Tax is a compulsory payment levied by the government on individuals and corporate organizations in a country. The payment of tax does not attract any compensatory benefit for the taxpayer. This means that no one can boast of receiving some special services from the government because he or she pays a greater amount of tax.
Tax Administration in Nigeria: Problems & Solutions
Taxes are primarily used as a tool to raise funds for the government. Other purposes of tax aside revenue generation include:
Redistribution of the nation’s wealth and economic regulation: The wealth of a nation can be redistributed by means of tax rates. For example, the rate of personal income tax depends on how much the taxpayer earns.
To control inflation and regulate consumption
Encourage savings
There are certain rules that govern how taxes are administered by a tax authority in Nigeria. Tax authorities in Nigeria are:
The Federal Board of Inland Revenue (FBIR) which taxes the income of corporate bodies, individuals, members of the Army, Air force, Navy and other external affairs officers for the federal government
State Board of Internal Revenue (SBIR) which administers taxes to partnerships and individuals who are resident in any state.
Local Government Revenue Committee (LGRC) administers levies, rates, and fees to businesses and individuals who are resident within a local government area.
Tax administration in Nigeria has its problems which has gone on for years. This article is on the problems of tax administration and solutions to these problems.
Lack of qualified tax personnel
Personals of tax authorities lack the right communication skills with tax payers. There have been complaints of tax consultants who go about harassing taxpayers or even negotiate tax liabilities.
Nonconfidence in the government
In fact, in many cases tax payers have an apathy for tax personals. This is because many Nigerians do not see what their taxes are being used for due to lack of development in the country. When the people do not trust a government with their dues, they seek for ways to avoid paying taxes, which in turn negatively affects the total income tax revenue generated by the government.
Tax evasion and avoidance
Tax avoidance has to do with actions and activities of tax payers to ensure that they pay little or no tax to the government, all within the frames of the law. In the case of tax avoidance, a taxpayer simply plays smart with his financial affairs so that his tax liability is reduced to almost nothing without infringing on any tax law. All a taxpayer needs to do is take advantage of the loopholes in tax laws so s(he) can pay less amount of tax. In fact, tax avoidance is not illegal because the government also takes advantage of every opportunity open to generate more revenue for itself, therefore the tax payer is also entitled to trying all within its means to prevent this.
Tax evasion on the other hand is the illegal act of a tax payer to reduce his or her tax liability or refusing to pay it at all by infringing on tax laws. Ways in which taxpayers evade tax include:
- Intentional omission of sources of income from returns
- Intentional understatement of incomes
- Deliberate overstatement of expenses
Tax evasion is a crime because it entails deceitful means of avoiding taxes. However, tax evasion and tax avoidance have the same negative effect on revenue generation of the government. With both, there is a reduction in the amount of tax revenue generated by the government and has caused a loss of considerable amount of money for the government.
Multiple Taxation
Multiplicity of taxes is an action of the government whereby the income, profit or wealth of an individual or corporate body is taxed multiple times. The government has a crazy drive to generate more revenue to meet its needs, this makes the government impose different taxes and levies on individuals, partnerships and companies. Multiple taxation occurs because the governments are looking for other means to internally generate revenue. Multiple taxation comes in different ways:
For example, when a tax payer’s income is first taxed in form of Pay As You Earn. After that, this same income is subject to VAT if the tax payer purchases VATable goods (imported into Nigeria) and then other forms of taxes and levies.
The Joint Tax Board which is an organ of tax authorities has emphasized that while multiple taxation might generate revenue for the government in the present time, multiple taxation on businesses have negative consequences in the long run. The act of multiple taxation makes the business environment in Nigeria unconducive and unwelcoming for investors because it increases the cost of doing business, which in turn negatively affects the economy. The problem of multiple taxation can be solved by checking the actions of governments (local, state and federal government) and their use of illegal and unqualified revenue agents who promote multiple taxation.
The reasons the government engages in multiple taxation include:
- Drive for revenue generation: When there is a reduction in revenue allocation for the states and local governments from the federation account. This makes the government seek for ways to generate revenue through multiple taxation.
- Corruption: Whereby greedy tax officials seek for ways to enrich themselves.
Tax reforms refer to the processes and procedures involved in making structural and administrative changes in the tax system so as to achieve a better tax system that will maximise the government’s revenue.
Setbacks to Tax reforms in Nigeria
Data management
One of the problems of tax administrations is the unavailability of accurate tax data which then makes tax reforms difficult or impossible.
Tax structure
The structure of tax system used in Nigeria is in accordance with the British method. The tax system is not specifically formulated for the Nigerian economy which has its own peculiarities such as inflation, unemployment, etc; hence it cannot be effective in Nigeria. There needs to be a restructuring of tax laws that are specific to the Nigerian environment.
Political factors
The political environment is unstable and oftentimes, tax policies of a particular administration are not properly executed before another government comes to power. Different governments come with their differing tax policies. The law needs to protect government policies in such a way that ensures their execution.