1.1 Introduction
The tax policy reviews of 1991 and 2003, as well as the yearly amendments given in the annual budget, were geared towards addressing this issue. But not much has been achieved. Perhaps to understand the importance of tax policy reforms, one needs to appreciate the urgency for such reforms. First, there is a compelling need to diversify the revenue portfolio for the country in order to safeguard against the volatility of crude oil prices and to promote fiscal sustainability and economic viability at lower tiers of government. Second, Nigeria operates on a cash budget system, where proposals for expenditure are always anchored to revenue projections.
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
The recent global crisis in the world has brought to the fore the need to note that this overdependence on oil creates unnecessary shocks and thus, the need for diversification of the nation's resource base and long term growth path. The oil is an exhaustible and dwindling resource, while taxation is the only non-exhaustible veritable source of resource and revenue generation to the government both at the tiers of government (Oloyede, 2010:1).
Nigeria is a monolithic economy with strong dependence on the oil sector; this over-dependence makes the economy to be more vulnerable to external manipulation and adversely affects the planning horizons in the country. Taxation has rightly been identified as a major tool in the strengthening of domestic resource mobilization and consequently, the search for ways and means of expanding the tax base and also strengthening tax administration has been intensified. Taxation is considered a veritable source of revenue for financing developmental as well as people oriented programs in virtually all countries, irrespective of whether they are classified as developed or developing economies. That taxation has been one of the most important weapon available to government for marshalling financial resources is undisputable (Atta-Mills, 2002: Teidi, 2003 and Oloyede, 2010).
Nigeria is governed by a federal system; hence its fiscal operations also adhere to the same principle. This has serious implications on how the tax system is managed in the country. In Nigeria, the government's fiscal power is based on three — tiered tax structure divided between the federal, state and local governments, each of which has different taxes jurisdiction. As of 2014, all three levels of government share about 50 different taxes and levies. It is needless to emphasize that the existence of well defined tax laws alone cannot guarantee the success of tax collection effort. There must always exist an efficient and effective tax administration as a sine qua non to successful domestic resource mobilization.
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.
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).
It is increasingly apparent, however, that tax administration must receive far greater attention if the goals of tax reforms and policies are to be achieved in the face of ever growing economy. Much of tax policy is being directed to obtaining increased revenues to enable governments and their agencies or parastatals to carry out their economic planning. Yet it is true in Nigeria that effective administration of some of the existing taxes would provide a considerable and reasonable part of the needed revenue.
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 (ATS) that facilitates tracking of tax positions and issues by individual tax payer, E-Payment System (EPS) which enhances smooth payment procedure and reduces the incidence of tax touts, Enforcement scheme (special purpose tax officers), 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 reforms or 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 Ogun State, Nigeria where the research was carried out, the activities that was conducted is to know the Problems and Prospect of Tax Reform and Administration in Nigeria.
1.3 Statement of Problem
Aside from being a major source of revenue to most nations, taxation also plays very significant roles in the promotion of social and economic welfare, provision of public goods, redistribution of income, promotion of economic stability, as well as regulation of economic activities and consumption of goods and services. Because of the aforementioned importance of taxation, developed economies have invested considerably on legislative tax reforms, taxpayer education, and development of new technologies to aid in evolving effective tax systems, and to boost tax collections.The institutional framework, within which the revenue administration operates impact directly on the effectiveness and efficiency of the tax administration. The institutional framework in operation in Nigeria is many and varied. The general trend has been to have separate administrations for internal taxes and custom duties. However this policy and method of operation is common in some other countries.
Another challenging problem in the administration of tax in Nigeria is the location of the assessment and collection functions within the tax administration. Problems also emanate from the frequent changes in the tax laws and policy: Every year the annual budget estimate introduces new measures and procedures, amends or cancels existing ones. These frequent changes can make the law confusing as well as complicate the tax structure. After a few years these changes and amendments become so many that the tax payer finds it difficult to know which laws are applicable.
