Constituent Retrieval Using ELM

116 CHAPTER FOUR

THE CHALLENGES, ISSUES AND PROSPECTS OF TAX COLLECTION IN NIGERIA

The collection of taxes begins with the process of legislation. The various tax authorities are reposed with the power of enforcing tax payment. The Nigerian tax system is not in good shape by any measure;³⁴⁶ policy, law, administration, revenue-yield, equity, impact on the economy, consistency with federalism, dynamism and so on. Undoubtedly, the system is unduly loaded with too many taxes, most of which are overlapping. Additionally, corruption, arbitrariness, high-handedness, extortion, sabotage, fraud and general lawlessness, heavily characterise tax management particularly at Local Government and also at the State and Federal levels.³⁴⁷

It is most unfortunate that the system remains paralyzed by fundamental lack of tax information and data.³⁴⁸ The Nigerian tax system has increasingly become a nuisance and burden on the citizens in general and taxpayers in particular.³⁴⁹ The dilemma and unfortunate situation are seriously calling for concerted efforts to remedy them include:

117 economic factors no doubt dominate the lives of the people of our country and ought to be the foundation on which tax legislation should be based.

The Nigerian tax system places huge burden on taxpayers as a result of overreliance on direct taxes such as Companies Income Tax, Petroleum Profit Tax, Education Tax, Stamp Duties, Personal Income Tax and others. It is to be noted that a single company is mandated by law to pay Companies Income Tax, Education Tax and National Information Technology Development Agency Levy as the case may be.³⁵¹ The fact is that transporting tax legislation from developed countries like the United Kingdom and USA which is modified here and there would not reflect the peculiarities of our socio-economic and cultural values.³⁵² The difficulty in understanding such comprehensive and complicated legislations fashioned after that of the developed countries will therefore be a common feature in our tax statute books. It is to be noted that this was one of such reasons that led to the Capital Transfer Tax to be abolished in Nigeria, since it was quite difficult to relate the issue of taxation to the estate of a deceased person.

Tax legislations which Nigerian courts are called upon to interpret and enforce from time to time provide for both criminal and civil sanctions without a clear understanding on the part of the tax authorities.³⁵³ There is need for improvement in the techniques of framing tax legislations as suggested by Faley³⁵⁴ thus:

What is at fault at present is the attitude of those responsible for framing legislation. They have become obsessive with the notion that what is needed is a series of effective anti-avoidance provisions. They might, I suggest fare better if they identified the

351 Price water house coopers “Nigeria at 50: Top 50 Tax Issues”, available at

http://www.pwc.com/enNG/ng/pdf/nigeria-top-50-taxissues accessed on 15/2/2015.

352J A Agbonika, Problems of Personal Income Tax in Nigeria, (Ibadan, Ababa Press Ltd, 2012) p. 285.

353M T Abdulrazaq, Nigerian Revenue Law, (Malthouse Press Ltd, 2005) p. 121.

354Olusola Faley, FCA in October 1981 in a paper presented at the 11^th Annual Senior Staff Conference of the Federal Inland Revenue Department.

118 real problem as the much simpler problem of defining the initial

scope of a tax in clear and intelligible terms. If tax legislation are well understood, tax payers may be at home with compliance.

The process of either passing or amending a federal tax bill starts with the management of Federal Inland Revenue Service presenting a proposal to the Federal Ministry of Finance. It retains its supervisory role over FIRS inspite of the autonomy conferred on it by the Federal Inland Revenue Service Act, 2007. This process is slow and cumbersome.

A nation‟s tax system is often a reflection of its communal values or the values of those in power.³⁵⁵ In order to create a system of taxation, a nation must make choices regarding the distribution of the tax burden as regards who pays taxes and how taxes collected will be spent. In Nigeria, the tax system dates back to 1904 when direct taxation was formally introduced in northern Nigeria before the unification of the country by the colonial master. Since then, different governments have continued to try to improve on Nigeria‟s taxation system by formulating policies which invariably culminate into tax legislations when passed by the Legislature.³⁵⁶ The introduction of direct taxation by the colonial masters became imperative as a response to a request for fund from Britain to run colonial government.

