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Approval Of Pay-As You Earn System Of Taxation

(Case Study Of Nsukka Local Government Area)

5 Chapters
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59 Pages
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7,748 Words

The Pay-As-You-Earn (PAYE) system of taxation is a method in which individuals’ income taxes are deducted directly from their salaries or wages by their employers before they receive their net income. This system aims to streamline the tax collection process, ensuring a regular and consistent flow of revenue to the government. By withholding taxes at the source, PAYE helps prevent tax evasion and ensures that individuals meet their tax obligations throughout the year. It simplifies the tax payment process for individuals, as they don’t have to worry about making lump-sum payments at the end of the fiscal year. PAYE is often associated with progressive taxation, where higher-income earners contribute a larger percentage of their income, promoting fairness and equitable distribution of the tax burden.

ABSTRACT

The purpose of this research work is to describe the practical approach to an appraisal of pay-as-you-earn system of taxation with referee to Nssuka local government area. To guide this study, two hypotheses were formulated. A review of literature was down to ensure solid conclusion for the study. A structural questionnaire was developed and administered by the analysis adopted in this research work was chi-square, this method by researcher to ensure that result obtained were real and not by chance.
Based on the above statement some of the major findings include presentation of data and their analysis. The chapter five is discussing a bout the findings made by the researcher and recommendation as well as conclusion.
Conclusively, the researcher will add to the existing literature on an appraisal of pay-as-you0-earn system of taxation. Scope of study and limitation talk about the areas the researcher is going to touch when discussing on the appraisal of pay-as-you-earn system of taxation system are place or area that have been unable to by researched upon to time.

TABLE OF CONTENT

Title page
Approval page
Dedication
Acknowledgment
Abstract
Table of contents

CHAPTER ONE
0.1 INTRODUCTION
1.1 Statement of Problem
1.2 Purpose of the Study
1.3 Significant
1.4 Statement of Hypothesis
1.5 Scope of the Study
1.6 Limitation of the study
1.7 Definition of terms

CHAPTER TWO
2.0 REVIEW OF RELATED LITERATURE
2.1 Definition of Taxation
2.2 Functions of Taxation
2.3 Ways of Regulating Taxation

CHAPTER THREE
3.0 RESEARCH DESIGN AND METHODOLOGY
3.1 Sources of Data
Primary Data
Secondary Data
3.2 Samples used
3.3 Method of Investigation

CHAPTER FOUR
4.0 Data Presentation and Analysis
4.1 Data Presentation and Analysis
4.2 Text of Hypothesis

CHAPTER FIVE
5.0 SUMMARY OF FIN DINGS CONCLUSION AND RECOMMENDATION
5.1 FINDINGS
5.2 CONCLUSION
5.3 RECOMMENDATION
BIBLIOGRAPHY
APPENDIX

CHAPTER ONE

1.0 INTRODUCTION
The global economic recession, which started in 1980’s as a result of decline in the economic growth of industries nation, high rate of inflation, dramatics rise in price of crude oil, increase cost of important a massive building-up of liquidity in the international capital market and unusual fluctuation in commodity prices was not fully felt in Nigeria until 1982, when the developed countries applied a series of restructure monetary and fiscal policies to curtail the a fore-stated problems.
Seventeen years ago, precisely in 1983, the worldbank report that the continuing recession in the industrial world several constrained developed countries growth in 1982. Weakness in the price of oil created difficulties for oil exporting developing countries’’.
Reporting specifically on Nigeria, the bank stated that“ foreign exchange resource declined in 1982 from a level equivalent to three month worth. Investment, equal to about a third of gross domestics product (GDP) in 1980 –1981, has been radically reduced as both foreign exchange and government resource contract (85% of government revenue, both federal and states are direct generated from oil export).
An attempt to wriggle the country out of its financial predicament led to the initially of series of belt-tighten measure since 1982 to date.
These measure include:
Ban on import of a large number of goods, specially taxes on luxury goods, enforcement of trick exchanges control reputation liberalized during the earlier boom, wages and ban on employment in the public sector, increased external borrowing in anticipation of oil income and of late the introduction of value added tax (v.a.t). The impact of the dwindling revenues to the federal government and this ever decreasing portion of statutory allocation to states, has aroused tremendous interest in other source of revenue. Therefore, the hitherto relaxed tax laws are vigorously being enforced while levies of various descriptions are also being in various state of the federation.
Nsukka local government area of Enugu state is not exempted from this nation economic recession. One of the major sources of revenue to the local government, second to statutory allocation from the state and federal government, is the personal income tax (PIT) impose on all taxable persons in the local government. The personal income tax is allocated either through the Pay-As-You-Earn (PAYE) system in which employers of labour deduct tax due from the income of their employees and remit it to the division
In this study, my interest lies in appraising the effective and efficiency of Pay-As-You-Earn (PAYE) as a system of tax collection. The examination of the weakness interest in the system will be carried out and based on empincal observation, make suitable recommendation as to how loopholes in the system could be plugged especially at this time of wide spread awareness of the great potentials of internally generally revenues.

