AN EVALUATION OF THE MANAGEMENT AND UTILIZATION OF TAX REVENUE IN NIGERIA (A CASE STUDY OF BOARD OF INTERNAL REVENUE)
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AN EVALUATION OF THE
MANAGEMENT AND UTILIZATION OF TAX REVENUE IN NIGERIA
(A CASE STUDY OF
BOARD OF INTERNAL REVENUE)
ABSTRACT
This study deals with an evaluation of
the management and utilization of tax revenue in Enugu State Board of internal
Revenue. Chapter one of this work deals with the introduction, objectives of
the study, research questions etc. Chapter two, literature review and some
references were made to relate an evaluation of the management and utilization
of tax revenue in a developing economy vice Nigerians. The chapter three of
this work was where the research design and methodology were shown.
Questionnaires were used to collect information (data) required. The
populations were the staff of Enugu State Board of Internal Revenue. The sample
sizes were determined to be (35) and the validity and reusability of
instruments were shown. In chapter four, the data gotten from the questionnaire
were presented and analyzed, also the hypothesis put up were vividly tested in
this chapter. Finally, in chapter five, the findings from the data gotten were
summarized. It also some reasonable recommendations were made.
TABLE OF CONTENTS
CHAPTER ONE:
INTRODUCTION
1.1
Background of the study
1.2
Statement of the Problem
1.3
Objectives of the study
1.4
Research Questions
1.5
Statement of Hypothesis
1.6
Significance of the study
1.7
Scope of the study
1.8
Limitations of the study
1.9
Definition
of terms
1.10
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1
Theoretical Framework
2.2
Types of Taxation
2.3
Tax Administration in Nigeria
2.4
Tax collection machinery in Enugu State
2.5
Tax as an important source of government revenue in Nigeria
2.6
Tax as a tool for Controlling Expenditure in the Economy
2.7
Problems of Tax Collection in Nigeria
2.8
Tax as an Element of Public Sacrifice
2.9
Taxation in Developing Economies
CHAPTER THREE:
RESEARCH DESIGN AND METHODS
3.1
Research Design
3.2
Area of Study
3.3
Population of Study
3.4
Sampling Method
3.5
Research Instrumentation
3.6
Validity and Reliability of Research Instruments Sources of Data
3.7
Methods of Investigation
CHAPTER FOUR:
PRESENTATION AND ANALYSIS OF DATA
4.1
Presentation and Analysis of Results
4.2
Test of Hypothesis
CHAPTER FIVE: SUMMARY
OF FINDINGS CONCLUSIONS AND RECOMMENDATIONS.
5.1
Summary of Findings
5.2
Conclusion
5.3 Recommendations
References
Appendix
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND
OF THE STUDY
The increasing cost of running government coupled with dwindling revenue has
left various state governments in Nigeria with formulating strategies to
improve the revenue base. Moreso, to improve the revenue base. Moreso, the near
collapse of the National Economy has created serious financial stress for all
tiers of government. Hardest hit are the state governments all of whom have
experienced unusual reduction in their share of the national revenue from the
federation account. Despite the numerous sources of revenue available to the
various tiers of government as specified in the Nigeria 1999 constitution,
since 1970s till now, over 80% of the annual revenue of the three tiers government
of movement come from petroleum.
However, the serious decline in the price of oil in recent years has led to a
decrease in the funds available for distribution to the states. The need for
state and local governments to generate adequate revenue form internal sources
has therefore become a matter of extreme urgency and importance.
This need under scores the eagerness on the part of state and local
governments and even the federal government to look for new sources of revenue
or to became aggressive and innovative in the mode of collecting revenue from
existing sources.
The increasing cost of running government is becoming alarming some budgets
find recurrent expenditures outplaying capital expenditures. This increasing
cost of governance has forced some state to formulate other means of improving
their revenue base. It is said that up till now the Nigerian economy has not
been diversified from crude oil revenue only since the 1970s Nigeria revenue
from crude oil stand over 80% of her annual revenue while other sectors such as
th`e extractive sector and agriculture has received little or no attention or
out rightly abandoned.
However, the fluctuations of oil price in recent times, the total collapse of
oil revenue in 2009, and the demand for higher and living wages by Nigerian
labour congress had led a decrease in the funds available for sharing to the
states and local government. It is therefore, paramount that the federal, state
and local governments must generate adequate revenue from internal sources.
This need underscores the eagerness on the part of state and local governments
and even the federal government to look for new sources of revenue or to became
aggressive in mode of collecting revenue from existing source especially taxation
Kiabel and Nwokal, (2009).
Also Nigeria is richly blessed with oil and gas among other mineral resources,
but the over dependence on oil revenue for the economic development of the
country has left much to be deserved. According to Ariyo (1997) Nigeria’s over
dependence on oil revenue to the total neglect of other revenue source was
encouraged by the oil boom of 1973/74. This is unsustainable due to the
fluctuation in the oil market which have in most cases plunged the nation into
deficit budgets. It was the view of Popoola (2009) that Nigeria tax
administration and practice be structured towards economic goal achievement
since government budget for the year centres on the oil sector.
