A STUDY INTO THE CHALLENGES OF INCOME TAXATION
CHAPTER ONE INTRODUCTION 1.1 BACKGROUND OF THE STUDY
Much like individuals, every organization needs financial resources to survive. Every state, big or small, modern or antiquated, has a government and governments are often charged with the responsibilities of providing leadership and allocating resources and values authoritatively. In furtherance to this, governments are also expected to ensure public security and to provide and maintain physical infrastructure and social services. Oftentimes, the expectation of the population in terms of what the government should do or not do is legitimately on the increase. On the other hand, governments at various levels often complain of dwindling revenue to execute their programmes and policies. A critical source of government revenue is taxation. In fact many of the advanced, industrialized and developed societies of the world rely mainly on taxation for their developmental purposes. Resource to taxation as a major source of government revenue has become even more relevant to Nigeria today in view of the volatility of the international oil market and the increasingly diminishing prospects of oil as a major source of government revenue.
Prest and Barr (1979: 147) have argued that administrative efficiency implies the minimisation of the real resources needed to administer any tax. It can then be infered that administrative problems connote those things that tend to hinder implimentation of tax laws by particularly increasing cost. Hence the running cost of the Federal Inland Revenue Service and / or the various state Boards of Internal Revenue tend to cut deeply into the treasury basket which they are supposed to bloat. This is a matter of concern since the costs of tax administration are economic costs in the sense that resources gained from efficiency in tax adminstration could be used for other purposes - public or private (Ola, 2004).
There have been several attempts to define what constitutes income as well as its imitations. In his book, Income Tax Law for Corporate and Unincorporated Bodies in Nigeria, Ola (1981: 84) defined income as “revenue receipts arising from a variety of sources.” Other writers, (such as Prest, 1975:34 - 39) have however done a more indepth analysis on the issue of income and income based tax as well as the administration of tax laws. While the notion of income and income taxation will become clearer in the course of our analysis, it is important to note here that there are two perspectives of income tax: personal and company taxes. Personal income taxes are levied on adult citizens, usually graduated (but not necessarily) depending on the income earned by the individual (Lawal and Lobley, 1981:293). Company or corporate income tax is levied on the income (profit) of companies (Lawal and Lobley: 295).
Most developing countries face substantial fiscal challenges: spend more; spend better ; tax more; tax better. The development community expects them to meet such challenges while at the same time paying close attention to the implications of the fiscal policies adopted for many topics of interest – the list varies from time with changing intellectual fashion but would likely today include such issues as the effects on informality, poverty relief, and gender balance. Moreover, not only must those in power make decisions on all these matters with an eye to economic sustainability -- large uncontrolled deficits are definitely out of style --but they must also, of course, be concerned with their own political survival.
The tax ‘system’ of any country comprises a ‘tax structure’ – a set of laws and regulations that set out what a country presumably wishes to do through its tax policy – combined with the reality of how that structure is actually applied. “Tax administration is tax policy” said and leading IMF expert (Casanegra de Jantscher1990) some years ago. Anyone with experience in the fiscal trenches knows exactly what she meant.
1.2 STATEMENT OF THE PROBLEM
Taxation according to the Social Science Encyclopedia (1981: 521) is a general concept for devices used by governments to extract money or other valuable things from the people and organs by the use of law. The New International Webster’s Dictionary of the English Language (2004: 1286) sees tax as “a ccompulsory contribution levied upon persons, propety, or business for the support of government; by extension any proportionate assessment as members of a society”, while Dalton (in Burgess, 1993) underline the fact that tax is “a compulsory contribution imposed by a public authority irrespective of the exact amount of service rendered to the tax payer in return, and not imposed as penalty for any legal offence”.
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