Company Income Tax Administration In Nigeria, Problem And Solution

Government of today has a lot of ways of generating income or revenue to facilitate or finance its project, which may be difficult for individuals or corporate bodies to provide .Government income, is incomplete without sourcing from its citizen, companies and residual in its geographical location. Taxation may be defined as a compulsory levy imposed by the government on individual, corporate bodies, government parastatals; goods and services to enable government provide essential services to the citizens and also as instrument to stabilize economy.

The aim of this research project is to examine Company income tax Administration in Nigeria problem and solution using (Federal Inland Revenue Services as a case study).

In conducting this research work, the researcher used both primary and secondary data to gather relevant data. Questionnaire (both opened and closed ended questions) were administered to Federal Inland Revenue Service in Lagos State to source for relevant information that can used to provide solution to the problem under study. Interview was also used by the researcher where necessary. Secondary data used for this research were gathered from textbook, journals, handbooks and internet. Data collected was analyzed using frequency, simple percentage and Chi-square to test the hypothesis. The empirical result of this research project reveals that there is no effective and good operating tax policy in company income tax administration in Nigeria and that Taxes collected from companies are not used for economic development of the nation (Nigeria).

Introduction

1.1 Background to the Study

It is not an overstatement that taxation plays a prominent role in the economy of any nation as one of the major means of generating revenue. In the past government derived more revenue from Company Income tax compared to any other sources of revenue but now reverse is the case and this is due to the ineffectiveness of the administrative machinery of Company Income Tax .i.e., Federal Inland Revenue Service (FIRS), the government policy and the conduct of the tax payers.

It was also observed by the Federal Inland Revenue Services (FIRS) that many Companies are in the habit of evading company income tax payment and this attitude has slowed down the growth of economy of the nation.

However, the various taxes collected by the government particularly the company income tax are used to provide social amenities like water, electricity, good road network, education, health care services and many more which in tum promote the standard of living of the citizens and residents of a nation. Without prompt payment of tax by the companies and other tax payers, the government may not be to fully play its expected roles to the citizens. In many of the developed and underdeveloped countries taxation has been the major source of revenue to the government unlike Nigeria where all attention is being concentrated on crude oil as the major source of income to the government.

Furthermore, taxation is a yardstick by which government regulates production and consumption of goods and this role attests to how taxation contributes to the growth ofa national economy but the reverse is the case in Nigeria system. The partial neglect of this source has turned the economy of the country into mono-economy and the revenue from this source can also be regarded to as mono-revenue.

In a tax system, the company income tax is a form of direct tax which the taxpayer themselves bear the burden. This is the reason why some companies try to evade the payment of such taxes compare to the indirect form of taxes in which the burden is transferable. This means that the finalusers of such goods bear the burden of such taxes indirectly.

Hence, many companies avoid tax or completely evade tax thereby reducing the total revenue of the government.

1.2 Statement of the Problem

In order for government to provide or perform its function to the society, there must be some means of imposing levy on individual and enthies: profit and income, and one of this is through company income tax. In view of these, many business, government and Federal Inland Revenue Service have contributed to the problem being faced .by this source of revenue and some of those problems are:

There is no effective and good operating tax policy of company income tax

There is no thorough inspection of companies on the relief to be claimed by the Federal Inland Revenue Service.

There is no effective "Communication network between the Federal Inland Revenue Service and Companies.

Government does not show full concern to company income tax.

There is no severe punishment and fine for company that fails to register, make returns or evade tax.

Inconsistent government policy on the administration of company income tax.

1.3 Objective of the Study

The objective of the study is to determine the problem of company income tax administration in Nigeria and the proposed solution or way out to such problem.

1.4 Limitations Of Study

During the course of carrying out this research work, researchers were faced with financial constraint, and this is why it was not possible to travel to other states of the federation where offices of Federal Inland Revenue Service are located to collect some other needed or necessary information.

So, the findings were only restricted to the Federal Inland Revenue Service (FIRS) Ikeja branch of Lagos State.

Also, there was problem of restricted information, because some of the staff of the Federal Inland Revenue Service (FIRS), Ikeja was reluctant to fill the questionnaire administered to them while some refused to fill the questionnaire at all

1.5 Statement of Research Question

The research work will attempt to answer the following questions:

Does the government show full and adequate concern to company income tax as a source of revenue?

Is the federal Inland Revenue Service (FIRS) thoroughly investigate the reliefs claiming by the companies?

Is there any form of training and seminar for the personnel of Federal Inland Revenue Service?

