS FORMS.
According to Okpe I. I,(2000), direct tax is defined as a tax levied or imposed on individuals,
companies or corporation. In other words, direct taxes are levied on the income and
properties of those who pay them and bear the burdens directly. Other examples are
personal income tax, capital gains tax, petroleum profits tax etc.
FORMS OF DIRECT TAXES:
(a) Personal Income Tax:
It is a tax levied on an individual earned income during a certain period of time usually a
year. In Nigeria and other developing countries , personal income tax constitutes a little
percentage of total government revenue. This form of taxes is usually know as PAYE (pay as
you earn). In assessing personal income tax, certain allowances are granted in respects of a
family circumstances.
(b) company income tax:
It is levied on the net profit of companies. One of the main advantages of a company tax is
that, it is easier comparatively to collect. This is due to the fact that companies are clearly
identifiable and they keep accurate accounts on which they are taxed. In Nigeria, where
there is a federal system of government, allowances are granted for expenditure on the
capital equipment for plant and machinery and initial expenditure on mines and plantations.
(c) Expenditure Tax:
This is a tax levied on that part of a person’s income which he actually spends with
allowance being made for savings since this tax is levied after savings have been deducted.
This type of tax is not common in Nigeria.
(d) Capital Tax:
This is another type of direct tax which is imposed on capital assets on the properties of the
decreased and incurement on the value of capital assets and on land (see the capital gains
tax act of 1967 and capital transfer tax of 1979).
INDIRECT TAXES AND ITS FORMS:
This is a tax levied on goods and services rendered which are shifted in part or in full to the
final consumer who does not even know either when he pays or the exact amount he pays.
Examples of indirect taxes are entertainment tax, import duties and value added tax.
FORMS OF INDIRECT TAXES:
Indirect taxes unlike direct taxes are levied not on income but on commodities or services.
Typical examples of indirect taxes include import duties, export duties, excise duties
(abolished with effect from 1st January 1998) and sales tax.
(a) Import Duties
These are taxes imposed on goods imported into the country. In Nigeria, import duties form
a substantial proportion of government revenue.
(b) Export duties
These are taxes levied on goods which are exported into other countries. These duties are
levied on products like cocoa, groundnut, rubber, hides and skin and cotton. This also form a
good source of revenue to the government.
(c) Excise Taxes:
These are levied locally on manufactured goods such as cigarettes, bear, matches, cement
etc and at present not so many goods are locally made in Nigeria, but it is hoped that as
economy develops, these will repay industrialization and revenue will be collected from
excise taxes.
(d) Purchase Tax:
This is imposed on a range of selected consumer durable goods such as cars, cameras, radio
and television sets. This is not common in Nigeria but it is widely used in advanced
countries.
QUALITIES OF A GOOD TAX SYSTEM:
According to Okpe I.I.(2000), in 1776, Adam Smith in his famous book “The wealth of
nations” set out four rules of taxation that are of a good tax system, which are; equity,
economy, certainty and convenience.
(1) Equality:
Taxes should be equals or equitable falling on individuals “like the expenses of management
to joint tenants of a great estate who are obliged to contribute in proportion to their
respective interests in the estate”. “Equality means also that should pay taxes according to
their ability to pay”.
(2) Certainty:
Tax payers should be fully informed about taxes and should be able to work out their tax
dues with certainty. Taxes should be certain not arbitrary clear and plain to the contributor
and every other person.
(3) Convenience:
The time and method of payment of taxes should be convenient for the tax payers. The payas-you –earn (PAYE) system of tax collection is convenient because the tax is collected
monthly or weekly by the employer before the employee receives his pay.
(4) Economy:
Taxes should be economical, that is not too expensive to collect and not unduly obstructive
to collect and discouraging to the tax-payer.
2.6
TAX EFFECTS ON THE ECONOMY.
According to Osita .A. (1999), depending on the nature of tax, taxation may have either a
negative or positive effect on the individual and the society. it may be an incentive or
disincentive to work or save, depending on whether the tax is direct or indirect. With a high
marginal rate of tax, in excess of 50% tax will be a disincentive to work, while a low marginal
rate of tax will be an incentive to work. Hence, when an individual realizes that more than
50k of every additional #1.00 he earns will go for taxation, then he does not have any
further incentive to work harder. The Value Added Tax is an incentive to save, while the tax
levied on interest earned on bank deposits is a disincentive to save.
This topic,tax effects on the economy concerns greatly the role of government. Government
can be seen as the most important factor or determinants in the economic development of
any country. To carry out this role effectively, the government should look at the different
needs of the people to be provided from the spending side and then impose taxes which will
enable them to provide these services convinently without encountering much problem.
Thus, according to the great social philosopher known as Socrates, “he said that the
government that governs best is the government that governs least”. Therefore, the role of
every government is to provide security, social progress and better standard of living for its
citizens. In achieving this goals, the governemnt has to explore the basic sources of
providing the funds to tackle this objectives.since taxes is one of the chief sources of funds
or revenue to the government and also that government decides what percentage of
Nations resources which should be allocated to the private sector and what percentage of
the Nations resources should be allocated to the publc sector, they should try to provide
sufficient machinery in imposition and collection of their taxes.
2.7 TAXES EFFECTS ON PRODUCTION AND DISTRBUTION.
The best system is that which has the best or the least economic effects. Tax influence on
the ability to work, to save and to invest, can affect the volume of production by combining
consumers demand and investment. Person,s ability to work will be reduced by taxation
which reduces its efficiency. This applies to direct taxes on small incomes and indirect tax on
necessaries. Disincentive of high income taxes may reduce the volume of production
thereby increasing the inflationary pressures. Inflation may be the result of excessive
pressure of demand upon resources to satisfy consumers needs and also resources for
investment.
