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Personal income tax revenue has been grossly understated due to improper tax administration arising from under assessment and inefficiency in the machinery of collection in Nigeria. This has led to the reduction of tax revenue in Nigeria. The main objective of the study was to examine the relationship between personal income tax administration and revenue generation in Nigeria. Primary and secondary data were used as the basis for data collection. Specifically, 30 copies of questionnaire were administered to tax payers in Akwa Ibom State, of which, 27 copies of questionnaire were filled and returned and secondary data was collected from the internal generated revenue profile of the Akwa Ibom State Board of Internal Revenue Service, Uyo. Correlational design was used and the hypotheses formulated were tested using Pearson Product Moment Correlation (PPMC) with the aid of IBM Statistical Package of Social Sciences (SPSS) version 23.0 Software Package. From the analyses, it was observed that there is a significant positive relationship between effective administration of personal income tax and revenue generation in Nigeria and that there is no significant relationship between tax evasion, avoidance and corrupt practices in personal income tax administration and revenue generation in Nigeria. . On the basis of the findings, it was concluded that tax evasion and avoidance have reduced the revenue generated in Nigeria as eligible tax payers either voluntarily refuses to pay tax or reduce their tax liability. Furthermore, corrupt practices and tendencies in the Nigerian tax administrative structure have hindered the compliance of payment of tax by eligible tax payers. It was recommended among others that to improve tax administration and revenue generation, the database of taxpayers should be regularly updated so as to facilitate adequate monitoring and effectiveness of tax collection. This will help in monitoring the activities of taxpayers and reduce the occurrences of tax evasion and tax avoidance.
1.1 Background to the Study
In every country, there are certain services which the government must provide to the citizens because of their essential nature. These services are so indispensable in life that individuals and corporate bodies are not allowed to provide them or where they are allowed, they are not allowed to monopolize the supplies or the production. Government does this to ensure that the supply of such goods and services are evenly distributed in any given society so that the rich and the poor benefit. The provision of such essential goods and services involve huge expenditures. Hence, government must find ways to finance these obligations. According to Ariwodola (2009), governments of most countries engage in a number of activities which require the expenditure of funds. In order for the government to be able to undertake most of these activities, it raises funds through taxation.
The Cambridge International Dictionary defines taxation as an input of money paid to the government, usually a percentage (%) of personal income or company profits. Tax is a compulsory exaction of money by a public authority for public purposes. Tax is defined as money that has to be paid to the government by the people according to their profits on goods and services provided. Chris and Elizabeth (2011) also defined taxes as a forced proportional contribution from persons and property levied by the state by virtue of its sovereignty for the support of government and for all public needs. In developed and developing countries there are wide range of taxes and levies that affect individuals and companies; citizens and foreigners; manufacturers and marketers; workers.In Nigeria, taxes range from petroleum profits taxation to tenement rate imposition, and taxes are imposed at different levels to enable the government provide certain essential services and facilities to the population.
Revenue which includes all tolls, taxes, impress, rates, fees, duties, fine, penalties, fortunes and all other receipt of government from whatever source arising over a period beither one year or six months (Fayemi, 2011) generated from taxation are usually used to cover the cost of general administration, internal and external defense, maintenance of law and order and the social services provided by the government (Tabansi, 2007). Some government policies could also be implemented by tax revenue, since the budget is used as an adjunct to monetary policy. Taxation has often been used as a macroeconomic tool to provide large budget supplies, act as a catalyst to inflation, price instability and reduction in aggregate demand, to stimulate demand, etc. (Okonkwo, 2004). The government is also expected to provide relief to areas that have been affected by ecological disaster and contribute financial resources to assist public sector enterprises (Tabansi, 2007).
In Nigeria, one of the several forms of taxes collected is the personal income tax. Personal income tax is the tax that is levied on the income of an individual, which is different from the corporate tax which is paid from the profit generated from a legal entity. Personal Income Tax is seen to have a burden on the tax payer because income which is generated is reduced through tax. According to Ayodele (2004), personal income tax is a tax charged on the income of persons other than companies and provides a veritable primary source of revenue for the government to spend directly on achieving their objectives within their basic function (Afolabi, 1999).
