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.
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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
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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.
iv.
Personal
Income Tax Act, Cap P8 LFN 2004, as amended, which imposes tax on incomes of
individuals and corporation soles.
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v.
Value
Added Tax Act, Cap V1 LFN 2004, as amended, which imposes tax on the supply of
goods and services (except those specifically exempted or zero-rated), made by
incorporated companies and other business organizations.
vi.
Stamp
Duties Act, Cap S8 LFN 2004, which charges duties on specified instruments
listed in the Act.
vii.
Capital
Gains Tax Act, Cap C1 LFN 2004, which imposes tax on capital gains arising from
the disposal of chargeable assets (ICAN, 2006)
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.
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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.
The
advent of Information Technology in this era has played a major role in
enhancing economic and business activities of both the private and public
institutions. While it has opened up opportunities that have gone undiscovered
or neglected, it has saved many organizations millions of perpetual fraud
through its applications. The application of Information Technology has
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become
increasingly necessary in Nigeria‟s tax administration as the use of Information Technology
makes for fast, easy and accurate computation, storage and presentation/
retrieval of data/ records.
Certain computer programmes have been created to
facilitate the computation of cumbersome data. Programmes such as Microsoft
Excel (Electronic Spread Sheet), Microsoft Access (Database) are one of the
most common examples. Other database programmes and accounting packages which
allow for easy calculation and computation of an individual or a company‟s
tax liabilities include Peachtree Accounting, PeopleSoft System, SQL Database,
QuickBooks, Management Information Processing System, Quikens etc.
Presently,
the world has gradually become a global village and the nexus between Nigeria
and the rest of the world is the use of Information Technology in, practically,
every sector of the economy. Therefore, in order to improve on the efficiency
of tax administration in Nigeria, it will be advisable to apply the use of
Information Technology from the basics of tax collection to the final stage in
Tax Administration.
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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.
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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.
1.4
Research
Questions
I.
Does
effective tax administration lead to an increase in tax base?
II.
Does
inefficiency in tax administration create an avenue for tax evasion?
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increase efficiency in tax administration?
IV. Does poor remuneration of tax personnel affect the effective
tax administration?
1.5
Research Hypotheses
Based on the objectives, the
following researches were formulated:
Hypothesis One
H0- Effective tax administration does
not lead to an increase in tax base.
H1- Effective
tax administration lead to an increase in tax base.
Hypothesis Two
H0- Inefficiency in tax administration
does not create and avenue for tax evasion.
H1- Inefficiency in tax administration create and avenue for
tax
evasion.
Hypothesis Three
H0- The application of information
technology does not increase efficiency in tax administration.
H1- The application of information
technology increase efficiency in tax administration.
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it
is hoped that this work will form a major catalyst to stimulate the initiation
of a proper legislative process that will regulate tax administration in
Nigeria, particularly in Enugu State.
Furthermore,
effective implementation of information technology in tax administration will
be of immense benefit to tax authorities. The use of information technology
will invariably reduce work hours, enhance efficiency and reduce opportunities
for corrupt practices in the system.
Finally,
it is believed that the information generated from this research will enhance
the tax payers awareness on tax issues like tax incentives and penalties for
tax related offences such as tax evasion.
1.7 Scope And
Limitation Of The Study
As this
research work is focused on the effect of information technology on the
efficiency of tax administration in Nigeria, with particular reference to Enugu
State, the scope of the study will be limited to the activities of Enugu State
Board of Internal Revenue
In the
course of carrying out this research work, certain limitations were
encountered, they include the following:
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I.
Lack
of access to certain materials needed for the research.
II.
Lacks
of co-operation from institutions as certain tax institutions were not
forthcoming with their record
III.
Certain
libraries did not have contemporary materials for the researcher to work with.
1.8
Operational
Definition of Terms
In order
to avoid confusion
surrounding the words,
the
following technical terms have precisely been defined, as
they relate to the context of the research work.
Tax-
An amount of money levied by a
government on its citizens and used to run the government, country, a state,
a county or a municipality/ local government.
Tax
Evasion- This is
an act whereby the taxpayer can achieve the minimization of tax through
illegal means. It involves outright fraud and deceit.
Tax
Avoidance- This
arises in a situation where a taxpayer arranges his financial affairs in
a form that will make him pay the least possible amount of tax without breaking
the law.
Ordinance- A law or rule made by an authority
such as a city
government.
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derive benefits from,
the country‟s tax
system. This includes
every Nigerian
citizen and resident,
corporate entities,
government at all levels and
government agencies.
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