Action may be necessary to restrain the rate of investment, example making inflation
resources less favourables on indirect tax upon investment or restricting all sources of
credit. However,variations in the sructure and amount of taxation may have powerful antiinflationary effects. It is unlikely, atleast in the short run, to be of much value in stimulating
the level of effective demand. A reduction in the standard rate of income tax may not
produce immediate increase in spending, particularly where only relatively few tax payers
earn much income upon which tax is levied at this rate. Similarly, reduction in direct taxes
on goods with inelastic demand would not produce more spending. The case might be
different with goods with elastic demand example motor cars, if the proceeds of taxation
are well spent, the stimulus to production due to this expenditure may be far stronger than
the check to production due to taxation.
On the other hand, a reduction of income tax rate serves to raise the level of national
income. Tax reduction leads to an increase in peoples disposal income and to increase in
initial consumption spending. This tax- cut may involve large budget deficit but it also
involve an expansion of the private sector of an economic system. Both the United State of
America (USA) and Japan used this tax-cut mechanism repeatedly to increase their
employement and income levels, a remarkable example of modern physical policy at work.
The ideal distribution is that which causes a given amount of production to yield maximum
of economic welfare. This is distributed according to needs or according to capacity to make
use of income. Taxes on commodities of wide consumption are generally regressive since
the larger the person’s income, the smaller the proportion of its spending on any one of
such commodity. But taxes on luxuries are essentially progressive as between rich and poor.
2.8: TAX EFFECTS ON CONSUMPTION AND SAVINGS
In a two economy, it is said that consumption plus savings is equal to national income. It
therefore becomes imperative to discuss the tax effects on them.
From the response of the questionnaire distributed by the project writer, civil servant
argued that since tax is deducted from their salary, that the immediate impact is not delt
and therefore does not in any way affect their rate of consumption and savings since they
depend on their net salry as their real income. Although they agreed that reduction of tax
will mean more disposable income available which will lead to an increase in the rate of
consumption and savings, resulting in a progressive economy, while an increase in tax will
mean less disposable income which will lead to a decrease in the rate of consumption and
savings, resulting in a depressed economy.
On the other hand, responses from the privat sector and self employed indivduals shows a
negative effect since they argued that they are being over taxed owing to the present
economic situation in the country. We have more causes of tax avoidance from the private
sector due to false declaration of their business incomes and non-location of those taxpayer, as a result of unnumbered street in most of the urban and rural areas of the state. a
greater percentage of the private sector responses from the questionnaire agreed that tax
affects their rate of consumption and savings which will mean a positive economy while an
increase of tax will lead to a further decrease of their rateof consumption and savings
thereby resulting in a negative economy.
2.9
TAX EFFECTS ON INVESTMENTS AND EFFICIENCY
Moreover, it is also agreed that in a two sectoe economy, national income is made up of
consumption and investment, and that investment is equal to savings, that is C+S =C+I.
Therefore, savings = investments.
Civil servant favoured the argument that tax does not in any way effect their investment
and efficiency in their places of work, Since tax is not felt by them. But they agreed that a
reduction in tax in tax may increase their investment opportunities and efficency since it will
mean disposal income while an increase in tax may decrease their investment opportunities
resulting from less disposal incme.
On the other hand, questionnaire responses from private sector and self employed
indivduals argued that tax affects their business profits and are uncertain due to the present
economic situation. They suggested that tax incentives should be introduced to benefit their
business, at this point, the project writer referred them to the existence industrial
development (income tax relief Act of 1971), which they claimed ignorant of. This is
connected with the high rate of illiteracy among the privat sector and self employed
indivduals. They however supported the idea of reduction of tax since this will increase their
investment opportunities and efficiency and create more employement opportunities for
the school leavers, hence, more revenue to the government in form of more income taxes
from the employed citizens while an increase in tax will mean a further decrease in their
investment opportunities and efficiency, thereby worsening the economy, hence a further
loss of revenue to the government since most of them might be forced to close down.
2.10
TAX EVASION AND AVOIDANCE
Tas evation is illegal and involves the evasion of tax liability to tax, for instance, failing to
declare a taxable income or claiming a relief to which there is no entitlenment.
Tax avidance involves arranging one’s affairs so that liability to tax is avoided or reduced.
Tax avoidance assumed that there is more than one way to achieve one’s objectives, but
that, one method gives rise to a smaller tax liablilty, the tax payer adopts this one method.
All taxes must be imposed under the authority of parliamentand therefore to be found in
status. The issue of taxation evolves very many responses from different individuals. Even in
America where it has been accepted that only two things are certain which includes death
and taxes, reaction to taxation varies.
Therefore, when president Renald Reegan, first introduce the idea of a comprehensive
review of the American tax sytem, objectives were clear inspite of the overwhelming
unanimity that the old system was unwidely tedious and almost unwokable. Those who
wanted to preserve the status-quo were sure that such a review never the see the light of
the day. The house of representatives which was under the control of the democratic would
never approve the measure even if the senate did. To the consternation of all both house of
the united state congress approved the presidenttax plan.
2.11
CURRENT CHARGES IN PERSONAL INCOME TAXATION
In the January 1998 budget speech by the former head of state, General Sani Abacha,
changes were incorporated into the existing personal income tax provision and other
aspects of taxation. The budget speech also stated the steps to be taken to improve the
administration of tax in the three tiers of government.
The various areas of taxation that were affected by the change are discussed in details
below:
TAX ADMINISTRATION
For a viable tax system to be established, efforts has been made since 1998 to install a
strong and vibrant tax administration not only at the fedral level but also at the state and
local government levels. The tax authority will be strengthed by qualified compitent and
trained staff who will also be highly motivated to make them efficient in the administration
of the tax laws. The joint tax board (JTB) is to incorporate the particpation of the local
governments in its activities in 1998 through the establishment harmonise the
admninstration of taxes and levies which exist in each state of the fedration.
PERSONAL INCOME TAX.
(a)
Increase in tax allowances:
In order to reduce the tax burden on indivduals and adjust for the impact of inflation and
the rising cost of living, tax allowances are increased as follows with effect from 1st January
1998.
1996-1997
1998
#3000 plus 15% of earned
#5000 plus 20% of earned
income.
income.
ii Additional disabled
Higher of #2000 or 15% of
Higher of #3000 or 20% of
Allowance
earned income.
earned income.
iii Children Allowance
#1500 per unmarried child
#2000 per annum per
subject to a maximum of
unmarried child subject to a
four children.
maximum of four children.
