(PDF) Examination of the Success Factors to Tax Administration Efficiency in Nigeria

CHAPTER ONE

INTRODUCTION

Background of the study

An efficient tax administration is a key determinant of the investment climate; it helps to attract more investment, reduce poverty and increase growth. It also enables the government to raise revenue with lower tax rates (Rahman, 2009). Erard (1994) stated that the primary goal of a revenue authority is to collect tax due in accordance with laws and in a manner which instills confidence in the taxpayers in the tax system and its administration. A good tax administration is a requisite for ensuring high compliance and administering tax policies effectively and efficiently. Tax Administration in Nigeria involves tax assessment, collection, and accounting of all types of taxes, as well as the implementation of relevant tax laws and governmental policies in Nigeria. It consists of all the strategies and principles adopted by the government to plan, impose, collect, and account for taxes, as well as to coordinate and monitor staff who are charged with the responsibility for taxation (Akintoye & Tashie, 2013). According to Abiola and Asiweh (2012), tax administration in Nigeria refers to those organs and agencies of government that are vested with the responsibility for policy implementation in the country. Tax administration is concerned with the duty and responsibility of different tax authorities as enacted by relevant tax laws (Kiabel & Nwokah, 2009). Due to the economic and financial crises, governments at international and national levels have recognized the key role of an efficient tax system in enhancing development, good governance, and adequate revenue generation. According to Ogbonna, (2011), the tax system is an opportunity for the government to raise additional revenue apart from other sources of income, required to carry out its obligations. He further maintained that a sound tax system also offers one of the most effective means of generating a nation’s internal resources as well as in creating an enabling environment to promote economic growth and development. Okauru (2011) stated that it is wrong to assume that only the tax authority constitutes a tax system; it encompasses individual taxpayers, institutions (both public and private), agencies, the process involved in tax legislation, collection and distribution of tax revenues and other auxiliary issues related to efficient performance of tax functions and the tax system.

However, the Nigerian tax system still suffers from high tax defaulters from both individuals and corporate organizations. Therefore, leading to insufficient revenue generation to enable the government to improve the standard of living of its citizens. Moreover, Nzotta (2007) claimed that tax administration inefficiency might occur when there is high level corruption by government officials and lack of fiscal transparency. Nzotta further stated that the absence of strong deterrent punishment to prosecute offenders, and lack of awareness or ignorance of tax laws. As a result, the purpose of this research is to look into Critical Success Factors for Tax Administration Efficiency in Nigeria.

Statement of the problem

The Nigerian tax administration is faced with challenges which make it inefficient, as a result of the high level of tax defaulters in the country. For example, statistics indicate that tax contributes seven percent (7%) to Gross Domestic Product (GDP), which is below the threshold of 15% for low-income African countries, compared to 22.5% and over 29% for medium income and high-income countries, respectively (Okonjo-Iweala, 2013). However, most current statistics indicate a further decrease of one percent, making Nigeria’s tax compliance rate at 6% compared to 16%, 15.9% and 27% of India, Ghana and South Africa respectively. While most developed nations have tax to GDP ratios of 32% to 35%. The Nigerian minister of finance, further lamented that a six percent tax contribution to GDP is not enough for strong economic development in Nigeria. Similarly, the FIRS (2017) revealed that the Nigerian National Petroleum Corporation (NNPC), Nigerian Universities Commission (NUC), other Ministries, Departments and Agencies (MDAs), as well as the National Assembly have not remitted a total of N72 billion for PITA, VAT and Withholding Tax. Ngama, (2013) reported that about 350,000 incorporated companies in Nigeria had not filed their tax returns in recent years, and about N85.2 billion was lost through tax evasion in the automobile industry alone in the last four years. More recently, FIRS (2019) estimated that there are only 14 million taxpayers in Nigeria, out of which about 96% have their taxes deducted from source from their salaries. However, this number of taxpayers indicated a wide variance with the structure of the Nigerian economy, where it is estimated that about 70 million Nigerians are economically active. But only 20% are duly registered and pay tax. Research has identified a number of factors responsible for the challenges affecting the tax system in Nigeria, ranging from inefficient tax administration and collection system, apathy of the Nigerians caused by lack of value received in return for their tax money. The more prominent factors are fraudulent practices and greed, lack of adequate infrastructure, lack of awareness, and improper tax planning, monitoring and controlling, are among other key factors affecting the system. Micah, Ebere, and Asian (2012) identified non-3 availability of statistics, inability to prioritize tax effort, poor tax administration and multiplicity of tax, regulatory challenges and corruption as well as the complexity of the laws as the major factors affecting the tax administration efficiency in Nigeria. Similarly, Sanni (2012) studied the multiplicity of taxes in Nigeria and observed that corruption, fraud, extortion, lack of data and overlapping taxes are the elements affecting the efficiency of the system. As a result of this context, the purpose of this study is to investigate Critical Success Factors to Tax Administration Efficiency In Nigeria.

Objective of the study

The primary goal of this research is to investigate Success Factors for Tax Administration Efficiency in Nigeria.Specifically it seeks:

Research question

The research is guided by the following research questions

1. What is the extent of current tax inefficiency in Nigeria?

2. What are the problems of tax administration inefficiency in Nigeria?

3. Are there possible ways to improve tax administration in Nigeria?

4. What are the possible solutions to enhance tax administration efficiency in Nigeria?

Significance of the study

The study will be significant to policy makers, tax administrators and the general public. To policy makers, the study will enlighten them on the need to encourage the adoption and implementation of ICT in all the operational activities of the tax administration. Such a policy would enable BIR to optimally benefit from the use of ICT, especially in the process of tax assessment, collection, and accounting of all taxes. To the government, the study will enlighten them on the need to improve the current situation of high tax defaulters by ensuring that the economic and political elites and informal sector are made to pay taxes. They should be more concerned with developing strategies that would grant autonomy to BIR in order to improve revenue performance. Finally, the study will add to the body of knowledge. It will serve as reference material to students and other researchers in this field and lastly provide an opportunity for further studies in related fields.

Scope of the Study

The scope of this study borders on examination of the Success Factors to Tax Administration Efficiency In Nigeria. The study is however delimited to Kaduna State.

Limitation of the study

The following factors poses to be a limitation during the course of this research

Financial constraint– Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
Time constraint– The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

Definition of terms

Efficiency: Efficiency is the ability to avoid wasting materials, energy, efforts, money, and time in doing something or in producing a desired result. In a more general sense, it is the ability to do things well, successfully, and without waste.

Tax: A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures

Tax Administration: While tax policy uses economic analysis to debate the merits and economic impact of individual taxes or tax systems, tax administration focuses on the assessment, collection and audit of a set of tax laws. Tax administration in this view “carries out the orders” of tax policy. The task of a tax administration is to collect all tax revenues due in a fair and efficient way with limited costs for taxpayers and the tax administration itself.