EFFECTIVENESS OF INCOME TAX FOR HIGHER REVENUE GENERATION IN NIGERIA 2000 to 2011
ABSTACT
The study empirically examines the relationship between income tax and its impact on total revenue. In line with the objectives of this study, secondary data were obtained from central bank of Nigeria statistical bulletin and Federal Inland Revenue Service covering the period of 2000 to 2011. In concluding the analysis, multiple regressions and statistical package for social science were employed to analyze data on such variables; company income tax, petroleum profit tax, personal income tax and education tax. They were all found to have a significant relationship with total federally collected revenue with the Adjusted R2 of 99.1%. Following the outcome of this study, it is therefore concluded that income tax has been beneficial to the Nigerian economy and has contributed significantly to total revenue for the period of 2000 to 2011. Income tax has a positive influence on total revenue and hence economic growth and development. It is therefore recommended that concerted efforts should be made to improve on the effectiveness and efficiency of the administration and collection of taxes by government. It is believed by the researcher that tax revenues can only materialize its full potential on the economy if government can come up with fiscal laws and legislations and strengthen the existing ones in line with macro economic objectives, which will check-mate tax offenders in order to minimize corruption, evasion and tax avoidance. These will bring about improvement on the tax administration and accountability and transparency of government officials in the management of tax revenue. Above all, these will increase the tax revenue base with resultant increase in growth.
TABLES OF CONTENTS
CHAPTER ONE
1.0     introduction                            
1.1     Background to the study                    
1.2     Statement of the research problem                
1.3     Statement of the research objective                
1.4     Research hypothesis                        
1.5     Scope of the study                        
1.6     Significance of the study                    
1.7     Definition of terms                        
CHAPTER TWO
2.0     Introduction                            
2.1     Review of literatures on variable                
2.1.1 Government revenue                        
2.1.2 Personal income tax                        
2.1.3 Company income tax                        
2.1.4 Education tax                            
2.1.5 Petroleum profit tax                        
2.2     Conceptual framework                    
2.2.1 Canons of taxation                        
2.2.2 Canon of ability                            
2, 2, 3 Canon of certainty                        
2.2.4 Canon of convenience                        
2.2.5 Canon of economy                        
2.3     Tax evasion and avoidance                    
2.4     Classification of tax                        
2.4.1 Regressive tax                            
2.4.2 Progressive tax                            
2.4.3 Proportional tax                            
2.5     The PAYE system                        
2.6     Self employment income                    
2.7     Assessable income                        
2.8     Income exempted from tax                    
2.9     Review of previous study                    
2.10   Theoretical framework                    
2.10.1 Social political theory                    
2.10.2 Expediency theory                        
2.10.3 Benefit received theory                    
2.10.4 Cost of service theory                        
2.10.5 Ability to pay theory                        
CHAPTER THREE
RESEARCH METHODOLOGY
3.0     Introduction                            
3.1     Research design                        
3.2     Population and samples                    
3.3     Sources of Data                            
3.4     Model specification                        
3.5     Data analysis technique                    
CHAPTER FOUR
4.0     Empirical result and analysis                    
4.1     Data presentation                        
4.2     Data interpretation                        
CHAPTER FIVE
5.0        SUMMARY CONCLUSION AND RECOMMENDATION        
5.0    summary                                
5.1     Conclusion                            
5.2     recommendation                        
         Bibliography                            
         Appendix                            
CHAPTER ONE
1.0     INTRODUCTION
1.1     BACKGROUND TO THE STUDY
    Government undertakes huge public expenditure on behalf of its citizens such expenditures is undertaken to provide basic infrastructure such as roads, seaports, airports and bridges. It also provide social services such as public health, education, electricity, transport, poster services etc. it is also the government responsibility to protect the lives and properties of it citizens, maintain law and order and provide national security.