#1000 subject to a limit of
#2000 subject to a limit of
two dependents
two dependents.
i Personal Allowance
iv Dependent Relative
B)
Expansion of Boards of Taxable Income.
With effects from 1st January 1998, the rate of personal income tax will be as follows:
Chargeable Income
Rate of Tax
(#)
(%)
First
20,000
at
5
Next
20,000
at
10
Next
40,000
at
15
Next
40,000
at
20
Over
120,000
at
25
2001 PERSONAL INCOME TAX RATES.
Chargeable Income
Rate of Tax
(#)
(%)
First
30,000
at
5
Next
30,000
at
10
Next
50,000
at
15
Next
50,000
at
20
(C)
Increase in Tax Free Earned Income from Individuals.
In view of the generous allowances mentioned above, and in order to give further tax relief
to low income earners, the present level of workers earned income which will be exempted
from tax increased from #10,000 to #30,000.
CAPITAL GAINS TAX:
Yet another step has taken by the government in its effort to improve the disposable
income of the tax payer. This comes by way of capital gain tax.
In order to encourage investment and boost the capital market, government has with effect
from 1st January 1998, removed stocks and shares of every description from the list of
chargeable assets liable to capital gains tax.
REFENCENCES
Lakan .S. (2006). Taxation Principles And Practices In Nigeria. Ibadan: Silicon Publishing
Company.
Okpe, I.I.(2000). Personal Income Tax In Nigeria. Enugu: Ochumba Printing and Publishing
Company Limited.
Ibid, (2001). Guide To Nigeria Companies Taxation. Enugu: Ochumba printing and publishing
Company Limited.
Ola, C.S.(2000). Income Tax Laws For Corporate And Unicorporated Bodies In Nigeria.
Ibadan: Heineman Education books Limited.
Osita, A. (2004). Taxation And Tax Management In Nigeria. Eungu: Meridian Associates.
State Board of Internal Revenue Lecture Series.
CHAPTER THREE
RESEARCH DESIGN AND METHODODLOGY
3.1
RESEARCH INSTRUMENT
The project work is carried out using the following instruments which includes:
-Secondary data
-Questionnaire
-Interview method
-Survevey instrument.
The study is primaryily based on secondary data from seminar papers, journals, newspapers
and pamphlet of Enugu State Board of internal Revenue.
In questionnaire approach, the questions were designed to cover the statement of problems
and its sub-problems in a situable way and to find answers/solutions to these problems.
The project writer also used the interview method particularly in the relevant industries,
ministries, parastatals and some local government offices in Enugu state. the interview was
conducted to substantial facts that have been gathered from questionnaire approach.
The survey method used in this study is to help the project writer to know the reactions of
the tax tax-payer especially business men and women, workers or employees in both public
and private sector of the economy and this has also contributed to his own suggestions and
recommendations on this project topic, that is, “ taxation and its effect on Nigerian
Economy,” a case study of Enugu State.
3.2
SOURCES OF DATA:
The sources of data or information used by the project writer were as follows:
-library
-Journal (Accountancy)
-Text boobs on taxation
-Newspapers
-Lecturer’s material and advice
-Organisation
In using the library, the writer found all relevant materials on this study and then studied
the Nigerian Accountancy Journal of institute of Chartered Accountants of Nigeria (ICAN)
publication which treated this topic in detail with current information.
Thus references were made to some textbooks such as the Nigerian taxation by C.S.Ola,
Taxation laws and Acounts I and II by Ikechukwu .I. Okpe, Taxation and tax management in
Nigeria by O sita Agudu.
The writer also consulted organizations such as some business premises the Board of Inland
Revenue, and Enugu State Ministry of Finance and Economic Planning.
The project writer solicited for the ideas on this topic “Taxation and its effects on the
Nigerian Economy, a case study of Enugu state tax system and Economy,” and therefore she
used the contributions of tax experts in Accountancy department and other allied
department before arriving at its conclusion.
POPULATION OF THE STUDY
The population of the tax system for the research is made up of 180 employees and
management staff. The population of the study is compose and selected from various
sectors and presented below.
DISTRIBUTION AND POPULATION OF THE SECTORS
Sectors
No of staff
Percentage(%)
Public sector
120
66.7
Private sector
40
22.2
Self employed individual
20
11.1
Total
180
100%
3.3
SAMPLE METHODS
The obscurity of carrying that research with the whole population is obvious, therefore it is
imperative to choose or select an adquate sample out of the lot that will give an appreciable
representation of the entire population to avoid obtaining a biased information to achieve
this, the researcher conducted a survey in order to determine the sample size adequate for
the exercise. The outcome of the exercise using the formular originated by an author whose
name is TARO YAMENES.
To find n, =
N
1+N(e)2
Where n = the sample size
N = the population size
e = level of significance (5% or 0.05)
public sector: n =
N
1+N(e)2
N = 120
e = 5 0r 0.05
n =
120
1+120(0.05)2
120
1.3
= 92.
Private sector : n =
N
1+N(e)2
n
=
40
1+40(0.05)2
n
=
40
1.1
=
36
Self employed indivdual:
n
=
N
1+N(e)2
n
=
20
1+20(0.05)2
20
1.1
= 19
Total = 147.
Thus, out of the populationof 180 staffs of the above sectors, 147 of them were used as
sample for the study.
3.4
STATIISTICAL TREATMENT.
In the computation of the relevant statistics, the writer made used of the followings:
- Test of hypothesis
- Data analysis
- Percentages.
The hypothesis is being tested and restated in a “Null form H0. A null hypothesis is therefore
a statement of no difference between two variables, example, H0-H1 or variable 1 = variable
2.
A test performed in order to verify whether a hypothesis is true or false is called a test of
hypothesis, the result obtained from the sample (in form of calculated sample quantities) is
inconsistent with the hypothesis being tested, she therefore rejects the hypothesis. A
statistical hypotheis is formulated for the purpose of rejecting this.
