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PERSONAL
INCOME TAX IN DEVELOPMENT OF NIGERIA ECONOMY
ABSTRACT
This
research presents the results of the impact of personal income tax. The
population for the study consists of 100 people which were randomly selected,
Data were gathered using a self -constructed questionnaire and the result
gotten was analyzed using the simple percentage method. The validity and reliability of instrument
were ascertained. The result of the study revealed that people hardly pay their
income tax and also personal income tax affects the economic development in
Nigeria. Results showed that there is a positive relationship between the
contribution of taxes and economic development and that tax revenue has a great
impact on the GDP of Nigeria. However it is recommended that Notice of tax
returns at the beginning of very financial year should be supported with
handbills and poster written in local languages such as Yoruba, Hausa, Igbo and
others to also enable illiterates remained to civil responsibilities
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Tax is
defined as money that has to be paid to the government by the people according
to their profits on goods and services provided. Chris and Elizabeth (2001)
also defined taxes as a forced proportional contribution from persons and
property levied by the state by virtue of its sovereignty for the support of
government and for all public needs.
Generally,
taxation can be described as a form of levy imposed on all residents living and
non-residents doing business within a tax jurisdiction. It is a civic and
patriotic responsibility of citizens to pay taxes imposed which also come to
the government as income or revenue yielding device to finance the provisions
of socio-economic and infrastructural amenities and also to enhance industrial
efficiency.
The history
of taxation in Nigeria dates back to the pre-colonial period. According to
Lekan and Sunday (2006) before the colonization of the different entities which
were later amalgamated under the name Nigeria, there were different systems of
taxation existing in the form of compulsory services, contribution of goods,
money, labour and so on amongst the various kingdoms, groups and tribes
controlled by the Obas, Emirs, Ezes, Attah of Igala, Tor of Tiv, Ohinoyi of
Ebira and so on in order to sustain the monarchs.
The various
taxes levied by the different ethnic groups by the kings according to Ola
(2004) took several forms such as ‘Zakkat’ levied on Moslems for educational,
charitable and religious purposes, ‘kudin-kasa’, a form of an agricultural tax
levied on utilization of land, ‘shuka-shuka’ levied on the ownership of cattle
based on the member of cattle, ‘Ishakole’- contribution of farm products as a
form of land tax in exchange for the use of land for agricultural purposes
payable to Obas, chiefs and family community heads, community tax payable by
all adults in order to execute projects beneficial to the community; ‘Oko-ane’
payable to Attah Igala for hunting in a particular forest, ‘Osusu Imachi-Nkwu’
payable to Ezes in Igbo land by those who harvest palm fruits and are expected
to contribute proportion of the harvested palm oil. In Tivland in Benue state
certain taxes are paid by couples during marriage ceremonies which are used for
various community development projects.
The present
form of taxation in Nigeria could be traced to the establishment of a British
colony in Lagos on August 6, 1861 and subsequent amalgamation of the Southern
and Northern protectorates of Nigeria in 1914.
During the
colonial era according to Yerokun (1997), the imposition of any type of tax on
citizens (individuals and corporate) took the form of promulgation of laws by
the colonial authority. Examples of such law include Native Law ordinance cap
74 of 1917 applicable to Western Nigeria. The re-enactment of the same law in
1929 according to Ola (2004) which for the first time imposed taxes on women
resulted in the Aba women riot of 1929. Another law was that of non-natives
protectorates tax ordinance of 1931. The ordinance was later repealed and
incorporated into the taxation ordinance No. 4 of 1940 and subsequently
re-enacted as the Income Tax Ordinance (ITO) 1943.
