EFFECT OF TAX POLICY AND ADMINISTRATION ON REVENUE DEVELOPMENT

1.1 Introduction

Tax administration is the framework upon which Nigeria tax system is based. It deals with the powers and duties of relevant tax authorities as contained in the tax laws. Tax administration involves the procedures, principles and strategies adopted by any government in order to achieve effective tax planning, compulsory levying of tax, easy collection and proper accounting and utilization of the revenue collected (Aguolu, 2004; Appah and Oyadonghan, 2011; Appah, 2014).

As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the Statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitations of the Study and Definition of technical terms.

---

1.2 Background of Study

Taxation is a dynamic subject which grows with the constant changes in the economic environment in which it operates, hence the need to examine the relevance of this subject to the economic advancement of Nigeria. According to Appah (2014), the development of any nation depends on the amount of revenue generated for the provision of infrastructural facilities for the common good of all. One major source of generating this revenue is taxation. Azubike (2009) State that tax is a major source of government revenue all over the world, including Nigeria. Governments use tax proceeds to render their traditional functions such as the provision of public goods, maintenance of law and order, defense against external and internal aggression, regulation trade and business to ensure social and economic justice. Musgrave and Musgrave (2004) also maintain that the economic effects of taxation include micro effects on the distribution of income and efficiency of resource use as well as macro effects on the level of capacity output, employment, prices and growth. Nwezeaku (2005), reports that the government has certain functions to perform for the benefit of its citizens.

In all generation, the problems of personal income tax generation and administration continues to surface in one form or another in virtually every society, especially in this part of the world. It is important to point out that the federal government has taken adequate steps in effective tax administration. This failure on the part of the federal government is responsible for poor financial positions of both the State and local government. Besides, this inadequate planning and absolute laws governing taxation, evaluation and collection is characterized by chaos.

This chaotic nature of the system can be appreciated by political influence or interferences in the process of taxation during the civilian administration in the country which gave rise to untrained and inexperienced personal being entrusted with the work of collection and administration of personal income tax. The important of these issues to tax administration in the developing countries like. Nigeria, can be seen from the following extract from tax administration in under developed countries. The tax administration finds himself working with a staff which is inefficient in experienced, and poorly paid.

Board of Internal Revenue Enugu

The board of internal revenue Enugu was established to administer income tax in Enugu State just as there are likely to States of the federation. Income tax was first introduced in Nigeria in 1904 by late Lord Lugard. The introduction of Native Revenue ordinance of 1927 was most difficult in the Eastern areas of the country, due mainly to absence of recognized central Authority Resistance to this form of direct taxation in such that it result to riots notably in calabar, Owerri and the famous, Aba women Riot of 1929 which was so severe that it attracted a probe. Beside, the Native Revenue ordinance were also Native direct taxation ordinance for the colony and the Native income tax ordinance.

These ordinance were late modified and incorporated into the Direct taxation ordinance No 29 of 1940, cap 54 and the income tax ordinance No 29 of 1943 respectively. The direct taxation ordinance 1940 empowered native authorities to tax Africans in their areas of jurisdiction while the income tax ordinance 1943 was for the taxation of non-Africans in companies. The two ordinances were the foundation of our modern taxation which necessitated establishment of board of internal revenue in each of the States of the federation which Enugu Board of internal Revenue is one of them.

Therefore, in Enugu State, Nigeria where the research was carried out, the activities that was conducted is to know the Effect of Tax Policy and Administration on Revenue Development.

---

1.3 Statement of Problem

It is true that problem of tax collection and administration is universal but the third world countries of which Nigeria is one, seem to be more plagued and inflicted both in weight and magnitude than the developed nations of the world.

The research work primarily involves identifying the problems of the personal income tax generation and administration in Nigeria taking a case study of Board of Internal Revenue, Enugu State. The specific problems of this research are as follows:

1. Improper system of keeping accounts and records in the internal Revenue office, which was seen to be quite mechanical and out dated.
2. Lack of staff and inadequate training of the available tax collectors.
3. No enlightenment on the part of tax payers as regards the importance of taxation is another problem of tax generation and administration in Enugu State.
4. Tax collection and administration in Enugu State is not efficient and efficiently managed.
5. Also corrupt alliance of tax collectors with tax payers to avoid tax for them (tax collectors) to make fast money.

Thus lack of enforcement power on the board makes tax laws useless and not serious to tax offenders /defaulters.