Furthermore, when hypothesis is being tested and rejected, it is called a null hypothesis and
is denoted by Ho, while when there is willingness to accept hypothesis or reject the null
hypothesis, it is called the alternative hypothesis and it is denoted by Hi .
Hi; p = po
Hi; p = po( a two-tailed test and non-directional)
Ho; p ≤ po ( a one tailed test to the left).
The Levels of Significance:
Here, the level of significance of a test is the probability of committing the type one
error, that is, the probability of rejecting the Ho. In fact, it should be accepted.type two
error has been commited, if she accepts the null hypothesis Ho. Then it is false. Thus, in
testing the hypothesis, the most frequently used level of significance are 95% or 0.05 that is
5% level of significance. Assuming a test is performed at 95% level of significance, it means
that there are 95% chances in a hundred that a true null hypothesis would be rejected and it
is said to be significant if the null hypothesis is rejected at 95% level.
Supposing that another test is performed at 5% level of significance, it means that there is
only five chance in a hundred that a null hypothesis would be rejected and a test is said to
be signifcant if the null hypothesis is rejected at 5% level.
3.5 DATA ANALYSIS
The analysis of data involves more of statistical tools in the presentation of information.
Simple percentages were used in qualifying the chart and relationship one datum to
another.
Other relevant formulae are applied such as Yaro yamenes and soon to determine the
sample size and distribution at the chosen sample for the entire population in the study.
Chi – square formulae is also used in testing of hypothesis of the study.
Formulae : Chi – Square
X = ( 01- ei)
ei
where
0i = Observed frequency
ei =
Expected frequency
X =
Calculated chi – square value.
CHAPTER FOUR
PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA.
4.1 DATA PRESENTATION, ANALYSIS AND INTERPRETATION.
In this chapter, all the data collected from the questionnaires are presented, analysed and
interpreted. The presentation and analysis were done in tabular form so as to facilitate a
complete coverage of response.
Mean while the questionnaires were distributed and returned in the order shown in table 1
below:
TABLE 4.1.1
THE DISTRIBUTION AND RETURN OF QUESTIONNAIRES
Sectors
No of respondents
Percentages (%)
Public sector
92
62.6
Private sector
36
24.5
Self employed individual
19
12.9
Total
147
100
Table 4.1.1 shows that all the 147 questionnaires disributed were returned, this fiqure
represent 100% of the administered questionnaires. Out of the 147 respondents, 92 or
62.6% were from public sector, 36 or 24.5% were from private sector, and 16 or 12.9% are
from self employed individual.
ANALYSIS OF RESPONSE:
Question 1: How do you earn your living? / What is your area of specialization?
The responses of those interviewed to the above question are as shown in the table below:
Table 4.1.2
Suggested Option
No of respondent
Percentage (%)
Private sector
49
33.3
Public servant
58
39.5
Self employed individual
40
27.2
Total
147
100
Based on the above data, it was found that 39.5% (58) questionnaires earn their living
through the public servant, while private sectors show 33.3% of the respondent and self
employed individual were found to be 27.2%.
Question 3: Do you consider taxation necessary?
Table 4.1.3
Option
No of respondent
Percentage (%)
Yes
100
68
No
47
32
Total
147
100
From table 4.1.3 above, it is clear that only 68% of the respondents consider taxation
necessary, while 32% disagreed.
Question 4: Do you pay taxes regularly?
Table 4.1.4
Option
No of respondent
Percentage (%)
Yes
80
54
No
67
46
Total
147
100
From the responses, it is believed that 54% pay their taxes regularly while 46% do not
comply.
Question 5: Do the taxes you pay affect your efficiency in your business as a profession?
Table 4.1.5
Option
No of respondent
Percentage (%)
Yes
97
66
No
50
34
Total
147
100
It was found from the above data that 66% of the respondent agreed that taxes affect their
efficiency in business, while 34% respond negatively.
Question 6: Do the taxes you pay affect your investment in any way?
Table 4.1.6
Option
No of respondent
Percentage (%)
Yes
60
41
No
87
59
Total
147
100
The above responses showed that 41% of the respondent agreed that taxes do not affect
their investment, while 59% respondent strongly disagreed with the questions.
Question 7: Do the taxes you pay affect your productivity in your place of work?
Table 4.1.7
Option
No of respondent
Percentage (%)
Yes
92
63
No
55
37
Total
147
100
From the above data, it was shown that 63% of the respondent agreed that taxes they pay
affect their productivity, while 37% showed negative responses.
Question 8: Do the taxes you pay affect your savings and standard of living?
Table 4.1.8
Option
No of respondent
Percentage (%)
Yes
74
50
No
73
50
Total
147
100
From the above data, it is believed that 50% of the respondent agreed that taxes they pay
affect their savings and standard of living while 50% disagreed with the motion.
Question 9: How do you pay taxes? (Deduction from salary)
Table 4.1.9
Option
No of respondent
Percentage (%)
Public sector
85
57.8
Private sector
60
40.8
Self employed
2
1.4
Total
147
100
From the above data, it is shown that private sector that private sector respond with 40.8%
while public servant pay their taxes through deduction from salary by responding with
57.8%, while self employed pay their taxes through deduction from salary by responding
with 1.4%.
Question 10: Do the taxes you pay affect you in any way as stated in question 5-8 above?
Comment:
The public servant show a positive responds by stating that since tax is deducted from their
salary, the immediate impact is not felt and therefore does not affect their rate of
consumption and savings, since they depend on their net salary as their real income.
On the other hand, the private sector and self employed individuals show a negative effect
since they agreed that they are being over taxed owing to the present economic situation in
the country. They also agreed that taxes affect their rate of consumption and savings as
well.
Question 11: How many times have you made a false declaration of your income?
Table 4.1.11
Option
No of respondent
Percentage (%)
Private sector
95
64.6
Self employed
52
35.4
Civil servants
Nil
-
Total
147
100
From the above data, it was found that none of private sector about 64.6% of them while
about 35.4% of the self employed are involved in the false declaration of their business
income but civil servants have no response because their taxes are deducted from their
salary.
