ABSTRACT
This research study examines the Effect of Information Technology on the Efficiency of Tax Administration in Nigeria, a case Study of Enugu State Board of Internal Revenue. Its main objective is to find out whether the application of Information Technology increases efficiency on tax administration. For the purpose of this study, the researcher adopted the method of survey Research Design. Data used in this research were gotten from both primary and secondary sources including questionnaires and textbooks respectively. These data were analyzed and presented in tables. Three (3) hypotheses were formulated and tested using the Analysis of variance(ANOVA) method. The findings of this research tend to show that effective tax administration resulting from the application of Information Technology leads to an increase in tax base as more potential taxpayers are drawn into the tax net when there is a conducive environment. It is recommended in this work that enlightenment campaign be made available for the masses and also adequate training for the tax officials on the use of modern technology
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TABLE OF CONTENT
Cover page i
Certification ii
Approval page iii
Dedication iv
Acknowledgement v
Abstract
CHAPTER ONE: Introduction
1.1 Background of the study 1
1.2 Statement of the problem 7
1.3 Research Questions 8
1.5 Research Hypotheses 9
1.6 Significance of the Study 10
1.7 Scope of the Study
1.8 Limitation of the Study 10
1.9 Definition of Terms 11
CHAPTER TWO: Review of Related Literature
2.1 Concept of Taxation 13
2.2 Nigerian Tax System 16
2.2.1 Structure of Nigeria Tax System 17
2.2.2 Features of Nigerian Tax System 20
2.2.3 Objectives of Nigerian Tax System 22
2.3 National Tax Policy 25
2.4 Tax Laws 28
2.5 Tax Administration 33
2.5.1 Objectives of Tax Administration 34
2.5.2 Models of Tax Administration 35
2.5.3 Tax Administration 37
2.5.4 Organs of Tax Administration 38
2.5.5 Procedures of Tax Administration 48
2.6 Problems of Tax Administration in Enugu 52
2.7 Information Technology (IT) 54
2.7.1 Application of IT in Tax Administration 56
2.7.2 Benefits of IT in Tax Administration 57
References 59
CHAPTER THREE: Research Design and Methodology
3.1 Research Design 60
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3.2 Sources of Data 60
3.3 Research Instrument 61
3.4 Reliability/validity of Research Instruments 61
3.5 Population 62
3.6 Sampling Technique and Sample Size 62
3.7 Administration of Research Instruments 65
3.8 Method of Data Analysis 65
CHAPTER FOUR: Data Presentation, Analysis
4.1 Data Presentation 68
4.2 Test of Hypotheses 80
CHAPTER FIVE: Summary of Findings, Conclusion and
Recommendations
5.1 Summary of findings 89
5.2 Conclusion 90
5.3 Recommendations 90
Bibliography 93
Appendix 95
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CHAPTER ONE
INTRODUCTION
1.1 Background Of The Study
Taxation is one of the oldest and major sources of government revenue. The history of taxation in Nigeria dates back to the pre-colonial era. During this period, there were different systems of taxation existing in the forms of compulsory services, contribution of goods, money, labour and the likes, among the various kingdoms and ethnic groups and tribes controlled by the Obas, Emirs etc., in order to sustain the Monarch and also for community development (ICAN,2010)
Taxation, as we know it today, was first introduced in Nigeria in 1904 by the late Lord Lugard, when community tax became operative in the Northern Nigeria. He later made changes which culminated in the Native Revenue Ordinance of 1917. An amending ordinance that extended the provisions of the 1917 ordinance to Southern Nigeria was passed in 1918. The first ordinance applied to Abeokuta in Western Nigeria and to Benin-city in Mid-Western and in 1928, it was extended to Eastern Nigeria.
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Taxation in Nigeria, in a modern sense, however, only began in 1940. A more progressive income tax Ordinance No.29 of 1943 Cap92, under which Europeans all over the country and Africans resident in Lagos were assessed, came into operation on the 1st of April, 1943.