Man, no matter his
race, religion or creed, has always lived communally. In every society of man,
there has been one form of levy or the other, imposed on the people from time
to time, to generate resources to improve on their well-being or to institute
one from control or another in the society.
Onovo (2005) recognized
this public duty thus: “a tax is an impose by a state on persons who are
resident or who earns income with in the state”. In the same vein Olukoya
(1993), stated that “fundamentally, however, it is compulsory levy on income,
since the decision to pay tax is not that of the tax-payer. No rational human
being would voluntarily subject his earnings to tax. People pay tax because the
law stipulates so”.
The resources raised
from tax are used by the authorities (governments) to run the affairs of the
state. In under developed economics the money realized through taxation is too
meager as compared with other developed world. This results in shortage of
capital. Therefore, the problem of capital formation in the under-developed
economics, as it relates to public finance are broken down into three (3) main
parts:
The first concerns
the financing of social overhead investment, which must be undertaken by the
government. The second deals with an intermediate zone, in which the actual
investments or projects are in private hands, but the funds are made available
through government finance (public finance/fund). The third deal with the
necessary incentives to private investments, both domestically and
internationally. The instruments which are used to grant these incentives,
to the private investments, are taxation and other fiscal measures.
In the above three
(3) directed towards maximizing savings, mobilizing revenue for productive
investments and directing or monitoring them so as to serve the purpose of a
balanced development programme.
Lawal (2007),
“Taxation is this: a system of mobilizing and moving resources between the
different sectors of the economy. It is an instrument for redistribution of
wealth among the people in an economy”.
Whenever tax matters
are in discourse, it pre-supposes the existence of a higher authority in any
given socio-economic system.
To this end, tax is a
universal liability and one cannot avoid the payment of tax just by avoiding
the use of any amenity built with tax money. It is essential therefore, for one
to understand that some amenities have inclusionary factors. One cannot
say, for instance, that does not want to benefit from national health services,
electricity or water supply etc which have exclusionary factors. One can always
avoid paying water or electricity bills just by abstaining from the use of it.
Further more, it is
impossible to measure the amount of benefits derived by (A) from national
defence as against that derived by (B). In order to ensure equity, therefore, (A)
and (B) should pay the same amount as tax. The general determinants of the
amount payable by each will now be their income. Lawal (2007), said “it should
be realized that in most countries today, the government has become the
greatest spender of money. Taxation has not only influenced the economy of
these countries, it has also, become an important instrument of economic
policies. Thus, an increase in government spending (tax money) rightly involves
a corresponding decrease in individual spending.
Enugu State board of
internal revenue is the agency or department of government that is responsible
for tax collection in Enugu State. This board itself is an annex of the state
ministry of finance, and the economic development and utilization of the tax
revenue is their reasonability. The board has the power to assess and
subsequently collect taxes from persons, institutions, organizations etc which
are taxable within Enugu State, its area of jurisdiction. However, this is with
the exception of united liability companies member of the armed forces, the
police etc which are within the federal government exclusive list.
In less developed
economics like Nigeria, the government is finding it increasingly difficulty to
marshal the necessary resources in the right place at the right point in time.
Bird et al (2000)” in under developed
economics, tax resources account for about (10-15) percent of national income
while it goes up to 30-40 percent in advanced countries it is this, common
knowledge that the less developed counties is the lower in ratio of tax payment
to national income. This is as a result of ignorance of the main objective of
taxation as well as the prescription of the efficiency or other wise of the
management and utilization of tax revenue by the government. Hence these
conditions must exist to ensure efficiency in income taxes.
a. Existence of a
money economy
b. High standard of
literacy among tax payers.
c. Proper accounting
records of tax proceeds
d. Voluntary
compliance by the tax payers
e. Political
stability
f. Honest
administration of tax revenues.
These
aforementioned conditions are often lacking in many cases. In essence, if a tax
system is seen to be effective, it pre-supposes that efficient and self
–accounting structure has been put in place to ensure maximum benefits for
instance, some people argue that tax should be used to check unnecessary
diversion of wealth and savings into land, inventories, building and other investments
held for speculative or prestigious purposes. However, in as much as the
government may levy some taxes to check the excesses of some individuals (i.e
by reducing their disposable income). It should also use taxes as an economic
catalyst. Nowadays, the term “tax-payer has expended to include both women in
salaried employment and others with an identifiable source of income.
Furthermore, tax
policies should be formulated in a way to encourage private initiative in
commerce and industry. Another problem in taxation that should receive our due
attention is public resistance against civic obligations, especially
taxes. It has now gotten to a stage where government employs the service
of armed forces and even price fighters to do the job of tax collection so as
to crush the resistance of tax defaulters.
