TAXATION IN NIGERIA PROSPECTS FOR REFORM

By

NKWO CHIBUZOR

Presented To

Department of Accountancy

ABSTRACT

This term paper is written to give an insight into the effect of TAXATION in Nigeria Prospects for Reform.

In realization of this purpose which was to examine the effect of taxation in Nigeria prospects for reform, the term paper provides clearly a complete coverage of the study.

Chapter one dealt with the introduction of the subject matter. Chapter two examines the general principles of Taxation in Nigeria prospects for reform. While chapter three is the summary and recommendation of the subject matter.

The term paper will be found useful over its encouragement to investment and reviews to the extent taxation in Nigeria prospects for reform effect investment.

According to Toye (1978) the practice to operate science which gives tax concessions has widely spread among government of developing countries. Toye went further to say that these subside from public expenditure is being given to newly established firms or only firms starting new activities. This is to include the private sector to invest and participate in the taxation in Nigeria prospects for reform.

TABLE OF CONTENT

TITLE PAGE II

APPROVAL PAGE III

DEDICATION IV

ACKNOWLEDGEMENT V

ABSTRACT VI

TABLE OF CONTENT VII

CHAPTER ONE

1.0 INTRODUCTION 1

1.1 BACKGROUND OF THE STUDY 2

1.2 STATEMENT OF THE RESEARCH PROBLEM3

1.3 OBJECTIVE/SIGNIFICANCE OF THE STUDY4

1.4 SCOPE AND LIMITATIONS OF THE STUDY5

CHAPTER TWO

2.0 GENERAL PRINCIPLES OF TAXATION IN NIGERIA

PROSPECTS FOR REFORM 8

2.1 DEFINITION 9

2.2 DIRECT AND INDIRECT TAXES 9

2.3 JUSTIFICATION OF TAXATION OF CUSTOMS & PORT REFORM 10

2.4 ESSENTIAL CANNONS OF GOOD TAX SYSTEM11

2.5 TAX ADMINISTRATION IN NIGERIA 12

2.6 OBJECTIVES OF INCOME TAX

MANAGEMENT AC (ITMA) 15

2.7 POWERS AND DUTIES OF THE JOINT TAX BOARD15

2.8 EMPLOYMENT OF INCOME EXEMPTED 17

2.9 DIVIDEND, INTEREST OR DISCOUNT 17

2.10 RELIEF AND ALLOWANCE 20

2.11 PERSONAL ALLOWANCE 20

2.12 CHARGEABLE INCOME 21

2.13 MARRIAGE ALLOWANCE 21

2.14 CHILD ALLOWANCE 21

2.15 DEPENDENT RELATIVE ALLOWANCE 21

2.16 LIFE ASSURANCE. 22

2.17  EARNED INCOME 22

2.18  FEDERAL COLLECTED REVENUE FOR REFORM23

2.19  REVIEW OF VALUE ADDED TAX (VAT) 23

2.20 DISTRIBUTION FORMULA 24

2.21 TAXATION TO BE USED AS DEVELOPMENT TOOL30

CHAPTER THREE

SUMMARY 30

RECOMMENDATION 30

CONCLUSION 31

BIBLIOGRAPHY. 33

CHAPTER ONE

1.0 INTRODUCTION

Taxation is a major source of revenue to the government. Revenue could also accrue to the government through other sources such as foreign gifts, grants, income from investments and international trade. The above mentioned sources of revenue listed above are unreliable source of generating revenue to the government. However, taxation could be as one of the major source of generating revenue.

Tax as a levy imposed by the government against the income, profit or wealth of the individual, partnership and corporate organisation. Taxation is divided into various types such as income tax, corporate tone, company tax, capital gains tax, capital transfer tax etc.

Taxation in Nigeria prospects for reform is levied on the authority of the federal government income tax management act 1961 (ITMA) and subsequent amendments including the financial miscellaneous taxation provision, degree 1992 and the finance (miscellaneous provision) degree 1993.

1.1 BACKGROUND

Nigeria taxation prospects for reform is an assessment imposed by the states and the federal governments to enable them provide services for Nigerian citizens. The present day taxation prospects for reform in administration is guided by the following act and decrees:

i. Income time management act (ITMA) 1961 referred to as the 1961 act. This governs the taxation of individuals, trustees, executors, partnerships, communities and families. The act was amended by the finance (miscellaneous taxation provision) decree 1985, 1987, 1992, 1993, 1994 and 1996.

ii. Company income tax act (CITA) 1979 referred to as the 1979 act which regulates the taxation of registered companies. This act has also suffered some amendments.

iii. Petroleum profit tax act (PPTA) 1959 as amended up to 1979 referred to as PPTA 1959 as amended. This act regulates the assessment and collection of petroleum in tax payable by entities that engage in the extraction and sale of petroleum oil in Nigeria.

iv. Capital gains tax decree (CGTD) 1967 which was introduced by decree 44 of 1967. this decree takes care of gains accruing to any person on or after 1^st April 1967 on the disposal of fixed assets.

1.2 STATEMENT OF THE RESEARCH PROBLEM

The Nigeria Taxation prospects in Nigeria for reform is affected with different taxation problems. Such as:

1. it may act as dis-incentive to work. That is, tax on management earning.

2. taxation may direct economic resources depending on the elasticity of demand for the relevant product. Example, if there is a purchase tax on butter and price of butter goes up, people may like to purchase margarine and hence resources may be diverted to the production of margarine.

3. taxation could encourage inflation. If taxes on essential commodities increase, there will be demand for high wages and this could lead to higher prices.

4. Taxation may deter enterprise from increasing productivity especially if a business man knows that the more money he earns the more tax he pays.

1.3 OBJECTIVE

There is variety of reasons for imposing tax. The primary one is to provide the government with the revenue it needs to carry out its functions. Other objectives of taxation is as follows:

1. To encourage saving and regulate expenditure eg. Tax on luxuries.

2. To provide free -social services like health and education etc.

3. To assist in economic planning eg. Encourage exports or simulate specific industries.

4. to achieve desire social ends e.g discourage excessive smoking and drinking

5. to protect home industries by imposing discriminatory tariffs.

6. to provide incentives for industry and investment e.g granting of

i. Allowances for research work and

ii. Investment of allowances for capital investment

1.4 SCOPE

The scope of the subject matter being "Taxation in Nigeria prospects for taxation in Nigeria prospects for reform could be seen as an act of direct economic resources depending on the elasticity of demand for the relevant public. Example, if there is a purchase tax on butter and price of butter goes up, people may like to purchase margarine and hence resources may be diverted to the production of margarine.

However, other scopes of taxation in Nigeria prosect for reform is as follows:

i. Taxation may deter enterprise from increasing productivity especially if a business man knows that the more money he earns, the more tax he pays.

ii. Taxation could encourage inflation. If taxes on essential commodities increase, there will be demand for high wages and this could lead to higher prices. To crown it all, the major scope of taxation in Nigeria prospects for reform, is to:

i. Protect infant industries

ii. Reduce in equity of income

iii. Raise revenue to meet the cost of general administration and social services provided by the state.

iv. Check the consumption of commodities regarded as harmful.

v. Check inflation within the country.