Problems Of Personal Income Tax Generation And Administration
(A Case Study Of Internal Revenue Enugu North)
Addressing the challenges associated with personal income tax generation and administration requires a comprehensive approach that considers various facets of the taxation system. One key issue is the complexity of tax regulations, which often leads to confusion among taxpayers. Simplifying tax codes and providing clear guidelines can alleviate this concern. Additionally, the prevalence of tax evasion poses a significant obstacle to effective income tax generation. Strengthening enforcement mechanisms, leveraging technology for better monitoring, and implementing robust reporting systems can help combat tax evasion. Furthermore, enhancing financial literacy among the populace is crucial to fostering compliance and understanding the importance of contributing to national revenue. Streamlining the tax filing process, improving communication between tax authorities and taxpayers, and investing in training for tax professionals are essential steps toward creating a more efficient and transparent personal income tax system.
Taxation can be simply defined as a compulsory contribution by individuals and organizations to a statutory Authority. The merits of taxations are numerous for instance, it could be used for re-distribution of income or for stabilizing the economy.
In the recent past and till date, it has not been easy to fully realize the objectives of taxation owing the existence of inefficiency and ineffectiveness in the system of administration and collection of personal income tax in Enugu state. This project problems of personal income tax Generation and Administration in Enugu-State (A case study of internal Revenue Enugu-North) will highlight those problems militating against the attainment of the objectives of the objectives of taxation.
In carrying out this research work, questionnaire will be used to collect data and simple percentage analysis will be used to analyse the data collected.
Also, in carrying out this research work, it will help me to observed whether inhabitants of Enugu North Local Government Area indulge so much in tax avoidance and tax evasion because they have not been sufficiently enlightened on the importance and merits of taxation.
Finally, it will help to know if there is enough personnel needed for effective tax collection and administration. The limitation of this study is monetary problem and time. Moreso, there will be scarcity of accurate national statistics.
This project work is carried out on problem of personal income tax generation and administration taxation can be simply defined as a compulsory contribution by individuals and organizations to a statutory Authority. The merits of taxations are numerous for instance, it could be used for re-distribution of income or for stabilizing the economy.
In the recent past and till date it has not been easy to fully realized the objectives of taxation owing to the existence of inefficiency and ineffectiveness in the system of administration and collection of personal income tax in Enugu state. This project problems of personal income tax Generation and Administration in Enugu State. (A case study of internal Revenue Enugu – North) will highlight those problem militating against the attainment of the objective of taxation.
In carrying out this research work, questionnaires bad been used to collect data and simple percentage analysis was used to analyse the data collected.
Also this research work enabled me to observed whether inhabitants of Enugu North Local Government Area indulge so much in tax avoidance and tax evasion because they have not been sufficiently enlightened on the important and merits of taxation.
Finally the research work carried out helped the researcher to know if there is enough personnel needed for effective tax collection and administration. The limitation of this study is monetary problem and time, there will be scarcity of accurate national statistics.
Title page ii
Approval page iii
Dedication iv
Acknowledgement v
Abstract vi
Proposal viii
Table of contents x
CHAPTER ONE:
Introduction 1
1.1 Background of study 1
1.2 Board of internal revenue Enugu 2
1.3 Statement of the problem 8
1.4 Objectives of the study 10
1.5 Formulation of research hypothesis 11
1.6 Delimitation / limitation of the study 13
CHAPTER TWO:
Literature Review 14
2.1 Origin and importance of taxation in nigeria 14
2.2 Importance of taxation in nigeria 18
2.3 Qualities of good tax system 20
2.4 Effects of taxation 25
2.5 Personal income taxation (general criteria) 27
2.6 Problems of personal income tax generation 34
2.7 Problems of personal income tax administration 36
CHAPTER THREE:
Methodology 43
3.1 Population 43
3.2 Sample 44
3.3 Instrument 45
3.4 Validation of instrument 46
3.5 Collection of data 46
CHAPTER FOUR
4.0 Presentation and analysis of data collected 49
4.1 administration and collection of questionnaire 49
4.2 Analysis of questionnaire using the simple percentage 50
CHAPTER FIVE
5.1 Summary and conclusion 59
5.2 Recommendation 61
Bibliography 65
References 66
INTRODUCTION
1.1 BACKGROUND OF STUDY
In all generation, the problems of personal income tax generation and administration continues to surface in one form or another in virtually every society, especially in this part of the world. It is important to point out that the federal government has taken adequate steps to wards effective tax administration.
