THE ASSESSMENT OF TAX ADMINISTRATION IN LAGOS STATE

CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND TO THE STUDY

The three tiers of government in Nigeria as a federation are Federal, State and Local Government. These tiers of government have their different taxing powers and expenditure responsibilities (fiscal federalism). This has serious implications on how the tax system is managed in the country. The Nigerian tax system is dominated by the oil revenue and lopsided. It is also characterized by unnecessarily complex, distortion and largely inequitable taxation laws that have limited applications in the informal sector that dominates the economy (Jibrin, et al 2012). The Nigerian system of government is concentrated on petroleum and trade taxes while direct and broad-based direct taxes like the value added tax (VAT) are neglected. This is a structural problem for the country’s tax system. The Nigerian tax system favours the federal tier of government since it controls the buoyant tax components while the lower tiers have jurisdiction over the less profitable ones. In most cases the federal government taxes the corporate bodies while the state and local governments generate their tax from individuals. In the areas of concurrent taxation such as the personal income tax, capital gains tax and stamp duties, the federal government retains the legislative power while sharing administrative capacity with the states. The Nigerian tax system is sick and faced with many challenges. The country is yet to develop an effective and efficient tax system despite the fact that the enforcement machinery of our tax laws is porous that anybody can go against it without being punished and this does not augur well for our economy (Ogbonna 2010). Those who are charged with administration of tax are not empowered with state of the art equipment to perform. They are not often than not so ill-equipped, so ill-trained and so neglected that they become disillusioned, discouraged, frustrated and therefore hardly give their best services. Therefore, from indications, tax administration in Nigeria is generally poor and inefficient. The administration of tax in Nigeria is vested in the various tax authorities depending on the type of tax under consideration. Such authorities are the Joint Tax Board, which is the apex unifying body for all tax authorities in Nigeria. It is established under section 85 of the Personal Income Tax Act, (Amendment) 2011, Federal Inland Revenue Service (FIRS) established by Section 1(1) of Companies Income Tax Act (CITA) 1990. It is charged with the powers of assessment, collection of and accounting for all the taxes which the federal government is empowered to collect. The State Board of Internal Revenue in each state is another tax authority vested with the administration of tax in each state. The Local Government authorities in the state also have specific tax functions. It is the responsibility of these bodies to ensure that tax administration is strengthened in such a way that no leakage or loopholes of collectible tax is allowed. Contrary to this expectation, there are some administrative problems giving rise to such loopholes and leakages. Tax administration is all about the machinery put in place to determine, monitor and enforce the collection of taxes by government of a country. Tax administration is the process of assessing and collecting taxes from individuals and companies by the relevant tax authorities, in such a way that correct amount assessed is collected efficiently and effectively with minimum tax avoidance or tax evasion. Ogbonna (2012) noted that tax administration “involves all the principles and strategies adopted by any government in order to plan, implore, collect, account and coordinate personnel charged with the responsibility of taxation”. It also includes the effective use of tax revenue for efficient provision of necessary social amenities and other facilities for the taxpayers. Tax administration and collection is a major problem facing taxation in the world (Jibrin, et al 2014). According to them, bad administration and collection of tax has led to tax evasion. According to Udabah (2012), the problem of collection and administration are the major issues facing taxation. Tax administration is problematic because of high rate of illiteracy, poor tax awareness and inadequate orientation.

