TAXATION A MAJOR SOURCE OF GOVERNMENT REVENUE
ABSTRACT
Taxation is the most important aspect of government revenue, without taxes the government cannot actualize its commitments to her citizens. In this study, taxation a major source of government revenue. I have thus analyzed the main benefit that can be reaped form taxation. In order to extract those benefits, I have looked into the relevant literature on the topic when the use of taxation was critically reviewed. In a bid to achieve the result of this research, questionnaires were design and administered. Two hypotheses were formulated for this study and the observed data were arranged in table using percentages.
The chi-square tests of statistics were used to test these hypotheses: Perception of taxpayer towards payment of taxes.
Examine why taxation is a major source of government revenue. After testing, the alternative hypotheses were however retained in all occasions.
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
1.1 Background to the Study 1
1.2 Statement of the Research Problem 8
1.3 Objectives of the Study 8
1.4 Research Hypotheses 9
1.5 Scope of Study
1.6 Significance of the Study
1.7 Limitations of the Study
CHAPTER TWO: LITERATURE REVIEW
2.1 Overview of Taxation
2.2 The Tax Structure in Nigeria
2.3 State Internal Revenue Service
2.4 Tax Collection
2.5 The Personal Income Tax Act
2.6 Companies Income Tax
2.7 Petroleum Profit Tax Act
2.8 Capital Gains Tax Act
2.9 Industrial Development Act
2.10 Value Added Tax
2.11 Education Tax
2.12 Classification of Tax
2.13 Significance of Taxation
2.14 Tax Evasion and Tax Avoidance 29
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Research Design
3.2 Sample Population
3.3 Sample Method
3.4 Sample Size
3.5 Data gathering Methodology
3.6 Actual Field Work
3.7 Method of Data Presentation
3.8 Method of Data Analysis
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Introduction
4.2 Data Presentation
4.3 Analysis of Data
4.4 Hypotheses Testing
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMEDATIONS
5.0 Introduction
5.1 Summary of Finding
5.2 Conclusion
5.3 Recommendation
Bibliography
Appendix
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
For development and growth of any society, the provision of basic infrastructure is quite necessary. This perhaps explains why the government shows great concern for a medium through which fund can be made available to achieve their set goals for the society. Government needs money (fund) to be able to execute its social obligations to the public, these social obligations include but not limited to the provision of infrastructure and social services.
According to Murkur (2001), meeting the needs of the society call for huge funds which an individual or society could not contribute alone. It becomes the responsibility of government to source for fund to enable her provide these basic amenities to the citizenry who are the beneficiaries. One of the medium through which fund is derived is through taxation. Therefore, the citizens are expected to contribute to the development and administration of the society at large. (Murkur (2001:7)
Taxation as defined by Ogundele (1999) is the process or machinery by which communities or groups of persons are made to contribute in some agreed quantum and method for the purpose of the administration and development of the society. It can be inferred that the payment of tax will in turn be beneficial to the entire citizenry. Ayanduba (1999) defined taxation as the process of raising income/revenue through levying of various types of taxes. Nightingale (1997) described tax as a compulsory contribution imposed by the government. The World Bank (2000) noted that taxes are compulsory transfer of resources to the government from the rest of the economy. This view is also similar to the definition of Soyode and Kajola (2006) who defined tax as a compulsory exaction of money by a public authority for public purposes.
Tax according to Black’s Law Dictionary is a financial charge or other levy imposed on an individual or a legal entity by a State or a functional equivalent of a State. These various authors concluded that it is possible for tax payers not to receive anything identifiable for their contribution but they have the benefit of living in a relatively educated, healthy and safe society.
However, the infrastructure which tax payers are supposed to enjoy is in a deplorable condition (Fanfuwa, 2005), educational system in disarray (Obaji, 2005) and the health system is in a worrisome condition (Lambo, 2005). Hence, there has been a clamour by governments that huge some of the resources which they are to use find their way out of the economy through tax evasion.