In other jurisdictions indirect taxes, that is, Value Added Tax (VAT),a consumption tax plays a prominent role. An instance is that Value Added Tax is the third highest source of income of the United Kingdom Central Government. Her Majesty‟s Revenue and Custom (HMRC)‟s revenue collection stands at£476 billion as at April 2014 with £101 billion or 21 percent of total tax being from Value Added Tax.³⁵⁷ This is not the situation in Nigeria where Value Added Tax is charged at 5%, except the recent attempt by the Minister of Finance in a

355 National Tax Policy, www.nigeriantaxpolicy.org 1.

356M O Agoro ‘Story on Tax Administration in Nigeria’, JTB News, a Quarterly Magazine of the Joint Tax Board, vol. 1 No 2, Jan – March, 2007 p. 42.

357U A Adeyemi ‘Diversification of Nigeria’s Economy through Tax Revenue’ in J A Agbonika (ed) Topical Issues on Nigerian Tax Laws and Related Areas (Ababa Press Ltd, Ibadan, 2015) p. 89.

119 legal notice to amend section 4 of Value Added Tax (Amendment) Act 2007 to increase the rate from 5% to 10%. This was visited with an uproar and was revoked by the then President of the Federal Republic of Nigeria on the legal advice of the Attorney General of the Federation and Minister of Justice.³⁵⁸ This increase is however being presently contemplated by the Minister of Finance to make up for the fall in revenue due to the fall in the crude oil price in the international market. The Value Added Tax rate of 5% in Nigeria is the lowest in the world. In the United Kingdom Value Added Tax is a standard 20%.³⁵⁹ Value Added Taxes charged at the rate of 15% in South Africa, in Ghana it is 17.5% and in Kenya it is 16%.³⁶⁰

The justification for the increase in the VAT rate is that it will reduce over tax burden of taxable person‟s on direct taxes under which Nigeria economy will grow. There should be a harmonization of different taxes so as one company, for instance, should not be mandated to pay companies income tax, education tax and NITDA levy and others. Tax payers will readily pay VAT which is charged on goods and services. This glamour for shift from direct to indirect taxes for instance Value Added Tax is one of the objectives captured in the National Tax Policy. It has been observed that taxes may not be the most important source of revenue to the government in terms of magnitude of revenue derivable from it as compared to revenue from petroleum proceeds, fines and royalties, grants and advances, et cetera but its importance stems from the point of view of certainty and consistency.³⁶¹ This observation is to the effect that the qualities of taxation such as certainty and consistency stand it out from other revenue sources. In this period of economic recession, the thinking must be narrowed

358M T Abdulazaq ‘An Examination of the Powers of the Minister of Finance to increase the tax rate under the Value Added Tax (Amendment) Act of 2007’ in Topical Issues on Nigerian Tax Laws and Related Areas, J A Agbonika (ed) ibid, p. 1.

359 VAT Rates. Available at http://www.gov.uk/vat-rate accessed on 18/2/2015.

360 Taxes and VAT Refunds. Available at http://www.southafrica-netyork.net/consulate/vat%20refund, http://www.myjoyonline.com/business/2014/January-10th/new-175vat-rate-takes-effect accessed on 30/2/2015.

361T O Gloria “Revenue Generation in Nigeria through e-taxation in a study of selected states”, European Journal of Economics, (2012) 126 – 132.

120 towards indirect tax. An increase in custom duties for importation of goods in Nigeria will encourage investment by Nigerians in other sectors of the economy and attract foreign direct investment.

The major tax legislations in the country are federal statutes and the tax is administered by the Federal Inland Revenue Service on behalf of the federal, State Board of Internal Revenue for state and local governments Revenue Committee for Local Governments. There is need for the further amendment of tax laws to make it more result oriented. The present state of the laws creates series of issues in tax administration. An instance is the jurisdiction of the tax authority or the relevant tax authority with the requisite authority to collect the various taxes. The confusion created in the tax system by the Federal Inland Revenue (Establishment) Act³⁶² contravenes the provisions of the Constitution. The provisions of sections 2, 25 and 68 of FIRS (E) Act 2007 are in sharp contrast with sections 2, 88 and 91 of Personal Income Tax (amendment) Act 2011. Nigeria tax system will be certain when the provisions of Federal Inland (Establishment) Act and Personal Income Tax Act are harmonized in line with the provisions of the Constitution.