ABSTRACT

This research study on the impact of tax reforms on revenue generation in Nigeria was carried out to ascertain the impact of tax reforms on the volume of revenue generated from various taxes collectable at the Federal Inland Revenue Service Calabar. Furthermore, the study seeks to discover the impact of the reforms on individual tax and also determine the direction of the impact. Accordingly secondary data of tax revenue for six years and from different tax type were collected. In order to manage the data size, the data were treated as log. The percentage chi-square and Pearson’s Product Moment Correlation coefficient analysis technique were used for the analysis. The result reveals that while the reforms have impact on the volume of revenue generated in some taxes, it however did not have impact on others. It was therefore recommended that: in order to ensure sustainable fiscal policy, the various government tiers should seek the improvement in, the treatment of taxpayers and tax administrator, adequate investment for the tax system and judicious spending of tax payer money.

TABLE OF CONTENTS

Chapter One:     Introduction

1.1    Background of the Study      

1.2    Statement of the Problem    

1.3    Objective of the Study

1.4    Scope of the study

1.5    Research Question      

1.6    Operation Hypothesis  

1.7    Significant of the Study       

1.8    Organization of the Study

1.9    Definition of Terms     

        References       

Chapter Two:     Literature Review and theoretical Framework

2.1    Review of Related Literature

2.1.1 Consolidated Relief Allowance       

2.1.2 Tax Income Rate

2.1.3 Minimum Tax     

2.1.4 Filling Annual Return   

2.1.5 Tax Immunity    

2.2    Theoretical Framework        

2.2.1 The Theory of Tax Borden

2.2.2 Equity Theory of Taxation    

2.2.3 Ability Theory of Taxation

2.2.4 The Benefit theory      

2.2.5 Tax Enforcement Theory     

2.2.6 The Voluntary Exchange Theory   

2.3    Fiscal Policy or Taxation in Nigeria 

2.4    Objectives of Fiscal Policy    

2.5    Effects of Fiscal Policies in Nigeria 

2.6    Fiscal Policy to Reduce Unemployment (deflation)    

2.7    Fiscal Policy to Reduce Inflation    

2.8    Personal Income Tax (PIT)  

2.9    Company Income Tax 

2.10  Education Tax    

2.11  Petroleum Profit Tax (PPT)   

2.12  Capital Gain Tax 

2.13  Custom Duty      

2.14  Excise Duty       

2.15  Problem of Administration    

2.16  Absences of National Tax Policy    

2.17  Tax Jurisdiction in Nigeria    

2.18  Judicial Problems        

2.19  Data and Information Technology Management       

2.20  Administrative Issues and Data collection Problem   

2.21  Federal Tax Institution

2.22  Formation of the Federal Board of Inland Revenue 

2.23  The Nigerian Custom Service

2.24  The Joint Tax Board

2.25  State Tax Institutions  

2.26  Joint State Revenue Committee    

2.27  The Local Tax Institution      

Chapter Three: Research Methodology        

3.1    Research Design 

3.2    Method of Data Collection and Source    

3.2.1 Primary Data     

3.3    Model Specification

3.4    Description of Population     

3.5    Sample and Sample Techniques    

Chapter Four: Data Presentation, Analysis and Discussion of Findings

4.1    Data Presentation       

4.2    Analysis of Data 

4.3    Presentation of Data for Questionnaire   

4.4    Discussion of Findings  

Chapter Five:     Summary, Recommendation and Conclusion

5.1    Summary of Major Findings 

5.2    Conclusion 

5.3    Policy Recommendation

5.4    Suggestion for further Research    

References       

Questionnaire  

Appendices:

One: Structure of Federal Government Revenue     

Two: -

Three: Major Tax Law 

Four: Unloged Revenue Value Taxes in Period X and Y     

CHAPTER ONE

INTRODUCTION

1.1    BACKGROUND OF THE STUDY

Nigeria is governed by a federal system; hence its fiscal operations also adhere to the same principle. This has serious implications on how the tax system is managed in the country. In Nigeria, the government’s fiscal power is based on three – tiered tax structure divided between the federal, state and local governments, each of which has different taxes jurisdiction. As of 2002, all three levels of government share about 40 different taxes and levies.

The Nigeria tax system is lopsided, and dominated by oil revenue. The most veritable tax handles are under the control of the federal government while the lower tiers are responsible for the less buoyant ones – the federal government taxes corporate bodies while state and local government tax individuals. While the federal government on average accounts for 90 per cent of the over all revenue annually, it only accounts for about 70 per cent of total government expenditure. In 1995, the breakdown of total tax and levy collection of the three tiers was 96.4 per cent for the federal government and 0.4 per cent for the local government (Phillips, 1997). A major element contributing to this development was the prolonged military rule that had ignored constitutional provision.