The above
tax laws according to Yerokun (1997) were administered on individuals and
corporate entities by various tax and revenue officers in the different
provinces and regions. In order to promote uniformity in the incidence of
taxation throughout the geographical entity called Nigeria according to Lekan
and Sunday (2006), the colonial government in 1958 set up the Raisman
Commission. The commission at the end of its work recommended the introduction
of uniform basic income tax principles for application in all regions of
Nigeria. This recommendation was accepted by the government which incorporated
the same into the 1960 constitution of the Federal Republic of Nigeria. This
led to the promulgation of the Income Tax Management Act (ITMA) 1961 and
Companies Income Tax Act (CITA) 1961.
The above
legislation (ITMA and CITA) 1961 were later repealed and re-enacted as the
Personal Income Tax Act (PITA) 1993, and the Companies Income Tax Act CAP 60 LFN,
1990 respectively. As a result of the work of the Tax Laws Review Commission,
these laws have been reviewed and updated and are included in the laws of the
Federal Republic of Nigeria 2004. The current law that governs the
administering of Personal Income Tax (PIT) is the Personal Income Tax Act Cap.
P8 LFN 204 which imposes tax on incomes of individuals and corporations.
Tax
according to Nightingale (2000) under any jurisdiction is discriminatory in the
sense that it is assessed on persons or property based on profits/incomes or
gain, the benefit derived by citizens from tax payment is without reference to
the contribution of individual tax payers. In line with this, according to
Ariwodola (2000) it is accurate to say that the primary objective and purpose
of taxation in most nations of the world is essentially to generate revenue for
government expenditure on social welfare such as provision of defense, law and
order, health services and education. Revenue from taxation can also be spent
on capital projects otherwise called consumer expenditure, creating social and
economic infrastructure which will improve the social life of the people.
In Nigeria
today, tax administration has been a challenge Naiyeju, J.K. (2010) highlight
the various Challenges of the Tax collection and Administration in Nigeria
Today as Administrative Challenge, Compliance Challenges, Lack of Equality, Challenge
of Multiple taxes, Poor Taxation Drive by tiers of Government, Challenge of Bad
Governance, Challenge of Corruption and Challenges of Human Capacity Building
and Training.
The aim of
this research project is to look into various constraints faced in the
administration of Personal Income Tax and examine its economic benefits to the
development of Lagos State. Also, proffering solutions as regards strategies to
be adopted by revenue authorities for expanding the Nigerian tax net to improve
tax collection drive.
1.2 STATEMENT OF THE PROBLEM
Personal
Income Tax is a global and wide topic that undisputedly requires investigation
and provision of possible solution to the problems associated with effective
administration of tax. Most of the Tax authorities (especially the States and
Local Government) lack the desired institutional capacity to administer
effectively the taxes under their purview (capacity in terms of staffing,
skills, salary pay, other funding, computer and IT infrastructure etc).
Non-compliance
of employers to register their employees and remit such taxes to relevant tax
authorities. Many evade the tax in the cities and rural areas. SMEs, informal
sectors and even big companies carry out evasive practices.
The bulk of
PIT today are paid by only the employees. Politicians, the rich, professionals
and the privileged, few are not equitably taxed. Multiple taxes is still a
major problem besetting our tax collection and administration.
Poor
Taxation Drive by tiers of Government: The political economy of revenue
allocation discourages a proactive revenue drive, especially by the states and
LGs. They heavily rely on their share of the oil revenue.
Challenge of
Bad Governance: Taxpayer are not encouraged to pay more taxes because there is no
visible evidence of good governance.
Challenge of
Corruption: The tax collection and administration is often prone to corruption.
The corruption risk erodes the tax yield and confidence in the system.
Challenges of Human Capacity Building and Training: At the States and Local
Governments, there is dearth of capable hands to administer the relevant taxes
efficiently.
The
identified problems can be summarized as follows;
1. Poor tax administration
2. Tax evasion
3. Corruption of tax collectors
4. Noncompliance with tax laws by tax payers
1.3 OBJECTIVES OF THE STUDY
The main
objective of this study is to evaluate the impact of Personal Income Tax on
economic development of Lagos State.
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