Question 12: How many times have you petitioned the state board of internal revenue on
the objections and appeals as regard your notice of assessment?
Comment: Nil
Questionnaire number 16 -31 is for only the employees of the state board of internal
revenue that is, from question 13-26
Question 13: Is the collection of taxes in Enugu state done as and when due?
Table 4.1.13
Option
No of respondent
Percentage (%)
Yes
78
53.1
No
69
46.9
Total
147
100
It was shown that from the above data 46.9% of respondents do not agree due to tax
evasion and avoidance in the state.
Question 14: If the collection of taxes in Enugu state is not done as when due, why?
Comment:
It is as a result of non –location of the tax payers and un-numbered streets in most of the
urban and rural areas of the state. In addition, it is due to tax avoidance by the private
sector and tax evasion.
Question 15: Have you participated in the collection of taxes from individuals?
Table 4.1.15
Option
No of respondent
Percentage (%)
Yes
90
61.2
No
57
38.8
Total
147
100
From the above question on whether they have been collecting taxes from individuals, the
responses as the table has shown reveals that 61.2% of the respondents are actually
participating in the collection of taxes while only 38.8% of people said “No” even though
they are staffs of the board of internal revenue, Enugu.
Question 16: Do you think that money collected by the tax collectors is to the amount
expected of them?
Table 4.1.16
Option
No of respondent
Percentage (%)
Yes
72
49
No
75
51
Total
147
100
Following the above data, it is clear that only 49% of the respondents agreed that tax
collected by the tax collectors are up to the amount expected from them while 51% said
that they were not collecting up to the expected amount.
Question 17: Do you think that all collected funds are properly accounted for?
Table 4.1.17
Option
No of respondent
Percentage (%)
Yes
47
31.97
No
100
68.03
Total
147
100
From the responses, it is believed that 31.97% of the workers agreed that the funds
collected are properly accounted for, while 68.03% of the workers strongly agreed that the
amount are not properly accounted for. Though they are the workers of the board of
internal revenue, nothing prevented them from telling the truth.
Question 18: Do you think that taxes you pay contribute to the amenities provided by the
government?
Table 4.1.18
Option
No of respondent
Percentage (%)
Yes
74
50
No
73
50
Total
147
100
From the above data, half of the workers that is, 50% agreed that the tax they pay
contribute to the social amenities supplied by the government, while half of them that is,
50% disagreed.
Question 19: Do you think that deficiencies contribute to fraud and dishonesty in the tax
assessment and collection?
Table 4.1.19
Suggested option
No of respondent
Percentage (%)
Societal norms
47
32
Government
50
34
50
34
147
100
Disinterestedness
Embezzlement on the part of
the tax collectors
Total
The above responses shows that 32% of the people responded that societal norms
contributed to the deficiencies and dishonesty in tax assessment and collection.
Question 20: Apart from the tax evasion, what do you consider the greatest hindrance to
improve revenue collection by the Board of Internal Revenu?
Table 4.1.20
Option
No of respondent
Percentage (%)
Harsh laws
20
13.6
Dishonesty
15
10.2
Illiteracy
35
23.8
Government incompetence
12
8.2
Poor collection Machinery
65
44.2
Total
147
100
About 13.6% of the respondents agree that harsh laws contributed immensely to the
hindrances of revenue collection by the Board of Internal Revenue, while 8.2% suggested
that it is due to the government incompetence that contributed to the hindrances of
revenue collection. About 10.2% were of the view that it was illiteracy on the part of the
collectors that hinders revenue collection by the board while 44.2% of the respondents are
of the opinion that it is poor collection machinery contributes to the hinrances of the
revenue collected by the board.
Question 21: Who are those involved in the acts of dishonesty?
Table 4.1.21
Options
No of respondent
Percentage (%)
The tax collectors
55
37.4
The tax payers
81
55.1
The government
11
7.5
Total
147
100
From the table above, 37.4% are of the view that the tax collectors are involved in the acts
of dishonesty while 55.1% of the repondent answered that the tax payers are those involved
in tha act of dishonesty. It is only 7.5% of the repondents who agreed that the government
contributes to the act of dishonesty in accounting for the money collected.
Question 22: when a tax payer is over taxed, how is he/she be treated?
4.1.22
Suggested option
No of respondent
Percentage (%)
The excess amount is
51
34.7
90
61.2
Nothing is done
6
4.1
Total
147
100
refunded
The excess amount is
deducted from his future tax
liability.
From the table, 34.7% of the respondent agreed that the excess amount in any case of over
payments is refunded, while 61.2% of the respondent agreed that excess amount of the tax
is deducted from the future tax liability. It is only 4.1% of the respondent agreed strongly
that nothing is done even when they are aware of the excess tax.
Question 23: if a tax defaulter is caught, how is he/she treated?
Table 4.1.23
Suggested options
No of respondent
Percentage (%)
Charge him to court
90
61.2
Make him pay double the
37
25.2
amount.
Penalise him immediately
20
13.6
Total
147
100
It is observed from the above data that 61.2% of the respondent were of the view that when
a tax defaulter is caught, he will be charged to court, while 25.2% agreed that if a tax
defaulter is caught, he is made to pay double the amount involved rather than going to
court. Only 13.6% of the respondent suggested that ordinary purnishment will be given to
the defaulter immediately he is caught.
Question 24: how are you educating the public on the importance of taxation?
Table 4.1.24
Suggested options
No of respondent
Percentage (%)
Organise a public lecture
74
50
Advertise the necessity for
73
50
147
100
tax payment
Total
It is only half of the respondent who suggested that a better way of educating the piblic
about the importance of taxation is by organising a public services lecture. While the
remaining half (50%) of the respondent agreed strongly that the Board of Inland Revenue
should advertise the necessity for the payment which is a very good means of educating the
public about the importance of taxation.
Question 25:what are the factors that contributes to fraud and dishonesty in tax
adminstration?
Table 4.1.25
Suggested options
No of respondent
Percentage (%)
Lack of proper supervision by the tax
25
17.01
10
6.80
Lack of admnistrative machinery
85
57.82
Awarding scholarship or promotion to an
27
18.37
147
100
authorities.