This failure on the part of the federal government is responsible for poor financial positions of both the state and local government. Besides, this inadequate planning and absolute laws governing taxation, evaluation and collection is characterized by chaos.
This chaotic nature of the system can be appreciated by political influence or interferences in the process of taxation during the civilian administration in the country which gave rise to untrained and inexperienced personal being entrusted with the work of collection and administration of personal income tax.
The important of these issues to tax administration in the developing countries like. Nigeria can be seen from the following extract from tax administration in under developed countries. The tax administration finds himself working with a staff which is inefficient in experienced, and poorly paid.
1.2 BOARD OF INTERNAL REVENUE ENUGU
The board of internal revenue Enugu was established to administer income tax in Enugu state just as there are in other states of the federation.
Income tax was first introduced in Nigeria in 1904 by late Lord Lugard. The introduction of Native Revenue ordinance of 1927 was most difficult in the Eastern areas of the country, due mainly to abserice of recognized central Authority Resistance to this form of direct taxation in such that it leaf to riots notably in calabar, Owerri and the famous, Aba women Riot of 1929 which was so severe that it attracted a probe. Beside, the Native Revenue ordinance were also Native direct taxation ordinance for the colony and the Native income tax ordinance.
These ordinance were late modified and incorporated into the Direct taxation ordinance No 29 of 1940, cap 54 and the income tax ordinance No 29 of 1943 respectively.
The direct taxation ordinance 1940 empowered native authorities to tax Africans in their areas of jurisdiction while the income tax ordinance 1943 was for the taxation of non-Africans in companies. The two ordinances were the foundation of our modern taxation which necessitated establishment of board of internal revenue in each of the states of the federation which Enugu Board of internal Revenue is on of them.
ADMINISTRATIVE STRUCTURE OF THE BOARD OF INTERNAL REVENUE IN THE AREA
The zonal tax Authority which Enugu North Board of internal Revenue belongs to the Enugu Zonal Authority. The highest authority in the Area is the Assessment Authority.
THE ASSESSMENT AUTHORITY
The assessment officer is the head of the board of internal Revenue in the area. He is appointed by the Board of internal Revenue, Enugu State. He is responsible for the assessment of tax and its collection and as well as accounting for it. He carries out the duty with the help of collection, Assessment and Administrative officers. He is directly in change of assessment and administration. He has the power to issue notice to tax payers to deliver statement of incomes or to finish further returns.
Where there is suspected doubts as to genuiness of returns, he might ask the tax payer to produce before assessment Authority books and documents of the tax payer covered by pay as you earn (PAYE).
The Assessment Authority could ask an employer to prepare and deliver a return on his employees. After assessment and responsibility of collection of this assessed income rests on the tax collector. He makes use of tax agents, tax drivers or the workers of the board and other processes which may be applied from time to time to generate tax in the area.
ADMINISTRATIVE FRAMEWORK
The structural administration of personal income tax is rested in the joint tax Board (JTB) under the income tax management Act 1961.
The board is made up the chairman who is appointed by federal Board of internal Revenue (FBIR) which is the federal body. The personal must be experienced in tax matters. Also, a secretary and a legal adviser are appointed, some of their functions are:
a. To exercise the powers or duties conferred upon them by any express provision of the Act, and any other power and duties arising under the Act which may be agreed by the board.
b. To exercise the powers and duties conferred on them by any anactment of the Federal Government imposing tax on the income or properties of companies or which may be agreed by the Federal Board of internal Revenue.