1.2 STATEMENT OF THE PROBLEM

In most countries, tax system is seen as an embodiment of contention and controversy whether in its policy formulation, legislation or administration (Bariyama & Gladson 2009). There is huge scale of corrupt practices prevalent in Nigeria. Under the administration of tax in Nigeria, Ayua (2010) pointed out that the major problem lies in the procedures, machinery and approaches adopted in collection, assessment and corrupt practices of tax officials in implementing the tax system. Ayua (2010) opines that the tax system is grossly inadequate as it is characterized with tax evasion, avoidance and record falsifications which account for the consistent low tax yields. The problems associated with an enquiry into the tax administration in Nigeria are pretty numerous but little or no studies have been done to comprehensively examine the system in a manner that attempts to relate the tax administration to tax laws and policies in Nigeria. This dearth of economic literature on comprehensive analysis of tax administration, policies and law in our economy apparently leaves a gap between what the people perceive to be reliable tax revenue administration and what it is in reality. With this as the background together with the fact that tax administration is one of the most important but least studied aspects of fiscal reform in developing economies, there appears considerable scope for the study. This study therefore, seeks to study how tax administration in Lagos state could affect the overall effectiveness of Lagos State revenue generation in relation to assessment, collection and remittance of tax.

1.3 AIMS OF THE STUDY            

The major purpose of this study is to examine the assessment of tax administration in Lagos state. Other general objectives of the study are:

1. To examine the nature of tax administration in Nigeria.

2. To examine the challenges that is facing the tax administration in Nigeria.

3. To examine the effectiveness of the assessment, collection and remittance of tax system in Lagos State.

4. To examine future prospect of Lagos State tax administration, in the light of better administration for revenue generation.

5. To examine factors that will hinder effective tax administration in Lagos state.

6. To proffer suitable solutions to the problems facing the tax administration system in Lagos State.

1.4 RESEARCH QUESTIONS              

1. How is the nature of tax administration in Nigeria?

2. What are the challenges that are facing the tax administration in Nigeria?

3. How is the effectiveness of the assessment, collection and remittance of tax system in Lagos State?

4. What are future prospect of Lagos State tax administration, in the light of better administration for revenue generation?

5. What are the factors that will hinder effective tax administration in Lagos state?

6. What are the possible suitable solutions to the problems facing the tax administration system in Lagos State?

1.5 RESEARCH HYPOTHESIS

H0: There is no effectiveness of the assessment, collection and remittance of tax system in Lagos State

H1: There is effectiveness of the assessment, collection and remittance of tax system in Lagos State.

1.6 SIGNIFICANCE OF THE STUDY

The need for this study bears from the currents troubling tax administration in Lagos State in particular and in Nigeria, in general. Therefore, this study seeks to find solution to the problems identifiable through historical and empirical approaches. The discoveries and suggested solutions by this research work will be useful to the government and the taxpayers. Specifically, the Board of Internal Revenue and Inland Revenue found this project useful. It serves as light unto their path to see structural problems associated with tax administration and would, however, make it instructive for them to make amend. It is, however, pertinent to state that the Lagos State Board of Internal Revenue is the researcher’s main point. The members of the public already polluted with psychological depression regarding tax matters would, no doubt, found this study very important because it addressed this disorder. When they were aware of the importance of proper tax system and tax payment and the demerits of avoiding and evading tax – which, undoubtedly, are quite untoward to good tax administration. Finally, it would serve as a reference material for future research. It would identify the critical challenges such as corruption and fraud that are confronting the tax system so that appropriate measure could be taken to tackle the menace. It would serve as a powerful fiscal weapon to plan and direct the economy by shaping the economy growth and development of a state. It would serve as national debt and to provide retirement benefits.

1.7    SCOPE OF THE STUDY 

The study is based on the assessment of tax administration in Lagos state.

1.8 LIMITATION OF STUDY

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).

Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.9 DEFINITION OF TERMS

Tax: is a percentage of persons’ income or of the price of goods takes by the government to help pay the benefit received.

Direct Tax: Tax levied directly on the income of individual and business entities. They can be proportion regressive or progressive.

Indirect Tax: these are taxes charge with price of goods bought at a particular time. These are taxes that are levied in goods and services.

Tax Policy: Is a particular course adopted in this case line of action adopted by the government in respect of taxation. (James S and Nobles.C.1978)

Assessment Year: Means the year in which the profit of a business are assessed to tax (Okoruen U.U.1992).

Total Income Tax: The aggregate assessable income for the relevant year after additional and allowance deduction has been made.

Proportional Tax: all tax payers pay the same percentage of their income and relative difference between the differences incomes remain approximately the same.