1.1 STATEMENT OF PROBLEM
The expectation of the public from governments (local, state and federal) in the developing countries are such that the later are saddle with responsibilities for the provision of various services. The 1979 nigeria constitution sec.16 (a) state. Quite clearly that “the state shall control the national economy in such manner as to secure the maximum welfare, freedom and happiness of every citizen as the basic of social justice and equality of status and opportunities’’.
It is in an attempt to fulfill these expectation and sometimes constitutionals requirement that government rely on, among either source, the imposition of various taxes, weather direct or indirect on the defined taxable persons in their territory. Such tax and poll tax
These taxes are collected at source at source include taxes on dividend interest and rates. Also induction is tax on personal income tax through the Pay-As-You-Earn (PAYE) system has been effective in achieving its objectives of minimizing collection costs and reduction tax evasion while increasing revenue to the local government. We will all look into the problem of the pay-As-You-Earn system and suggest measures to solve such problems that might be identified.

1.2 PURPOSE OF THE STUDY
The purpose of the study can be broken down vas follows:
(a) to ascertain the impact of Pay-As-You-Earn system effectiveness on personal income tax revenue over a period of ten years.
(b) To educate the truthfulness of the data provided by tax – payers in their tax return and ascertain the percentage of those who do not provide the information there in.
(c) To find out weather there is any relationship between the truthfulness of information provided by tax payers in their tax returns and their age.
(d) To identify the problem (if any) encountered by the internal revenue division and the employers of labour in the application of the PAYE system.
(e) To find out how the employers perceive the PAYE system and the likely improvement that they would recommend.
On the basis of my findings, suggestion and recommendation will be made which I hope would be benefit to the local government it is also hope that future researcher in the area of the public finance would find the work a valuable source of literature.

1.3 SIGNIFICANT
The significance of adequate revenue for a developing economy such as that of Nigeria cannot be over emphasized. This study is being conducted with a view to exposing the inherent weakness on the Pay-As-You-Earn system of taxation.
The suggestion and recommendation made on how loopholes in the system could be plugged. Especially at this time of widespread weakness of the great potential of internally generated revenue would be very beneficial to the governments.
The local government will find it very useful in drawing up revenue and other methods of taxation which will in turn check the ever dividing revenue to the government.

1.4 STATEMENT OF THE HYPOTHESIS
A hypothesis is a rational assumption, which subject to fast could be true or false
The following hypothesis were made as a guide for this research ho (i) The effectiveness of the Pay-As-You-Earn system has not affected personal income tax revenue.
Hi (ii) the effectiveness of the Pay-As-You-Earn system has affected personal income tax revenue

1.5 SCOPE OF STUDY
The study shall be confined to an examination of the Pay-As-You-Earn system as in weather it is an efficient and effective method of personal income tax (PIT) collection in NSUKKA local government. It thus excludes any other system of tax revenue through Pay-As-You-Earn system with other tax revenue shall be evaluated only for the purpose of comparison.

1.6 LIMITATION OF THE STUDY
The study was limited by the following constraints:
(a) there was shortage of relevant texts journal and documentaries on the subject of Pay-As-You-Earn system.
(b) Some of the answer givens an opinions expressed in response to question were subjectively based due to different personal experience.
(c) A study of this nature require longer period of time than was actually available to me.
(d) There is this general problem that many Nigeria do not like to disclose their earnings.
(e) Finance available for this study was inadequate considering its scope and my financial standing as a student.

