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Tax In Nigeria Essay

1642 words - 7 pages

SECTION ONE
1.1 Background to the study.
The Nigeria tax system is basically structured as a tool for revenue generation. This is a legacy from the pre-independence government based on 1948 British tax laws and has been mainly static since enhancement.
The history of direct taxation in Nigeria dates back to 1904 when the system of personal tax was introduced in Northern Nigeria by Lord Lugard. The Nature Revenue Ordinance was introduced in 1917 also in Northern Nigeria and extended to the East in 1928. The three regions, as Nigeria was previously constituted, had various legislations for direct and indirect personal taxes prior to independence in 1960. It was not until 1961 that a uniform ...view middle of the document...

The law also guides the tax officials in identifying the residence of potential tax payers, as well as the sources and origins of their incomes for the purpose of taxing the income.
The form of tax that is administered under the Act is the PAY-AS-YOU-EARN (PAYE) being taxes from employment and second taxes from self employed persons. Until date, several amendments have been made with the current being a tax rate reduction from 25% to 17.5% of top rate.
The need to tax personal incomes throughout the country prompted the income tax management act (ITMA) of 1961.Several amendments have been made to the 1961 ITIMA Act. For instance, in 1985 PIT was increased from N600 or 10 percent of earned income to N2000 plus 12.5 percent of income exceeding N6000. In 1989, a 15 percent withholding tax was applied to savings deposits valued at N50000 or more while tax on rental income was extended to cover charted vessels, ships or air craft. In additions, tax on the fees of directors was fixed at 15 percent.
These policies were geared to achieving effective protection for local industries, greater use of raw materials, generating increased government revenue among others (Mamud, 2008). Consequently, attention has been focused on promoting exports for manufacturers and reducing the tax burned of individual and companies. In line with this change in policy focus, many measures were undertaken. These involved, among others, reviewing custom exemption and rebates introduction capital allowanced, expending the duty drawback scheme, monetizing firings benefits and increased tax relief to low income earners.

1.2 Statement of the problem.
Over the years it has been observed that one of the most critical challenges facing the Nigerian government is that companies and individuals, especially the rich hardly pay the normal tax they ought to pay and as at when due to sustain economic development.
There have been incidents of high rate of forgery of official documents such as tax receipts and other fraudulent practices in the issuance of tax clearance certificate, collection and accounting for taxes. The prevalence of tax evasion and tax avoidance is on the increase. Most of the tax laws in Nigeria are outdated and do not reflect the realities on ground. Manufacturers are groaning under the burden of multiple or double taxation.
Those working in the informal sector of Nigerian economy do not see the need to pay tax whereas they dominate the economy. To them only, civil servants should pay tax on their earnings and this amount to over flogging the willing horse. Besides, the activities of the strong union in the formal sector do not even pave way for a successful tax policy implementation in the formal sector (Ayodele 2006). Even revenue collection officers seem to be lenient or even connive with those in the informal sector during enforcement of tax policies.
Some states like Lagos and others have resorted to the use of tax Consultants and armed personnel to...

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