THE APPRAISAL OF INCOME TAX COLLECTION AND ADMINISTRATION IN NIGERIA

1.1 Introduction

Tax is a compulsory payment made on different basis and rates by citizens (corporate bodies and individuals) to government, non-negotiably but obligatorily. This payment is not on the basis of direct exchange for the payment for goods and services. It is non-negotiable because none of the citizens have any direct contribution to the composition of the basis and rates of payment. Government only classifies the items on which the tax is to be paid, and the category of citizens that should be subjected to the payment (Ariwodola, 2005). The decision is however, based on the cost of the projects or programmes government intends to execute, which is the principal determinant of the budget-size.

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

Tax is an important factor in economic planning and development of a nation and I is an important agent of social change, (Ola 1985:109). Tax according to Agysi (1983:174) the transfer of resources from private sector to the public sector in order to accomplish some of the nation’s economic and social goals. Furthermore, tax is a compulsory levy imposed on the payer by a legal authority or recipient public authority. Throughout the history of mankind, the right to raise tax has been one of the principal features of political authority.

Tax is an instrument of fiscal policy, which plays a leading role in every organized society irrespective of the political or constitutional structure. Once a society becomes stabilized, civilized or law abiding the function of government becomes enormous resulting in heavy expenditure and necessitating tax payment by its subjects. For a developing country like Nigeria, the primary economic goal is to increase the rate of economic growth and hence the per capital income which will lead to higher standard of living. Three main method of financing economic expenditure in most developing economics include taxes and other current receipts such as the profit of public enterprises, loans and grants. Of these sources, tax is perhaps the most important since the level of government expenditure is to a great extent dependent on the ability of the tax system to place the required revenue at the disposal of government. Hence, Samuelson (1980:92) wrote that “in deciding to tax people, the people are really deciding how resources needed for social wants shall be taken from all various families and from the enterprises they own and made available for the provision of social goals and services”. Again since market system proves inadequate for ensuring stable price and steady growth, tax has to be used to bring about employment, stable price and steady growth. In addition, tax is meant to ensure, at times, a transfer of resources from the hand of the private to public or government for investment, modification of patterns of investment and mitigating economic inequalities.

Allas, these aims are far from being achieved in Nigerian society. The tax system is failing in almost all the above respect. Therefore, there must be crucial problems militating against efficient and effective tax administration in Nigeria. There have been discussions on the problems posed by the dwindling fortune in the oil economy. This problem is acute because of the undue reliance on federal government for the bulk of the operating revenue in the state. All the states of the federation are now required to intensify effort toward the internally generated revenue to make up allocation from the federation account. Unfortunately the problem engendered in the internally generated revenue is more acute in newly created states. Before being carved out, these states were doing fairly well with what they collected within their confines.

In Enugu state, the problem of inefficient tax collection is highly pronounced. Due to lack of fund the state was unable to fulfill its obligations to the citizenry. The present emphasis on rural development has subdued the state with the problems of socio-economic development of the rural communities. Beside political duties, it is expected to provide good roads, health services, primary and secondary education, good environmental sanitation among others, to her people. As a result of the government inability to meet with its obligations the people have resorted to self help projects in most communities.

Observation has shown that the number of self help projects in most communities outnumbers the government projects therein. These failures are attributed to the numerous problems militating against efficient tax collection in the state as shown by this project. Inspite of the broad nature of taxes, the tax payers are usually on the look out for loopholes which they could exploit and less tax to the government. Besides the corrupt tax officials, evidence abound that there is high incidence of tax avoidance (refusing to pay tax entirely) and evasion (act by which the amount of tax payable is dishonestly reduced) in Enugu state.

As a result of the role and importance of tax as an instrument of fiscal policy, the vital sources of government revenue, taxation becomes an important area of study. But because of the failure of taxation to effectively collate resources, secure equitable income distribution and properly regulate the econo-colateral function of a good tax system and above all provide the government with the much needed revenue to meet its various obligations, it is strongly convinced that there must be some crucial problems militating against effective and efficient tax administration in Enugu state and Nigeria as a whole. Hence a study of problems of tax administration and collection with particular reference to Enugu state is hereby being undertaken to x-ray with a view of finding these problems, their degree of impediment, the likely prospect and proffering recommendations of actions that will ensure effective and efficient tax administration and collection mechanism in Enugu state in particular and Nigeria in general.

