Assessment of Capital Gain Tax Administration in Nigeria: Problem and Prospect; Case Study of Federal Inland Revenue Service, Ogun State Branch
Chapter One
OBJECTIVE OF THE STUDY
The main objective of this paper is to assess and evaluate the administration of capital gain tax in Nigeria Tax system.
Other specific objectives include:
- Ascertain the relationship of Capital Gain Tax and economic development of Nigeria for the enhancement of the standard of living of the citizens.
- Examine Capital Gain administration with a view to putting in place a good policy of administering the tax system.
- Ascertain whether sharp practices in administration of Capital Gain Tax between the staff of FBIR and assess company contributed to tax evasion.
- Determine how Capital Gain Tax contributes to revenue generation in Nigeria.
- Determine the extent to which Capital Gain Tax has contributed to the steady growth in Gross Domestic Product in Nigeria.
- Identify problems that militate against the use of Capital Gain Tax as revenue generation in Nigeria Tax administration.
- Making recommendations that will assist to increase the revenue generation through Capital Gain Tax.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
CAPITAL GAINS TAX
Capital gains tax has been defined by different authorities. According to Embuka (2014), capital gains tax is the type of tax levied on individuals and corporate bodies when gains arise from the disposal of capital assets. Such assets which attract capital gains tax on disposal include: plant and machinery, land and buildings, good will’s of business and many others. Capital gains tax was first introduced in Nigeria under the provisions of capital gains tax Act No. 44 of 1967 and it applied throughout the Federation and companies inclusive (Edotsel, 2008). Decree No. 30 of 1999 now applies throughout the Federation and relates to individuals, partnerships and companies. The rate of capital gains tax (CGT) was reduced from 20% to 10% with effect from 1st January, 1996. The purpose of the administration of capital gains tax is to ensure that every disposal of taxable capital assets either by individuals or corporate organizations are effectively taxed. The Federal Inland Revenue Service (FIRS) and States Board of Internal Revenue (SBIR) were entrusted with the responsibility of collecting the capital gains tax. Ifekwuna (2014) states that States Board of Internal Revenue (SBIR) collects capital gains tax from individuals while the Federal Inland Revenue Service (FIRS) collects from corporate bodies and other individuals resident in the Federal Capital Territory, including members of the Armed Forces, the Police and foreign serving officers. However, collection of capital gains tax involves some challenges. Adebayo (2017) stated that lack of data or record keeping in order for the tax authorities to be aware of when a capital gain has been made and liable to pay this tax is problem. Adebayo explained that in real practice, what is charged by the tax authorities, as capital gains tax, is the entire amount or capital derived by the owner of the asset when disposing off that asset. This, he further explained, contrast with the provision of the Law which requires that only the exact gain, after deducting the allowance amounts stated above, are chargeable to capital gains tax. Again, Adebayo pointed out that another problem is lack of reliable and genuine data and typical bureaucratic laziness to investigate what capital gain is. Ipaye (2017) stated that the high rate of inflation in Nigeria wipes out the real value of the asset such that the owner is at the losing end in real terms when disposing off the asset. He explained that the rate during the time of inflation is high which encourages many to avoid paying tax. Ipaye (2017), therefore, advised that allowance should be made for inflation when paying this tax as is done in some countries.
PRINCIPLES OF TAXATION
Adam Smith is the author of the famous four cannons of taxation. He enunciated them as follows:
- Certainty: This stipulates that the tax payers should be made certain of the amount to be paid, time, place and method of payment. These clarifications will no doubts enable the tax payer pay with ease.
- Convenience: According to Adam Smith, there should be a convenient time, place and method of tax payment and collection. For instance a tax payer should not be made to travel over a long distance to pay his tax. Just as pay as you earn (PAYE) satisfies that principle of convenience for salary earners in terms of tax payments, harvest periods for farmers is a more convenient time for tax payment etc.
- Proportionality: Smith also stated the need for proportionality by this he explained that the amount of money individuals pay as taxes should be proportional to their income. In other worlds, a uniform proportion of 10% of income paid as taxes by all categories of tax payers should satisfy this principle. This principle has been variously criticized by scholars who also expanded it to include other factors that will make for equitability of a good tax system.
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought assessment of capital gain tax administration in Nigeria: problem and prospect
Sources of data collection
Data were collected from two main sources namely:
(i)Primary source and
(ii)Secondary source
Primary source:
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.
Secondary source:
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
Population of the study
Population of a study is a group of persons or aggregate items, things the researcher is interested in getting information on assessment of capital gain tax administration in Nigeria: problem and prospect. 200 staff of federal Inland Revenue service was selected randomly by the researcher as the population of the study.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Introduction
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain assessment of capital gain tax administration in Nigeria: problem and prospect
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of capital gain tax administration in Nigeria: problem and prospect
Summary
This study was on assessment of capital gain tax administration in Nigeria: problem and prospect. Seven objectives were raised which included: Ascertain the relationship of Capital Gain Tax and economic development of Nigeria for the enhancement of the standard of living of the citizens, examine Capital Gain administration with a view to putting in place a good policy of administering the tax system, ascertain whether sharp practices in administration of Capital Gain Tax between the staff of FBIR and assess company contributed to tax evasion, determine how Capital Gain Tax contributes to revenue generation in Nigeria, determine the extent to which Capital Gain Tax has contributed to the steady growth in Gross Domestic Product in Nigeria, identify problems that militate against the use of Capital Gain Tax as revenue generation in Nigeria Tax administration, Making recommendations that will assist to increase the revenue generation through Capital Gain Tax. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of FIRS Ogun state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made up tax managers, assistant tax managers, tax officer I and tax officers ii was used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies.
Conclusion
Purpose of the study was to determine the ‘Capital Gains Tax: Its Challenges’. Total of two research questions were examined: one was on current challenges to capital gains tax; the second on the mechanisms to ameliorate the administrative challenges of capital gains tax. In order to answere the research questions, a self-designed questionnaire was adopted as the research instrument. The questionnaire was administered to 60 tax inspectors and forty accountants randomly selected from Federal Inland Revenue Service, States Board of Internal Revenue and Local Government Areas in Ogun state. The tax inspectors and accountants unanimously accepted that lack of data or record keeping; health savings account; difficult to identifying the subject matter of the tax; inflation; lack of reliable and genuine data; primary residence exclusion; bureaucratic laziness and selling when income is low were current challenges to capital gains tax administration. Tax Inspectors and Accountants accepted that maintenance of good data of the transaction on the asset; rejection of assessment that is contrary to the provision of law; maintaining good management capacity; engaging in aggressive enlightenment campaign and proper utilization of tax proceeds by the government were mechanisms that should ameliorate the administrative challenges of capital gains tax.
Recommendation
Both Federal Inland Revenue Service (FIRS) and States Board of Internal Revenue (SBIR) should ensure that owners of assets should maintain good data of their transaction on the assets and fill tax returns faithfully. This would
(i) ensure that owners of assets should pay tax
(ii) it would enable the owners of the assets challenge any assessment that is contrary to what the law provides.
REFERENCES
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