Taxation and Its Effect on the Nigerian Economy (A Case Study of Edo State Tax System)
Chapter One
PURPOSE OF THE STUDY
The purpose of this study includes the following:
To examine the causes and reasons for high tax evasion and avoidance.
To generate revenue to help the government to finance ever-increasing public sector expenditure.
To promote social, economic, and good governance through the provision of merit goods.
To examine the effect on the economy, the high incidence of tax evasion and avoidance.
To examine people’s perception of taxation.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
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.
CHAPTER THREE
RESEARCH DESIGN AND METHODODLOGY
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.
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.
CHAPTER FOUR
PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA.
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:
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION.
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.
- Based on hypothesis, deficiencies contribute to fraud and dishonesty in tax assessment and collection (table 30).
- 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.
- 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.
- 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.
- 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.
- Some of the tax agents appointed may hide their relatives and prevent them from paying the adequate tax during revision of the norminal roll.
- 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.
- 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.
- 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.
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.
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.
- 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.
- 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.
- 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.
- 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.
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- 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. Enugu: Meridian Associates. State Board Of Internal Revenue Lecture Series.
- Tabansi, A.C. (2003). Nigerian Taxation For Students With Worked Example. Enugu: Ochiogu Publisher.
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