Taxation simply refers to a levy imposed by a taxing authority,
usually a government on a group, organization or individual known
as the taxpayer. This levy is charged compulsory from the taxpayer
as a means of income generation for the government.
Taxation has since existed from ancient times but had only a
minimal role in state development. It has since then received
constant policy amendments on the choice, amount and structure it
takes. Today, the tax has helped many countries to generate a huge
amount of revenue.
The era of the colonial masters in the early 20th
century marks the existence of taxation in Nigeria. In fact, some
researchers affirmed the evidence of taxes paid before 1904. Both
in the northern and southern part of Nigeria; there were records of
some compulsory levies paid. In the northern region, some examples
include but not limited to Kurdin Kasa and Kharant. These were
levies paid on income from some agricultural products including
animal husbandry. It was highly enforced in the Northern Region due
to the fact that they have a more organized reign by the Emirs. The
story is not different among the Yorubas, as taxes in the form of
tribute, tolls and various fees were paid. As farming is the
majority’s occupation, before their products are allowed in the
markets – these levies had to be paid. Nevertheless, most of these
levies are not formal and legally binding.
The administration of Lord Lugar’s as the British High
Commissioner in Northern Nigeria was the beginning of formal
taxation in Nigeria. It was then that several laws on taxes were
passed into law. They are:
- The 1904 Land Revenue Proclamation. This law empowers
traditional rulers as the taxing authority. They are saddled with
the responsibility to collect taxes from their people which will
then be shared between them and the government. - Native Revenue proclamation (1906). This was an amended 1904
law with the goal to centralize and unify all forms of taxation in
existence. - Native Revenue Ordinance (1917). The 1906 proclamation was also
amended, which limit the type and amount of taxes imposed on
natives and indigenes of the land. This law was not only enforced
in the North but this time also in the South. At first, the
compliance level by the Southerners was low because their opinions
seem to be different. The law continues to receive its far spread
by getting an extension to the Eastern and Western part of the
country in 1917 and 1928 respectively. Taxation since then has
received various amendments from time to time.
In 1930, the Native Revenue Ordinance of 1917 was later amended
and later incorporated in 1940 into the Direct Taxation Ordinance
No. 4 of 1940. The Nigeria tax system has since then received
various amendments both on natives and on import trade which
generates income to fund government expenditure and community
service. In 1958, Raisman Fiscal Commission gave a recommendation
on some fundamental principles for imposing and collecting taxes
from incomes of individuals to liability companies throughout the
country. These set of recommendation later formed the basis of the
present Income Tax Management Act, the Companies Income Tax Act[1], and the Personal Income
Tax Act.
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System of Taxation in Nigeria
In Nigeria, the taxation system has been divided accordingly
into three tiers of government; from the highest tier of government
(Federal) to the State Government and to the grass-root government
(Local Government). The Federal Government is legally authorized to
generate taxes from industrial development, the petroleum and
foreign trades and operations. This is monitored by the Federal
Inland Revenue Services (FIRS). Also, the State Government receives
tax from private companies in their state, establishments and
personal income of salary earners. The body that oversees this
whole process in the state is the State Board of Internal Revenue
tax persons. The Local Government collects tax from shops and
kiosks, tenement rates, marriage, birth and death registration
fees.
As of today, the tax laws that exist in Nigeria include Value
Added Tax Decree 102,1993, Companies Income Tax Act Cap 345 LFN,
Companies Gains Tax Act Cap 42 LFN, Companies Income Tax Act Cap 60
LFN, Withholding Tax Decree 8 1993, Industrial Development (Income
Tax Relief Act) Cap 178 LFN and the Personal Income Tax Decree 140
1993. While some of the types of taxation in Nigeria include the
PAYE (Pay as You Earn) also called the Personal Income Tax,
Companies Income Tax (to be paid from the gross incomes of
companies, whether monthly or annually), Value Added Tax and
Capital Gain Tax.
Exemptions from the Payment of Tax
- Leave allowance and bonus given to an employee as an
entitlement - Retirement gratitude for successful completion of years in
service - Medical costs incurred by the employee
- Interest on loans taken for residential or other purposes
- The cost of passage to and from one place to the other in the
country by the employees
Challenges of Taxation Systems in Nigeria
Nigeria has been faced with different challenges since the
inception of taxation which was like a clog in the wheel to its
growth and development. The major ones are enumerated below:
- Low level of voluntary compliance. Compliance has been a major
challenge as there are many illegal boycotted of processes. This
amount to low-income generation for national development. - Corruption and tax revenue diversion by tax officials before
and during collection. - Lack of sufficient impact of government on the citizens.
Nigerians are not encouraged to pay taxes because the impacts of
the tax paid were not felt on national and local development. - Lack of good understanding of the impacts of taxation on
national development. There are no effective awareness and
sensitization of citizens on the role taxation will play in
nation-building - Multiple taxations. When taxes of the same description are
charges in multiple stages and increased tax rates. - Deliberate evasion and non-compliance due to lack of proper
education on taxation. - Inadequate interstate or intergovernmental collaboration
between tiers and agencies of government.
Taxation in Nigeria has seen its effectiveness in one way or the
other; it has provided a means for subvention in education and
various sectors. If taxation is properly source and well
appropriated, it’s a proven means of revenue generation for the
country.