A Legal Examination of the Role of Taxation in Revenue Generation and Economic Development in Nigeria

A Legal Examination of the Role of Taxation in Revenue Generation and Economic Development in Nigeria

CHAPTER ONE

Objectives of Study

The central aim of this research work is to appraise the legal assessment and the importance of Income tax in the economic development of Nigeria so as to achieve the following objectives:

To examine the basis of taxation for the purpose of identifying those important contributions of income tax to the Nigerian economic development, and suggest ways to avoid corrupt attitude by the inept tax collection officials that conspires with some tax defaulters not to pay the correct tax due or even refuse to pay tax at
To examine and analyze the prospect and problems or major constraintsthat inhabits the smooth identification, assessment, collection and administration of income tax in Nigeria, there by result in the problem of tax evasion and tax
Also to find out ways of enhancing good tax administration that will boost the positive attitudes of taxpayers towards payment of taxes. To also recommend the need for the judges and legislature to observe as much as possible moderate rates covering of tax statutes in order to avoid inadequate income tax compliance resulting in tax evasion and tax avoidance.
Lastly to recommend the introduction of task force which will supervise tax administrators and tax collection should be partitioned according to zones, and that the amount generated on tax should be published in any of national newspaper or magazine. This will eradicate mismanagement of tax fund by the tax

CHAPTER TWO

EXAMINATION OF TAXING POWERS IN THE FEDERAL REPUBLIC OF NIGERIA UNDER THE 1999 CONSTITUITON OF THE FEDERAL REPUBLIC OF NIGERIA (AS AMENDED)

Taxing Powers of the Federal Republic of Nigeria under the 1999 Constitution of the Federal Republic of Nigeria (as amended)

The power to tax is one of the plenary powers of any government which need not be formally conferred upon it. According to Ayua,¹ there has been a requirement that if at all, government was to interfere with property, pry into a man‟s affairs and takes his money, then this must be on clear statutory authority. This was rightly exemplified in the case of 7UP Bottling Company v. Lagos State Internal Revenue Board, where it was held that:

It has often been the view of the Courts here and elsewhere that if a person sought to be taxed comes within the letter of the law, then such person must be taxed. On the other hand, if the tax authority seeking to recover tax from a person is unable to bring him within the letter of the law, the person will be free, however apparently within the spirit of the law his case ought to otherwise appear to be.

This position was upheld in the case of Authority v. Regional Tax Board, Attorney-General of the Western States of Nigeria and Adelaja³ where the Federal Court held that, “No tax can be imposed on the subject without words in an Act of parliament clearly showing an intention to lay a burden on him. ”In a single tier system i.e. unitary system of government, there is no problem with the definition of the power. Consequently, such a government can impose any form of tax, for any purpose and at whatever rate that pleases its fancy. In effect such government is not subject to any constitutional limitation. The only limitation one can possibly infer is perhaps practical and that is, it may be restricted by practical considerations like ease of assessment and collection; the effect such tax may have on the political fortune of the government, especially if it operates in a bi-party or multi-party democracy where the government has to seek the mandate of the electorate on a periodic basis.

However, in a federal set up, because of the inherent conflict situation always existing between the central and the constituent governments (which conflict probably gave rise to the federal set- up in the first instance) it is essential that powers are allocated and defined in the fundamental law of the system.⁴

Thus such fundamental law (usually Constitution) delimits the extent to which each level of government can go. Beyond this limit its action is regarded as being ultra vires and unconstitutional.⁵ Apart from the reason of elimination or minimization of conflict between the central and constituent governments, the need to define allocation of powers particularly in the field of taxation is understood by the interest of the taxpayer for it is not in the nature of man to voluntarily part with his property especially when it is to an abstract entity such as government, therefore there is the need for certainty in the area of who has what power to tax in any particular circumstance.

By virtue of Section 4 of the Constitution,⁷ the federal government is given exclusive jurisdiction to make laws in respect of matters set out in Part 1 of the Second Schedule to the Constitution. It is also given power in respect of matters contained in Part II of the same Schedule (referred to as the Concurrent Legislative List) to the extent stated therein. Though the latter is referred to as Concurrent Legislative List, a closer look at the provisions of Subsection 4(a) of Section 4 of the Constitution⁸ will reveal that there is no such area of concurrent jurisdiction in the list. What we have are mutually exclusive legislative powers over certain items.

Thus, the federal government cannot go beyond the extent provided in the column opposite the items in the list. Consequently, by virtue of Items 15, 22, and 57 of the Exclusive Legislative List, the National Assembly is given exclusive power to impose Customs and Exercise duties; Export duties and Stamp duties respectively. In addition, Item 58 gives it exclusive power to impose tax in respect of incomes, profits and capitals gains. Thus, the Federal Government is given the unfettered power to make laws in respect of this matters.

CHAPTER THREE

ANALYSIS OF INCOME TAX AND REVENUE GENERATION INNIGERIA

Income Tax and Revenue Generation

Traditionally, the basic function of taxation was simply to raise sufficient revenue to satisfy the needs of the government that is to meet its current expenditure. Today, however, we have travelled a long way from that, as taxation now has multifarious dimensions. Today, therefore, taxes have an important role to play especially in any government’s economic and social policy.