STATE INTERNAL REVENUE BOARD
The administration of the income tax in each states its collection and administration is vested on the state Board of internal Revenue.
It is headed by a chairman with the Director of Revenue as his Deputy Chairman and the chief executive of the board. Other members of the board include representative of specified ministries and from field economics, accountancy and legal professions.
Their major function includes, to see the retrieval of the revenue collected by various tax officers in all local government head quarters and forward it to state government for disbursement.
INSPECTOR OF TAXES
Inspector of taxes are controlled by the Board. They have variety of duties covering all aspects of taxation some of their duties are:
a. Receipt and examination of tax returns and other information from tax payers.
b. Preparing and issuance of assessment based on the returns on which tax is payable.
c. They also employ the best of judgment guesses, if returns were not received or there is evidence of false information.
TAX COLLECTORS
They are concerned with the service of
i. Returns of income forms
ii. Notice of assessment
iii. Summonses and affidavits and other sources of information.
1.3 STATEMENT OF THE PROBLEMS
It is true that problem of tax collection and administration is universal but the third world countries of which Nigeria is one, seem to be more plagued and inflicted both in weight and magnitude than the developed nations of the world.
The research work primarily involves identifying the problems of the personal income tax generation and administration in Nigeria taking a case study of Board of Internal Revenue, Enugu-North Local government area.
These problems include:
Improper system of keeping accounts and records in the internal Revenue office, which was seen to be quite mechanical and out dated.
Lack of staff and inadequate training of the available tax collectors.
No enlightenment on the part of tax payers as regards the importance of taxation is another increase problem of tax generation and administration in Enugu –North Local Government Area.
Also corrupt alliance of tax collectors with tax payers to avoid tax for them (tax collectors) to make fast money.
Another back bone of the problem worth mentioning is the uninformed penalties on tax defaulters. Thus lack of enforcement power on the board makes tax laws useless and not serious to tax offenders /defaulters.
Since these problems have been identified the researcher considers it necessary to survey as much as possible to find solution preferred for solving the problems which will make for higher level of efficiency in the personal income tax generation and administration in Enugu-North in particular and Nigeria in general.
1.4 OBJECTIVES OF THE STUDY
The value of an effective personal income tax collection and administration cannot be over emphasized. There has been an increase in the demand for governmental service or the masses. Government is expected to satisfy collective wants and regulate the economic and social policies of the nation.
Against this background of continuous increase trends in government responsibilities and expenditure are all levels of government. Nigeria have been facing fast dwindling finances for the past few years. The internally generated revenues have been inadequate to meet up the numerous demand and obligations.
1. Ascertain whether there are really problems in personal income tax collection and administration
2. Investigate and identify the factors that cause the problems
3. find out how these problems have affected the work of the board of internal revenue.
4. Determine the effectiveness and efficiency of personal income tax collection and administration in Nigeria with Enugu North Board of internal Revenue as a case study.
5. Recommend measures to overcome or minimize these problems of personal income tax generation and administration in Nigeria.
1.5 FORMULATION OF RESEARCH HYPOTHESIS
HO1: Personal income tax generation and administration in Enugu North
Board of Internal Revenue is not very effective.
H1: Personal income tax generation and administration in Enugu-North
Board of internal Revenue is very effective.
The hypothesis above about personal income tax generation and administration in Enugu North Local Government area are based on generalization of the assumed relationship between personal income tax revenue like administrative costs, population, income of tax payers, free pay allowance etc.
In any case, the rejection of the null hypothesis HO, is sub-hypotheis which are reduced to testable firms.
1. HO: The system of keeping account and records in the Board of internal Revenue office in Enugu North Local Governament area is rudimentary.
H1: The system of keeping account and records in the internal Revenue office in Enugu North is not rudimentary.
