Taxation is a dynamic subject which grows with the constant change in the economic environment in which it operates, hence the need to review the regulating instruments from time to time. Nigeria is governed by a federal system hence its fiscal operations also adhere to the same principle, a fact which has serious implications on how the tax system is managed. The country’s tax system is lopsided, and dominated by oil revenue. It is also characterized by unnecessarily complex, distortionary and largely inequitable taxation laws that have limited application in the informal sector that dominates the economy. The primary objective of this paper is to prepare a case study on tax administration in Nigeria, with the specific objectives of examining the main tax reforms in the country; highlighting tax revenue profile and composition; analysing possible distributional impacts on the poor; discussing major problems that could prevent effective tax implementation in the country; and offering suggestions for reforms.
1.1 HISTORY OF TAX IN NIGERIA
In the Stone Age, tax was collected in Nigeria long before the coming of Europeans. It was collected by the Local Chiefs for the purpose of administration and defence. Every person was expected to give part of his or her proceeds from cultivation of land to the state. Those who were cultivations were required to give their sources for public work such as clearing the bush, digging the pit latrines, wells etc for the benefit of the community as a whole. Failure to render such services usually resulted in loss of properties, which might be reclaimed after payment of line. With the coming of Europeans, taxes were collected from individuals through local chiefs. In 1946, a legislative council was set for the whole country, which obliged the regional council with a large measure of financial responsibilities. After independence state government were to find out other sources of generating revenue. The first tax was introduced in 1904 in the northern region by Lord Lugard known as community tax. According to the tax laws the board can revise the assessment if it deems necessary, and can institute legal action against any tax defaulters in respective of his status in the community such legal rights have been derived by politician and poor administration of tax laws. 1.2 OVERVIEW OF THE STUDY
A tax policy represents a key a resource allocator between the public and private sectors in a country. It is usually imposed on individuals and entity that make up a country. The funds provided by tax are used by the states to support certain state obligations such as education systems, health care systems, and pensions for the elderly, unemployment benefits, and public transportation. A nation’s tax system is often a reflection of its communal values or the values of those in power. To create a system of taxation, a nation must make choices regarding the distribution of the tax burden-who will pay taxes and how much they will pay-and how the taxes collected will be spent. In the case of Nigeria, the major sources of revenue include the following:
Oil sector such as petroleum resources.
Non-oil sector such as custom duties, taxes and other services.
Internal borrowing from organisations and financial intermediaries such as commercial banks, bonds, treasury certificates and call money. The need for revenue from taxes cannot be over emphasized as this contributes significantly to government revenue. The concept of taxation is as old as exchange process (whether barter or monetary) that gradually developed with civilisation. This is true as seen from the period of colonisation to date which is characterised by the establishment of Ordinances acts, decrees and edicts which govern tax administration in Nigeria. These acts include:
Companies Income Tax Act of 1961 as amended by the Companies Income Tax Act (CITA 1979) establishing the Federal Board of Internal Revenue
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