Is the Federal Inland Revenue Service educating and informing the companies at the appropriate time?

Is there any good communication contact between the Federal Inland Revenue Service and Corporate Affairs Commission (CAC)?

Does the Federal Inland Revenue Service and the government work hand in hands to ensure that new companies and unregistered ones are registered?

Is there any penalty or fine for any company that failed to be registered, make returns or evade tax?

Does the Federal Inland Revenue Service ensure prompt collection of tax as at when due?

1.6 Research Hypothesis

Hypothesis I

H0 (Null hypothesis): There is no effective and good operating tax policy of company Income Tax administration in Nigeria.

Hi (Alternative Hypothesis): There is an effective and good operating tax policy of company income tax administration in Nigeria.

Hypothesis II

Ho(Null hypothesis): Taxes collected from companies are not used for economic development of the nation.

H1 (Alterative Hypothesis): Taxes collected from companies are used for economic development of the nation.

Hypothesis III

Ho(Null hypothesis): FIRS and government does not work hand in hands to ensure that new companies and unregistered ones are dully registered with FIRS for tax purpose.

H (Alternative Hypothesis): FIRS and government work hand in hands to ensure that new companies and unregistered ones are dully registered with FIRS for tax purpose.

1.7 Significance of the Study

Since this study shed light on the administration of company income tax in Nigeria, the author humbly believes that the study will be of immense benefits to the government and administrative machinery (Federal Inland Revenue Service) in reforming the tax policy.

It would also enable the various companies who are paying company income tax to get good orientation on the importance of taxation and thereby stop evading tax.

1.8 Scope of the Study

This study looks at the administration of company income tax in Nigeria. In the light of this, the study will focus on companies within Lagos State. The companies and individual to be covered in this research work include:

Tax Authority (Federal Inland Revenue Service Ikeja Office, Lagos)

Tax payers (Companies)

Tax Consultants

1.9 Definition of Terms

Tax:

It can be defined as money or charged compulsory levied or imposed by a public authority on the income of individuals and companies as stipulated by the government decrees, acts, or case law irrespective of the exact amount of service rendered to payer in return.

Taxation:

This is the process or method of calculating and assessing an individual and companies as to the amount to be paid as tax liability.

Administration:

This is the part of management which is concerned with the installation and carrying out the procedure by which, the programme is laid down and progress of activities is regulated and checked against plan.

Objective:

Objective is an offspring of the mission statement of an organization which entails the breakdown of attainable goals a firm seek to attain and constitute the principal reason for a finn"s existence.

Direct Tax:

This is a form of tax levied by government on the income and revenue of individuals and companies in which the burden is not transferable. Examples are Personal income tax, Pool betting tax, Capital gain tax, Companies" income tax, Education tax, Withholding tax and Petroleum profit tax.

Indirect Tax:

This is a form of tax imposed by the government on the value of goods and services. The incidence of payment falls on the tax payer while the real burden is shifted to the final consumer. Indirect taxes are only payable on consumption e.g. Value Added Tax (VAT), Import and Export duties, Custom duties, e.t.c,

Tax Evasion:

This is a deliberate act on the part of the taxpayer not to pay tax due. It is a criminal act under the tax law because it is illegal.

Tax Avoidance:

This refers to the legal means by which the taxpayers minimized their tax liabilities by taking the advantages of the loopholes in tax laws and regulation.

Summary of Findings, Recommendations and Conclusion

5.1 Summary of Findings

The type of this study is "COMPANY INCOME TAX ADMINISTRATION IN NIGERIA, PROBLEM AND SOLUTION. A case study of Federal Inland Revenue Services (FIRS) Ikeja Branch. Lagos-State.

The objective of the study as earlier stated is to determine the problem of Company Income tax administration in Nigeria and the proposed solution or way out to such problem.

The significance of the study is to shed light on the administration of the company income tax in Nigeria, the researcher humbly believes that the study would be of immense benefits to government and administrative machinery i.e. (Federal Inland Revenue Service) in reforming the tax policy. The study would also enable the various companies who are paying company income tax to get good orientation on the importance of taxation and thereby stop evading tax.

Moreover, the scope of the study covers the aspects of the problem of the company income tax administration in Nigeria in relation to government, Federal Inland Revenue Service (FIRS) and the companies.

According to Mr. SegunGandolu,(Head of Tax Accounting department of Federal Inland Revenue Service Ikeja, Lagos) the major problem facing Company income tax administration in Nigeria is Tax Evasion and Tax Avoidance.

