Thesis Abstract

Abstract
Income taxation is a critical aspect of fiscal policy in many countries around the world. This research project delves into the challenges associated with income taxation, focusing on both individual and corporate taxpayers. The study aims to identify and analyze the major hurdles that taxpayers face in complying with income tax regulations and the challenges that tax authorities encounter in enforcing tax laws effectively. The research methodology involves a comprehensive literature review to understand the theoretical framework of income taxation and the various challenges that have been identified in previous studies. Additionally, empirical data will be collected through surveys and interviews with individual taxpayers, tax professionals, and tax authorities to gain insights into the practical difficulties faced by different stakeholders in the income taxation process. The findings of this study are expected to shed light on the common challenges faced by taxpayers in meeting their income tax obligations. These challenges may include complex tax laws, frequent changes in tax regulations, difficulties in record-keeping, and understanding tax calculations. Moreover, the research will explore the challenges faced by tax authorities in ensuring compliance, such as limited resources, tax evasion, and the use of aggressive tax planning strategies by taxpayers. By examining these challenges in detail, the research project aims to provide valuable recommendations for policymakers, tax authorities, and taxpayers to address the identified issues effectively. These recommendations may include simplifying tax laws, providing more guidance and support to taxpayers, enhancing tax enforcement mechanisms, and improving taxpayer education and awareness programs. Overall, this study contributes to the existing literature on income taxation by offering a comprehensive analysis of the challenges faced by individual and corporate taxpayers. By understanding these challenges and proposing practical solutions, this research project seeks to facilitate a more efficient and equitable income tax system that benefits both taxpayers and tax authorities.

Thesis Overview

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”.

 

High level incidence of corruption in the administration of income taxation gave rise to increased tax evasion, avoidance and ineffective and inefficient income tax administration. Noticeable inefficacy as evidenced in the increasing number of tax defaulters, evasion and avoidance are attributable to corruption and other vices in the administration of income tax.

 

1.3       OBJECTIVES OF THE STUDY

The study sought to know the challenges of income taxation. Specifically, the study sought to;

i.   determine which and what income are liable to tax.

ii.   examine the factor that contribute to non-compliance of tax payment.

iii.   proffer possible solutions to the challenges of income taxation in Nigeria.

 

1.4       Research Questions

i.   Which and what income are liable to tax?

ii.   What are the factors that contribute to non-compliance of income tax payment.

iii.   What are the possible solutions to the challenges of income taxation in Nigeria.

 

1.5       Significance of the Study

This study will be of immense benefit to other researchers who intend to know more on this study and can also be used by non-researchers to build more on their research work. This study contributes to knowledge and could serve as a guide for other study.

 

1.6       Scope/Limitations of the Study

This study is on challenges of income taxation in Nigeria with a view of finding a lasting solution to the problem.

Limitations of study

Financial constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data Collection (internet, questionnaire and interview).

Time constraint: The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

 

1.7       Definition of Terms

Tax: A tax is a mandatory financial charge or some other type of levy imposed upon a taxpayer (an individual or other legal entity by a governmental organization in order to fund various public expenditures.

Income taxation: An income tax is a tax imposed on individuals or entities that varies with respective income or profits. Income tax generally is computed as the product of a tax rate times taxable income. Taxation rates may vary by type or characteristics of the taxpayer. The tax rate may increase as taxable income increases.

                       

References

Adam, Christopher S. and Stephen A. O’Connell (1999) “Aid, Taxation and Development in Sub-Saharan Africa,” Economics and Politics, 11 (3): 225-53

Addison, Tony, and Jorgen Levin (2006) “Tax Policy Reform in Developing Countries,”Third draft 2006-06-17, WIDER

Acosta, O. L. and R.M. Bird (2005) “The Dilemma of Decentralization in Colombia,” in R.M. Bird, J. Poterba and J. Slemrod, eds., Fiscal Reform in Colombia (Cambridge MA: MIT Press).

Alm, J. and H. López-Castaño (2005) “Payroll Taxes in Colombia,” in R.M. Bird, J. Poterba and J. Slemrod, eds., Fiscal Reform in Colombia (Cambridge MA: MIT Press).

Auerbach, A. J. and J.R. Hines, Jr. (2002) “Taxation and Economic Efficiency,” in A.J. Auerbach and M.Feldstein, eds., Handbook of Public Economics, 3 ( Amsterdam: NorthHolland).

Auriol, E. and M.Warlters (2005) “Taxation Base in Developing Countries,” Journal of Public Economics, 89: 625-46.

Baer, K., O.P. Benon and J.A. Toro Rivera (2002) Improving Large Taxpayers’ Compliance: A Review of Country Experience. Occasional Paper 215. (Washington: International Monetary Fund).

Bahl, R.W. (1971) “A Regression Approach to Tax Effort and Tax Ratio Analysis,” IMF Staff Papers, 18: 570-608.