Therefore, in Nigeria where the research was carried out, the activities that was conducted is to know the Appraisal of Income Tax Collection and Administration in Nigeria.

1.3 Statement of Problems

There has been a heart provoking outcry by various state government in Nigeria over their poor financial base. The situation is becoming even more compounded by the obvious dwindling feature of our oil economy. Moreover, Inspite of the broadness and the comprehensive nature of our tax system, tax avoidance and evasion are on the increase. This ugly development has placed most state government in a situation where they cannot cope with their civic responsibilities to their citizen, hence a compelling need to put an end to this unwholesome circumstances through proper problem identification;

• It has been a problem to understand the extent to which resources, human / material are adequate for the management of Enugu State Board of Internal Revenue (ESBIR).
• The extent to which the objectives of the organizations are being achieved.
• Also, it is a problem to determine the relationship between the ignorance of tax benefits and the unwillingness of tax payers to pay their taxes and so fulfill their civic obligation.
• It is difficult to ascertain the extent to which ESBIR has realized its targets on priority areas of personal income tax administration.

1.4 Aim and Objectives of Study

The aim of the study is to appraise the Income Tax Collection and Administration in Nigeria. In achieving this aim, the following specific objectives were laid out as follows:

• To find out the extent to which the resources of the organization are adequate for its management
• To ascertain the extent to which the objectives of the organization are being achieved.
• To determine the relationship between Ignorance of tax payers and the unwillingness to fulfill their tax obligation
• To determine the relationship between Ignorance of tax benefits and the unwillingness of tax payers to fulfill their tax obligation.
• To evaluate the ethical validity and the basis of personal Income tax assessment and collection in Enugu state.

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 are the resources (human / material) adequate for the management of ESBIR (Enugu state board of internal revenue)?
• To what extent have the objectives of the organization been achieved in recent past?
• What is the relationship between the ignorance of tax benefits and the unwillingness of tax payers to fulfill their tax obligation?
• To what extent has the board realized its targets on priority areas of personal income tax administration?

1.6 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.

• H₀1: There is no significant relationship between adequate public enlightenment campaign on tax policies and tax payer’s benefit or knowledge on tax benefit
• H₀2: There will be no significant difference at 0.05 between the perception of senior and junior staff with regard to assure adequacy
• H₀3: There is no significant relationship between proper staff training scheme and objective assessment and collection of personal Income tax.
• H₀4: There is no significant difference at 0.05 between the perception of junior and senior staff regarding the attainment of target in priority areas of tax revenue administration.

1.7 Significance of Study

This research work is being undertaken to identify the problems hindering personal income tax administration and collection in Enugu state. It is my hope that this study will help to correct the deficiency in the personal income tax generation machinery in Enugu state.

Again, there is practically no detailed study devoted to the problems of personal income tax collection in recent years. Therefore, the study will adequately fill up the gap. Thus, a research work that focuses on this topic is timely and very necessary in providing lasting solution to the incessant and unhealthy problem of waste of revenue through ineffective personal income tax administration and collection in Enugu state.

1.8 Scope of the Study

The topic of this thesis is “The problems of personal Income Tax Administration and collection in Nigeria with particular reference to Enugu State Board of Internal Revenue”.

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. Research material: availability of research material is a major setback to the scope of the study.
3. Frequent power failure: This made the researcher append more money on fuel to ensure sustainable power.
4. 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

• Tax: This is a compulsory levy imposed on taxable individuals by the government and corporate citizens of a country.
• Personal Income Tax: This is tax on income of individuals.
• Direct Taxes: These are taxes in which the incidence falls directly on the tax payer.
• Tax Avoidance: This involves utilizing the lapses in the tax system to ensure a reduced tax liability.
• Tax Evasion: This is a deliberate and unlawful means of reducing the tax liability of a person.
• The Income Tax Management Act (ITMA): This contains the provisions that govern the administration of personal income tax.
• Tax Revenue: Income generated by government from collection of tax levies.
• Income Tax: This is concerned with taxes on income of companies and taxable person
• Tax System: Method of collection and administration of the tax.