He further explained that before the inception of automated banking system in Nigeria i.e. the E-banking system,

The Federal Inland Revenue Service was facing a lot of problems originating from collecting agents i.e. the banks among which are:

Non-remittance of tax collected on behalf of Federal Inland Revenue Service.

Inadequate remittance of the tax collected on behalf of FIRS.

Issuing of fake or false receipt to customer i.e. companies paying tax etc.

According to him, many of the banks collecting company income tax on behalf of Federal Inland Revenue Service failed to remit the tax collected while many like Golf Bank, Savanah Bank etc.liquidated with the money unremitted.
Moreover, he explained that with the inception of automated banking system the problem has drastically reduced since every collecting agent have to issue collateral to Central Bank of Nigeria (CBN) for every tax collecting by their respective branches nationwide.

However, some of the problems of the administration of company income tax also include the following:

Government has failed to employ capable hands in handling tax matters and this has gone a long way to reduce the revenue of the government.

Government charges tax rate quite often. There is no constant tax rate for all the years of assessment. Tax rate in each year"s budget estimates.

Inadequate training and orientation for the workforce of the Federal Inland Revenue Service on the proper examination of books of account and computing adjusted profit of companies for tax purpose. For instance during the time of visit to the Federal Inland Revenue Service office at Ikeja, Representative of a company came in and ask that how would his company calculate its assessable profit for tax purpose. The attendant answered "your assessable profit is 30% of your turnover" which is absolutely wrong.

Government involves group of people, those group of people have companies, and they avoid and evade tax payment because they are in power.

There is low incentive to tax officers, this has led to low morale on the part of some tax officers. It also brings high labour turnover each year in the sense that tax officers/revenue collectors tend to leave the job result to the receiving or collection of bribes from companies.

The research study was carried out at the Federal Inland Revenue Service (FIRS) Ikeja, Lagos State Chapter.

Company income tax is defined as the compulsory levy on all companies in respect of income accruing, derived from, brought in or received in Nigeria whether incorporated in Nigeria or not.

The body responsible for the administration of tile Company Income Tax Act(CITA) and the tax is the Federal Inland Revenue Service (The Board).

Again, in the literature review this research work conscious efforts are made to identify some of the problems that hinder the effectiveness of the administration of company income tax in Nigeria and these problems are viewed from three (3) perspectives namely:

Those viewed from the perspective of the government.

Those viewed from the perspective of the administrative machinery of company income tax (FIRS) and

Those at the instance of companies.

(i) Low Standard of Record keeping:

For accurate assessment to be made, the importance of proper record keeping cannot be under-emphasized. But, most of the companies do not keep proper record of account and this constitutes a problem to the tax officers in assessing the income of such companies.

(ii) Complexity in Tax Laws or Acts:

the act guiding the assessment of company income tax (CITA) 1979 has been complex and may not be too easy for a layman to understand due to frequent review. These poses a problem not only to tax payers but also to some tax officers, as they would not find it easy to interpret.

(iii) Shortage of qualified hands:

The tax officers are inadequate and this constitutes a lot of problems in that few people cannot cover the available areas.

The research design used in this research work is descriptive research design, and in descriptive research, the main concern is to carefully and objectively observe and then describe adequately what has been observed.

The target population of this research work is restricted to Ikeja, Lagos State.

The population for this study are members of staff of Federal Inland Revenue Service (FIRS) Lagos State chapter, Ikeja.

The method of data collection was mainly restricted to the use of questionnaires, which were administered to the top-middle level workforce/manpower of Federal Inland Revenue Service (FIRS) Ikeja, Lagos State.

The method of data analysis is through descriptive statistics and this deals with describing and analyzing data with specific reference to distribution of the variables and summarization of a large quantity of data. Examples of descriptive statistics are: percentages, some measures of central tendency and measure of dispersion.

In this research work, frequency table and percentage were used in analyzing data.

The aspect of the data presentation and discussion of findings clearly shows respondents opinions and clearly indicates how the administration of company income tax are being carried out.

5.2 Conclusion

As earlier discussed in this research project, it is not and over -statement that taxation plays a prominent role in the economy of any nation due to its immense contribution to the economy as a major and indispensable source of revenue to the government.

The objective of this research work has been to examine the problems besetting the administration of company income tax in Nigeria and to suggest or proffer likely solution to them. In the past government derived more revenue but now reverse is the case and this is due to the ineffectiveness of the administrative machinery of company income tax i.e. Federal Inland Revenue Service (FIRS), the government policy and the conduct of tax payer.

