1.1 Introduction
The tax system in Nigeria is made up of the tax policy, the tax laws and the tax administration. All of these are expected to work together in order to achieve the economic goal of the nation. According to the Presidential Committee on National tax policy (2008), the central objective of the Nigerian tax system is to contribute to the well being of all Nigerians directly through improved policy formulation and indirectly though appropriate utilization of tax revenue generated for the benefit of the people. In generating revenue to achieve this goal, the tax system is expected to minimize distortion in the economy. In an attempt to fulfill the above expectation, the national tax policy is expected to be in compliance with the principle of taxation, the lubricant to effective tax system. The Nigerian tax system has been flawed by what is termed multiplicity of tax and collecting entities at the three tiers of government levels – Federal, State and Local government (Ahunwan, 2009).
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 the Study
The prime objective of every government is to maintain law and order, to provide and maintain basic essential services without which the community will be unimaginable and which by their nature cannot be left appropriately in the hands of private entrepreneurs. Such services include Internal Law and Order, Maintenance of National defense, provision of good healthcare system, educational system, transportation system, agricultural system etc. To cover the cost of providing these goods and services for the public good, government must generate financial and adequate revenues. Amongst these sources, taxation remains the most outstanding. As a non-penal by compulsory transfer of resources from the private sector, taxation must be levied on the basis of equity, certainty, convenience, economy and productivity. Unfortunately, taxes are not paid in exchange for specific things but are collected for the sake of public welfare and interest.
Government often uses various kinds of taxations to generate the required revenues. For instance, direct taxes which include personal income tax, often applied on employees, sole traders, partnership, capital gain tax on companies, individual and non- co-operate entities, capital transfer tax, purchase tax, petroleum profit tax, and company income tax has constituted a significant source of revenue to the government. Similarly, indirect tax, e.g. stamp duties, custom duties, industrial training fund, toll paid on federal highways, will have often enhanced government revenues.
According to the report of the presidential committee on National Tax policy (2008), Tax policy formulation in Nigeria is the responsibility of the Federal inland Revenue Services (FIRS), Customs, Nigerian National Petroleum Corporation (NNPC), National Population Commission (NPC), and other agencies but under the guidance of the National Assembly i.e. The law making body in Nigeria (Presidential committee on National tax policy, 2008). Suffice it to say that if there must be any effective implementation of the Nigerian tax system or attainment of its goal, the use of the national tax policy document remain absolutely essential.
According to the Presidential Committee on tax policy (2008), “Nigeria needs a tax policy which does not only describe the set of guiding rules and principles, but also provide a stable point of reference for all the stakeholders in the country and upon which they can be held accountable. James and Nobes (2008) decried the inability of tax policy to meet up with efficiency and equity criteria against which it is being judged. It was further noted that tax policy is continually subjected to pressure and changes which most time does not guarantee outcome that are in line with the overall goal (James and Nobes 2008).
In Nigeria, persons liable to pay income tax include men, women, married or single, trustees and executors, families, villages and indigenous communities. Though government can also raise funds through natural resources such as oil, palm oil, coal and gas which are exported, those alternative sources of income to government are hardly enough to shoulder the burden of government expenditures, especially in the area of economic and social spheres in each year, hence the need for tax payment.
Therefore, in Case Study where the research was carried out, the activities that was conducted is to know the Analysis of Longitudinal Tax Reforms and Revenue Generation in Nigeria.
1.3 Statement of the Problem
Investigation revealed that those who summon courage to pay underpay their tax liabilities by resulting to false declaration of their income, yet absence of well audited financial statements to enhance proper assessment often compound the situation. Most traders, salaried persons are companies are guilty of this evil act. They device the means of evading appropriate payments by swearing false affidavits in a bid to collecting much tax-free income. This trend of event has often resulted to loss of tax revenues, which would have aided government in financing its expenditure. For instance, studies have shown that in 1986, and then Imo state realized 73% of its total revenue projection from taxation for that year. In that same trend, the 1987 account of the state revealed a short fall of tax revenue of about 19.42% from three year's projected tax income to government.
