1.1 Introduction
Tax collection is a pivotal function of any government, crucial for funding public services and infrastructure. The effectiveness of tax collection systems directly impacts a nation's fiscal health and its ability to meet societal needs. This evaluation seeks to delve into the challenges and opportunities inherent in contemporary tax collection practices, aiming to provide insights into enhancing revenue generation while ensuring fairness and compliance. According to a study by Smith et al. (2020), the complexities of modern economies have significantly strained traditional tax frameworks, leading to disparities in collection rates across different sectors and demographics. These disparities not only hinder revenue growth but also raise questions about the equity and efficiency of taxation policies.
This chapter will address the background information that motivated this study, the challenges that prompted it, its aim, and its objectives as a preface to subsequent sections of the study. Additional factors include the study's significance, scope, limitations, research questions and hypotheses, and the definition of technical terms.
1.2 Background of Study
In recent years, the landscape of tax collection has been shaped by globalization, technological advancements, and evolving taxpayer expectations. Globalization has facilitated cross-border transactions, presenting challenges for tax authorities in capturing revenue from international activities (OECD, 2020). Meanwhile, technological advancements have transformed business operations and financial transactions, necessitating updates to tax policies and enforcement mechanisms to address digital economies (KPMG, 2021).
Tax collection is a cornerstone of government revenue generation, essential for funding public expenditures and promoting economic development (Bird & Zolt, 2019). However, the effectiveness of tax systems varies widely across countries, influenced by factors such as economic structure, administrative capacity, and compliance behavior. Despite efforts to improve tax administration and compliance, challenges persist, including tax evasion, informal economy activities, and disparities in tax burden among different income groups (PwC, 2022).
The evolution of tax systems and policies over time has influenced discussions on the problem and prospect of tax collection. Changes in economic conditions, technological advancements, globalization, and shifts in public policy have all shaped how tax collection is perceived and managed. According to Oloyele (2010), taxation as a major non-oil revenue has been the mainstay of most developed countries, in contrast to developing countries that still depend on primary products. Also, indirect taxes appear to be in vogue in developed countries, due to higher return, lower administration cost and higher compliance rate, however, most developing countries still rely on direct taxes with lower compliance rate (Oloyele, 2010: 3). In some developing countries, Governments impose many types of taxes, individuals pay income taxes when they earn money, consumption taxes when they spend it, property taxes when they own a home or land, and in some cases estate taxes when they die. in the United States, federal, state, and local governments all collect taxes. Taxes on people's income play critical roles in the revenue systems of all developed countries.
The Nigerian tax system has undergone several reforms geared towards enhancing tax collection and administration with minimal enforcement cost. The recent reforms include: the introduction of TIN (Tax Payers Identification Number), which became effective since February, 2008. Automated tax system that facilitates tracking of tax positions and issues by individual tax payer, E-Payment System which enhances smooth payment procedure and reduces the incidence of tax touts, Enforcement scheme, all these have led to an improvement in the tax administration in the country. Without recourse to argument, taxation no doubts, remains a veritable and inexhaustible source of revenue to the government; but Nigeria's dependence on Oil as the major foreign exchange earner makes her economy vulnerable to external manipulations.
An effective and efficient tax administration in the country will go a long miles in helping the governments in devising means to tax successfully the informal and agricultural sectors of the economy which has remained largely untaxed in spite of their inherent potential to provide a reasonable portion of the revenues needed by the governments. However, one common and easily noticeable feature of the country is her low tax effort. While the overall average tax effort level of developing countries is estimated at about 18% of Gross Domestic Product (GDP), the average for industrialized countries is around 24% (Atta-Mills, 2002). Therefore, in Nigeria where the research was carried out, the activities that was conducted is to know the Challenges and Prospects of Tax Administration.
1.3 Statement of Problem
Investigation revealed that there is a persistent issue of tax evasion and non-compliance, which undermines revenue collection efforts and distorts economic fairness (IMF, 2021). Also, many tax administrations face challenges related to inefficiencies in tax administration processes, such as outdated technology systems and inadequate human resources (World Bank, 2020).
