An Assessment of Tax as a Major Source of Federal Government Revenue

CHAPTER ONE

1.0      INTRODUCTION

1.1      BACKGROUND OF THE STUDY

Nigeria as a nation has the vision of becoming one among the world’s 20 largest economies in the year 2020; this obviously is the brain behind the priority attention the present administration is directing at infrastructural development which is essential for economic growth. A developed economy is one with the ingredient to stimulate investment and create wealth, this by implication offers an atmosphere that is business friendly and has the potentials for the actualization of the vision 2020.The desired outcome requires a lot of money to put the economy in a position that stimulates investment, therefore, tax policies need to attract potential investors, and the revenue from tax should be sufficient enough to meet the infrastructural expenditures of the government (Worlu, 2012).
Apere (2003) notes that taxation is a microeconomic and fiscal policy instrument; it involves the transfer of resources from the private to the public sector for the accomplishment of economic and social goals. It is an instrument the government uses to measure, access and control the informal sector that dominate developing economies of the world (Wambai and Hanga, 2013).Taxation is perhaps one of the most important sources of government generated revenue since the level of government expenditure can mainly be funded by depending on the ability of the tax system to meet the need of the society such as defense, health, education, electricity, water, road, construction and other services like agriculture, transportation, communication as wells as assistance to states and local government.

Thus the government of Nigeria and other countries of the world levy one forms of tax or the other to be paid into their treasury periodically by their citizens.

Therefore, this study will focus on tax as a source of revenue modalities for enhancing revenue generation in Nigeria through the Federal Inland Revenue Services.

1.2 STATEMENT OF THE PROBLEMS

It is regrettable to note that over the years, the actual revenue derived from collection of tax has fallen below the estimate due to certain constraints facing tax generation in the Federal Inland Revenue Service.

Recently, revenue derived from taxes has been very low and no physical development actually took place, hence the impact on the poor is not being felt. Inadequate tax personnel, fraudulent activities of tax collectors and lack of understanding of the importance to pay tax by tax payers are some of the problems of this study. The issues mentioned above will therefore constitute the problem to be addressed by this research work.

1.3 OBJECTIVES OF THE STUDY

The objectives of the research are as follows:

To examine taxation as a major source of federal government revenue in Nigeria.

To examine the impact of taxation on the standard of living of its Citizens.

To find out whether taxation contributed to the development of Nigeria economy.
To examine the role of taxation for economic development of Nigeria.
To find out the importance of taxation in the development of an economy through proper use of its tools.
To make possible recommendations based on the findings of this research work.

1.4    RESEARCH QUESTIONS
i)       Does tax serves as the major source of Federal Government revenue?

 ii)      How does taxation impact on the standard of living of citizens?

iii)     Does taxation play any role for economic growth and development in Nigeria?

1.5  RESEARCH HYPOTHESIS

Hypotheses are intelligent guesses or statement of the research objective(s). As such, no research work is complete without a hypothesis. With hypothesis, a research work is considered to show the relationship between two or more variables, which are opposed to one another.

For the purpose of this study the hypothesis formulated by the research are as follows:

H1: Proper accountability for tax revenue would enable government to provide essential services to the citizen.

H0: Proper accountability for tax revenue would not enable the government to provide essential services to the citizens.

The hypothesis is tested using Chi-square.  (with 5% level of significance).

1.5 SIGNIFICANCE OF THE STUDY

One of the most frequently discussed issues in Nigeria is how to solve the economic hardship in the country and how to create an industrial base that can be guarantee self sustaining economic development.  Also one wonders why a country which is richly endowed with the necessary human and material resources and which the people pay tax has been turned a heavily indebted country.

The study will afford us the opportunity to know the roles taxation play in the Nigerian economy such roles includes:

1.    Taxation is a major source of revenue to the government.

2.    Revenue generated from tax enables government performs its functions effectively.

3.    Taxation acts as an instrument of fiscal policy.

1.6 SCOPE OF THE STUDY

This project work is based on income tax as a source of enhancing revenue generation in Nigeria with a particular focus on federal Inland Revenue service, Kaduna as a case study. It will also analyse other related issues such as structure and administrative machinery of tax in Edo State and their associated problems.  The essence of this digression is to possibly find out the obstacles if any, that hinder the effective collection and administration of tax in the Country.

1.7 HISTORICAL BACKGROUND OF FEDERAL BOARD OF INLAND REVENUE

The federal board of Inland Revenue was brought about by the promulgations Decree no. 28 of 1979 section 1 of this decree (ITA 1979) defined a federal government body empowered to administer companies income tax in Nigeria. Prior to 1960 constitution, no specific mention of the scope or limit of the federal government jurisdiction to impose company’s tax was made up to date. One of the acts regulating the taxation practice relating to companies income in Nigeria is the CITA 1979. It became operative with effect from the years of assessment commencing on 1st April, 1979.

When Nigeria was divided into state for the company’s income tax to be efficiently administered, it has areas in all states of the federation known as the federal board or Inland Revenue department. It takes charge of all limited companies within the state and catchment state have not got its own area office because of its economy consideration e.g. Kaduna state Federal board of Inland revenue.

1.8 DEFINATION OF OPERATIONAL TERMS

The research has decided to define the following terms for the purpose of clarification;

Tax: This is defined by David Lewis (1964:5621), “as charges or burden usually peculiar laid upon person or property for public purpose”.

Process: is a number of actions after the other taken to finish something or ways to see something done.

Wealth: One alternative definition of economic is that it is the study of wealth. By wealth the economist means all the real physical assets which make up our standard of living, hospital, oil tankers, fixtures and fitting e.t.c.

Income: the act defines income to include the following ITMA 5.4

Gain or profit of a trade, business profession or vocation Salary, wages, fees, allowance of an employment including gratitude, compensation, business, premium benefit.

Gain or profit from the grant of right use or occupation of property, including premium. Dividend, interest or discount Pension, charge or annuity

Tax evasion: tax evasion is a criminal offence as it involves illegal means of reducing the tax payment by making false returns or by deliberate omission from the returns of some source or source of income since it is a criminal offence, tax evaders are liable to fines, penalties and at times, coupled with imprisonment.

Tax avoidance: This occurs when a tax payer takes a perfectly legal course to keep down amount he has paid in taxes.

Tax base: The base of a tax legal description of the object with reference to which the tax is payable for example the base of an excise duty is production, packaging or processing of a specific good.

The base of an income: Tax is the income of the assess define and estimated in terms of certain rules laid down for this purpose, a gift tax, note that the base of each tax has to be defined legally and it has been quantified for the purpose of determining legally the tax liability of an individual tax payer.

Tax rate: Tax rate is the actual amount of money paid by tax payers. Tax rate may be proportion, progressive and regressive.

Administration: According to Roger Cater (1986: 32) defined it as a system controlled by managers for organizing and controlling labour and other physical input so that they form a well regulated business enterprise, every part of which work harmoniously towards the Achievement of the common objective which have been planned by the management.

Tax Law; This is concerned only with the legal aspect of taxation, not with its financial, economic or other aspects, the Acts 1959 as amended by the petroleum profit tax (amended) act 1973.

Taxation: This is defined by Odiongeyi (1994:1) as a process of levying and collection by a public authority with proper jurisdiction, of compulsory contributions from persons or body of persons to defray costs incurred b y the authority in common interest of all. While Likita (1999:29) defined taxation as a compulsory levy on taxable individuals and corporate institutions within the country.