1.7 DEFINITION OF TERMS
(I) BASIS PERIOD: the period in which the income of a taxpayer is assessed for the purposes.
(II) ASSESSABLE INCOME: income of a taxpayer from all sources in a given basis period less all allowable deductions and nontaxable income.
(III) PRECEDING YEAR BASIS: A basis period by which income of a tax payer in the year proceeding the year of assessment is assessed.
(IV) ACTUAL YEAR BASIS: A basis period by which income of a tax payer in the proceeding the year of assessment is assead in that year.
(V) YEAR OF ASSESSMENT: the government financial year in which the income of a taxpayer is assessed for tax purpose.
(VI) CHARGEABLE INCOME: assessable income less all reliefs.
(VII) RELIEFS: deductible allowance granted to a taxpayer by the law in a relevant year of assessment.
(VIII) TAX EVASION: an illegal act of paying less tax than ought to pay.
(IX) TAX AVOIDANCE: a legal act by a tax payers to pay less than he ought to pay.
(X) TAX RETURNS: relevant data supplies by a tax payer for the purpose of assessing income.
(XI) TAX DEDUCTION CARD : a document used in the Pay-As-You-Earn scheme in which total allowed relief’s are stated.
(XII) TAX EMERGENCY CARD: the card temporarily used before the tax deduction card are made available to the employer by internal revenue division.

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Approval Of Pay-As You Earn System Of Taxation:

The Pay-As-You-Earn (PAYE) system of taxation is a method used by many countries to collect income tax from individuals in a systematic and efficient manner. It is a widely accepted system and is often the preferred method for collecting income tax for several reasons:

  1. Ease of Compliance: Pay-As-You-Earn simplifies the taxpaying process for individuals. Taxes are automatically deducted from their paychecks by their employers, so they don’t have to worry about setting aside money or making periodic payments.
  2. Regular Collection: Pay-As-You-Earn ensures a steady and regular collection of tax revenue for the government throughout the year, which helps in budget planning and meeting financial obligations.
  3. Reduced Tax Evasion: Since taxes are deducted at the source (i.e., from salaries or wages), there is a lower likelihood of tax evasion. It’s harder for individuals to underreport their income or hide it from tax authorities.
  4. Progressive Taxation: Pay-As-You-Earn allows for the implementation of progressive tax rates. In this system, those with higher incomes pay a higher percentage of their income in taxes. This helps distribute the tax burden more equitably.
  5. Minimizes Taxpayer Burden: Pay-As-You-Earn  eliminates the need for taxpayers to calculate and pay their taxes manually. It reduces paperwork and the potential for errors, making it easier for people to fulfill their tax obligations.
  6. Compliance and Enforcement: Employers are responsible for deducting taxes from their employees’ paychecks and remitting them to tax authorities. This system makes it easier for tax authorities to ensure compliance.
  7. Social Benefits: Pay-As-You-Earn can also be used to collect contributions for social security, healthcare, and other benefits, ensuring that individuals receive the necessary services and benefits.
  8. Predictable Cash Flow: For individuals, Pay-As-You-Earn provides a predictable cash flow since taxes are deducted regularly from their income. This can help with budgeting and financial planning.
  9. Efficiency: From a government perspective, Pay-As-You-Earn is cost-effective and efficient because it reduces the need for extensive tax collection efforts. It also lowers the administrative burden on taxpayers.
  10. Transparency: Pay-As-You-Earn provides transparency in the tax collection process. Employees can see exactly how much is being deducted from their paychecks, and this transparency can foster trust in the tax system.

However, it’s important to note that while Pay-As-You-Earn has many advantages, its success also depends on effective tax administration, compliance, and fairness in tax policies. Governments need to ensure that tax rates are reasonable, tax laws are clear, and tax collection processes are efficient to maintain public support for the Pay-As-You-Earn system.

Overall, the approval of the PAYE system of taxation is often based on its ability to simplify tax collection, reduce evasion, and provide a steady source of revenue for governments while minimizing the burden on individual taxpayers.