The Commissioner, appointed by the Governor-General by notice in the Gazette (now referred to as the Federal Republic of Nigeria Gazette), was responsible for the administration of the ordinance. By the 1st Schedule, Ordinance 39/58, it was the Federal Board of Inland Revenue that took the place of the Commissioner (Ola, 1974).
In recent times, tax administration in Nigeria is vested in various tax authorities depending on the type of tax under consideration. Broadly, there are three (3) tax authorities, namely;
i. Federal Inland Revenue Service Board
ii. State Internal Revenue Service Board
iii. The Local Government Authorities
However, the organs of the Nigerian Tax Administration are listed below;
i. Federal Inland Revenue Service Board
ii. State Internal Revenue Service Board
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iii. Joint Tax Board
iv Local Government Revenue Committee
v. Joint State Revenue Committee. (ICAN, 2010)
The enabling laws in respect of each type of tax will normally contain a provision as to the body charged with the administration of the tax. For this purpose, the various enabling tax laws are as follows;
i. Company Income Tax Act, Cap C21, LFN 2004, as amended, which imposes tax on the incomes of companies other than corporation soles and companies engaged in petroleum operations Upstream operations)
ii. Petroleum Profits Tax Act, Cap P13 LFN 2004, which imposes tax on the profits of companies, engaged in petroleum operations.
iii. Education Tax Act, Cap E4 LFN 2004, which imposes Education tax on the assessable profits of companies registered in Nigeria.
iv. Personal Income Tax Act, Cap P8 LFN 2004, as amended, which imposes tax on incomes of individuals and corporation soles.
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v. Value Added Tax Act, Cap V1 LFN 2004, as amended, which imposes tax on the supply of goods and services (except those specifically exempted or zero-rated), made by incorporated companies and other business organizations.
vi. Stamp Duties Act, Cap S8 LFN 2004, which charges duties on specified instruments listed in the Act.
vii. Capital Gains Tax Act, Cap C1 LFN 2004, which imposes tax on capital gains arising from the disposal of chargeable assets (ICAN, 2006)
According to Alhaji Kabir M. Mashi, a core success factor for any system is its position on administrative issues. Presently, the tax administration in Nigeria, Enugu state to be precise, has been riddled with various limiting factors such as;
I. Weak administrative facilities/ administrative lapses which could result in situations such as tax evasion and tax avoidance.
II. Corruption and mismanagement on the part of the tax officials.
III. The problem of funding the revenue collecting agencies which negatively impacts on efficiency and performance.
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IV. Lack of adequate records from the informal sector of the economy.
V. Inability to identify all taxable persons. (Bird, 1988).
VI. Lack of effective mechanism in place to prosecute cases of tax evasion.
The rapid growth and development of Enugu State led to an enhanced increase in population as well as an increasing number of companies. Tax planning and tax management have increasingly become complex activities due to growth in business and the subsequent expansion in scope of operations and fiscal size. Given the amount of data that needs to be analyzed in order to assess and compute tax liabilities, it has become imperative that both tax institutions and companies deploy appropriate computer programmes in order to enhance tax planning and administration.
The advent of Information Technology in this era has played a major role in enhancing economic and business activities of both the private and public institutions. While it has opened up opportunities that have gone undiscovered or neglected, it has saved many organizations millions of perpetual fraud through its applications. The application of Information Technology has
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become increasingly necessary in Nigeria‟s tax administration as the use of Information Technology makes for fast, easy and accurate computation, storage and presentation/ retrieval of data/ records.
Certain computer programmes have been created to facilitate the computation of cumbersome data. Programmes such as Microsoft Excel (Electronic Spread Sheet), Microsoft Access (Database) are one of the most common examples. Other database programmes and accounting packages which allow for easy calculation and computation of an individual or a company‟s tax liabilities include Peachtree Accounting, PeopleSoft System, SQL Database, QuickBooks, Management Information Processing System, Quikens etc.
