Self Assessment And Voluntary Tax Compliance In Nigeria

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Self Assessment And Voluntary Tax Compliance In Nigeria

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PROJECT TOPIC AND MATERIAL ON SELF ASSESSMENT AND VOLUNTARY TAX COMPLIANCE IN NIGERIA

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  • Name: Self Assessment And Voluntary Tax Compliance In Nigeria
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  • Length: [56] Pages

 

 

 

CHAPTER ONE

INTRODUCTION

1.1BACKGROUND TO THE STUDY

In Nigeria, as in some other developing countries, tax non-compliance is a serious challenge facing income tax administration and hindering tax revenue performance. The various tax reforms undertaken by Nigeria government to increase tax revenue over the years, such as include; Structural Adjustment Program in 1986, Shebu’s Task Force on Tax, 1978; Dr Sylvester study group on tax, 1999, Economic Empowering Development Strategies 2002, and Professor Dotun’s study Group on Tax, 2002. Prior statistical evidence has proven that the contribution of income tax to the government’s total revenue remained consistently low and is relatively shrinking, however, from all the taxes, personal income tax has remained the most disappointing, inefficient, unproductive and problematic in Nigeria tax system (Asada, 2005; Nzotta, 2007; Odusola, 2006). The statistical data indicated that contribution to non-oil income tax to total revenue of Government in Nigeria dropped from 19.8% in 1999 to 11.7% in 2008 and the tax ratio in 2009 was 11% the lowest in West Africa and below 15% recommended for low income countries (CITN, 2010; IMF, 2005). Specifically, the contribution of individual income tax remained marginal and comparatively low in Nigeria’s tax revenue. At the state and local government levels, where the major source of internal revenue is expected to be individual income tax, its contribution to the total revenue of these levels dropped from 20.18 and 7.7% in 1999 to 12.4 and 1.6% in 2008 respectively (CBN 2008).

Compare to other African countries, Nigeria has been consistently recording lowest income tax ratio and personal income tax (PIT) ratio. For instance in 2006, Nigeria has 2.5% and 1% respectively as income tax and PIT ratio the second lowest in the group of fifteen countries with South Africa recording the highest with 14.4% and 7.7% (Volkerink, 2009). The phenomenon remain unexplained even though one tries to apply the basic and external model of tax compliance.

Ariyo (1997) opined that a country’s tax system is a major determinant of other macroeconomic indexes. Specifically for both developed and developing economics, according to him, there exists a relationship between tax structure and the level of economic growth and development. The economic resources available to society are limited and so an increase in government expenditure normally means a reduction in private spending. Taxation is one method of transferring resources from the private to the public sector, but there are others i.e creation of more money, to charge for the goods and services it provides or to borrow.

The payment of tax is obligatory duty of every citizen whether natural or corporate citizen. As a civic duty, it is expected that citizens will voluntarily comply with such obligation but is not the case with some citizens. Kirchler, Hoelz and Wahl (2008) said that government has primary interest and responsibility in ensuring that citizens follow this civic duty and behave in compliance with provision of tax laws irrespective of their social status.

In order to ensure compliance with tax rules and regulations, tax system made up to tax laws, tax policy and tax administration is in place. According to Mart, (2000), the existence of tax system forces individuals and organization to give part of their income to the government as tax payment. Silvani (1992) added that the goal of tax administration is to foster voluntary tax compliance.

Tax compliance can be described as the decree of which a taxpayer obliges to tax rules and regulation. James and Alley (2004) indicated that the meaning of tax compliance concept can be given from different perspectives but they define tax compliance as the willingness of individual and other taxable entities to act in accordance with the spirit as well as the letter of tax law and administration without the application of enforcement activity. Kirchler (2007) submitted that compliance is made possible by the trust and cooperation ensuring between tax authority and taxpayer and it is willingness of the taxpayer on his own to comply with tax authority directives and regulations. However, in the present distrust and lack of cooperation between authority and tax payer, which create the tax hostile climate, authorities can enforce compliance. Compliance is enforce on taxpayer who are unwilling to pay their taxes through the threat and application of audit and fine (Kirchler, 2007).

The self-assessment tax regime is a system of tax administration whereby the taxpayer is granted the right, by law to compute his own tax liability, pay the tax due (at the designated bank) and produce evidence of tax paid at the time of filing his tax return at the tax office, on due date. On the other hand the tax authority has the responsibilities of enablement to and check on the taxpayer to ensure compliance with tax administration process. In other word self assessment tax regime is characterised by partnership and shared rules and responsibilities between the taxpayer and the tax authority.

The paradigm shift in the regime is that having left the taxpayer with the burden of filing tax return, the tax authority ensures through enablement, compliance and compliance enforcement activities that the right amount of tax due is paid and at the right time, and if otherwise to strictly apply sanction as provided by the tax law. It is emphasised that this tax regime is complete with a continuum of activities; from tax payer enablement, filing of returns, and payments, tax return process, payment / debt management and compliance / enforcement. Self assessment applies to employees, self employed, limited liability companies including oil companies; agents / taxable persons, in the case of value added tax (VAT).

The self assessment tax regime is based on key assumption as stated:

The taxpayer is stake holder and a partner and should treated courteously

The tax payer is honest and indeed demonstrates this by signing a declaration as to the correctness of the tax returns

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