But people should not
wait to be coerced before they can perform their taxes. How could we make
the equation balance? Even civilization has not given the city people
needed education on the purpose of taxation. Some opinion leaders contend
that is it unwise to make sweeping generalization on people’s negative attitude
to tax.
This is because some
people are more interested in seeing the right application for tax money
rather than deliberate refusal to pay tax. Quite often, there is a
missing link between the tax collectors, the officials of the Board of Internal
Revenue, and the point of payment into Government Treasury. And so much
money has in this way been diverted to private pockets.
In principles, all
adults from the age 18 years and above, but not above the age of retirement, if
the tax payer is a salary earner, are liable to pay tax. But in practice,
it is only those that have known source of income that the law expects to pay
tax. However, every adults is a potential tax-payer and is consequently
required to pay tax as a way of encouraging people to work for a living.
Every year, budgets
are drawn within having a reliable estimate of expected tax revenue.
Nevertheless, tax is still expected to improve the economic life of the state
and the nation at large.
1.2
STATEMENT OF THE PROBLEM
A good number of
government projects over the years have been abandoned because of reasons which
are not clear enough to the citizens of Nigeria some of the project include
roads, water project, electricity etc. The problems are itemized as
follows:
1. Problem of
inefficient tax collection machinery in Enugu State.
2. There is
problem of Tax avoidance and evasion.
3. Problems on
how to eliminate of tax avoidance and evasion.
4. There are
inequitable amenities provided by the government compared with tax revenue
collected.
5. Problem on
how government could educate the public on the important of paying tax.
6. Problem to
apply Pay as You Earn (PAYE) on individual and companies?
1.3
OBJECTIVES OF THE STUDY
a.
To find out how efficient the present tax collection
machinery in Enugu
State is.
b.
To find out the major cause of dwindling tax revenue
in Enugu State.
c.
To find out if the tax avoidance and evasion can be
completely
eliminated.
d.
To find out if the amenities provided by the government are in comparism to the
tax collected.
e.
To find out the strategy which government should use to educate the public
especially in the rural area who are predominantly illiterate on the need to
pay taxes.
f.
To findout how efficient the present tax rate is.
1.4
RESEARCH QUESTIONS
a. How
effective is the tax collection machinery in Enugu state at present?
b. What are the
major causes of dwindling tax revenue in Enugu state?
c. Could
tax avoidance and evasion be completely eliminated?
d. Are the
amenities provided by the government in comparism to the tax revenue collected?
e. How could
the government educate the public on the importance of paying tax?
f.
How efficient is the present tax rate?
1.5
STATEMENT OF HYPOTHESIS
H0: There is no
inadequacy in the tax collection machinery
is Enugu State.
HI There
is inadequacy in the collection machinery in
Enugu State.
Ho Tax avoidance and
Evasion are not the major cause of
dwindling tax revenue
the state.
HI Tax avoidance
and evasion are the major cause of
dwindling tax
revenue in the state.
Ho: Direct collection of tax by the
officials should not be
used by government as
a measure for collection of tax.
HI: Direct
collection of tax by the officials should be used
by
government as a measure for collection of tax.
Ho: There is no in
commensuracy in the provision of
amenities by the
government in relation to the tax collected.
HI: There is
incommensuracy in the provision of
amenities by the
government in relation collection.
1.6
SIGNIFICANCE OF THE STUDY
It is hoped that this
study will be immense assistance to:
i.
The government for it is to see the need to carry the people along in planning
the programmes and projects which are to be executed with tax revenue.
ii.
This study will also help the general public to become more knowledgeable
on the tax matters and the need to pay tax.
iii.
It is as well expected that the collectable revenue will rise, if the
government would fully implement the recommendation.
iv.
Perhaps, with the enhancement in the revenue base of the government, resulting
from the implementation of the accompanying recommendations made if this study
non-payment of salaries, as well as, case of abandoned projects, due to lack of
fund will become a thing of the past.
v.
The government will also understand the measures and means with which to
educate the people and maximize its tax revenue.
1.7
SCOPE OF THE STUDY
Knowing how vast and
demanding a study on this issue “taxation” could be the area of coverage in
terms of geography in Enugu State. In terms of an evaluation of the subject
matter, the study concentrate much on the management and utilization of tax
revenue.
1.8
DEFINITION OF TERMS
a.
Incidence Of Tax: This means the burden of tax, therefore the burden of
tax responsibility falls on the tax payer or other individuals, indirectly
b.
Tax Payer: This is the individual institution or organization that has
the duty to pay tax.
c.
Tax Evasion: This means in will full act of criminally which involves
that the failure on the part of a taxable person to disclose his actual taxable
income for the purpose of tax assessment and thereby escaping partially or
completely from tax liability.
d.
Tax Avoiding: This is the legal method employed by individuals,
organization etc paying taxes in order to minimize their tax liability.
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