On the other hand, tax administration is the process of assessing and collecting taxes from individuals and companies by relevant tax authorities; in such a way that the correct amount assessed is collected efficiently and effectively with minimum tax avoidance or tax evasion. It could also be seen as the management or direction of taxes and the various tax laws in the country towards realizing the objectives of taxation in the country. In Nigeria, tax administration is the function of the three tiers of government namely the Federal, the States and the Local Governments. Each tier has a machinery to ensure the effective assessment and collection of taxes within its jurisdiction. At the Federal level, the principal organ of tax administration is the Federal Inland Revenue Service (FIRS), established by the virtue of the FIRS establishment Act, 2007. There is a technical committee which considers all tax matters that require professional and technical expertise. At the State level there is a State Board of Internal Revenue (SBIR) for each state. Within the SBIR there is also a Technical committee which considers all tax matters that require professional and technical expertise. Each state has a Joint State Revenue Committee mainly to implement decisions of the Joint Tax Board and advise it as well as the local government revenue matters. There is also a Local Government Revenue Committee for each local government council charged with the responsibility of assessment and collection of all fines and rates under the jurisdiction of the local government council. The state government collect personal income taxes from those that are resident in their various states regardless of whether they are federal, state, local government or private sector workers. The Federal Inland Revenue Service (FIRS) however, collects this tax bit only from residents of the Federal Capital Territory, as well as staff of the Ministry of Foreign Affairs and other foreigners outside the country but earning income in Nigeria, and Police Officers. (FIRS, 2009).
However, tax administration has been a challenge in developing countries, such as Nigeria, as it is inherent in the system that citizens do not like the idea of parting willingly with their money whatever the amount maybe in the form of payment of tax to the government. They thereby avoid and evade tax payment (Oluruleke, 2000). According to Cogu (2011), taxing the rich is very difficult because they are very elusive and often connive with the tax officials to under asses their incomes. Some big time businesses employ the services of chartered accountants to audit their accounts, telling them well in advance how much they should state as profit before tax. They evade tax payment as no attempt is even made to pay tax. This brings reduction in the total revenue generated by the government. As a result, there is a drop in the provision of some necessary social and economic amenities by the government. Furthermore, Naiyeju (2010) highlighted the various challenges of the tax collection and administration in Nigeria today to be administrative challenges, compliance challenges, lack of equality, challenge of multiple taxes, poor taxation drivers by tiers of government, challenge of bad governance, challenge of corruption and challenges of human capacity building and training. It is against this backdrop that this study is necessitated on the need to examine critically the relationship between personal income tax administration and revenue generation in Nigeria.
1.2 Statement of the Problem
It has been observed over the years that personal income tax revenue has been grossly understated due to improper tax administration arising from under assessment and inefficiency in the machinery of collection. Generally, in Nigeria, revenue derived from taxes has been reported to be grossly understated because of some challenges arising from loopholes in tax policies, weaknesses in internal revenue system leading to tax evasion and avoidance linked to inadequate personnel, misadministration and inefficient/ineffective collection machineries (Oluba, 2008; Ola, 2011).
The issue of Personal Income Tax (PIT) administration has posed a direct challenge on revenue generation in Nigeria. The relevant tax authorities lack the desired institutional capacity to administer effectively the personal income tax; the issue of paucity of data base, which contributes to tax avoidance in the country, has been a great limitation on the generation of revenue in the country. In addition, tax evasion is one of the major problems that hinder the maximum collection of tax as it is an attempt to escape tax liability (wholly or partially). Most employers are non-compliant in registering their employees and remitting such taxes to relevant tax authorities. Many evade the tax in the cities and rural areas. Small and medium scale enterprises, informal sectors and even big companies carry out evasive practices. The tax collection and administration is often prone to corruption. Corruption erodes the tax yield and confidence in the system. This reduces the confidence and trust of the tax payers in discharging their civic duty. High level incidence of corruption in the administration of personal income taxation has led to increased tax evasion, avoidance and ineffective and inefficient personal income tax administration in Nigeria. It is against this backdrop that this study seeks to examine critically the relationship between personal income tax administration and revenue generation in Nigeria.
1.3 Objectives of the Study
The main objective of this study is to examine the relationship between personal income tax administration and revenue generation in Nigeria. The specific objectives are:
- To identify effective administration of personal income tax in Nigeria and its effect on revenue generation in Nigeria.