Over the past four decades, the country’s revenue was largely derived from primary products. Between 1960 and the early 19970s, revenue from agricultural products dominated, while revenue from other sources was considered as residual. Since the oil boom of 1973/4 to date, however, oil has dominated Nigeria’s revenue structure and its share in federally collected revenue rose from 26.3 percent in 1970 to 81.8, 72.6 and 76.3 in 1979, 1989 and 1999, respectively. Over the past two decades oil was accounted for at least 70 percent of the revenue, thus indicating that traditional tax revenue, has never assumed strong role in the country’s management of fiscal policy. Instead of transforming or diversifying the existing revenue base, fiscal management has merely transited from one primary product based revenue to another, making the economy susceptible to fluctuation of the international oil market.

The need to address this problem led to several taxes policy reforms. The tax policy reviews of 1991 and 2003, as well as the yearly amendments given in the annual budget, were geared towards addressing this issue. But not much has been achieved. Perhaps to understand the importance of tax policy reforms, one needs to appreciate the urgency for such reforms. Why the need for tax policy reforms in Nigeria? First, there is a compelling need to diversify the revenue portfolio for the country in order to safeguard against the volatility of crude oil prices and to promote fiscal sustainability an economic viability at lower tiers of government. Secondly, Nigeria operates on cash budget system, where as proposals for expenditure are always anchored to revenue projections. This facilitates determining the optimal tax rate for a given level of expenditure. Thus accuracy in revenue projection is vital for devising an appropriate framework for sustainable fiscal management, and this can be realized only if reforms are undertaken on existing tax polices in order to achieve some improvement.

Thirdly, Nigeria tax system is concentrated on petroleum and trade taxes while direct and broad based indirect taxes like the value – added (VAT) are neglected. This is a structural problem for the country’s tax system. Although direct taxes and VAT have the potential for expansion, their impact is limited because of the dominance of the informal sector in the country. Furthermore the limited formal sector is supported with strong unions that act as pressure groups to deter any appreciable tax increment from gross income. Fourthly, the widening fiscal deficit that over the years has threatened macro-economic stability and prospects for economic growth makes the prospect of tax reform very appealing. The ratio of deficit to GDP averaged 9.98 and 6.0 per cent for the periods of 1990- 2001, in 1993 it was 15.5 per cent (Ayodele, 2006).

Also, the study groups on the review of the Nigeria tax system in 1991 and 2003 highlighted the need to increase tax revenue and reduce expenditure as the major fiscal issues to be addressed. As such, the primary objective of the study groups was to optimize revenue from various sources within the country.

Finally, the necessity to improve the tax notification procedure was underscored in order to facilitate effective evaluation of the performance of the Nigeria tax system and to promote adequate planning and implementation. The management associated with regular result – oriented tax reforms has significant bearing on the overall micro economic performance and the distribution of resources between public and private sectors as well as within the public sector.

1.2    Statement of the problem

Nigeria tax system is unduly complex, skewed, low revenue yielding, poorly administered, anti-federalism, largely inequitable and loaded with unduly large number of overlapping taxes which have more nuisance value than revenue value. The system is further worsened by the poor policies, inconsistency in legal application, and low impact on the economy, non-dynamic and so on.

Furthermore, corruption, arbitrariness, high-handedness, extortion, sabotage, frauds and general lawlessness, heavily characterized tax management, particularly at local government, and to a lower degree at state and federal level.

Finally, the system remains paralyzed by fundamental lack of tax information, poor data management and absence of information technology. Besides, the system has increasingly become a nuisance and burden on the citizens in general and tax payers in particular. Based on this, the study Was conducted to find out solutions to the problems which has been identified in this study, “the impact of tax reforms on revenue generation in Nigeria”.

1.3    Objective of the study

The purpose of the study is to ascertain the impact of tax reforms on the volume of revenue generated from various taxes  between the year 200 and 2005 at the federal inland revenue service (FIRS) (Calabar integrated tax office). This period is divided into two, pre-reformative period 2000-2002 and post reformative period 2003- 2005.

The study specifically seeks to find out

1. The main tax reforms in the country,
2. Ascertain those problems that could prevent effective tax implementation in the country,
3. Determine the impact the various tax reforms had on revenue generation in the country in terms of accomplishment of fiscal objective of economic growth, full employment level etc.
4. Discover the impact the tax reforms had on individual tax revenue,
5. Compare the revenue generation from taxes for both pre-reformative and post reformative periods.
6. Determine the direction of impact and finally
7. To investigate the overall impact of tax reforms on revenue generation from both direct and indirect taxes in relation to both pre and post reformative periods.

1.4           Scope of the study

Nigerian tax system is a national issue and involves all aspect of taxation both oil and non oil taxes. It also involves taxes at all tiers of government. This study covers taxes collectible by (FFIRS) federal Inland Revenue service (Calabar integrated tax office).

The study would focus on the revenue generated from those taxes collected by Calabar integrated tax office of FIRS for period between 2000 and 2005.

1.5    Research question

The following research questions were stated to guide the study.

1. What impact have the various tax reforms had on revenue generation in Nigeria?
2. What impact has company income tax reform had on revenue generation from company income tax?
3. What impact has consolidated tax reform on revenue generated from consolidated tax?
4. To what extent has reform on Education tax had impact on the revenue generated from Education tax?
5. How have the reforms on value added tax impacted on the volume of revenue generated?

