1.0 Introduction
This is the introductory chapter of the chapters. is briefly explains the background of the study, statement of the problem, objectives of the study, research questions, statement of hypothesis, significance of the study, scope of the study, limitations of the study and definition of terms.
1.1 Background of the Study
For development and growth in any society, the provision of basic infrastructure is quite necessary. This perhaps explains why the government shows great concern for a medium through which fund can be made available to achieve their set goals for the society. Government needs money (funds) to be able to execute its social responsibility to the public. Meeting the needs of the society no doubt calls for huge funds which an individual or society cannot contribute alone,hence it becomes the responsibility of government to source for funds to enable her provide these basic amenities to the citizenry who are the beneficiaries. One of the medium through which funds is derived is through taxation.
The advanced learners dictionary defines tax as sum of money to be paid by citizens(according to income, value of purchase etc) to the government for public purposes. Yaru (1999)defined tax as a compulsory contribution whether direct or indirect, levied by a public authority on the inhabitant of a country. There are various classes of tax but all of them are usually classified as direct and indirect taxes. This classification is usually based on the incidence of the particular taxes. Direct taxes are more visible to the tax payers and they include such taxes as income tax, estate duty and property tax levied on the parson (whether individual or no individual).
An effective tax system ought to satisfy the twin purpose of raising maximum revenue and at the same time encourage economic growth and development.An effective tax system, aside from maximizing revenue for development, ought to, if well structured and managed to elicit the feeling of common purpose, joint responsibility of obligation amongst the tax officials in a country. This research is intended to study the hydra-headed problems of tax collection and administration in our tax system and also proffer solutions for improvement.
1.2 Statement of the Problem
Investigation revealed that tax collection no doubt pose lots of challenges in the tax system, the Nigerian situation in general and those Adamawa in particular, seems unique when viewed against the scale of corrupt practices prevalent in country. Under direct taxation as practiced in Nigeria, the major problem lies in the collection of the taxes especially from the self employed such as the businessmen, contractors, doctors, accountant, architects and traders in shop among others in Adamawa state. As observed by Ayua (2001), civil servants and other salaried workers are theonly class of people that actually pay tax in Nigeria. However, even among the salaried workers.
1.3 Aim and Objectives of the Study
The aim of the study is to examine the effectiveness of personal income tax collection in Nigeria. In achieving this aim, the following specific objectives were laid out as follows to:
- Determine the effectiveness of personal income tax collection in Nigeria.
- Identify the possible causes of ineffective tax collection system.
- Identify ways of ensuring an effective tax system in the country.
1.4 Research Question
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:
- Is the collection of personal income tax in Nigeria effective?
- What are the possible causes of ineffective tax system?
- What are the possible ways of ensuring an effective tax system in the country?
1.5 Significance of the Study
This research will be of benefit to students, researchers, government, and the tax officials in Nigeria in the following ways:
This study will help to fill loopholes as regards the literature on personal income tax, hence, aiding the bases for further research in this area. This research will also broader the knowledge of students in the area of personal income tax.
Government on its part can use the study in the formation of policies so as to ensure an effective tax system, tax officials in particular will gain better insight on how efficient they should go on with their assignment so as to bring sanity and gain public trust.
1.6 Scope of the Study
For convenience purpose, the federal government Board of inland Revenue Service, located in owerri imo state is to be used for this study. This is because tax officials is hoped to be assessed together here, and moreover it is the researchers place of residence. This study is premised at studying the effectiveness of personal income tax collection by obtaining responses from revenue official of the State Board of Internal Revenue.
Thus, the study was restricted to also identifying the possible causes of ineffective tax system and the possible ways of ensuring an effective tax system in the state. The research covers a period of ten years (from 2001 to 2011), this is because the researcher can effectively lay hand on materials relating to these periods.
1.7 Limitation of the Study
In the course of the study, the researcher encountered some problems. Some of these envisaged problems are:
Financial Problem:
High cost of research materials or instruments and cost of transportation to the board of internal revenue.
Confidentiality:
Some data may be confidential and cannot be released by the tax officials due to its sensitive nature.
1.8 Definition of Terms
For the purpose of this study the following is defined
Assessment Authority:
This is the body appointed by the board for the purpose of assessing tax payable.
Company:
A company is defined by section 3(1) of the act as “any co-operation(other than a corporation sole) established by or under any law in force in Nigeria elsewhere”. The relevant tax authority in respect of company income tax is the Federal Board of inland revenue.
Efficiency and Effectiveness:
Horngreen (1984) defines efficiency as an optimum relation between input and output whereas effectiveness is the accomplishment of pre-date runnined objective. Tax collected can only be said to be effective when a high proportion is actually collected. Similarly for efficiency and assessment should be less than the revenue accruing from such expenditure.
Federal Inland Revenue Sevice (FIRS):
This is the body set up by section 5.1 of ITA (1979) and charged with the overall administration of companies income tax act.
Income:
There is no statement that defines the word “ income“ in taxation status. However, for the purpose of this study reference is made to section 5.4 (2) (6) of income tax management act (ITMA)1961, which recognizes income as including any amount deemed to be income under the act.
Tax Arrers:
These are assessment of tax during the preceding period whose payment are received at the current assessment period.
Tax Avoidance:
This is the arrangement of the affairs of the tax payer in such a way as to reduce tax payable. Tax avoidance is not a criminal or crime punishable under the law. This was clearly stated in Lord Tumbling declared as follows in his judgement. Every man is entitled to order his affair so that the tax attached under the appropriate tax act is less than is otherwise would be.
According to Longman Dictionary of contemporary English, tax avoidance are Legal way of paying less tax.
Tax Base:
This is simply that object on which tax should be imposed or applies.
Tax Evasion:
Is a fraudulent, dishonest intentional distortions or concealment of fingers by the tax payer in order to reduce the tax payable. It is a criminal and deceitful was of not paying tax or reducing ones tax liability. These offences are punishable under law.
According to Longman Dictionary of contemporary English Tax evasion are the illegal ways of paying less tax.
