Legislative and Judicial Examination of Tax Compliance Strategy for Revenue Generation in Nigeria
CHAPTER ONE
Objectives of the Research
The aim of this study is to examine the legislative and judicial approach to income tax compliance for revenue generation in Nigeria through the following objectives:
- One of the objectives of the research is to assess the effects of the Civil and Criminal Provisions dealing with the violation of income tax laws in Nigeria with a view to observing whether these penal provisions are effective enough in controlling the effects of tax evasion and tax avoidance in the field of revenue generation within the Nigerian economy.
- The study takes special consideration and analysis of the personal income tax, Companies tax, Capital gains tax, Petroleum Profits tax, Value added tax and Investment income with the aim of studying the efficacy of penal provisions enshrined in them. This will help to explain whether the civil and criminal offences committed by tax payers are properly provided for by the taxing statutes and suggestions and recommendations are made in that respect.
- An additional objective is also to examine the reason why some tax payers do not pay their taxes according to the laid down tax laws.
- It also seeks to answer the question; whether the defaulting tax payers are prosecuted or not, based on the legal position on the issues as stated above.
- Furthermore, it is the concern of this study to analyse and verify such facts as the competence of the revenue authorities in all ramifications such as the general administrative functions like management of staff, work place, machines and equipments, finances, custody of revenue collected, prosecution of tax offenders and tax officials. Any lapses from the above factors can adversely affect revenue collection and implementation of taxing policies and laws considerably.
CHAPTER TWO
CONCEPTUAL FOUNDATION AND CLARIFICATIONS OF KEY TERMS
Introduction
Politicians, tax officials and practitioners spend a lot of time and energy on the problem of tax avoidance. No one seems to have a very precise idea of what is meant by the term[1] but, it is to be distinguished from tax evasion, which is illegal. If two people marry in order to reduce tax burden they are practicing tax avoidance if they tell the revenue that they are married when they are not, they are guilty of tax evasion, and may well be prosecuted. There is also an important distinction between a scheme under which no liability to tax arises (tax avoidance) and one under which a charge arises but the tax cannot be collected.[2] The later may be tax evasion and subject to penalty. Other terms used in discussion and in case law – are tax mitigation and tax planning which may be seen as subsets of tax avoidance or as independent categories, depending on the context in which one finds oneself; they are all, however to be distinguished from tax evasion.
Tax Evasion
Unfortunately, tax evasion itself has developed a number of “frayed edges”. Thus, it is sometimes used to cover all cases of non compliance41 may be deliberate or accidental and may give rise to penalties under tax legislation, prosecution under criminal law, or both. Evasion may even result from taking a position on tax legislation, which is later shown to be incorrect.42 If these are all examples of tax, its greatest cause may not be fraud or greed, but the complexity of the tax legislation.
Tax Mitigation
Tax mitigation[3] is distinguished from tax avoidance because judges, when dealing with a provision turning on the presence of tax avoidance, invented the term “mitigation” in order to mark off transactions, which would not be caught by the provision[4] in this context, therefore tax mitigation and tax avoidance are mutually exclusive. Today, tax avoidance rises where the tax payer reduces a liability to tax without incurring the economic consequences that the National or State Assemblies intended to be suffered by any taxpayers qualifying for such reduction in that liability.[5] Tax mitigation arises where the taxpayer takes advantage of a fiscally attractive option afforded by the tax legislation and genuinely suffers the economic consequences and legislative intent. The first element asserts that there should be some genuine economic consequences, while the second enables the court on a case-by-case basis, to control which consequences will qualify. Today, a couple marrying to reduce tax would be treated as examples of tax mitigation. The problem with tax mitigation is that, while it provides a coherent reason for saying, in a particular case is that, the facts do not amount to tax avoidance and so do not trigger the applicant of some rules, it does not provide a clear way of telling whether those particular facts fall one side of the line or the other – it can be a conclusion, not a test and so restates the problem rather than solve it.
CHAPTER THREE
CIVIL AND CRIMINAL OFFENCES AND SANCTIONS
Introduction
Under Nigerian Income Tax Laws, sanctions are usually imposed against any breach committed by the tax payers. They are imposed as punishment aimed at enforcing income tax legal obligations. In this chapter, we shall consider the civil sanctions against tax offenders that constitute breaches of tax legislation. Criminal offences and sanctions shall be considered in the next chapter. Weak and inadequate sanctions cause the failure of legal control of income tax in Nigeria because it gives room to tax defaults by taxpayers leading to loss of revenue. This eventually leads to low rate of income tax compliance efforts in Nigeria.
Some of the civil breaches against tax laws include the abuse of civic rights; the civil fraud, delay in tax payment within reasonable time, refusal to pay tax, failure to deliver tax returns, failure to pay tax arrears, refusal to give tax assessment on demand or paying less tax assessment, failure to show tax clearance certificate, artificial and incomplete tax transactions, undistributed profits of companies in form of dividends, false application of commencement and cessation of taxable business and false claims of bona fide commercial transactions.
The revenue authorities needed court orders to sell off the defaulting tax payer‟s goods, chattels, bonds or securities as well as their premises to offset the amount owed to the tax authorities. In spite of this, the sanctions seems ineffective as will be examined later on. In addition, the tax administrative machineries appears to be weak, thus, accounting for the inadequate usage of the various sanctions. These weaknesses and ineffectiveness will be clearly discussed subsequently in chapters four and five respectively.