1.6    Operational hypothesis

In order to achieve the objectives of this research, the following null hypothesis were stated.

Null hypothesis one

H0:    Tax reforms on revenue generation have no significant impact on fiscal policy objective of economic growth.

Null hypothesis two

H0:    tax reforms on revenue generation have no significant impact on company income tax.

Null hypothesis three

H0:    consolidated tax reforms have no significant relationship on revenue generation.

Null hypothesis four

H0:    there is no significant relationship in education tax and its influence on revenue.

Null hypothesis five:

H0: reforms on VAT have no significant relationship on revenue.

1.7    Significant of the study

This study is very significant because it would address malfunctioning in Nigerian tax system. This would in turn have multi dimensional benefits to all stakeholders in the tax system in that, tax policy makers, legislators, tax administrators, tax institutions, federal, states and local governments, tax consultants, stake holders, lecturers, researchers, indeed tax payers, and every citizen of this country would derive immense benefit from this work, as this research would serve as a working document or reference material to all.

1.8    Organization of the study

The study was organized e five chapters, chapter one contains the introduction, the statement of the problem, purpose of study, significant of the study, definitions of terms used in the study, scope of the study, research questions, hypothesis, organisation of the study and historical background of FIRS. In chapter two, a review of the related literature was made. Chapter three presents a research methodology and design of the study. In chapter four, thee data collected is presented, analyzed and interpreted through the use of tables and figures to fully explain the findings. Chapter five is the final chapter and contains the summary, conclusions and recommendations.

 1.9 Definition of terms

TAXATION: It is defined by C.S. Ola (1987) as the demand made by government of a country for compulsory payment of money by the citizens. It is a means of transferring resources from the private sectors to the public sector in order to accomplish some of the nation’s economic and social goals.

Tax Collector: This is a duly authorized official of the service of the State or Federal Board of Laland Revenue vested with the responsibility of collecting tax revenue from taxable persons and corporation.

Relevant tax authority: This refers to the tax authority of the territory in which the dividend is deemed to be resident that year. 

Place of residence: The place of residence, in relations to individual, mean a place that is available for domestic use of the dividend in Nigeria on the first in a relevant tax year.

Earned income: Is any income derived from any trade, business, profession, vocation or employment exercised by him.

Unearned income: This is limited to investment income such as dividends, rents and interest. They are received not of withholding tax.

Statutory total income: This is sum total of earned and unearned income.

Capital allowance: These a re allowance granted at approved specified rate on qualifying capital expenditure and on assets in use for the purpose of the business at the end of the relevant basis period.

Tax free: This defined as any payment, allowance benefit or other amount of income that is not subject to taxation.

Revenue: This defined as an increase in owner’s equity in a business resulting from transaction of any kind except investment of assets in the business by the owner.

Fiscal policy: The use of Governments spending to influence macro-economics conditions.

Gross domestic product (GDP): This is the value of all goods and services produced in a country over a time period, usually one year.

Assessable profit: The assessable profit according to Ariwodola shall be the adjusted profit of the period after adjusting for the effect.

Taper relief: According to oxford Dictionary of Accounting 3rd Edition, a tax relief that can be set aside against capital gains made on disposal asset.

Taxable person: Accounting to oxford dictionary of accounting 3rd Edition, an individual, partnership, limited liability company, club, association or charity as defined by value added tax legislation, value added tax is charged on taxable supplies made by taxable persons in the course of furtherance of a business.

Minimum tax: Ariwodola explains minimum tax as where total income does not exceed N30,000 or where relief available to an individual is very high such that there is no chargeable income or tax chargeable income is less than 0.5% of total income minimum tax 0.5% of total income shall be payable.

Assessable profit: (S 18) the assessable profit according to Ariwodola shall be adjusted profit of the period after adjusting for the effect of any loss relief available to the company.

Chargeable profit: this refers to the exploration and production of petroleum product.

Downstream operation: this refers to marketing, distribution, industrial processing and power generation.

Non resident: a non resident cooperation or individual is liable to tax only on the profit or income deemed to be derived from Nigeria.

Residence: in Nigeria, the resident person (individual or corporate) is assessable to the global income, this means that the tax payer is liable to tax on the income or profit “accruing in or derived from, brought into or received in Nigeria”.

Taxation income: according to oxford dictionary of accounting 3rd Edition, income liable to taxation is calculated by deducting income tax allowance and any other tax deductible expenses from the tax payer’s gross income.

Tax returns: According to oxford Dictionary of Accounting 3rd Edition a form upon which a tax payer makes an annual statement of income and personal allowance.

Tax rebate: According to oxford Dictionary of Accounting 3rd Edition, a repayment of tax paid.

Tax free: Accounting to oxford Dictionary of Accounting 3rd Edition, is defined as any payment, allowance benefit or other amount of income that is not to taxation.