CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Taxation is an important source of revenue to the government. Tax can be variously defined; Anyanwu (1997) defined taxation as the compulsory transfer of payment (or occasionally of goods and services) from private individuals, institutions or groups to the government. According to Ogbonna and Appah (2012), tax is “a major source of government revenue all over the world”. According to Chris and Elizabeth (2001) tax has three basic features namely, a compulsory levy imposed by government, or local authority, for public purposes and to encourage social justice. Taxation is machinery or process in which society and communities or group of individuals are contributing into an agreed sum which is important for the resolution, development and administration of the public (Ogundele, 1999). Taxes are essential contribution levied by the government on citizens and corporate institutions for the provision of public expenditure (Nightingale, 1997).
Taxation as a fiscal tool could be used to enhance a nation’s development process and its economic activities, thereby improving the overall level of prosperity and economic well-being of the entire citizenry (Anyaduba, 1999). Taxation is a tool for societal development and also a means by which the rewards of development are redistributed (Oladiran, 2009). When the taxpayers pay their taxes, the government is accountable to the citizens and are accountable to make budget decisions accessible and transparent. In developing countries like Nigeria, the Government faces challenges and issues when it comes to revenue collection (i.e. tax collection) which ends up leaving the government collecting a lesser amount. According to a world bank economic report on Nigeria published on the 1st of May 2013, it was stated that 95% of the government’s budgeted expenditure depended on its projected oil revenue based on current world oil prices. It was also recommended in the report that the Federal Government, through the improvement of the domestic tax system it can increase its internal revenue and provide in the event of a fall in oil prices a financial backup plan for the economy (The World Bank, 2013).
Globally, Electronic Tax System has been given attention through the increase in the use of information technology and this affects the tax administration. Nisar (2013) argued that current problems in public taxation stress the need of developing a system of tax assessment and collection that involves internet services. Therefore, Electronic Tax System is an online platform whereby the taxpayer is able to access through internet all the services offered by a financial authority such as the registration for personal identification number, filing of returns, payment of taxes and application for compliance certificate. E-Filing is a process where tax documents or tax returns are submitted through the internet, usually without the need to submit any paper return.
In United States of America, the introduction of electronic tax administration including electronic tax filing (e-filing) has been the largest in terms of citizens affected. Starting in the 1980s as a partnership between the Internal Revenue Service (IRS) and the tax preparer H&R Block, the program has developed to a successful public-private partnership. In fact, the IRS has been described as one of the most efficient tax collection agencies in the world (Fletcher 2003). Recent announcements by the IRS indicate that e-filing has increased at an impressive rate since its introduction in the late 1990s. Statistical analysis shows that e-filing for individual taxpayers increased from an average of about 23% in 1999 and approximately 60% in 2007. More recent IRS information indicates an individual e-filing rate of 61% in 2008 and 69% in 2009 (Pippin S and Tosun M,2014).
In South Africa, SARS e-filing is the official online tax returns submission portal for South African Revenue Service launched originally in 2001 through third-party companies, then expanded and taken in-house by SARS in 2006. In the 2015/2016 tax year SARS e-filing processed 36.80 million electronic submissions and payments which is equivalent to 98.7% of all submissions and payments to SARS in South Africa (SAnews,2016). SARS e-filing is a free, online process for the submission of returns and declarations and offer other related services.
The Nigerian Tax system is surrounded by numerous problems; therefore, the aim of E-Tax system is to provide the tax authority a database with details of taxpayers and their transactions. An example of E-Tax System in Nigeria is Integrated Tax Administration System (ITAS) introduced in 2013 by the Federal Inland Revenue Service to improve tax administration in Nigeria and improve the tax compliance process from the manual system which is monotonous and bureaucratic. IATS has the following features; Online Submission of tax returns; Taxpayers can submit their tax returns for different taxes such as Petroleum Profit Tax (PPT), Companies Income Tax (CIT), Value Added Tax (VAT) and Capital Gains Tax(CGT) through the portal. When the taxpayer is registered, a taxpayer’s e-filing account is created based on the taxes the individual or company is liable to pay.
Electronic Tax Clearance Certificate (E-TCC) processing: Taxpayers can apply for a TCC online which will be generated by the system. Although hard copies will still be available for collection, a system generated TCC will be just as useful as the hardcopy. E-TCC is therefore a platform that issues the TCC of a taxpayer. Validation of Tax Identification Number (TIN): The external parties can validate the TIN of a taxpayer on the Integrated Tax Administration System (ITAS). Automatic Imposition of Late Filing Penalties and Interests: The system has been designed to automatically compute and impose interest and penalty for late submission of tax returns or late payment of taxes. Electronic Tax Payment: Effective on March 2015, taxpayers can pay their taxes online from their corporate bank accounts. This application which was developed in conjunction with the Nigeria Inter-Bank Settlement System (NIBBS) is hosted on the respective commercial bank’s internet-banking platform. The process requires the TIN, unique document number generated on the E-filing platform and the necessary internet banking authentication. (PWC Nigeria, 2015)
Tax compliance is the degree to which a taxpayer complies with the tax rules of his country. This also means making tax payments and producing and submitting tax returns to the tax authorities on time and in the required formats. The issue of tax compliance has been a vibrant issue in the tax world in Nigeria. Most citizens have the view that since the government doesn’t provide us with the basic amenities needed, why pay taxes? This is commonest reaction you get from citizens who evade taxes. Tax evasion cannot be totally eliminated but can be controlled by the tax authority. A more appropriate definition of compliance could include the degree of willingness to complying with tax laws and administration that can be achieved without immediate threat or actual application of enforcement activity. Tax compliance can be viewed in terms of tax avoidance and evasion. These two are distinguished in terms of legality, tax avoidance is legal while tax evasion is illegal. Compliance might therefore be better defined in terms of compliance with the tax laws of the nation (James, Murphy and Reinhart 2005).
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