In the light of these monumental failures on the part of government to meet its responsibility of providing adequate economic and social infrastructures to make life worthy of living, the researcher has beamed his search light on the management aspect of taxation in Anambra state, using Orumba south L.G.A as the case study. By determining the effect of tax management on revenue generation, the researcher hopes to contribute meaningful in assisting government improve the generation of its tax revenue. Several studies have been conducted on taxation and tax management, but none of these studies has been based on Orumba south L.G.A of Anambra state. The researcher's ability to do this constitutes the point of departure from others.
1.4 Aim and Objectives of the Study
The aim of the study is to analyze the Longitudinal Tax Reforms and Revenue Generation in Nigeria using Orumba South L.G.A of Anambra State as a case study. In achieving this aim, the following objectives were set out as follows to:
- Determine whether tax administration in the state is effective enough to enhance the generation of adequate tax revenue;
- Expose the lapses inherent in the management of tax systems in the state so that, corrective step can be taken by those concerned with tax administration;
- Determine whether the lapses in the management of tax systems are responsible for power tax revenue generation; and
- Recommend appropriate ways of tax management that will enable the governed appreciate tax payment as necessary burden which all taxable adults should voluntarily bear.
1.5 Research Questions
In accomplishing the objective of this research study answers would be provided to the following research questions:
- Can effective and efficient tax management result to increased generation of tax revenue?
- Is government's inadequacy in the provision of social amenities attributable to default in tax payment?
- Are these well- developed statutory systems by which taxation is regulated in Nigeria?
- Are the existing tax laws in Nigeria effective enough to enhance the generation of adequate tax revenue?
- Do the tax laws provide enough authority for prosecuting tax defaulters?
- Do Nigerians see tax payment as a civic duty?
- Why do Nigerians avoid tax payment?
- What constitute tax reforms in Nigeria?
- What is the effectiveness of tax reform towards revenue generation in Nigeria?
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: Tax revenue generation in Nigeria is low
- H1: Tax revenue generation in Nigeria is high
Hypothesis Two
- H0: Challenges to tax revenue generation in Nigeria is high
- H1: Challenges to tax revenue generation in Nigeria is low
Hypothesis Three
- H0: The impact of tax reform on revenue generation is low
- H1: The impact of tax reform on revenue generation is high
1.7 Significance of the Study
In this research study, the researcher would through the review of related literature, establish a theoretical frame work of what effective tax management is all about. Such frame work if judiciously followed, will enhance generation of adequate tax revenue which has often eluded government. The significance of the study therefore is that;
- Those charged with the responsibility of generating tax revenue will have the opportunity to appraise the system of tax administration in use by them vis-Ã -vis the established framework. They could compare their system with that provided in the study so that necessary adjustment can be made to restraining the effectiveness of this system. The report will also provide various measures to be adopted in combating task evasion and avoidance in Anambra state so that tax revenue to government can be enhanced.
- The study will be useful to students of financial studies e.g. Accountancy, Banking and Finance, Economics, Business education and member of the Nigerian taxation (N. I. T) apart from constituting a source of secondary data for scholars wishing to carry on research studies in tax management, the report will also form the basis upon which further studies on our topic of study can be advanced.
1.8 Scope of the Study
The scope of this research is focused on the Analysis of Longitudinal Tax Reforms and Revenue Generation in Nigeria using Orumba South L.G.A of Anambra State as the area of study.
1.9 Limitation of the Study
During the course of this study, many things militated against its completion, some of which are:
- Time: Due to unavailability of time, as we had to combine both research and lectures, the study was limited. Also lack of resources was a limitation to the study.
- Distance: Finance is one of the major problems encountered during the research of this study. This was in terms of transport fair and typing the questionnaire.
- Extraction of useful information: This was another problem encountered the respondents were busy with their worker and pay less attention to the questionnaire for their opinion.
- Finance: Finance is one of the major problems encountered during the research of this study. This was terms of transport fair and typing the questionnaire.
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.
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