It was discovered in the findings that collective agents i.e. banks had been a major parasite to the administration of company income tax before the inception of automated banking system (e- banking system). It was gathered that most of the collecting banks then are found of the habit of not remitting collected tax to Federal Inland Revenue Service as at when due while some does not remit thenfully and some of them even liquidated with the taxpayer"s money unremitted¬among which are Savanah Bank, Golf Bank etc.

The effect of these problems has led to poor or low revenue generation through the administration of company income tax which has made government to pay less attention to taxation as a means of revenue generation hence more attention is being concentrated on crude oil as the only major source of government revenue in Nigeria whereas this taxation has been the major source of income to some develop country in the world who does not even have crude oil at all.

However, based on this research work, it can be deduced that government, Federal Inland Revenue Service (FIRS) and the companies have contributed in no small measure to the problem besetting the successful administration of company income tax in Nigeria. Therefore if all recommendations below are judiciously utilized by various parties concerned, the problem will be minimized if not totally eradicated and taxation will regain its lost glory.

5.3 Recommendations

In the light of the problems highlighted in the study, recommendations are as follows:

Government should embark on an intensive campaign to enlighten and orientate management of various companies or the public at large about the importance of paying company income tax.

Government should endeavour to be utilizing tax payer"s money judiciously on meaningful projects that the citizen will benefit from so as to erase the bad impression in the mind of tax evaders and tax avoiders.

Based on the findings, collection of company income tax is being handled by few hands, that is, there is shortage of personnel. As a result of this, more qualified hands should be employed to mount the sensitive post in revenue department so as to curb the problem of low tax collection.

There should be periodic apprehending of tax evader and enforcement of strict penalty on them like the case of thirty one (31) CEO of hotels arrested in Abuja (the Federal Capital Territory) for tax evasion according to the punch newspaper of Friday 18th November, 2011.

There should be a link between the Corporate affairs Commission (C.A.C) and Federal Inland Revenue service (FIRS) periodically updating FIRS about any newly registered co~pany across the nation for FIRS to visit them and ensures they are registered for tax purpose and filling their returns as at when due.

Adequately facilities such as vehicles, stationeries, furniture etc. should be provided for the tax officers to gear-up their morale. If tax officers are made to operate under conducive atmosphere or working condition, they would be able to put in their best.

The administrative machinery of company income tax should ensure proper training, seminars and orientation for tax officers especially tax accountant.

Finally, government should ensure proper auditing and investigation of the administrative machinery i.e. Federal Inland Revenue Service (FIRS) so as to evacuate the saboteur among them

Preliminary Page(s)

Title Page

Declaration

Approval

Dedication

Acknowledgement

Abstract

Table of Content

Chapter One:

Introduction

1.1 Background to the Study

1.2 Statement of the Problem

1.3 Objective of the Study

1.4 Limitation of Study

1.5 Statement of Research questions

1.6 Research Hypothesis

1.7 Significance of the Study

1.8 Scope of the Study

1.9 Definition of Terms

References

Chapter Two:

Literature Review

2.1 Definition of Company Income Tax

2.2 Administration of Company Income Tax

2.3 Basis of Assessment of Company Income Tax Liability

2.4 Chargeable Income and Income exempted from Tax

2.5 Tax relieves and allowances granted to Companies

2.6 Allowable and Disallowable Expenses

2~7 Companies" Profit exempted from Taxation

2.8·" Problems of Administration of Company Income Tax

2.9 Effects of the problems on Taxation in Nigeria

2.10 Strategies employed by Companies to escape Tax

References

Chapter Four:

Data Presentation and Discussion of Findings

4.1 Data Presentation

4.2 Discussion of Findings

4.3 Method of Validity and Reliability Test

Chapter Five:

Summary of Finding, Recommendation and Conclusion

5.1 Summary of Finding

5.2 Conclusion

5.3 Recommendations

Bibliography

Appendix 1

Appendix 2

• Impact Of Company Income Tax Revenue On The Developing Economies; The Nigeria Experience
• Analysis Of The Challenges Facing Company Income Tax Administration In Nigeria
• Impact Of Company Income Tax On Foreign Direct Investigation
• Nigerian Tax System: The Significance Of Company Income Tax And Its Effects On Nigerian Companies
• Company Income Tax And Economic Growth In Nigeria
• Problems And Prospects Of Company Income Tax Administration

• Accounting Project Topics and Materials