    One of the recurrent problems of the three tier structure of government in Nigeria is dwindling revenue generation as characterized by yearly budget deficits and insufficient funds for economic growth and development. This economic reasoning emphasized the revenue need of government and indicates that apart from strengthening the existing sources of revenue, it is also necessary for government to diversify it revenue base in order to meet its constitutional responsibilities. Myles(2000) states that financial capacity to any government depends among other things on its revenue base, the fiscal resources available to it and the way these resources are generated and utilize. It is therefore, the duty of the government to adequately mobilize potential revenue across the country. This mobilization involve the adoption of economically and politically acceptable taxes that would ensure easy administration accounting, verification, auditing and investigation base on the equality, neutrality and other attribute of a good tax. In the words of Ogbonna (2012), the political, economical and social development of any country depends on the amount of revenue generated for the provision of infrastructure in that country. He concluded that one of means of generating the revenue for providing the needed infrastructure is through a well structured tax system. According to Azubike(2009), tax is a major player in every society of the world.
    The tax system is an opportunity for government to collect additional revenue needed in discharging its pressing obligations. A tax system offers itself as one of the most effective means of mobilizing a nation’s internal resources and lends itself to creating an environment conducive to the promotion of economic growth.
    Tax, in the words of (Appah, 2004; Appah and Oyandonghan, 2011) is a compulsory levy imposed on a subject or upon his property by the government to provide security, social amenities and create conditions for the economic well being of the society. While Oseni (2008) defines tax as a compulsory levy imposed by a public authority on the income, profit or wealth of an individual, family, community, corporate or unincorporated body etc for the public purpose. Ojo (2009) sees it as a compulsory levy imposed by the government on individuals and business firms and paid by them to the government. The process or system of raising income through the levying of various types of taxes is known as taxation. Taxes may be distinguished from other types of fees and charges imposed by government by virtue of the fact that they do not bestow on the taxpayer right to claim something equivalent to the tax paid from the government. Thus, the taxpayer is not entitled to any special service or benefit from government that excludes other members of the public on account of the tax he has paid. There are two elements in a tax; the bas and the rate. The tax base is the object which is taxed. They are usually income, profit, property etc. The tax rate is the amount of the tax base which is paid in tax. Taxes can be direct or indirect. The direct taxes take the form of personal income tax, petroleum profit tax, company income tax, educational tax, capital gain tax etc. While the indirect taxes take the form of value added tax, import duties, export duties, excise duties etc.
    The history of taxation in Nigeria dates back to the era of the trade and the introduction of Islamic religion in Nigeria between 800AD and 1400AD. The rulers in the Northern Nigeria were known as “SAFAWA” kings who grew rich due to gifts and levis paid to them by their subordinates as taxes on cattle and agricultural crops. In the south, the Obas and Ezes relied on tributes, arbitrary levies, and special contributions at special festivals or events, collected through the head of the families, as its system of taxation. The first legal backing of taxation was in 1904 when Sir Fredrick Lugard introduced the Native Revenue proclamation. This proclamation was further enhanced in 1906. These enactments were followed by much other legislation which the colonial masters introduced during their era. After independence in 1960, the government enacted three major tax laws, namely; Federal Income Tax Act (FITA) 1961; Income Tax Management Act (ITMA) 1961; Companies Income Tax Act (CITA) 1961. These enactments form the bedrock of modern taxation in Nigeria. The Income Tax Management Act (ITMA) 1961, model for all the personal income tax laws operational in the regions, with enactments in some regions. However, in 1993 through Decree 104 the EGW enacted the personal income tax act 1993 to repeal all previous tax laws. The Companies Income Tax Act (CITA) 1961 was repeal and later replaced with the Companies Income Tax Act (CITA) in 1979 with amendments in 1993.
1.2     STATEMENT OF THE RESEARCH PROBLEM
    The general public expects the government to provide them with basic amenities, and the government on the other hand can only implement this if there were enough revenue generated especially from taxation. The amount of revenue generated will however depend on the tax system and how effective it is. The Nigeria’s tax environment has been characterized by poor assessment and collection, multiple taxation, misappropriation of tax revenue and general inefficiency. In relative terms, the rich Nigerians pay far less tax in comparison with their poor counterparts. From the forgone, there is no doubt that the Nigeria’s tax system is froth with some problems. It is in the light of the above the researcher intends to formulate the following questions;
