CHAPTER ONE
1.0 INTRODUCTION
- 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. The quest to governing meaningful financial resources has often led government to designing and administering some efficient and effective revenue generation systems. Primarily the main source of government revenue includes the following:
- Taxation on citizens
- Taxation on income of companies
- Borrowing
- Grants.
Amongst these sources, taxation (the demand made by the government of a country for a compulsory payment of money by the citizens of that country.) remains the most outstanding. This may be due to it being a civic responsibility that must be performed by the citizens of the state. 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 (applicable asset transferred from one person to another), 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.
The administration of tax in Nigeria is in the hands of three relevant tax authorities viz:
- The joint Tax Board
- The federal Board of Inland Revenue
- The various state Board of Internal Revenue
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.
We must emphasize here that income Tax Law must be interpreted in strict- to- sensor. There is no equity in tax law. The tax payer must be brought within the letter of the law and rigid adherence is the rule. Nothing should be read in and nothing should be implied. The onus of bringing a tax payer into the tax net is on the revenue or assessment authority. Another important point to note is that tax is not imposed on person or individual. Section 4 (1) of ITMA 1961 states that “the tax shall subject to the provisions of this act, being payable for each year of assessment upon income accruing in derived form, brought or received in Nigeria. Studies have shown that in Nigeria, workers pay more than the rich people who invest in various proper ties such as building, transporters, etc as a result of ineffective administration of taxes. Yet those investors are the category of people who would want government to move mountains in terms of raising their socio-economic well being, without meaningfully contributing towards the funds.
Now that our various government are gearing efforts to revamping over bettered economy and improving the living condition of Nigerians, the need for the evolvement of more effective strategies to ensuring regular tax payment by taxable individuals need not be overemphasized. Taxable adults and organizations in various sectors of the economy must discharge their civic responsibilities. Unfortunately, this can only be achieved if tax systems are effectively administered so that people would in government revenue generation, willingly and without grudges pay their taxes. This will result to improvement in government revenue generation, hence the basis for this research study.
- STATEMENT OF THE PROBLEM
In developed societies, taxation is a sure, steady and main source of funds for social and economic development. This is because citizens of these societies are voluntarily committed to it. But in developing countries such as Nigeria, majority of the self employed people dread any mention of income tax. They see tax collection as nuisance in their life. Some take to their heels once a tax collector is sighted. In some case, they engage in physical combat with tax collectors. 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, 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.