- To ascertain the effect of tax evasion and avoidance in the generation of revenue in Nigeria.
- To determine the nature of corrupt practices in personal income tax administration that has enhance non-compliance and its effect on revenue generation
1.4 Research Questions
The following research questions are raised for the study:
i. How effective is the administration of personal income tax in Nigeria and its effect on revenue generation in Nigeria?
ii. What effect does tax evasion and avoidance have on revenue generation in Nigeria?
- To what extent have corrupt practices in personal income tax administration enhanced non-compliance and its effect on revenue generation?
1.5. Research Hypotheses
On the basis of the above research objectives and questions, the following hypotheses have been formulated in the null form:
Ho1: There is no significance relationship between effective administration of personal income tax and revenue generation in Nigeria.
Ho2: There is no significant relationship between tax evasion and avoidance and revenue generation in Nigeria.
Ho3: There is no significant relationship between the corrupt practices in personal income tax administration on revenue generation in Nigeria.
1.6 Significance of the Study
This study is expected to be of help to various groups as follows:
The research findings would be of importance to policy makers at state level as they design policies aimed at enhancing economic growth and development through a better tax revenue system. Policy makers, especially the state board of internal revenue service will use the outcome of this study to gauge its performance and determine the level of input it would have to make to impact positively to its economy and that of the Nigerian economy at large.
Theoretically, it will help in the education of the management, administrators and tax officers on the need for continuous tax assessment towards increasing the revenue base of the government. It will also assist in the education of the general public and tax payers on the need to carry out their responsibility as citizens of the country.
The study will be of great importance in providing information to readers, especially those involved in financial administration to gain knowledge on the administration of personal income taxation. It will increase the data base for scholars and practitioners interested in the field of revenue generation through personal income taxation.
Finally, future researchers who are interested in related area of study will benefit from the study as it will provide them with secondary information, thereby constituting a platform for further research on the area.
1.7. Limitation and Scope of the Study
In the light of broad coverage, the study is limited to personal income tax administration and revenue generation in Nigeria. The study is restricted to personal income tax revenue generated in Nigeria covering the period of 2005 to 2017.
The major limitations encountered when undergoing this research are:
Short time factor which did not give time for thorough research work, hence gathering adequate information becomes very difficult.
Paucity of published research materials on this area constituted a major hindrance.
1.8. Definition of Terms
To avoid ambiguity, the following keywords are defined:
Government: Government can be defined as the group of people who are responsible for governing a country or state. It is also the organization and methods involved in governing a country or state.
Informal Sector: the informal sector in Nigeria refers to economic activities of the economy that are operated outside the purview of government regulations.
Personal Income Tax: This is the tax that is levied on the income of an individual which is different from the corporate tax which is paid from the profit generated from a legal entity.
Revenue: Revenue is any receipt from taxation as well as those which are not the proceeds of taxation but of either the realization from sale of government property or from interest and returns from loan and investment or earnings form user charge (Koleade, 2005).
Revenue Generation: revenue generation is the total amount of monies collected for the duration of a specified time. This amount of money is taken into consideration when analyzing the overall profit made from sales or taxes that are paid to government.
Tax: Tax is a fee charged (levied) by the government on a product, income, or activity. If tax is levied directly on personal or corporate income, then it is a direct tax. If tax is levied on the price of goods or service, then it is called an indirect tax
Taxation: Taxation is the process or machinery by which communities or group of persons are made to contribute part of their income in some agreed quantum and method for the purpose of the administration and development of the society (Olrunleke, 1985).
Tax administration: All activities involved in gathering information on, assessing and collecting personal income taxes.
Tax Assessment: this is the process by which the financial worth of property is determined for the purpose of taxation. The term also doubles as the name of the actual tax being levied.
Tax avoidance: Tax avoidance is a process whereby a tax payer can without violating any tax law arrange his affairs in such a way that the pays little or no tax
Tax evasion: Olabisi (2010) defines tax evasion as an attempt to escape tax liability (wholly or partly) by breaking the tax law.
Tax Laws: this refers to the embodiment of rules and regulations relating to tax revenue and the various kinds of taxes in Nigeria. They are made by the legislative arm of government.
Tax System: The tax system in Nigeria is made up of tax policy, the tax laws and the tax administration. All of these are expected to work together in order to achieve the economic goal of a nation.
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