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PROBLEMS AFFECTING NIGERIA TAX SYSTEM AND TAX REFORM

PROBLEMS AFFECTING NIGERIA TAX SYSTEM AND TAX REFORM

CHAPTER ONE

INTRODUCTION

Background of the Study

Like any other government in the world, the Federal Government of Nigeria and indeed the various state governments have as their primary responsibilities, the protection of lives and property as well as the provision of basic social amenities for the citizenry. To be able to discharge these responsibilities effectively, the government needs adequate funding. Fund is therefore a necessity for any government to perform creditably, all things being equal. There are several sources of revenue at the disposal of government at all levels as provided for in 1999 constitution of the Federal Republic of Nigeria. Despite the numerous sources of revenue in the country, Nigeria still depends greatly on petroleum which contributes significant percentage of her annual revenue. As a matter of fact petroleum, unfortunately, remains the main stay of the Nigerian economy. In effect, it would not be out of place to discribe Nigeria as a mono-product economy because the oil and gas industry alone contributes over 83% of her annual income. There is no doubt therefore, that the nation called Nigeria may not be able to survive without the oil and gas revenue (Ogbonna, 2009). This is to say that Nigeria’s revenue earning potential is determined by unstable oil prices which in turn, are fixed and regulated by the forces of demand and supply in the world market. Recently, there was a serious decline in the price of oil – a trend which almost caused financial earthquake in the country. The dramatic fall in the price of oil led to a reduction in the revenue earning capacity of the country. This period of financial crisis did not rock the federal government alone. The state governments were also affected because the federation account could no longer deliver to them so much fund like they used to get as their portion of the national revenue.This era of dwindling revenue from the federation account witnessed an increase in the cost of running the government. As a means of survival, the various state governments resorted to alternative sources of fund. So falling back to internal revenue sources became an unavoidable alternative. This informed the willingness of government at all levels to device new means of raising fund or get more creative and committed in the way they collect revenue from existing sources.Prior to the early 80s, little or no attention was given to the State Board of Internal Revenue (SBIR) and this resulted to the loss of huge sums of money through tax evasion and avoidance. A survey carried out by Peat, Marwick, Ani, Ogunde and Co., Chartered Accountants revealed that each State Board of Internal Revenue was loosing between N12 million and N30 million annually due to very poor tax administration. During the late 80s and 90s, revenue allocation to states from the federal government was reducing and subsequently became grossly inadequate to cater for their financial needs at that time. Consequent upon this, state governments were compelled to formulate policies and programs aimed at enhancing their revenue generation capacity. To this effect, state governments charged their respective Internal Revenue Service Departments to intensify efforts towards improving internally generated revenue. Some state governments adopted the use of tax consultants to increase their revenue base. This idea of course, did not go down well with Nigerians. It attracted comments and reactions from various interest groups and individuals. Even though it was applauded by some small firms of chartered accountants, big ones declined it along side some company executives. While the revenue officers viewed the activities of these tax consultants as a usurpation of their powers, tax payers pondered on their modus operandi. The introduction of the tax consultants by some military governments in 1996, though meant to increase the revenue base of the governments, increased the number of taxes and levies which each tier of government collected.Over the years, state governments have indulged in the endless imposition of taxes and levies in their quest for higher revenues to effectively implement their policies and programs. For instance, the Rivers State government has just introduced the “Social Services Contributory Levy” which is purported to boost revenue generation and promote the provision of infrastructural facilities for the people of the state. These multiple taxes raised public outcry especially from the business community. The government responded by directing the Joint Tax Board to review and harmonize tax administration in Nigeria. The era of multiple taxation intensified tax evasion and tax avoidance; a situation where tax payers employ legal and/or illegal means of reducing their tax liabilities or not paying taxes at all.However, stopping multiple taxation and the twin menace of tax evasion and avoidance requires a sound policy of tax administration. All those identified above are some of the burning issues in the Nigerian tax system. Hence this study is aimed at examining the effects of these burning issues bedevilling the Nigerian tax system, and the various reforms put in place to address them on revenue generation in Rivers State.State governments in Nigeria are no doubt, confronted