PERSONAL INCOME TAX ADMINISTRATION IN NIGERIA

By

AGBO UCHENNA AC/N2002/006

Presented To

Department of Accountancy

TABLE OF CONTENT

COVER PAGE  I

TITLE PAGE  II

APPROVAL PAGE  III

DEDICATION  VI

ABSTRACT  V

ACKNOWLEDGEMENT  VI

TABLE OF CONTENTS  VII

CHAPTER ONE

1.1 INTRODUCTION  1

1.2 PURPOSE OF STUDY  7

1.3 SIGNIFICANCE OF STUDY  7

1.4 WORKING HYPOTHESIS  8

1.5 LIMITATION OF STUDY  9

1.6 STATEMENT OF PROBLEMS  10

1.7 DEFINITION OF TERMS  10

CHAPTER TWO

2.1 PURPOSE AND OBJECTIVE OF TAX  13

2.2 HISTORICAL BACKGROUND  16

2.3 ADMINISTRATIVE PROCEDURES  19

2.4 ENFORCEMENT PROCEDURES  20

2.5 OBJECTION AND APPEALS  23

2.6 TAX EVASION  23

CHAPTER THREE

3.1 SUMMARY OF FINDINGS  27

3.2 CONCLUSION  28

3.3 RECOMMENDATION  29

CHAPTER ONE

INTRODUCTION

1.1 Taxation may be defined as the demands made by the government of a country in a compulsory payment of money by the citizens of a country.

The principles of Nigeria taxation by fagbile (PGI) defines it as a compulsory levy by the government of a country through an appropriate unit or agency usually the inland or a corporate body.

Taxation, whether direct or indirect deals with compulsory payments by individual or companies to the federal, state or local government and it levied in all forms and shapes.

However, this project work will be limited to personal income tax administration under the direct tax system.

Reasons why taxation is necessary includes:

(i) Providing basic government series such as schooling, medical care etc.

(ii) Administering the law.

(iii) Redistributing income and wealth

(iv) Regulating the economy.

The various types off revenue collected from taxes levied on personal income may be classified as follow:

(i) Pay as you earn (PAYEE)

(ii) Direct Assessment

(iii) Income rate

(iv) Penalties

(v) Capital gains tax

(vi) Merriment tax

(vii) Withholding tax on rent

(viii) Tax on dividends

(ix) Sales tax

(x) Withholding tax contracts, royalties etc.

R.A. Rabini PERSONAL INCOME TAX IN NIGERIA (John West Publication ltd; 1981)

Various government organs which are responsible for the collection off taxes have always been criticized by the public government functionaries intellectuals and media. It is therefore, apparent that an functionaries intellectuals and media. It is therefore, apparent that an examination of the administration of the taxes stated above be made with a view in making useful recommendations which may lead to higher level of efficiency in taxes administration and thus, greater revenue field.

The direct assessment is paid by individuals (self employed persons) once or twice a year. Assessments are raised by the inspector of taxes and distributed to the individual in payment to the appropriate tax is payable by:

(a) Every individual (other than corporate, sole or body of individuals) who is resident for that year in Nigeria.

(b) Every internal worker found in Nigeria at any time during the year.

Denalties are levied for non-payment of tax may be due to either neglect or fraud.

Under the PAYEE system every employer is required to finish a return-containing particulars off persons employed by him and of remuneration paid to them.

The employee normally makes return of his income on form ''A'' which is obtained from the internal revenue department itemizanded on the form. The form provides section for the statement of relief and allowances, dependent relatives, life assurance and allowance dependent relative life assurances relief etc. The employee is then issued with a tax deduction card which guides the employee in the deduction of tax as and when the salaries are paid.

The taxable pay for each month or part thereof as studies on the tax-deduction card is arrived at after allowing for the tax-free amount.

The capital gain tax is collectable from persons i.e. exactor, trustees, partnership, community, family and any individual. The tax is charge at the rate of 20% on gains accruing on disposal of assets situated in or outside Nigeria.

Merriment tax is designed to get money from moneymakers. The tax payer will have to go the tax offices (station) to pay. Adhoc workers also, go about on patrol demanding receipt, license of payment. Failure to produce such receipt or license attracts a penalty raised for compliance with government regulation.

The cost of accounting service relative to various tax requirements is enormous and gross as tax law becomes increasingly, complex maintaining record and preparing for most individual which must turn to experts for assistance yet, at the high of administration is interpretation of the law which should be understood by the tax collector and the tax payer.

1.2 PURPOSE OF STUDY

One of the factors determining the taxation capacity of a country is the administrative competence of the tax collecting organs of the government.

The purpose of carrying out this study is to survey and analyze, as much as possible, the system of internal revenue collection and enforcement procedures as being operated in Nigeria. It is intended after such analysis to attempt to evaluate the effectiveness collection procedure and improvement on the administrative system from remmendation to be advanced.

1.3 SIGNIFICANCE OF STUDY

The significance of this study can be looked at two different angles.

1 To the tax collectors i.e. the internal revenue division. It will help in the formulation of additional policies that can help the internal revenue division to achieve its aims and objective. It would also help the internal revenue division to know the reaction of tax payers to the manner which tax administration is being carried out.

2. The study is also of great importance to the tax payers who are able to express their feeling with respect to the collection machinery system.

1.4 HYPOTHESIS

The working hypotheses are:

a. That lack of operational facilities and management structure leads to delays in tax administration.

b. That tax payer avoid tax by false declaration of income and because tax offices are too far for easy reach.

1.5 LIMITATION OF THE STUDY

It is considered necessary at this point to indicate that there are some limitations pertaining to the finding and report of this study.

1. The study involve the tax payers and collections of taxes within Nigeria so any generalization of the findings may not be entirely the same in other populations.

2. The research deals only with the administration of personal income tax, therefore, much consideration is not given to such factors as personal relief, assessment of business (partnership) profit/losses double taxation relief, back duty cases, capital gains and income chargeable.

1.6 STATEMENT OF PROBLEMS

It has been observed that income generated by the government from tax levied on personal income tax could be higher if the tax laws were rigorously enforced.

(a) Inadequate communication system and lack of co-ordination between government departments leading to difficulties in the collections of directly assessed taxes.

(b) Staffing, which is a major problem in there are not enough supervisors to around and make checks at places of entertainment.

(c) Poor implementation of the PAYEE system by employers.

(d) Changes in resistance without informing the relevant tax authority.

(e) Lack of operational facilities which leads to delay in tax administration.

1.7 DEFINITION OF TERMS

In an attempt to ensure that the research work achieved the purpose in which it is meant, some technical operational terms were explicitly defined to put the research and the reader in the same level.

1. TAXATION

In this context, it refers to that compulsory levy which the government imposes on the income of citizens of a state the government makes no direct benefit to the taxpayer Eg. The government does not build a school or hospital personally for you because you have paid your taxes.

2. PERSONALINCOME TAX

It refers to that sequent of a person's income required by law to be paid to the government to facilitate the performance of government functions.

3. TAX AVOIDANCE

A tax payer can without offending the law arrange his affairs in such a way that he pays little or no tax, the only remedy of the revenue is to sponsor new laws to plug the holes in existing law.

4. TAX EVASION

Tax evasion means tax payer is doing some thing against the law and if discovers will be punished for under the law.

5. TAX CODE

This means the total relives and allowances granted to an individual taxpayer divided by two.

Reference

Rabiu R.A (1981) personal income tax John west publication limited.