The focus of tax policies with respect to economic development

Thus Nigerian tax system features the following:

Being a federal system with three constitutionally recognized Federating Units, such as Federal; 36 States and FCT; and 774 local The Country‟s tax system and fiscal operations are made to adhere to the key principle of fiscal federalism.
The Nigerian tax system is dominated by returns from the sale of crude

As the revenue from petroleum tax is within the jurisdiction of the Federal government, it has on average accounted for about 90% of overall national revenue. This is of course shared according to an approved revenue sharing formula between the three ties of government.

Apart from oil, other prominent tax items include: Personal Income Tax; Company Income Tax, Value Added Tax, Capital gain tax; custom and exercise duties and education tax, which is derived from the company income tax.

Income tax helps in the redistribution of income and wealth

This has two dimensions. The first is the doctrine that taxation should be based on the ability to pay, so that the burden of taxation ought to be heavier for rich men than for the poor, with the taxes being used to pay for social services for the less fortunate. This is achieved by the graduation or progressiveness of the rates at which the taxes are levied.²The idea is that the tax system ought to reduce inequality.

The second dimension sees the present distribution of wealth as being unjust and so attempts to reverse the situation by fixing taxes at confiscatory rates in favour of the poor. High taxes on the income and wealth of the well-to-do can produce either incentive or disincentive effects.³Sometimes a taxpayer‟s spendable income is reduced through taxation so he is compelled to work harder in order to restore his lost income. Taxes that produce incentive effects therefore increase productivity.

On the other hand a high marginal tax rate can produce the disincentive effect which makes then worker take to leisure rather than to extra work.It has been shown that the disincentive effects are indications of economic inefficiency and waste.⁴Disincentive effects can take different forms, including emigration to countries of low tax rates, and involvement in “black economy” activities.

Other kinds of distortion likely to be caused by a high marginal tax rate include substitution of one form of business organization for another as differences in the tax treatment of the various kinds of businesses may lead to the choice of those most favourably treated by the tax system, and a high incidence of tax evasion and tax avoidance. It has been argued that in order to avoid the disincentive effects, a tax system is required which provides a broad base for revenue so that marginal rates of taxes can be kept down as the required revenue could still be generated by low rates spread over a large tax base, rather than raising the same revenue by concentrating high rates of tax on a few activities.

CHAPTER FOUR

SIGNIFICANCE OF TAXATION IN NIGERIA

Nigerian Economic Situation

Nigeria has often been described as an “Underdeveloped” or “Developing” Nation. These terms refers to a number of things. They could mean a country with low level per capital income per head of its population which are low by the standard of western world, or a country with very low level of economic and technical advancement or achievement.¹

Both the defining words apply to Nigeria, but this research is more concerned with the second definition. In underdeveloped countries with particular reference to Nigeria there is a prevalence of high level of illiteracy and malnutrition coupled up with inadequately housing and lack of proper medical facilities and care. Those countries also suffer serious political instability, unsettled monetary (loans of I.M.F) conditions and lack of continuity in economic life. Apart from all these, there is no large scale application of the fruits of scientific and technological advancementto agriculture and industry, subsistence production is general the order of the day.²Nigeria situation is not an exception to the above described problems which had led the country‟s growth industrialization process being at its best started. This country suffers from myriad of ailment which includes lack of infrastructure and these infrastructures where they are in place are insufficient to cater for the growing need of the populace.

Furthermore, transport is inadequate, with an insufficient road network and a great majority of roads are bad due to holes, airports are dead because of the outdated facilities, seaports in bad condition due to lack of modern navigational aids. Efforts are being made to revitalized the rail network yet such effort have not been much fruitful. In country like Nigeria with potentials growth and development but inadequacy of the transportation network which constitute a major stumbling block especially in the area of domestic trade.

CHAPTER FIVE

SUMMARY AND CONCLUSION

Summary

The Generation of revenue by every entity is of paramount importance. This cuts across households, firms, states and nations. Even countries in the world today are trying to adhere rapid socio-economic growth and development through optimum tax assessment, collection and utilization.

Government at every level (Federal, State or Local) is expected to discharge certain functions to its populace which include the provision of basic infrastructure and social amenities. The generation of adequate revenue is, therefore, very important for the effective discharge of the functions of government, as no meaningful development can be achieved in the absence of revenue.

However, from the foregoing Chapter one and two above Nigeria has underutilized the potential of income taxation. Although, there has been much improvement to the amount contributed as revenue to the nation, which is attributable in so small way to the introduction of personal income tax and value added tax Acts which are the laws that govern the imposition and collection of personal income tax and Value Added Tax in Nigeria. There has not been much success in achieving one of the bedrock goals of income tax system, which is reduction of disparity in income distribution redressing the imbalance, unfair and inequitable distribution of our national cake or wealth. The Nigerian tax laws on income tax failed to consider the cultural aspect of the people, especially their social habits in penchant, ostentation and conspicuous consumption pattern.

