Most countries of the world if not all, either developing or developed make use of one form of a system of taxation.
Generating revenue is the major purpose of Taxation. Different countries in the world today, have developed different fiscal policies that enable them to explore various types of taxation and impose them on their citizens.
Taxes are essential contributions levied by the government on citizens and corporate institutions for the provision of public revenue.
WHAT IS TAX?
The concept of taxation has been defined and described by various scholars.
According to Hugh Dalton, “Tax is a compulsory contribution imposed by public authority, irrespective of the exact amount of service rendered to the payer in return, and not imposed as a penalty for any legal offence”.[1]
It was further defined by Dandago and Alabede as “a compulsory contribution made by individuals and organizations towards defraying the expenditure of government”.[2]
Lastly, Tax is defined as a statutory levy on taxpayers, corporate organizations, properties and other items stated in the law for the purpose of generating revenue for the government at all levels to fulfil its annual budget estimation.[3]
As was said earlier, the primary objective of taxation is to produce revenue. This is to provide funds for governmental expenses, the delivery of social services, and the general welfare of the populace.
Taxation is a common instrument of economic regulation that is used to either prohibit or encourage various kinds of socioeconomic activity.
It can be utilized to assist nations in accomplishing particular economic objectives. In addition to this, it is a tool for increasing GDP, fostering economic growth and affecting a favourable balance of payments with countries from other parts of the world.
Unfortunately, this has not been the case in Nigeria, as statistics as shown that as of the year 2021, Nigeria had forty-one million (41 million) taxpayers, as confirmed by the Chairman of the Federal Inland Revenue Service (FIRS), Muhammad Nami.
Despite the high turnout of taxpayers, Nigeria still earned lower than what countries with similar indices across Africa generate from Personal Income Tax”.[4]
This goes to show the high level of tax evasion in the country. Tax evasion is the number one problem of taxation as it prevents the aim of revenue generation from being achieved.
Nigeria, being an oil-producing state has for a long time depended on the profits made from the sale of crude oil. As a result, other alternative methods of generating cash have been neglected and ignored by the government.
Because a significant percentage of the country’s revenue comes from oil sales, Nigeria is placed in a precarious position that is detrimental to the nation’s economic development.
Recent global trends have seen a precipitous decline in the price of oil. This of course has had a negative impact on the revenues collected by the government and has placed Nigeria in a vulnerable situation.[5]
Thus, as a consequence of the negligence and failure of the tax system in recent years, Nigeria recorded a low tax-to-GDP ratio in 2017, which was one of the lowest in the world at 6%.
However, this should not be surprising as the country’s tax administration has been declining since the 1960s when money from oil production began to outrun money from all other sources of income, which were soon abandoned.
It is believed that Nigeria’s revenue collection accounts for somewhere around 7% of GDP, which is indicative of the country’s subpar quality of tax administration generally.[6]
PROBLEMS WITH THE EXISTING TAX SYSTEM
- Tax evasion
- Unprofessionalism of tax collectors
- Lack of public enlightenment and awareness
- Poor accountability of tax records and account
- Poor tax administration
- Corruption
WAY FORWARD
The Nigerian government has been advised in recent times to focus on taxation as a means of generating government revenue.
This could be done by implementing the following recommendations;
A. The government of Nigeria ought to create and implement a method of taxation that is administered by a single tax authority.
One of the characteristics of a good tax system is the low cost of tax administration. This can be accomplished by doing this, thus improving efficiency and cutting the cost of tax administration.
Additionally, in an effort to harmonize the tax system, duplicate tax authorities that perform similar functions will be merged together or disbanded.
B. Procedure of tax collection in Nigeria should be updated to make use of current technology.
Nigeria’s taxation system should embrace and implement this update.
The implementation of new technology will facilitate the maintenance of tax records, increase the likelihood of accountability, and even, assuming it is utilized appropriately, facilitate the identification of various tax evaders across the nation.
C. Awareness and education of the general public in relation to tax payments and benefits should be done.
Taxpayers who are honest and pay their dues are the lifeblood of any competent tax administration and system. Tax evasion would be reduced as a result of this measure.
D. Tax Offenders should be punished.
The government should employ rigid and strict measures in dealing with those individuals who try to avoid evading tax.
E. Revitalization and Professionalism in the employment process of the staff of tax authorities.
This will aid in the prevention of corrupt tax officials and uneducated staff within the tax administration system.
F. Periodical education for tax officials.
This should be implemented so as to ensure that tax officials are informed of recent tax developments.
[1] Akrani G, “What Is Tax ? Definition – Adam Smith’s Canons of Taxation” (KALYAN CITY LIFE BLOG) <https://kalyan-city.blogspot.com/2010/12/what-is-tax-definition-adam-smith.htmll> accessed March 5, 2023
[2] Dandago, K.I and Alabede, J.O (2000). Taxation and Tax Administration in Nigeria 1st edition, Triumph Publishing Company Limited (IPCL)
[3] Professor Ademola Taiwo “Definition of Taxation”
[4] “Firs: Nigeria Now Has 41 Million Taxpayers — but Revenue Generation Still Low” (TheCableOctober 8, 2021) <https://www.thecable.ng/firs-nigeria-now-has-41-million-taxpayers-but-revenue-generation-still-low > accessed March 4, 2023
[5] Ayeni Olasubomi & Cordelia Omodero “Tax Revenue and Economic Growth in Nigeria”
[6] “Chapter 5 Tax Administration in Africa – United Nations Economic …” <https://www.uneca.org/sites/default/files/chapterimages/era2019_eng_Chapter_5pdf> ; accessed March 5, 2023