---

1.4 Aim and Objectives of Study

The aim of the study is to investigate the Effect of Tax Policy and Administration on Revenue Development. In achieving this aim, the following specific objectives were laid out as follows:

1. To examine if the use of mechanical and outdated system in recording and keeping accounts affect tax administration on revenue generation in Enugu State.
2. To ascertain whether lack of adequate staff in the SBIR affect tax administration on revenue generation in Enugu State.
3. To examine if enlightening the tax payers on the importance of taxation affect tax administration in the State.
4. To determine if the effectiveness and efficiency of personal income tax collection and administration in the State is properly managed.
5. To ascertain whether they are corrupt alliance of tax collectors with tax payers to avoid tax for them (tax collector) to make fast money.

---

1.5 Research Questions

The study came up with research questions so as to be able to ascertain the above Stated objectives. The specific research questions for the study are Stated below as follows:

• To what extent has the use of mechanical and outdated system of keeping and recording accounts affect tax administration on revenue generation in Enugu State?
• To what extent does lack of sufficient staff and inadequate training of the available tax collectors affected tax administration on revenue generation in Enugu State?
• To what extent has lack of improper enlightening of tax payers has affected tax administration on revenue generation in Enugu State?
• To what extent has tax administration in Enugu State been effective and efficiently manage?

Owing to flexibility of tax laws in Nigeria and attitude of government toward the local government level in the area of administration and collection of personal income tax. It is pertinent to make some assumption that will guide the work for an opinion to be expressed.

---

1.5 Research Hypothesis

In order to pursue the objective of this study, the following generalized Statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.

Hypothesis One

• H0: The use of mechanical and outdated system does not affect tax administration and collection in Enugu State.
• H1: The use of mechanical and outdated system affects tax administration and collection in Enugu State.

Hypothesis Two

• H0: Inadequate staff and training of the available tax collector does not affect tax administration and collection.
• H1: Inadequate staff and training of the available tax collector affects tax administration and collection.

Hypothesis Three

• H0: Enlightening the tax payers on the important of tax payment does not affect tax administration in Enugu State.
• H1: Enlightening the tax payers on the important of tax payments affects tax administration in Enugu State.

Hypothesis Four

• H0: Tax collection and administration in Enugu State is not effective and efficiently managed.
• H1: Tax collection and administration in Enugu State is effective and efficiently managed.

---

1.7 Significance of Study

The researcher is motivated to study the ways through which internally generated revenue in Enugu State could be enhanced. The information contained here will benefit the society at large as it will expose the society to the need to pay tax and consequence of failure to pay tax.

The study will no doubt charge the aggressive attitude of an average Enugu man towards the payment of tax and collectors of taxes who were hitherto regarded as enemies.

Owing to the present steps taking by federal government in re – branding the economy activities, the research work will recommend measure that will be taken by the State Board of internal Revenue, Federal Inland, Revenue Services, budget and Planning department and other government decision – making bodies ways to enhance effective administration of her services and achieve immensely her Stated objectives, especially in the area of tax administration on revenue generation. The study will also unleash problems affecting tax effectiveness, which if appropriate corrective measures taken will go a long way in improving the State internally generated revenue machineries of the government.

---

1.8 Scope of Study

The study focuses on the Effect of Tax Policy and Administration on Revenue Development in Nigeria.

---

1.9 Limitations of the Study

During the course of this study, many things militated against its completion, some of which are:

1. Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
2. Establishment Policies: Establishment policies posed a serious limitation as most staffs are not ready to release information needed for this project work. There were lots of information needed from the staffs of this establishment to enhance the study which took them time to release or they did not release at all for security purposes, hence the scope was reduced.
3. Research material: availability of research material is a major setback to the scope of the study.
4. Frequent power failure: This made the researcher append more money on fuel to ensure sustainable power.
5. Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

---

1.10 Definition of Terms

The words that are frequently used in this research work are short listed here and briefly discussed to enable the reader get equipped with their meaning. Some which are:

Tax: This can be defined as a compulsory transfer of resources and Income from the private sector in order to achieve some of the nation “economic goals Okpe (1998: 109)

Tax Evasion: Here, the tax payer adopts illegal means so as to pay less than he should ordinarily pay.

Tax Avoidance: This is a means where by the tax payer arranges his affairs legally so that he pays less tax than he should otherwise pay.