An attempt has been made to suggest various system of raising revenue through agricultural products, properties and personal income taxes by the government apart from relying on accruing oil wealth. We equally examined the basis of Income Taxation with the view or focus to identify the important roles income taxes play in the economic development of Nigeria.

Chapter three is the bedrock of the whole work it discusses the role of taxation in the economic development of Nigeria, its legal perspectives.

Raising revenue as the primary objective, income distribution and revitalization of the economy.

Chapter four is on revitalization of economy achievements through capital projects. This research showed the Nigerian economic situation, how incomestaxes been a tool of sharpening and sanitizing the economic development, social and political incentive and effect of fiscal policy which are twin birds of the same feather that fly together with tax incentives.

Lastly this work concluded with summary, findings and conclusion of the entire work with recommendations.

Findings

Generation of revenue by every entity is of paramount important. This cuts across households, firms, states, and nations. Every country of the world today is striving to achieve rapid socio-economic growth and development through optimum tax assessment, collection.But it is observed that Nigeria has a fundamental problem of tax collection as a result of either tax evasion and tax avoidance from some private organizations, government organizations and individual people.
Political influence and corruption of tax revenue exhibited by government officials, particularly at top level. Where an executive may use some form of power to direct and prohibit some individuals or companies from paying tax on some transactions, without regard to tax revenue
The tax reliefs may be in the form of duties waiver which in some cases are granted to favour certain taxpayers. Other problems are weak, inefficient or defective legislation against tax evasion and tax avoidance, inadequate machineries and lack of skilled personnel in the administrative tax bodies has also contributed to problem of tax collection in Nigeria.
It is also understood that high rate of taxation is one of the factors hindering tax administration in Nigeria hence foreign investors will prefer to divert their way to the country with less or low rates of
Lack of civic awareness, people thinks that collection of tax is oppressive. This is also among the contributory factors of tax problem in

Recommendations

Based on the above findings, the following recommendations were provided:-

Taxation is not the Alpha and Omega to solve all our problems on this earth. Taxes, on their own, cannot produce adequate growth without a sound,honest and aggressive campaign for a sincere and economic planning for development. A good taxing system needs to be organized like a war geared toward achieving its effort, which will mobilize its resources, stir the imagination of the people and operate dynamically according to a carefully planned strategy. Therefore, government should have the political will and should also ensure effective assessment, collection and utilization of tax
Where there are good relationships between tax payer and the government, the government may spend much money in tax administration and more revenue in provision of infrastructures and social amenities. Such as employment, health care, construction of roads, dams, schools and so on. Therefore it is recommended thateffort should be made to identify taxpayers that are yet to be captured in the tax payers net, through the issuance of a unique tax identification number and the development of data base of tax payers‟ This will make effective assessment and collection of revenue from all sources by the government.
Furthermore, judges and the legislature should try to enact laws that can beeasily interpreted to guard against injustices. This is because it is well known that taxation is statutory matter, no common law or equity will give the court any true answer to the problem of interpretation for the right application of tax legislation. The judges should try as much as possible to observe the rates governing of tax interpretation
It is recommended that the government should organize workshops and seminars in order to make taxpayers know that it is their civic responsibility to pay tax to generate revenue to the government which will in turn provide them with social

Conclusion

It behooves on the leadership that will make income tax achieve its major objectives that will be attractive to the taxpayers not something that will look like you robbing John to please Peter. That‟s why the problems of tax evasion and avoidance are very common. Therefore there is need to ensure value in the way tax payers‟ money are spent through a system of good governance that has the capacity to control corruption and abuse of office. If the income tax‟s purposes are basically achieved, citizens will have true convictions that if they do not pay taxes it will look to them as a sin spiritually and a crime to humanity even to the entire nation, which of cause, will force them to pay and be proud of their obligations. Growth through taxation can only be seen if there are sincere and honest policies through skillful economic management. In this case there is need to utilize the services of registered tax professionals in the formulation and implementation of tax policies and guidelines. These are the only ways that will take us to the promise land, because respect for the tax system will be greatly enhanced if the tax payers begin to see tangible developments in their locality, such as better health and education facilities as well as improved physical infrastructure and security.

REFERENCES

Ayua, I.A: Nigeria Tax Law, Spectrum Books Ltd Ibadan, Revised Edition (1997) p.306 – 308.
S. History: Oxford English Dictionary (2000) Sixth Edition, University Press U.K.P.I.T.A CAP. P.8 L.F.N (2004).
Ola, S: Income Taxation for Corporate & Incorporate Bodies in Nigeria, New Edition Heinemann Education Books Nigeria Ltd, Ibadan (1984).
Ola, S: Nigerian Income Tax Law & Practice, Macmillan Publishers, London (1985).
Rabiu, A: Personal Income Tax in Nigeria, Manna Hannan Press Ltd, Nigeria (1981) p.15.
Is-haq Repositioning the Nigerian Tax System, Suggestion and Policy Measures, University of Ilorin Press Ltd (2010) 3
Jinghal L.M. The Economic Development Planning 28 revised Edition, Public Offset Press, New Delhi

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