1. Is there any significant relationship between income taxes and government generated revenue in Nigeria?
2. What is the impact of income taxes on government generated revenue in Nigeria?
3. What are the contributions of income taxes on government generated revenue in Nigeria?
4. What are the lapses evident in the Nigeria’s tax system?
5. How can the government provide solution to the lapses inherent in the Nigeria’s tax system?
1.3     STATEMENT OF THE RESEARCH OBJECTIVES
    The research work has the following objectives;
1. To establish the relationship between income taxes and government generated revenue in Nigeria.
2. To establish whether income tax has positive impact on government generated revenue in Nigeria.
3. To ascertain the contribution of income taxes on government generated revenue in Nigeria.
4. To establish the lapses evident in the Nigeria’s tax system.
5. To establish ways the government can provide solution to the lapses inherent in the Nigeria’s tax system.
 1.4     RESEARCH HYPOTHESIS
    Hypothesis is a tentative statement that shows the relationship between two or more variables. Shaibu (2012) defines a statistical hypothesis as a statement about the value of a population parameter which may or may not be true. This means that a hypothesis is an educated guess or logical speculation based on information that is available to a problem under investigation. Hypothesis can be null and alternate. The null hypothesis is denoted by Ho while the alternative is represented by Ha.
For the purpose of this study, the hypotheses to be tested are five being;
Ho     There is no significant relationship between income tax and government generated revenue in Nigeria.
Ha     There is a significant relationship between income tax and government generated revenue in Nigeria.
Ho     Income tax has no positive impact on government generated revenue in Nigeria.
Ha     Income tax has a positive impact on government generated revenue in Nigeria.
Ho     Income taxes do not contribute positively to government generated revenue in Nigeria.
Ha     Income taxes contribute positively to government generated revenue in Nigeria.
Ho       There is no lapses evident in the Nigeria’s tax system.
Ha       There are lapses evident in the Nigeria’s tax system.
Ho      There are no ways the government can provide solution to the lapses inherent in the Nigeria’s tax system.
Ha     there are ways the government can provide solution to the lapses inherent in the Nigeria’s tax system.
1.5     SCOPE OF THE STUDY
    According to Shaibu (2012) “to delimit a study is to define its scope”. In the light of this, the scope refers to the boundary of the study. The scope of this study covers the total tax revenue generated from the period of 2000 to 2011 in Nigeria.
1.6     SIGNIFICANCE OF THE STUDY
    This study is carried out in order to assess the revenue implication of the Nigeria’s income tax system and its impact on revenue. The study will also assess the shortcomings in the income tax system and suggest ways of achieving a better result.
1.7     DEFINITION OF TERMS
TAX
A tax is a compulsory levy imposed by a public authority on the income, profit or wealth of an individual, community, corporate or unincorporated body etc for public purpose.
TAXATION
This can be defined as the process or system of raising income through the levying of various types of taxes.
DIRECT TAX
These are taxes levied on income or capital generated by factors of production such as land, labour capital and entrepreneur.
INDIRECT TAX
These are taxes levied on goods and services.
PROPORTIONAL TAX
A tax is proportional when the same tax rate is applicable irrespective of the size of the income.
PROGRESSIVE TAX
A tax is progressive when the rate applicable increase as the income increases.
REGRESSIVE TAX
A tax is regressive when the proportion of the total income paid as tax falls as income rises.
ASSESSMENT
An assessment is the process of ascertaining the taxable income of the tax payer.
GOVERNMENT ASSESSMENT
This is a system whereby the taxpayer provides relevant information to the tax authorities concerning his income on a prescribed tax return form. Based on such information, the taxpayer is assessed to tax by the tax authority.
SELF ASSESSMENT
This is a system of assessment whereby the taxpayer carries out an assessment on him, and computes the amount of tax due on his income and proceeds to pay such to the state board of in-land revenue.
BASIS PERIOD
This is the length of period to which the assessment relates i.e, the length of time or duration covered by the assessment.
FISCAL YEAR
This is the government financial year and it runs from January 1, to
December 31, each year.
TAX EVASION
Tax evasion is the failure to disclose the correct income that should be assessed either by misstatement of fact, falsification of figures, filling of incorrect returns, by a misrepresentation of liability.
TAX AVOIDANCE
Tax avoidance occurs when the taxpayer in exercising his legal right under the tax law, makes the best use of available reliefs, allowance, exemptions etc to pay the least possible tax.
RESIDENCE
Residence in relation to an individual, means a place available for his domestic use in Nigeria on a relevant day, and does not include any hotel rest house or other place at which he is temporally lodging unless a more permanent place is available for his use on that day.