EFFECTS OF INFORMATION TECHNOLOGY ON THE EFFICIENCY OF TAX ADMINISTRATION IN NIGERIA (A CASE STUDY OF ENUGU STATE BOARD OF INTERNAL REVENUE)

ABSTRACT

This research study examines the Effect of Information Technology on the Efficiency of Tax Administration in Nigeria, a case Study of Enugu State Board of Internal Revenue. Its main objective is to find out whether the application of Information Technology increases efficiency on tax administration. For the purpose of this study, the researcher adopted the method of survey Research Design. Data used in this research were gotten from both primary and secondary sources including questionnaires and textbooks respectively. These data were analyzed and presented in tables. Three (3) hypotheses were formulated and tested using the Analysis of variance(ANOVA) method. The findings of this research tend to show that effective tax administration resulting from the application of Information Technology leads to an increase in tax base as more potential taxpayers are drawn into the tax net when there is a conducive environment. It is recommended in this work that enlightenment campaign be made available for the masses and also adequate training for the tax officials on the use of modern technology.

CHAPTER ONE

INTRODUCTION

1.1 Background Of The Study

Taxation is one of the oldest and major sources of government revenue. The history of taxation in Nigeria dates back to the pre-colonial era. During this period, there were different systems of taxation existing in the forms of compulsory services, contribution of goods, money, labour and the likes, among the various kingdoms and ethnic groups and tribes controlled by the Obas, Emirs etc., in order to sustain the Monarch and also for community development (ICAN,2010)

Taxation, as we know it today, was first introduced in Nigeria in 1904 by the late Lord Lugard, when community tax became operative in the Northern Nigeria. He later made changes which culminated in the Native Revenue Ordinance of 1917. An amending ordinance that extended the provisions of the 1917 ordinance to Southern Nigeria was passed in 1918. The first ordinance applied to Abeokuta in Western Nigeria and to Benin-city in Mid-Western and in 1928, it was extended to Eastern Nigeria.

Taxation in Nigeria, in a modern sense, however, only began in 1940. A more progressive income tax Ordinance No.29 of 1943 Cap92, under which Europeans all over the country and Africans resident in Lagos were assessed, came into operation on the 1st of April, 1943.

The Commissioner, appointed by the Governor-General by notice in the Gazette (now referred to as the Federal Republic of Nigeria Gazette), was responsible for the administration of the ordinance. By the 1st Schedule, Ordinance 39/58, it was the Federal Board of Inland Revenue that took the place of the Commissioner (Ola, 1974)

In recent times, tax administration in Nigeria is vested in various tax authorities depending on the type of tax under consideration. Broadly, there are three (3) tax authorities, namely;

i. Federal Inland Revenue Service Board

ii. State Internal Revenue Service Board

iii. The Local Government Authorities

However, the organs of the Nigerian Tax Administration are listed below;

i. Federal Inland Revenue Service Board

ii. State Internal Revenue Service Board

iii. Joint Tax Board

iv Local Government Revenue Committee

v. Joint State Revenue Committee. (ICAN, 2010)

The enabling laws in respect of each type of tax will normally contain a provision as to the body charged with the administration of the tax. For this purpose, the various enabling tax laws are as follows;

i. Company Income Tax Act, Cap C21, LFN 2004, as amended, which imposes tax on the incomes of companies other than corporation soles and companies engaged in petroleum operations Upstream operations)

ii. Petroleum Profits Tax Act, Cap P13 LFN 2004, which imposes tax on the profits of companies, engaged in petroleum operations.

iii. Education Tax Act, Cap E4 LFN 2004, which imposes Education tax on the assessable profits of companies registered in Nigeria.

According to Alhaji Kabir M. Mashi, a core success factor for any system is its position on administrative issues. Presently, the tax administration in Nigeria, Enugu state to be precise, has been riddled with various limiting factors such as;

I. Weak administrative facilities/ administrative lapses which could result in situations such as tax evasion and tax avoidance.

II. Corruption and mismanagement on the part of the tax officials.

III. The problem of funding the revenue collecting agencies which negatively impacts on efficiency and performance.

IV. Lack of adequate records from the informal sector of the economy.

V. Inability to identify all taxable persons. (Bird, 1988).

VI. Lack of effective mechanism in place to prosecute cases of tax evasion.

The rapid growth and development of Enugu State led to an enhanced increase in population as well as an increasing number of companies. Tax planning and tax management have increasingly become complex activities due to growth in business and the subsequent expansion in scope of operations and fiscal size. Given the amount of data that needs to be analyzed in order to assess and compute tax liabilities, it has become imperative that both tax institutions and companies deploy appropriate computer programmes in order to enhance tax planning and administration.

1.2 Statement Of The Problem

For many years, tax administration in Nigeria has been plagued with problems, most of which can be attributed to the lack of or inadequate application of Information Technology in tax administration.

In Enugu State, the tax institutions have not fully embraced the use of Information Technology for record keeping. According to BECANS Business Environment Report 1(15) (2007), there is evidence of a manually compiled database of tax payers. Manual Compilation involves the use of files/ folders for data storage. When records are stored in this manner over a long period of time, retrieval of such records can prove to be very difficult. Records stored in this manner can be very unreliable as these records are easily prone to manipulations.

Another major problem can be found in the method of tax collection. The tax officials are often aggressive as they use unorthodox methods in tax collection especially at the local government level.

Furthermore, the identification of taxable persons has proven to be a herculean task using the manual systems.

The thorough application of Information Technology in tax administration in Nigeria would be a welcome change in the system as this will greatly enhance the efficiency in tax administration in Enugu state in particular and Nigeria in general.

1.3 Objective Of The Study

This research work is aimed at achieving certain objectives which are stated below:

i. To determine if effective tax administration leads to an increase in tax base;

ii. To ascertain whether inefficiency in tax administration creates room for tax evasion;

iii. To find out whether the application of information technology increases efficiency in tax administration;

iv. To know whether poor remuneration of tax personnel affects the dispensation of taxation.