Collaborating with the tax payers by
providing tax receipts even when they did
not pay.
efficient worker,
Total
From the above responses, it is clear that 25 respondents out of 147 suggested that one of
the factors which contributes to the fraud and dishonesty in tax administration is lack of
proper supervision by the top executives, making this 17.01% of the respondents.
It is only 6.80% of the respondents are of the opinion that the internal revenue staff do
connive with the tax payers to cause fraud by issuing them with tax clearance certificate
even when they do not pay tax.
About 57.82% of the respondent agreed that lack of administration, while 18.37% of the
workers suggested that it is due to the fact that there is no compensation for an efficient
staff either by promotion or by award of scholarship to the best tax collectors of the year.
This may be true because it can motivate the workers to put more effort in collecting more
taxes and properly accounting for taxes collected.
Question 26: what problems do you encounter in meeting your tax obligations?
Comments:
the problems encountered by tax officials includes:
-lack of facilities example, vehicles, computer systems.
-lack of good roads to the rural areas.
-lack of trained officers
-lack of good respondent from the tax payers and
-lack of workers.
Question 27: in your own opinion which other forms of taxes will you recommend for
Enugu State Government?
Comments: the recommendation includes:
-impose taxes on undeveloped land.
-tax on roads and ratio.
-any other forms of taxes that is found necessary and in line with the four cannons of
taxation of Adam Smith.
4.2 TEST OF HYPOTHESIS
HYPOTHESIS A
Hi Tax payers are said to be dishonest
Ho Tax payers are not said to be dishonest.
Test techniques chi – square.
Formulae : X =
(0i-ei)2
ei
where 0i = observed frequency
ei = expected frequency
X = calculated chi-square value
df = degree of freedom.
= (r-1)(k-1)
Where r
k
= row number
= column number
Xo2 = calculated chi-square
Xe2 = chi-square distribution table value.
Decision rule:
If Xo2 < Xe2, accept null hypothesis (Ho)
If Xo2 > Xe2, reject null hypothesis (Ho) and accept alternate hypothesis (Hi)
Re – producing table 21 to get table 28 with re-arrangement based on departments.
Table 4.2.1
Possible answers
Public sector
Private
Self
sector
employed
Total
Tax collectors
23
15
12
55
Tax payers
76
3
2
81
Government
-
2
9
11
20
23
147
Total
104
Source : field study. Table 4.2.2
Oi
Ei
oi –ei
(oi - ei)2
(oi – ei)
Ei
28
38.91
- 10.91
119.03
3.06
15
7.48
7.52
56.53
7.56
12
8.61
3.39
11.49
1.33
76
57.31
18.69
349.32
6.10
3
11.02
-8.02
64.32
5.84
2
12.67
-10.67
113.85
8.99
0
7.78
-7.76
60.53
7.78
2
1.50
0.5
0.25
0.17
9
1.72
7.28
53.00
30.81
Total
71.64
HNT: ei = row total x column total
Grand total
For 1st figure, ei = 55 x 104
147
= 38.91 etc
Df =
(r - 1)(k -1)
(3-1) (3-1)
2x2 =4
at 5%
confidences internal of 4 = 9.49
Xo2 = 38.91, Xe2 = 9. 49
From the calculated chi- square, it is clear that
Xo2> Xe2 (1.e 38.91 > 9.49)
We accept the null hypothesis (Ho) and reject alternate hypothesis (Hi). Therefore, it is
proved that a tax payer is not said to be dishonest.
Hypothesis B
Hi A tax defaulter when caught, he should pay double the amount involved rather than
going to court.
Ho A tax defaulter when caught he should not pay double the amount involved rather
than going to court. Test techniques; chi square.
Formulae : X =
(0i-ei)2
ei
where 0i = observed frequency
ei = expected frequency
X = calculated chi-square value
df = degree of freedom.
= (r-1)(k-1)
Where r
k
= row number
= column number
Xo2 = calculated chi-square
Xe2 = chi-square distribution table value.
Decision rule:
If Xo2 < Xe2, accept null hypothesis (Ho)
If Xo2 > Xe2, reject null hypothesis (Ho) and accept alternate hypothesis (Hi)
Re- producing table 23 get table 29 with re-arrangment based on departments.
Table 4.2.3
Possible answers
Public sector
Private
Self
sector
employed
Total
Charge him to court
70
10
10
90
Make him pay double the
-
25
7
37
5
15
3
20
amount
Penalise him immediately
Total
77
Source: field study
Oi
150
20
Table 4.2.4
Ei
oi –ei
(oi – ei)
ei
70
22.86
522.58
11.09
10
-20.61
424.77
13.88
10
-2.24
5.02
0.41
5
-14.38
206.78
10.67
25
12.41
154.01
12.23
7
1.97
3.88
0.77
2
-8.48
71.91
6.86
15
8.2
67.24
9.89
3
0.28
0.08
0.03
Total
65.83
HNT: ei = row total x column total
Grand total
For 1st figure, ei = 90 x 77
147
=
Df =
47.14 etc
(r - 1)(k -1)
(3-1) (3-1)
2x2 =4
at 5%
confidences internal of 4 = 9.49
Xo2 = 65.83, Xe2 = 9. 49
147
From the calculated chi- square, it is clear that
Xo2> Xe2 (1.e 65.83 > 9.49)
We accept the null hypothesis (Ho) and reject alternate hypothesis (Hi). Therefore, it is
proved that a tax defaulter should not pay double the amount involved rather than going to
court.
Hypothesis C
Ho: Defficiences contribute to fraud and dishonesty in the tax assessment and collection.
Techniques chi-square.
Formulae : X =
(0i-ei)2
ei
where 0i = observed frequency
ei = expected frequency
X = calculated chi-square value
df = degree of freedom.
= (r-1)(k-1)
Where r
k
= row number
= column number
Xo2 = calculated chi-square
Xe2 = chi-square distribution table value.