Furthermore, complex tax codes often confuse taxpayers and increase compliance costs, leading to lower voluntary compliance and higher administrative burdens (Bird & Zolt, 2019). The globalized and digitalized economy presents new challenges for tax collection, including difficulties in taxing cross-border transactions and digital platforms (OECD, 2020). Moreover, there are concerns about the fairness and equity of tax systems, with discrepancies in tax burdens across different income groups and sectors (PwC, 2022). Hence, it is against this backdrop that this study aims to examine the Problem and Prospect of Tax Collection.
1.4 Aim and Objectives of Study
The aim of the study is to evaluate the problem and prospect of tax collection using Bauchi State Board of Internal Revenue as a case study. In achieving this aim, the following specific objectives were laid out as follows:
- To examine how global economic trends, such as digitalization and cross-border transactions, challenge traditional tax systems and exploring potential solutions;
- To assess how the complexity of tax regulations affects compliance rates and administrative costs, with a focus on simplification strategies;
- To evaluate the administrative processes and systems used in tax collection, identifying inefficiencies and proposing improvements;
- To examine the root causes of tax evasion and non-compliance, including behavioral, economic, and administrative factors; and
- To identify measures that will ensure tax burdens are distributed fairly across different income groups and sectors, promoting economic inclusivity.
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:
- What are the primary factors contributing to tax evasion and non-compliance in different economic contexts?
- How do administrative inefficiencies impact the effectiveness of tax collection systems, and what reforms could improve efficiency?
- What is the relationship between the complexity of tax codes and compliance rates, and how can tax regulations be simplified to enhance compliance?
- What measures can be implemented to ensure that tax burdens are distributed equitably across different income groups and sectors?
- How do globalization and digitalization affect tax collection efforts, particularly in terms of taxing cross-border transactions and digital platforms?
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.
Hypothesis One
- H0: Increased adoption of technology in tax administration will not lead to higher compliance rates and improved revenue collection efficiency
- H1: Increased adoption of technology in tax administration will lead to higher compliance rates and improved revenue collection efficiency
1.7 Significance of Study
This study will continue to be of interest to majorly the governments, civil servants, government establishment, agencies, parastatals, and other public corporation in the public sectors. It will also be of great importance to various management of companies, tax administrators, revenue collector, and tax officials and other users of laws and policy; it will also give them general insight on the challenges affecting effective tax reforms and administration in Nigeria.
Furthermore, research findings can provide actionable insights and policy recommendations to policymakers, and tax administrators, guiding them in designing and implementing effective tax policies and administration reforms. Also, studying tax collection helps ensure fairness and equity in tax burdens, promoting social justice by redistributing wealth and resources more equitably across society.
This research would contribute to the existing literature by focusing on tax administration in Nigeria with a view to identifying the critical problems that are confronting the tax system so that appropriate measures could be taken to tackle them.
1.8 Scope of Study
The scope of this research is focused on the evaluation of the problem and prospect of tax collection using Bauchi State Board of Internal Revenue as a case study.
1.9 Limitations of the Study
During the course of this study, there were some problems encountered which stood as limitations to the research work. Some of the limitations include:
- 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.
- 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: Tax is a compulsory levy payable by individual economic units or corporate bodies to government without any direct quid pro quo from the government.
Tax Administration: According to Dale, implies tax policy making and execution. That is, it involves planning, organization, commanding, coordination and control.
Non-Compliance: Can be defined as the failure on the part of a taxpayer to correctly file returns, report actual income, claim the correct deductions, reliefs and rebates and remit the actual amount of tax payable to the authority on time.
Taxation: It is defined by Ogundele (1999) as the process or machinery by which individuals, groups, or communities are made to contribute in some agreed quantum and method for the purposes of the administration and general development of the society they belong.