2. HO: The internal Revenue office in Enugu North Local government area is under staffed and ill-equipped H1 the internal Revenue office in Enugu North local government area is not under staffed and ill-equipped
3. HO: The tax payers in Enugu North Board of internal Revenue are not enlightened enough to know the importance of taxation.
HI: The tax payers in Enugu North Board of internal Revenue are enlightened enough to knoe the importance of taxation.
Owing to flexibility of tax laws in Nigeria and attitude of government toward the local government level in the area of administration and collection of personal income tax. It is pertinent to make some assumption that will guide the work for an opinion to be expressed.
1. The local government shall remain one throughout the research period.
2. Problems identified and solutions proferred shall apply to all local government areas in Nigeria.
3. The revenue board are those who encounter these problems.
1.6 DELIMITATION LIMITATION OF THE STUDY
For many years, the generation and administration of personal income tax has been causing some problems especially on money generated from it.
In a way to keep the work within manageable proportion and with the limited time and resources available, the researcher has confined the study to problem of personal income tax generation and administration in Nigeria using Enugu North Local government area as case study and is of the view that this will bear good results that will be proper for generalization.
SHARE PROJECT MATERIALS ON:
Problems Of Personal Income Tax Generation And Administration:
Generating and administering personal income tax can be a complex and challenging task for governments. Here are some common problems associated with personal income tax generation and administration:
- Tax Evasion and Avoidance: One of the major issues is individuals and businesses attempting to evade or avoid paying taxes by underreporting their income, inflating deductions, or using aggressive tax planning strategies. This leads to significant revenue losses for governments.
- Complex Tax Code: Tax codes can be highly intricate, making it difficult for taxpayers to understand their obligations fully. This complexity also creates loopholes that can be exploited by tax evaders and complicates the administration process.
- High Compliance Costs: Both taxpayers and governments incur costs in complying with and enforcing tax laws. Taxpayers need to keep detailed records, and businesses may require professional assistance to ensure compliance, which can be expensive.
- Tax Audits and Enforcement: Governments need to allocate resources to conduct audits and enforce tax laws. Insufficient resources or inefficient auditing processes can lead to inadequate enforcement, allowing tax evasion to persist.
- Underreporting and Misclassification: Taxpayers may intentionally or unintentionally misreport their income or classify it as a different type of income (e.g., capital gains as regular income). This creates challenges in accurately assessing and collecting taxes owed.
- Taxation of Informal Economy: It can be difficult to accurately tax income from the informal economy, where transactions may not be recorded, and participants may not have formal documentation of their earnings.
- Tax Rate Structures: Inconsistent or complicated tax rate structures can lead to unfair distribution of the tax burden. High-income earners may find ways to reduce their effective tax rates, while low-income individuals may struggle to pay their taxes.
- International Taxation: As people and businesses engage in cross-border transactions, determining where income is earned and should be taxed becomes complex. This can lead to disputes between different jurisdictions.
- Changing Economic Landscape: The rise of gig economy jobs and remote work has made it challenging to classify income sources and enforce tax collection accurately.
- Privacy Concerns: Collecting detailed financial information from taxpayers can raise privacy concerns. Striking a balance between effective tax administration and respecting individuals’ privacy rights is crucial.
- Lack of Digital Infrastructure: Outdated or inadequate technological infrastructure can hinder efficient tax collection and reporting processes, both for taxpayers and tax authorities.
- Taxpayer Education: Many individuals may not fully understand their tax obligations, leading to unintentional errors on their tax returns. Providing sufficient taxpayer education and resources is essential to improve compliance.
- Political Challenges: Implementing changes to tax laws or increasing tax rates can be politically contentious, even if they are necessary for revenue generation and economic stability.
- Administrative Inefficiencies: Inefficient bureaucratic processes within tax authorities can lead to delays in processing tax returns, issuing refunds, and addressing taxpayer concerns.
To address these problems, governments often need to invest in modernizing their tax systems, simplifying tax codes, improving enforcement mechanisms, enhancing taxpayer education, and embracing technological advancements to streamline tax administration processes.