Decision rule:
If Xo2 < Xe2, accept null hypothesis (Ho)
If Xo2 > Xe2, reject null hypothesis (Ho) and accept alternate hypothesis (Hi)
Re- producing table 19 get table 4.2.5 with re-arrangment based on departments.
Possible answers
Public sector
Private
Self
sector
employed
Total
Societal Norms
45
2
-
47
Government
35
10
5
50
40
9
1
50
21
6
147
disinterestedness
Embezzlement on the part
of the tax collectors
Total
120
Source: field study
Oi
Table4.2.6 Source :
Ei
oi –ei
(oi - ei)2
(oi – ei)
Ei
45
38.37
43.96
43.96
1.15
2
6.71
-4.71
22.18
3.31
0
1.92
-1.92
3.69
1.92
35
40.82
34.98
1168.27
28.62
10
7.14
2.86
8.18
1.15
5
2.04
2.96
8.76
4.29
40
40.82
-0.67
0.67
0.02
9
7.14
3.46
3.46
0.48
1
2.04
-1.04
1.08
0.53
Total
HNT: ei = row total x column total
41.47
Grand total
For 1st figure, ei = 57 x 120
147
= 38.37 etc
Df =
(r - 1)(k -1)
(3-1) (3-1)
2x2 =4
at 5%
confidences internal of 4 = 9.49
Xo2 = 38.91, Xe2 = 9. 49
From the calculated chi- square, it is clear that
Xo2> Xe2 (1.e 38.37 > 9.49)
We accept the null hypothesis (Ho) and reject alternate hypothesis (Hi). Therefore, it is
proved that defficiencies contribute to fraud and dishonesty in tax assessment and
collection.
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION.
5.1
SUMMARY OF FINDINGS.
In summary of this work, taxation and its effect in the Nigeria economy, there should
be adaptation of tax systems to the needs of the country and there should be need to adapt
this systems and policies to the stages of economic development and the existing
institutional setting of the country. How extent should taxation be carried and how great
use should be made of particular taxes can only be decided by consideration of the
maximum social advantage to be derived.
The following are some of the findings.
a) Based on hypothesis, deficiencies contribute to fraud and dishonesty in tax assessment
and collection (table 30).
b) Some well known businessmen with lots of properties dodge being adeguately assessed
through refusing to consult accountant to audit their books, some of them convert their
private property to business property, theirby saying that their property has been
transfered to their limited liability companies, whereas they are still earning the income
from such property.
c) The owners of the property refuse to disclose their ownership, some of them recruit
tenants into their house without completing the certificate of occupancy requirement,
resulting to the tax authorities not knowing when the house are completed.
d) The business executives who incorporate their companies do so to avoid paying tax to
the Board Inland Revenue. They tag their salaries to a very small amount which is not really
the income they consume having regards to their lifestyle.
e) Some people who are involved in tax evasion and avidance points some fake identify
cards as a civil servant so that when the tax collectors come in contact with them, they will
believe that their tax have been deducted from their salary.
f) Some of the tax agents appointed may hide their relatives and prevent them from paying
the adequate tax during revision of the norminal roll.
g) There is the need to adopt the tax system and policies to the stages of economic
development and the existing institutional setting of the country.
h) There isno limit to increase of taxation in general provided that the loss from such an
increase is not greater than the gain from the corresponding increase of public expenditure.
i) It is discovered that the problems encountered by the tax officials in meeting their tax
obligation are lack of facilities, insufficient trained officers, lack of good roads to the rural
areas, and lack of good respondent from the tax payer.
5.2
CONCLUSION
Tax has been defined simply as a compulsory contribution to the public authority to
meet the expense of government and the provision of general benefits of the citizens of the
country. Therefore, it must be distinquished from other fees, which is payment for a specific
service. This is unavoidable and must be paid since it is imposed by the state on her citizens.
Thus, having conducted a thorough research on taxation and its effects on the
Nigerian Economy with a particular reference to the Board of Inland Revenue Enugu State,
the researcher has to draw a conclusion of the findings.
The researcher found out that it has both negative and positive effect which has
been fully discussed in chapter two. To this end, the project writer made a number of
recommendations to rectify the situation, if fully implemented.
Conclusively, the labour and benefits of this research will only yield fruit. If there is a
means of alerting the government of Enugu State to upheld the Adams Smith Cannons of
taxation at all times and subsequent realisation of an improved tax assessment, introducing
suggested tax laws, collection and accounting system, if the taxation in Enugu State tax
system in particular and Nigeria must survive the test of time.
5.3
RECOMMENDATION
Since we have examined the effects and problems of taxation in chapter two, the
researcher of this work wish to recommend the following points which he feels will help in
the development of the Nigerian taxation system and its economy in order to reflect to the
increase in standard of living and economic development.
a) Government should consolidate on the existing tax laws, review and up-date them to
reflect the present circumstances to arrest the rapid tax evasion and aviodance in the
country, just like the current review of the 1996 tax law. In addition Enugu State tax system
should include road and radio tax. Thus the state government should promulgate traffic and
entertainment tax laws,” if not yet in existence to take care of roads and vehicle radio taxes.
This will help the government to recover more revenue from those who evade tax especially
the wealthy class of indivduals.
b) Government should introduce “undeveloped land tax in accordance with the land use
decree of 1978 which empowers all the state government to hold intrust all land in that
state. with this view any undeveloped land in the urban area is to be taxed, this will
encourage the owners (s) to develop them thereby increasing investment opportunities for
the citizen of the country and as well improve the standard of living and economic
development.
c) Operation show your tax clearance certificate should be introduced by the government
and carried about whole travelling on the public roads, in hospitals both private and public.
d) Government should allocate more money to the Board of Internal Revenue for training
of their officers and recruit more workers and tax agents and set up at least one tax office in
all the communites in Enugu State, since the sucessor failure of any tax law in Enugu State
depends on them. The Board of Inland Revenue should set up special task force on tax
collection in all the local governments of Enugu State to check tax avoidance and tax evasion
in the state.
e) The tax executives should allocate their agents to a place where they have no relative or
allocate three agents from different places at the same time so that sufficient tax should be
collected.
f)
Government should re-examine the four cannons of taxation of Adam Smith which
includes equality, convenience, certainty and economy, to ensure its conformity in Enugu
State tax system.
g) Government should organise seminars aimed at educating the public on importance of
paying taxes and as well provide adequate social amenities such as good roads, hospitals,
pipe born water, electricity etc and bring it to the notice of the public, so that they should
see the need of paying taxes and realise that without these taxes all this infrastructure
cannot be provided.
h) Government should above all justifies all these taxes by increasing their expenditure to
benefit the masses also ensures that the current directorate of food, roads and rural
infrastructure popularly known as DFRRI is intensified in every part of Enugu State. This will
reflect the three sector model economy of consumption, investment and government
expenditure.
