The problems and prospects of taxation as a source of Revenue Generation in Nigeria”, a case of Ebonyi state Board of internal Revenue
- BACKGROUND OF THE STUDY
it is not an over statement that every nations or government depends on taxes for it’s survival with out taxes, there is no way a Government can operate effectively and efficiently unless of course it borrows or charges it’s citizens outrageous fees for the services it renders them. With taxes, Government provides security, social Amenities and infrastructures for the improvement of its subject and fund governance for a stable polity.
Taxation dated back to 1904, when late lord lugard introduced income tax in Nigeria. It started as a community tax which later culminated in the Nature Revue ordinance in 1917. In 1918, an Amended ordinance extended the provisions of 1917 ordinance to southern Nigeria. The first ordinance applied to Abeokwuta in Ogun State and to Benin City in Edo state and in 1928, it was extended to eastern Nigeria. The Nigeria income taxation did not start until 1940 when the native Revenue ordinance of 1917, 1918 and 1928 were incorporated in the direct taxation under ordinance N0.4 of 1940. This ordinance was however discriminatory as it applied to natives in Nigeria elsewhere, that is, other than township of Lagos. However, a more comprehensive income tax ordinance N0.29 of 1943 which came into effect on 1st April 1943, governed the assessment of the income of Non-Africans resident outside Lagos as well as Africans and Non- Africans resident in Lagos. After the income tax Ordinance of 1943, there was no significant change in the tax system until 1956.
The determinants of the taxable income or better still, the original I land Revenue Departments was the Residents, who was the officer appointed by the Governor be in charge of the Province or district, together with any other administrative officer authorized by the Resident to perform any duties imposed upon the Resident under the ordinance; the chief or representatives of elders and other persons of influence in each district, any native authority recognized by the tax Authority.
However, the Northern Region did not pass its own personal income tax law until 1962. All the regional in all the states that were created out of the regions. In the federal territory of Lagos, the income tax ordinance of 1943, remained in force until the personal income tax (Lagos) Act 1961 enacted by the federal government. It was the 1961 enactment that gave birth to separate was on income and profits of both individuals and companies namely income tax management Act (ITMA); and companies’ income tax Act (CITA). The petroleum profit ordinance was passed in 1959 but took effect from 1st January 1958. So, Many lonu have passed to date on taxation in Nigeria.
Taxation, which can be seen as the imposition of an obligatory levy on the subject or his property by the government is one of the major sources of government revenue. According to lofer and Solomon (1996), “taxation is the most common method of financing government activities”. They maintained that “if Government can read meaning to taxation as a fiscal policy, not less than twenty percent (20%) of the Government revenue will be generated through it, and if it is well invested by government it will as well boast employment opportunities which will improve the well- being of the society as a whole”. it is a productive and effective instrument used by the Government in sourcing fund for maintenance and provision of social Amenities to her citizens.
Despite the significant benefits of taxation, a lot of problems have been encountered by the relevant tax authority (Board) responsible for administering and collecting of taxes in Ebonyi stat. The problems are includes and not limited to the following: problems of poor information system; lack of autonomy of the board; inadequate remuneration; lack of computerized operation; inconsistency in tax system poor funding; lack of infrastructural facilities; Dishonesty of tax collectors in the collection of tax; Abuse of power by tax assessors; and so may others which the research is going to enumerate more and elaborate in this research work.
- Statement of Problem
These problems binder the provisions of various services provided by the government for citizens and as well the functions of taxation such as taxation is imposed to generate revenue for the Government to meets it’s capital and recurrent expenditure; it reduces the inequalities of income through the more you earn, the more you pay Mechanism; is it used to increase output and employment; it serves as an instrument of fiscal policy. Though the funds which would have collected to provide the above services and function are not available to the Government thereby paralyzing the operational functions of the government and creating stability of the economy. Some of the problems are easily enumerated as stated below: Absence of proper financial Records; Dishonesty of tax collectors; Abuse of tax powers by tax assessors; tax avoidance and evasion; High cast of tax collection; lack of social Amenities. However, the efficiency and effectiveness of any tax system solely lies on the level of avoidance and evasion of tax and this has remained a major problem obstructing the maximum collection of taxes in Ebonyi state. An improper revenue collection strategy, shortage of manpower, poor Accountability and collusion with franster has pared ways for tax evasion and avoidance.
This bug has deprived the state of huge sum of money as the revenue generation is drastically reduced by the activities of the fraudulent Agents and tax evaders. Hence, the concomitant effect is that the amount of revenue available for provision of social Amenities is reduced. This dampens the government ability to provide her citizens with the basic necessities of life.
- Objectives of the study
The main objective of this study is to examine the problems of taxation as a source of revenue generation to Ebonyi state government.
Its specific objectives include the following:
- To determine the extent to which the problem of inadequate data and financial records affects the assessment and collection of tax in the state
- To evaluate how effective the tax management system is in the state towards revenue generation.
- To determine the effect of tax evasion and avoidance practices on revenue generation in the state.
- Research Question
The researcher has designed these questions to act as guide in the course of this work.
- To what extent has the problem of inadequate data and financial records affects the assessment and collection of tax in the state?
- How effective is tax management system in the state towards revenue generation?
- To what extent do evasion and avoidance of tax affect the level of tax revenue generated in the state?