Sikka and Hampton (2005) and Olatunde (2007) stated that tax evasion is one of the major social problems inhibiting government revenue in developing and develop economies of the world. Hence, an enviable society can only be visible when domestic revenue can be mobilized by the government for her social obligation to the citizens. (Sikka and Hampton, 2005:325-343 and Olatunde, 2007:1).
In essence, tax is seen as a pecuniary burden put upon individuals or property to support the government in its oversight activities of a nation and exacted by legislative authority. The availability of fund is a very vital aspect of running a State. Several options, according to Asher (2001) and Soyode and Kajola (2006) are available to governments for raising fund for bidding resources away from other sectors of the economy and other claimants to undertake their activities. These options include taxes, non tax revenue such as fees, levies, cost recovery and user charges, and property and investment income, domestic and foreign borrowing including loans from the multilateral institutions and domestic and foreign grants.
Thus, a major source of fund for any government is the tax revenue. (Asher, 2001:120-140; Soyede and Kajola, 2006)
Nigeria was colonized by the British just like some other African countries. By an act of the British Parliament, Nigeria became an Independent country within the commonwealth on October 1st, 1960. In 1963, Nigeria became a republic within the Commonwealth. In Nigeria, the taxation system dates back to 1904 when the personal income tax was introduced in northern Nigeria before the unification of the country by the colonial masters. It was later implemented through the Native Revenue Ordinances to the western and eastern regions in 1917 and 1928, respectively. Among other amendments in the 1930s, it was later incorporated into Direct Taxation Ordinance No.4 of 1940(Library of Congress, 2008). In essence, the Nigerian Tax system has been based on 1948 British tax laws and has been undergoing a lot of changes. Since then, different governments have continued to improve on Nigeria’s taxation system. A vital aspect of the improvement on the nation’s tax system is the recent Federal Inland Revenue Service (Establishment Act, 2007, Companies Income Tax (Amendment) Act, 2007 and the Draft National Tax Policy pending before the National Assembly.
Sanni (2005) noted that a vibrant tax system will have the following “tripod”; Tax Policy, Tax Law and Tax Administration. He mentioned that a tax system is administered through tax policies while the tax laws serve as the legal backing. Soyede and Kajola (2006) noted some of the sources of tax laws in Nigeria to include Legislations, Constitution, Court judgment and Circulars. For example Personal Income Tax Act (1993) as amended (in respect of Pay- As- You-Earn and Direct Taxation: Self Assessment) is a typical legislative source of tax laws in Nigeria. (Sanni, 2005: 2-5; Soyede and Kajola, 2006: 23; PITA, 1993 as amended)
1.2 STATEMENT OF RESEARCH QUESTION
This research attempts to provide answer to the following questions.
1. What is the perception of tax payers towards payment of taxes?
2. Why is taxation reliable and a major source of government revenue?
1.3 OBJECTIVE OF THE STUDY
The research is set out to achieve the following objectives:
1. Investigate the perception of tax payer towards the payment of taxes.
2. Examined why taxation is reliable and a source of government revenue.
1.4 RESEARCH HYPOTHESIS
The hypothesis stated below were tested in order to provide answers to the research questions mentioned above.
Hypothesis 1: Perception of tax payer towards payment of taxes.
Hypothesis 2: Examine why taxation is a major source of government revenue.
1.5 SCOPE OF THE STUDY
This research is centered on tax administration by the state inland revenue services with emphasis on taxation as a major source of government revenue by obtaining responses from business owners and civil servant within Edo State.
1.6 SIGNIFICANCE OF THE STUDY
This research is expected to be of benefit to revenue officials who are saddled with the responsibility of ensuring that tax payer are not negligent in paying their taxes. This research is also expected to be a benefits to researchers, and a blue print for policy makers.
1.7 LIMITATIONS OF THE STUDY
The research work is focuses on tax administration by the state inland revenue service and the result generated cannot be generalized because there are other relevant tax authority that are responsible for the administration of taxes in the country.