BIBLOGRAPHY
Lakan, S. (2006). Taxation Principles And Practices In Nigeria. Ibadan: Silicon Publishing
Company.
Odu, E.N. (2007). Introductory Statistics And Research Methods: In Education And Social
Sciences Calabar:Ojies Ojies Production Publisher.
Okpe, I.I. (2000). Personal Income Tax In Nigeria. Enugu: Ochumba Printing and Publishing
Company Limited.
Ibid, (2001). Guide To Nigeria Companies Taxation. Enugu: Ochumba Printing and Publishing
Company Limited.
Ola, C.S.(2000). Income Tax Laws For Corporate And Unicorporated Bodies In Nigeria.
sIbadan: Heineman Education books limited.
Osita, A. (2004). Taxation And Tax Management In Nigeria. Enugu: Meridian Associates.
State Board Of Internal Revenue Lecture Series.
Tabansi, A.C. (2003). Nigerian Taxation For Students With Worked Example. Enugu: Ochiogu
Publisher.
Yamane, T. (1967). Statistics: An Introductory Analysis. New York: Harper
and Row publishers.
JOURNALS
Manufacturers Association of Nigeria (1995). The Industry Reports Of The National Council.
April/June. Vol, 29. No. 3.
Chime, F.C.(1993). The Nigeria Accountant taxation And Economic Reformation Editiorial.
April/June. Vol, 16. No. 2.
APPENDIX
Department of Accountancy.
Faculty of Management and
Social Sciences,
Caritas University.
P.M.B. 01784
Enugu.
Dear Sir/Madam,
I am a final year student of the above mentioned department. I an
conducting a research on “Taxation and its effects on the Nigerian economy, a case study of
Enugu state tax system and economy”, in partial fufilment for the Award of Bachelor of
Science (B.S.C) Dgree in Accounting.
Please, kindly answer the questions as set below by ticking in the
appropriatee spaces provided here under.
All information supplied will be treated in strict confidence. Thanks for your
co-operation.
Yours fathfully,
Egwuonwu Eunice.
QUESTIONNAIRES
INSTRUCTION: Please tick ( √) where necessary in any and only one of the boxes you
consider most appropriate.
1. What is your area of specialization?
a. Private sector worker (
)
b. Government worker (
)
c. Self employed
(
)
d. Other (specify) ....................................
2. Do you consider Taxation necessary? Yes (
)
No
(
)
3. What do you thinks should be the qualities of a good tax system
a. ......................................................
b. ......................................................
c. ......................................................
d. ......................................................
4. Do you pay taxes regularly?
Yes (
)
No
(
)
5. Do the taxes you pay affect your efficiency in your business as a profession?
Yes (
)
No
(
)
6. Do the taxes you pay affect your investment in any way?
Yes (
)
No
(
)
7. Do the taxes you pay affect your productivity in your place of work?
Yes (
)
No
(
)
8. Do the taxes you pay affect your savings and standard of your living?
Yes (
)
No
(
)
9. How do you pay your taxes?
a. Deduction from salary
(
)
b. Directly to the tax office
(
)
c. Others (specify) .................................
10. If the taxes you pay affects you in any way as stated above, comment.
11. How many times do you make a false declaration of your income?
a. Private sector
(
)
b. Self employed
(
)
c. Civil servant
(
)
d. Others
(
)
12. How many times have you petitioned the state board of internal Revenue on the
objectives and appeals as regards your notice of assessment?
a. Private sector
(
)
b. Self employed
(
)
c. Civil servant
(
)
13. What are your reactions to the tax officials on receipts of your notice of
assessment
a. ............................................
b. ............................................
c. ............................................
14. When you pay tax, does it reduce your rate of consumption?
Yes
(
)
No
(
)
15. How do you feel when tax officials or agent stops you on your way and enquire of
your tax payment evidence?
16. Is the collection of taxes in Enugu state done as and when due?
Yes
(
)
No
(
)
17. If the collection of taxes in Enugu state is not done as when due why? Comment.
18. Have you participated in the collection of taxes from individuals?
Yes
(
)
No
(
)
19. Do you think that the money collected by tax collectors is up to the amount
expected of them?
Yes
(
)
No (
)
20. Do you think that all collected fund are properly accounted for?
Yes
(
)
No
(
)
21. Do you think that taxes you pay contribute to the amenities provided by the
government?
Yes (
)
No
(
)
22. Do you think that deficiencies contribute to fraud and dishonesty in tax assessment
and collection? Yes
(
)
No
(
)
23. Apart from the tax evasion and avoidance, what do you consider the greatest
hindrance to improve revenue collection by the Board of Internal Revenue?
a. Harsh law
(
)
b. Dishonesty
(
)
c. Illiteracy
(
)
d. Government incompetence (
)
e. Poor collection machinery (
)
24. Who are those involved in these acts of dishonesty?
a. The tax collectors
(
)
b. The tax payers
(
)
c. The government
(
)
25. When a tax payer is over taxes, how is he/she taxed?
26. If a tax defaulter is caught, how is he/she be treated.
27. How are you educating the public on the importance of taxation?
28. What are the factors that contribute to fraud and dishonesty in tax administration?
29. What problems do you encounter in meeting you tax obligations?
30. In your own opinion which other form of taxes will you recommend for Enugu state
government.