This study examines tax administration in Nigeria. The objective of this study is to critically analyse tax administration in Nigeria. The paper is based on data obtained from literature survey and archival sources in the context of tax administration in Nigeria. Content analysis was used to analyse the relevant literatures. It was observed that tax constitute a major source of revenue to Nigeria. Hence, we conclude that tax administration in Nigeria are basically facing a lot of problems such as personnel; poor pay, lack of training, inefficiency and understaffing .The study recommends that government should review obsolete tax laws, and that a corrupt free and well trained tax administrators would foster a great generation of tax revenue for economic development and above all, accountability and transparency on the part of government officials in the management of tax revenues for the benefit of the citizens should be highly encouraged.

Chapter One

Introduction

Taxation is the means by which the government of nations generates revenue to finance their expenditure through the imposition of compulsory charges on citizens and artificial persons (corporate entities). In Nigeria, all persons in employment, individuals in business, non-residents who derive income from Nigeria as well as companies that operate in Nigeria are liable to pay tax. Tax policies are used by Governments to regulate the economy by encouraging or discouraging certain economic decisions. The Nigerian tax laws have witnessed significant changes over the period. There has been various tax incentives introduced, occasioned by tax reforms which have implications for the economy. The economic development of any country depends on the amount of revenue generated for the provision of infrastructure in that given country. However, one means of generating the amount of revenue for providing the needed infrastructure is through a well structured tax system. ( Ogbonna & Appah,2012)

Tax is a major source of government revenue all over the world. Government use tax proceeds to render their Traditional functions, such as the provision of public goods, maintenance of law and order, defense against external aggression, regulation of trade and business to ensure social and economic maintenance (Azubike, 2009). A tax system offers itself as one of the most effective means of mobilizing a nation’s internal resources and it lends itself to creating an environment conducive to the promotion of economic development. Thus, it is evident that a good tax structure plays a multiple role in the process of economic development of any nation which Nigeria is not an exception (Appah, 2010). The fiscal power of the Nigeria government is divided into three-tiered tax structure between the federal, state and local governments, each of which has different tax jurisdictions. (Odusola 2006; okauru 2011; Okoyeuzu 2013). According to Nzotta (2007), taxes constitute key sources of revenue to the federation account shared by the federal, state and local governments.

Gloria (2012) observe that although taxes may not be the most important source of revenue to the government in terms of magnitude of revenue derivable from it as compared to revenue from petroleum proceeds, fines and royalties, grants and advances, et cetera, its importance stems from the point of view of certainty and consistency.

Four key issues must be understood for taxation to play its functions in the society. First, a tax is a compulsory contribution made by the citizens to the government and this contribution is for general common use. Secondly, a tax imposes a general obligation on the tax payer. Thirdly, there is a presumption that the contribution to the public revenue made by the tax payer may not be equivalent to the benefits received. Finally, a tax is not imposed on a citizen by the government because it has rendered specific services to him or his family. Nzotta (2007) cited in Ogbonna and Appah (2012). It is paid by any citizen whether or not the citizen benefits from the government projects and programmes financed by the taxes (Rosen, 2004). Consequently, the usefulness (effectiveness and/or efficiency) of taxes can be measured by several parameters, some which are its revenue generating capacity and its impact on the consumption and savings patterns in the economy. Even if the totality of tax system cannot be comprehensively measured, the various types of tax can be subjected to this measurement. In Nigeria, there are at least three types of taxes that are commonly applied to qualifying citizens and items. These are the Personal Income Tax, the Company Income Tax, and the Value Added Tax.

Development and growth of any society is tied to the ability of government to provide basic infrastructure. This perhaps explains why government show great concern for a medium through which funds can be made available to achieve their set goals for the society .Therefore, one medium through which needed fund for infrastructural development can be derived is through taxation. Taxation unarguably could be taken to be one of the most potent fiscal instruments which reduce private consumption, increases investment and income inequality. It enhances the transfers of resources to the government for needed economic development.

However, a country’s revenue generation primarily depends on its capacity to tax more in both economic and administrative terms. It is also a fact that developing countries receive a very low amount of revenue from taxation because these countries face quite a number of institutional problems, one of which is poor administration of the tax system. Nigeria operates a federal system of government and hence, its fiscal operations also adhere to the same principle. This has serious implications on how the tax system is managed in the country; the government’s fiscal power is based on a three–tiered tax structure divided between the federal, state and local governments, each of which has different tax jurisdictions. The majority of tax powers are under the control of the federal government while the lower tiers are responsible for less buoyant ones. However, for the past four decades, oil has continued to account for at least 70% of Nigeria’s tax revenue which indicates that traditional tax revenues does not assume a strong role in the management of fiscal policy in the country. The need to address these problems led to the enactment of several tax policy reforms aimed at providing effective administration of tax system in Nigeria.

Within the last decades issues of domestic resource mobilization has attracted considerable attention in many developing countries including Nigeria. In the face of unabated debt difficulties, coupled with the domestic and external financial imbalances confronting them, it is not surprising that many developing nations have been forced to adapt stabilization and adjustment policies and increase revenue which demand better and more efficient methods of mobilizing domestic financial resources with the view of achieving financial stability and promoting economic growth. Taxation plays a significant role in achieving this purpose.

Before a country considers how best to administer its tax system it must possess a clear picture of the scope of its tax system. The quantity and quality of resources required by tax administrators are to a large extent determined by the type of tax system which is introduced. A nation’s tax goals are not achieved by designing a tax system which is fair. Any fair system which is not administered as planned becomes inequitable. Thus, a good tax system is capable of financing the necessary level of public spending in the most efficient and equitable way possible. It should also (1) raise enough revenue to finance essential expenditures without recourses to excessive public sector borrowing, (2) raise the revenue in ways that are equitable that minimized its disincentive effects on economic activities, (3) do so in ways that do not deviate substantially from international norms. (Tanzi & Zee, 2000). The Nigerian Tax system is lopsided and dominated by oil revenue and therefore the establishment of effective and efficient tax systems faces some formidable challenges. The first of these challenges is non availability of tax statistics. The second is the inability to prioritize tax effort. The third is poor tax administration. The fourth is the multiplicity of taxes. The fifth is the structural problems in the economy that affects the maximization of VAT. Therefore, the main objective of this study is to critically analyze tax administration in Nigeria.