with series of challenges ranging from human capital development to infrastructural development. To meet these challenges, adequate funding is necessary but the allocation they get from the federal government is not enough to keep them going. It is in a bid to complement this effort that the state governments resorted to internally generated revenue sources. This again, has its attendant challenges, one of which is the use of tax consultants. The engagement of tax consultants by government to enhance tax collection and boost revenue has elicited reactions from far and near. Some renowned members of the accountancy profession have on several occasions opposed the use of tax consultants. According to Kayode Naiyeju, the former FIRST chairman at the 2011 Revenue Mobilization, Allocation and Fiscal Commission (RMAFC) members’ Retreat held in Akwa Ibom State, the preference for fax consultants in the act of collecting revenue negates the reform process presently going on in the country. He argued that the practice was also detrimental to the effort to modernize the tax administration system at the grassroots. “It is unfortunate that rather than review and update the existing structures for effective tax drive and collection, states and local governments have continued to demonstrate lack of interest in improving their lots towards improved revenue generation by preferring to use tax consultants to administer taxes, rather than to modernize their tax systems for enhanced revenue yield, and less dependence on allocation from the federation account” Naiyeju affirmed.Another burning issue in the Nigerian tax system is that of which tax authority should administer which taxes. The fall out between federal government and Lagos State over whose jurisdiction it was to administer VAT in the state exemplifies this problem. Also plaguing the system is the issue of multiple taxation as government at all levels indulge in the administration of multiple taxes. In fact, due to multiple taxation, many businesses have folded with several others relocating to countries where the tax system is deemed to be more friendly. Corruption is another issue because it affects the tax payers’ perception of the entire system thereby discouraging them from discharging their civic duties. Infrastructural facilities in the country are in a deplorable state. Thus most people wonder what the revenues realized from the taxes so collected are used for. Consequently, the sharp practices of tax evaders and avoiders are triggered off and the effect is a tremendous reduction in the total revenue that accrues from taxation. There ought to be an encompassing tax policy to usher in an efficient tax regime and strive towards making Nigeria have a single tax system. Otherwise the effort of government to foster economic growth and create the enabling environment for businesses to thrive will hit the rocks. Nigerian tax structure is complex and because it is being taken advantage of by the government, it is fast becoming a source of disincentive to profitability and business growth. Most of the tax laws in Nigeria are in dare need of review to take care of some inherent loopholes while others need outright repeal. The relevant tax laws are in urgent need of review or outright repeal. However, taxpayers are very ignorant of the tax laws, their workings and applications because there is little or no tax education thereby making it difficult for them to disclose their true financial position. In the same vein, because there is no communication between the government and the people, they do not see the payment of taxes as a civic responsibility but a hindrance that must be avoided at all costs.Nevertheless, in the reform agenda which is directed towards addressing the burning issues in the Nigerian tax system, the efforts of some state governments must be commended. For instance, the people of Lagos State now have to pay only the land use charge because of the merger of ground rent, neighborhood development charge, ground rent, and tenement rate by the Lagos State government just recently. The tax reform process should not be an entirely federal government affair. The state governments and indeed the local government councils should be involved. They should always be consulted and their inputs considered during the tax policy formulation stage. They should also be fully incorporated during the implementation phase. All state governments should publish the list of approved or authorized taxes and levies within their states and local governments to educate the public. States and local governments should also have a role to play in the area of education and enlightenment of taxpayers on the benefit of compliance as well as the utilization of tax revenue. But the Nigerian tax system has undergone significant transformation in recent times with a review of the tax laws in order to repeal outdated provisions and enact new ones to address some of these burning issues in the system. It is in the light of the afore stated issues that this study was carried out to identify the issues that bedevil the Nigerian tax system, identify the various reforms that are put in place to address them, and to examine their effects and those of the current reforms on revenue generation in Rivers State.

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Updated: September 28, 2018 — 8:30 am

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