Tax Administration in the Federal Capital Territory

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CHAPTER ONE
INTRODUCTION
1.1Background to the study
The administrative nucleus of every society is vested in the hands of the government. Government expenditure is broadly categorized into recurrent expenditure operating cost (General administration, defence, societal and economic services) and capital expenditure development cost (investment on roads, buildings, airport, petro-chemical projects, liquidified petroleum gas project, and investment in the productive sector such as agriculture and manufacturing).

To perform her statutory function, government needs funds. Taxes are one of the most important sources of government revenue. The personal income tax which is a form of direct tax is one sure way of revenue for the governments. However, there have been some bottlenecks in its administration in Nigeria. Personal income tax in Nigeria has remained the most unsatisfactorily, disappointing and problematic of all the taxes in Nigeria today. This is in spite of the fact that tax reform has of recent been a key element in economic reform which the country had undergone (Dominic, 1997).

The personal income tax deals with direct taxation, and as such the citizens who fall under the direct assessment are the self-employed and workers who come under the Pay As You Earn (PAYE) system of tax. It is thus important to mention that the problem of tax collection lies more with the self employed rather than those under PAYE.

Thus, the self-employed are difficult to pin down. Where he is skillful and manipulative or has the services of a knowledgeable tax lawyer, he may devise or arrange his financial affairs so as to avoid or reduce the appropriate tax payable under the circumstances. Therefore, the problems of tax avoidance and evasion are more common with the self-employed (Dominic, 1997).

The Nigerian environment provides a lot of challenges that self-employed people and companies in it have to contend with. Though the environment provides a good market, the problem it also poses is enormous in sincere effort to reap the benefits of the market. All eligible persons who are self-employed are expected by law to pay tax to the relevant authorities in the states in which they operate. But it is a reality that self-employed individuals do not generally like to pay tax. They will use whatever type of trick in their power in order to avoid or evade tax. They do not comply with tax matters and consequently enough tax revenue is not generated from them (Ndulue, 2005). The Federal Government has been giving tax incentives in order to encourage compliance among its citizenry, yet tax payers are unlikely to it.

The objectives of providing these incentives are to generate enough revenue that will enable both federal and state governments to execute their various expenditure programmes. In spite of these incentives, adequate tax revenue has not been generated from the self-employed people. Collection from self-employed class is approximately 6% of personal income collection for any fiscal year (Sani, 2005). The net effect is that both federal and state governments (FCT inclusive) are denied the much needed revenue for prosecuting their various programmes which are geared towards improving the living standard of people. Less than 10% of the self-employed assessed heed any appeal to pay their income tax. Similarly, less than 5% even care to file returns of income in spite of newspaper and gazette notices published in March of every year for taxable adults male or female to do so (Sani, 2005). It is in the light of these issues that the study seeks to examine the challenges associated with the administration of personal income tax in Nigeria with a view to suggesting measures that can be adopted for improvement.

1.2Statement of the problem
Whenever government identifies a problem in a particular sector, reforms are formulated to correct the setbacks. In the past, successive governments have made amendments...
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