CHAPTER FOUR
LEGISLATIVE AND JUDICIAL ATTITUDE TOWARDS CIVIL AND CRIMINAL
SANCTIONS
Introduction
This chapter will examine the legislative and judicial attitude towards the civil and criminal sanctions under the Nigerian Tax statutes. This is with the view to assess the effectiveness or otherwise of the penal sanctions. Also, an examination and analysis of the extent of the legislative provisions will be made to know whether they conform to the objectives of taxation and how adequate the provisions are in the light of the economic conditions, literacy and social awareness of the Nigerian people. In addition to the above, this chapter shall analyse the nature and attitude of judiciary and the courts approach towards tax evasion and tax avoidance. This will enable us give proper analysis of the effectiveness of penal pensions and advance legal solutions against tax offences and penalties in Nigeria.
It is perhaps no accident that our starting point should be the consideration of the legal framework. This is because the law forms the foundation upon which the structure of the tax system is built. It is trite law that there is no presumption about tax.[1] Tax being a compulsory levy by government and therefore a mandatory contribution by the subject, must be clearly imposed upon him by statute.[2] Consequently, the first cardinal principle of taxation is that there must be a clear manifestation of an intention on the part of the government to deprive the subject of his property. It is thereof pre-requisite for a good tax system to impose the tax clearly and unambiguously in a manner that who and what is being taxed is easily identifiable. Furthermore, there must be present in the government the power to levy the tax. While it is conceded that the power to levy tax is a necessary adjunct of the act of governance but Nigeria being a federation each tier of government is subject to Constitutional limitations on the exercise of its inherent powers. Another pre-requisite of good tax law is that, it must be easily accessible and as far as possible, there should be a codification of the law. This is because a clear picture of the different taxes imposed, the rate structures and those within their purview are important in the design of an administrative machinery for the administration of the law.
CHAPTER FIVE
SUMMARY AND CONCLUSION
Summary
A tax in the general understanding of the term and as used in the constitution signifies an exertion for the support of the government it is simply a pecuniary burden load upon individuals or persons or property to support the government and is a payment exacted by legislative authority. This study was able to explain what happens to those persons who refuse to pay tax, whether they are properly arrested and punished according to the penal provisions or no, and by whom. The legal position of tax defaulters, what law says about the tax offences and penalties, the penal provisions such as the civil and criminal sanctions effective enough to deter future ability to commit tax offences was clearly discussed and on the other provide good information on the subject to the public, government and the tax authorities in general.
Findings
It is observed from the previous chapters that the basic problems associated with the civil and criminal sanctions in our tax legislation hinges upon the ineffectiveness of the penal provisions. This led to the inability of the various Revenue Boards to control tax evasion and tax avoidance effectively. Consequently, there is poor revenue collection by the government coffers.
Recommendations
In line with the above findings, it is observed that, the ineffectiveness of the penal sanctions in the tax laws, coupled with other administrative lapses significantly contributed to tax evasion and tax avoidance and must be addressed squarely. It is for these reasons that the following recommendations are made.
Need for effective tax legislation and tax administrative machinery
The existing tax laws in the country are in a confused state. In order to make for the taxpayer‟s understanding and reduce administration problems, the amount of tax payable, the circumstances and time of payment should be clearly defined and delineated. Thus, the various tax laws such as the Personal Income tax, Companies Income tax, Capital Gains tax, among others which are scattered in both federal and state enactments should be harmonized and codified. In the process of codifying the tax laws, both the states and the federal governments should be involved. Hence, it is proposed that a National Commission on State Taxation (NCST) should be constituted along the lines of the National Economic Council (NEC) first established under the 1979 constitution. The National Commission on State Taxation should be charged with the responsibility of formulating policies touching on those taxes that are imposed by the federal government for the benefit of the states, such as taxes on the incomes, profits and capital gains of persons other than companies.
REFERENCES
- Abdulrazaq M.T (2005) “Revenue Law” Malthouse Press.
- Abdulrazaq M.T, (1993)“Nigeria Tax Offences and Penalties‟ Batay Law Publication Ltd. Ilorin
- Ajomo M.A and Akanle (1991).„Tax Law and Tax Administration in Nigeria” Published by Nigerian Institute of Advanced Legal Studies
- Arogundade, J.A.,(2005) “Nigerian Income Tax Law and its International Dimension.” Published by Spectrum Books Ltd. Ibadan
- Ayua, I.A, (1996)“The Nigerian Tax Law” Spectrum Law Publishing Co Ltd. Ibadan, Owerri, Kaduna, Law
- Barlow R. Brazer, H. E . T Morgan, J.N (1966) Economic Behaviour of the Affluent. Brookings Institute Washington D.C
- Daniel D., (2004) “Society and Economy: Legal Considerations of Tax Evasion and Tax Avoidance”, BUESPA, Department of Economic Law, Budapest, Hungary.
- Dean P. Keenan T and Kenney F. (1980) Tax payers‟ Attitudes to Income Tax Evasion; an Empirical Study, B.T.R