Presently, the world has gradually become a global village and the nexus between Nigeria and the rest of the world is the use of Information Technology in, practically, every sector of the economy. Therefore, in order to improve on the efficiency of tax administration in Nigeria, it will be advisable to apply the use of Information Technology from the basics of tax collection to the final stage in Tax Administration.
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1.2 Statement Of The Problem
For many years, tax administration in Nigeria has been plagued with problems, most of which can be attributed to the lack of or inadequate application of Information Technology in tax administration.
In Enugu State, the tax institutions have not fully embraced the use of Information Technology for record keeping. According to BECANS Business Environment Report 1(15) (2007), there is evidence of a manually compiled database of tax payers. Manual Compilation involves the use of files/ folders for data storage. When records are stored in this manner over a long period of time, retrieval of such records can prove to be very difficult. Records stored in this manner can be very unreliable as these records are easily prone to manipulations.
Another major problem can be found in the method of tax collection. The tax officials are often aggressive as they use unorthodox methods in tax collection especially at the local government level.
Furthermore, the identification of taxable persons has proven to be a herculean task using the manual systems.
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The thorough application of Information Technology in tax administration in Nigeria would be a welcome change in the system as this will greatly enhance the efficiency in tax administration in Enugu state in particular and Nigeria in general.
1.3 Objective Of The Study
This research work is aimed at achieving certain objectives which are stated below:
i. To determine if effective tax administration leads to an increase in tax base;
ii. To ascertain whether inefficiency in tax administration creates room for tax evasion;
iii. To find out whether the application of information technology increases efficiency in tax administration;
iv. To know whether poor remuneration of tax personnel affects the dispensation of taxation.
1.4 Research Questions
I. Does effective tax administration lead to an increase in tax base?
II. Does inefficiency in tax administration create an avenue for tax evasion?
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III. Does the application of Information technology increase efficiency in tax administration?
IV. Does poor remuneration of tax personnel affect the effective tax administration?
1.5 Research Hypotheses
Based on the objectives, the following researches were formulated:
Hypothesis One
H0- Effective tax administration does not lead to an increase in tax base.
H1- Effective tax administration lead to an increase in tax base.
Hypothesis Two
H0- Inefficiency in tax administration does not create and avenue for tax evasion.
H1- Inefficiency in tax administration create and avenue for tax evasion.
Hypothesis Three
H0- The application of information technology does not increase efficiency in tax administration.
H1- The application of information technology increase efficiency in tax administration.
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1.6 Significance Of The Study
it is hoped that this work will form a major catalyst to stimulate the initiation of a proper legislative process that will regulate tax administration in Nigeria, particularly in Enugu State.
Furthermore, effective implementation of information technology in tax administration will be of immense benefit to tax authorities. The use of information technology will invariably reduce work hours, enhance efficiency and reduce opportunities for corrupt practices in the system.
Finally, it is believed that the information generated from this research will enhance the tax payers awareness on tax issues like tax incentives and penalties for tax related offences such as tax evasion.
1.7 Scope And Limitation Of The Study
As this research work is focused on the effect of information technology on the efficiency of tax administration in Nigeria, with particular reference to Enugu State, the scope of the study will be limited to the activities of Enugu State Board of Internal Revenue
In the course of carrying out this research work, certain limitations were encountered, they include the following:
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I. Lack of access to certain materials needed for the research.
II. Lacks of co-operation from institutions as certain tax institutions were not forthcoming with their record
III. Certain libraries did not have contemporary materials for the researcher to work with.
1.8 Operational Definition of Terms
In order to avoid confusion surrounding the words, the following technical terms have precisely been defined, as they relate to the context of the research work.
Tax- An amount of money levied by a government on its citizens and used to run the government, country, a state, a county or a municipality/ local government.
Tax Evasion- This is an act whereby the taxpayer can achieve the minimization of tax through illegal means. It involves outright fraud and deceit.
Tax Avoidance- This arises in a situation where a taxpayer arranges his financial affairs in a form that will make him pay the least possible amount of tax without breaking the law.
Ordinance- A law or rule made by an authority such as a city government.
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