TAX SYSTEM AS A PANACEA FOR ECONOMIC DEVELOPMENT IN NIGERIA

CHAPTER ONE

INTRODUCTION

First and foremost, it is important to know what taxation is all about before going into details of this study. Taxation is the means by which government finances its expenditures by imposing charges on citizens and corporate entities . This levies are made on personal income such as salaries, business, profit, interest dividends, commission, royalties, rent etc. it may also be levied on capital gains and petroleum profits. All the above are taxes levied on income.

With effect from I^st April 1976, until I^stJanuary 1996, tax was imposed in Nigeria on capital under the capital transfer tax decree. This was abrogated effective from I^stJanuary 1996. From I^stJanuary 1994, tax is imposed on a wide range of consumption(purchase) by companies, and individuals under the value Added Tax.

According to Osita, this is at a standard rate of 5% on most purchases with few exemptions such as food, petroleum products, educational books and newspapers, medical services and pharmacentical products.

However, taxation was originally designed to provide the necessary revenue to pay for the functions performed by the government. In the modern economy, this is still the major objectives but one among several aims.

The other objectives of taxation include:-

Board of Internal Revenue in Ohafia Local Government Area, Abia State, was established in the 1994. It started its operation in the month of December 13, 1994. It was initially located at the Police Barracks in Ebem Ohafia in Ohafia L.G.A. But due to lack of space, the board moved to their present site in Amaekpu Ohafia. The change of the location did not affect the name of the ministry. It remains Board of Internal Revenue.

The ministry have three departments namely the direct tax, Indirect tax and customer care service. Also the Designation of the Head of Departments are Tax Assessment Authority, Moto licensing Authority and the Management Information System.

Board Internal Revenue in Ohafia L.G.A has 68 employees both in Junior staff cadre and Senior staff cadre.

1.3 STATE OF THE PROBLEMS

Some of the tax laws in Nigeria are highly complicated with serious piece-meal amendments, exemptions, deductible allowances and relief, rebates and concessions in a situation where there are information grabs at all levels and shortage of trained tax inspectors operating in an unconducive working environment.

The income tax management Act 1961 ITMA (1991) as amended and each state income tax law, have undergone series of piece –meal amends that is difficult even for the tax personnel to organize the principal law. Each state income tax law is to read as one with the ITMA 1961, which has about 24 piece-meal amendments acts. Consequently, the personal income tax law in Nigeria lack clarity and it is easily accessible especially as there has been no consolidation. Over the years much administrative effort is wasted in wading through the series of piece-meal amendments. It is ironical that the tax department which provides about 90% of that total recurrent revenue to finance government services and surplus for development project, is the most neglected in terms of the number and quality staff employed and budgetary allocation in Nigeria.

In spite of the increasing graduate unemployment in Nigeria ,vacancies in the tax department remains unfilled for years, as a result of the tax department remains unfilled for years, as a result of the poor condition of service, it is difficult for the Federal inland Revenue department to recruit and retain qualified tax personnel especially in the senior staff cadre.

Promotions are unnecessarily delayed and may not be mad as reward for hard work. The non-payment or avoidance delay in the payment of legitimate claims of field staff, uncondusive working environment, inadequate supply of vehicles to reach the tax payers, among others have a tendency to create disincentives to work efforts.

High tax rates may tempt a tax payer to evade tax at the margin. Government policy to raise tax rates with a view to increase tax revenue could backfire especially as tax defaulters find it more rewarding to remain outside the tax net. Government policy to raise revenue through increased import duties protect the domestic industry and conserve foreign exchange could increase the marginal propensity to smuggle. One of the ways to check smuggling is to liberalize imports but, it is not possible as the foreign exchange to do so in short supply relative to demand.

Moreover, liberalizing imports is capable of running domestic production. To liberalize imports in order to check smuggling can therefore generate conflict of policies and no problem is solved as Nigeria’s experience shown when the ousted president Shagari liberalized imports in 1980, the country’s foreign exchange reserve was depleted to its lowest ebb necessitating the passing of economic stabilization Act in April 1982.

Smuggling is an aggravated form of tax evasion. Government does not only loose revenue through smuggling but the foreign exchange used in the processes is usually obtained from the black market. In a situation where the boarders are porous and some customs and immigration officials are corrupt and dishonest, high import duties, foreign exchange restriction or complete ban on some imports are imposed ,the smuggling section offers tempting rewards. Since the passing of the economic stabilization Act in April 1982, import and foreign exchange control had been stringent.

The Customs Tariff (consolidation) decree No 24 of 1994 further increased import duties, banned more imports and placed almost everything under import license consequently the smuggling sector continues to grow. So also are administrative problems associated with the collection of revenue from import duties and the curbing of smuggling.

Where voluntary compliance is low or lacking to collect tax requires enforcement and imposition of penalty. Hence it is important that the tax authority be organized in such a way that it creates an impression through its action that it can bark and bite of and when necessary, penalty serves as a measure to be imposed for failure to file tax returns or fraudulently keeping wrong records of accounts for the purpose of evading tax. Penalties are also imposed for failure to withhold tax or the hand over and on time the tax deduction at source.

In spite of the provision in the tax law, the use of the tax clearance certificate, the method of tax raid for the recovery of tax changed and appropriate penalty meted out a sizeable proportion of tax arrears remains uncollected in Nigeria. What is important for our purpose here is that acts of financial mismanagement and other sharp practices have demoralizing effects on the willingness of honest tax payers to discharge their civil responsibility of taxpaying.