- Research Hypotheses
The researcher has designed the following hypotheses in order answer some questions.
H0: the problem of inadequate data and financial records do not affect the assessment and collection of tax in the state.
H1: the problem of inadequate data and financial records affect the assessment and collection of tax in the state.
H0: the tax administrative is not effective in tax revenue generation in the state.
H1: the tax administrative system is effective in tax revenue generation in the state.
H0: Tax avoidance and evasion do not affect the level of tax revenue generated in the state.
H1: Tax avoidance and evasion affect the level of tax revenue generated in the state.
- Significance of the Study
This research work, when completed will enable who comes across it to have an in-depth knowledge of the meaning and Historical background of taxation; classification of taxation; objections and principles of taxation. The research work will equally help somebody or a reader to know those factors that are responsible and detrimental to the smooth operation of tax system and its consequent effect on revenue collection in Ebonyi state. this research work will be of great benefit of the members of the public who are the major tax payers as the information there in will enlighten them on the importance of tax payment as and at when due and the effect of non- payment on the government and society at large.
The findings of this work will be of great benefit to the government, Ebonyi state board of internal revenue and other decision makers as it will unveil the weak points in the tax system.
Another significant of this study id that will enable anybody/group to have an in-depth knowledge of the factors that are responsible for the citizens avoidance and evasion of tax payment to the government of Ebonyi state.
Finally, the work will be of immeasurable aid to future researchers in the topic or related topics and when all the corrective measures and recommendation and strictly adhered to, will curtail the effects or implication of the problems of taxation and improve the revenue generation to the state.
- Scope and Limitation of the Study
Scope: This study is particarly focused on Ebonyi state board of internal revenue which consists the following: the executive head of state internal revenue service as chairman who is appointed by the governor; the directors and head of department within the internal revenue service; three other persons nominated by the commissioner for finance in the state on their personal merit; a director from the ministry of finance; A legal adviser from the ministry of justice; and the secretary of the state internal revenue service who shall be ex-official number.
The researcher looks at the root causes of tax evasion and avoidance and the way the tax evaders and avoiders are been treated and as well the statistical records of some tax payers in Ebonyi state within the funicdiction of Ebonyi state board of internal revenue.
Limitation: So many limitations were faced by the researcher during the course of carrying out this research work. The most four outstanding limitations are: time factor; financial constraints; limited access to relevant related literature; and staff not co-operating. A research of this nature involves time and money. A lot of time and money are required before the goal of this work is achieved take for instance: Money for typing; running of questionnaire; travelling to places for the project, yet there are competing alternatives requiring money.
However, despite the impediment, the research the impediment, the research went on fine. It is equally necessary to mention the non-challant attitudes of respondents. However, the above limitations did not destroy the focus of this study.
- Definition of Terms
Tax: Tax may be defined as a compulsory levy imposed on the subject or upon his property by the government to provide security, social amenities and other amenities for the well- being of the society.
Taxation: It may be defined as the imposition of an obligatory levy or contribution on an individual or corporate body by a recipient public authority.
Government: This is the whole machinery or system through which the will of state is formulated, expressed and realized. It constitutes the political authority of the state.
Revenue: This is the financial value of goods and services sold to the customers. It is also the money that Government receives from taxes or organization receives from its business.
Tax Base: The object which is taxed for instance income, profit etc.
Tax Rate: This is the rate at which tax is charged.
Tax impact: It is on the person on whom it is first imposed.
Tax cut: it means that Government takes away less of people’s own money in accordance with their choice instead of Government taking it from them to make the choices for them especially where accountability for tax collected and spent left much to be desired.
Tax System: it involves the tripartite aspect of tax namely: tax policy, tax law, and tax administration.
Tax policy: This is a general statement of intention which guide the thinking and action of all concerned towards the realization of the set goal.
Tax law: It involves all the notable tax legislations in Nigeria eg. Personal income tax Act 2011 as Amended
Tax Administration: It involves practical interpretation and application of tax laws.
Tax clearance certificate: It is a certificate issued whenever the Board feels that the tax assessed on profit or income of a taxable person has been fully paid or that no tax is due on such profit or income.
Tax Evasion: This refers to one’s total refusal to meet one’s obligation either by not reporting at all to the appropriate tax authority ,a the income or revenue of the period or misrepresentation of the income or deliberately refusing to comply with the demand of relevant tax authority.
it is a deliberate action by a tax payer to defraud the government by failing to disclose his source of income or to understand his income purposed fully, so as not t pay tax or to pay a lesser Amount than would have bun paid normally. It can also be described as will fully not making a tax return a tax payer on all taxes imposed on his income by the law. It is an all illegal and criminal Act though it achieves the same goal as tax avoidance, but that its methods are different. The method includes reeducation of one’s tax liability through incorrect return by omitting or understanding one’s income or non-declaration of income and incorrect information. It is punishable by laws with punishments like fines, payment of double the amount, which has been under charge.
Tax Avoidance: this is the act of restructuring affairs such that Government will charge him less. It is the act of making use of the loopholes in the tax laws to reduce the amount of tax that should have otherwise have been paid. It is all about arranging one’s tax affairs, making use of the tax allowances and loopholes to reduce one’s tax liability. An example of tax avoidance is case where a tax payer exerciser his right of election in his own favour.