Another frequent and alarming problem is, Non-Compliance Strategy: Mamud (2008:2), observes that the recurring problem with Personal Income Tax (PIT), is the non-compliance of employers to register their employees so as to remit such taxes to relevant authorities. According to him, government in 2011 amended the 1973 PIT Act to make non-compliance employers liable to penalties up to #5000.00 as well as liable for the payment of all tax arrears. Employers that failed to keep proper records also face a penalty of #10, 000.00. The implication of the above is that these employers may feel reluctant to remit their employees names to the relevant authorities hence they may always bribe their way through. This problem is not limited to PIT but also Pay As You Earn (PAYE), withholding taxes, and taxes paid by ministries and agencies in the three tiers of government.
Multiple Taxes: The study group of 2002 highlighted the multiple taxes in the three
tiers of government as the most serious problem for the country's tax administration system. The group emphasized that companies are subjected to a wide range of taxes, levies and rates at the state and local levels in addition to the federal income tax. According to Odusola (2006: 3), the imposition of multiple taxes in the system imposes restrictions on inter-state commerce and trade, making locally produced goods uncompetitive and in some instances causing business closure. The failure of government to address this issue has affected resources that could have accrued to it as some business organizations have folded up as a result. Some of those who have remained in business usually put up hostile and confrontational attitudes when approached to pay these taxes.
Tax evasion and tax avoidance: Despite the emphasis on the importance of taxation and the efforts made at improving its efficiency, citizens' aversion to taxes have remained a problem that most tax authorities have to grapple with. This is because individuals will always look for a means —legal or otherwise—to reduce or even completely avoid paying taxes. This result in heavy revenue losses to governments and ultimately affects their ability to meet their obligations.
Corruption: Amartya Sen. argued that corruption or corrupt behaviour involves the violation of established rules for personal gain and profit (Sen ,1999). Corruption is efforts to secure wealth or power through illegal means private gain at public expense; or a misuse of public power for private benefit. The widespread of corruption in the tax system in Nigeria and frustrate effective tax administration and reforms in Nigeria. for example, Taxpayers prefer to bribe the tax officials than to pay tax and big companies are also not exempted from this practice. This leads to lack of proper accountability and paucity of funds as the resources available are not enough to cater for the well being of the country and thereby leading to loss of revenue.
1.4 Aim and Objectives of Study
The aim of the study is to scrutinize the Problems and Prospect of Tax Reform and Administration in Nigeria. In achieving this aim, the following specific objectives were laid out as follows:
- To find out whether lack of staff training affect of poor revenue collection in the state.
- To identify if poor tax collection is because of pronounced poverty among the taxpaying public of Ogun State.
- To ascertain the rate of non-compliance of individuals, companies with tax laws and policy.
- To eliminate the constraint affecting effective tax reform and administration in Nigeria.
- To identify the effect of poor tax administration on the Nigeria revenue generation.
- To identify new techniques to uncover corruption, tax avoidance and evasions by taxpaying public of Ogun 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:
- Does lack of staff training affect of poor revenue collection in the state?
- Does pronounced poverty among the taxpaying public affects effective tax administration and reform in Ogun State?
- What is the rate of non-compliance of individuals, companies with tax laws and policy?
- Are there any constraint affecting effective tax reform and administration in Nigeria?
- What are the effect of poor tax administration on the Nigeria revenue generation?
- What are the new techniques to uncover corruption, tax avoidance and evasions by taxpaying public of Ogun State?
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.
H0: There is no significance impact of Tax Reform and Administration in Ogun State, Nigeria
H1: There is a significance impact of Tax Reform and Administration in Ogun State, Nigeria
1.7 Significance of Study
Taxes pay teachers. Taxes train nurses. Taxes maintain roads, deliver medicine, and provide clean water. This is as true in the developing world as it is in the developed world. Tax is the most important, sustainable and predictable source of public finance for almost all countries.
Succinctly, there cannot be a better time to work on the critical problems of tax administration in the 21st century than now especially with the growing tax consciousness among the various tiers of governments in Nigeria, especially in Ogun State. If countries are to eradicate poverty and hunger, then they will need to do so by increasing their own public finances; principally through tax revenues.
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.
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 research focuses on the Problems and Prospect of tax reforms and administration in Nigeria using the Ogun State Board of Internal Revenue as a case study.
1.9 Limitations of the Study
During the course of this study, many things militated against its completion, some of which are:
- 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.
- Research material: availability of research material is a major setback to the scope of the study.
- Frequent power failure: This made the researcher append more money on fuel to ensure sustainable power.
- 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: 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.