The moment they begin to feel that their tax money will be misappropriate, their voluntary compliance declines to its lowest ebb. It takes time to restore the lost confidence.

The printing of fake revenue receipt and licenses, loss of tax revenue and forged tax clearance certificate are becoming rampant in Nigeria. Dishonest practices by some tax officials pose a serious threat to tax administration in Nigeria.

At this moment, it does not appear that there is adequate machine for effective monitoring of the remittance of divided withheld, by tax collectors/payers to the relevant tax authorities especially as the exercise numerous shareholders in each of the states.

There is no doubt that Nigeria’s tax laws contain adequate provision for enforcement and imposition of penalties. The problem is mainly the lack of the will to enforce compliance. Tax administration in Nigeria is under-staffed and under-nourished, hence, it is ineffective. Unless this serious problem is solved, it will be difficult to enforce tax payment or to impose penalty so as to check tax evasion.

The objectives of this research are as follows:

iv To find out how problems associated with tax collection can be avoided.

This work will evaluate to the following questions and obtain answers to them.

H₁: Tax system has effect on the Economic Development of Nigeria.

H₁: There are problems hampering the collection of taxes in Nigeria

1.7 DELIMITATION (SCOPE) OF THE STUDY

This study has been restricted is Tax System as a Panacea for Economic Development in Nigeria. Since tax control and administration is the responsibility of the Federal Republic of Nigeria through its agencies like federal Board of Inland Revenue, Central Bank of Nigeria etc a lot will be borrowed from them using Board of Intend Revenue Ohafia L.G.A, Abia State as a study tool. I shall beam my searchlight on the Board of Inland Revenue in Ohafia L.G.A during the field work. I will scoop several tax materials concerning Nigeria in the library to aid my research. Other limiting factors in the course of this work are; time constraints, insufficient finance and problems encountered in collection and gathering of materials.

1.8 ASSUMPTION

In embarking on this project the researcher had at the back of her mind the following basic assumptions:

1.9 SIGNIFICANCE OF THE STUDY

1.10 DEFINITION OF UNFAMILAR TERMS/ CONCEPTS

(1) TAX: It is defined as a compulsory levy imposed by government on individuals or corporate entities. Osita ,(2004) Taxation and Tax management in Nigeria.

(2) TAXATION: This is a means by which government finances its expenditure by imposing changes on citizens and corporate entities. Osita, (2004) Taxation and Tax management in Nigeria.

(3) PERSONAL INCOME TAX (PIT): This is levied on an individual’s income, which he earned during a specified period of time usually on fiscal year. (Jobn, 2004).

(4) SALARIES: A fixed compensation periodically paid to a person for regular work or service. (Osita, 2004) Taxation and Tax management in Nigeria.

(5) PANACEA: This is defined as a solution or remedy for all difficulties. Or something that will make everything about a situation better

(6) ECONOMIC DEVELOPMENT: This can be referred to as the quantitative and qualitative changes in an existing economy. (Osita, A.2004).

(7) TAX SYSTEM: This is a legal system for assessing and controlling taxes (Wall street Journal).

(8) DIVIDENDS: A dividend is a distribution of a portion of a company’s earning decided by the board of directors, to a class of its shareholders (Osita, 2004). (9) CAPITAL GAIN: The amount by which an assets selling price exceeds its initial purchase price. (Osita, 2004).

1. GENERAL DESCRIPTION OF THE AREA OF STUDY
1. Income or wealth redistribution
2. Promotion of economic development
3. Discrimination against certain types of goods and services with both production and consumption
4. Encouragement of exports and discouragement of import
5. To effect changes, in the country’s balance of payments with other countries
6. To affect mobilization of economic resources
7. To influence the level of economic activities and
8. To combat inflation in the economy.(Osita,2004:3)
1. HISTORY OF CASE STUDY /ORGANISATION
1. OBJECTIVES OF THE STUDY
1. To determine the effect of tax system on the Economic Development of Nigeria.
2. To find out the administrative problems associated with tax collection.
3. To ascertain the impact of tax evasion on the revenue generation of the
1. RELEVANT RESEARCH QUESTION
1. What is the effect of tax system on the Economic Development of Nigeria?
2. What problems hamper the collection of taxes in Nigeria?
3. What is the impact of tax evasion on the revenue generation of the government?
4. How could the problems associated with tax collection be avoided?
  1. STATEMENT OF HYPOTHESIS
5. H₀: Tax system has no effect on the Economic Development of Nigeria.
1. H₀: There are no problems hampering the collection of taxes in Nigeria
1. That a good tax system will help in the economic development in Nigeria.
2. That poor tax administration reduces the collection of taxes in Nigeria
3. That imposing high tax rate makes tax evasion profitable.
- This study will be of great help to the researcher because it will be a source of information the researcher, also it has helped the researcher to acquire more knowledge
- This study will also be of great importance to the government because of will make them to improve on their tax system.
- This study will be of great importance to the educational institution because from the provision of infrastructure such as provision of educational facilities that will make life meaningful to us.
- This study will also be of great significance to the students because it will be a source of information to the student’s community in business organization and various individuals who wish to have a fore knowledge of tax system.
- The researcher believed that this study will be of great help to both present and potential tax consultants as the study will equip them with the essential remedies to tax system in the economic development. Through this study the government will be able to raise revenue to finance public spending as to provide adequate infrastructure, that influence economic activities of the nation.

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