| Content | CHAPTER 1
1.1 BACKGROUND OF THE STUDY
Hornby (2010) defined an employee as “a person who is paid to work for somebody” (p.480). The International Labour Organization elaborate this definition by stating that employees are people who work for a public or private employer and receive remuneration in wages, salary, commission, tips, piece rate, or pay in kind. It is important to know that an employee is one who under a contract is employed by an employer in either a private or public entity of an organization to work for that particular organization, with a reward at the end of the work, be it a salary, wage etc on daily, weekly or monthly basis
In addition to this view, a Nigerian employee should not only be a salary, wage, etc earner, he/she should be given the liberty that is to have a voice or freedom to contribute in the decision making of the organization and should have the right to quit with genuine reasons and can be feared when he/she breaches the law with strong query before that. Employee motivation Among financial, economic and human resources, the latest are more essential and have the capability to endow a company with competitive edge as compared to others (Rizwan& Ali 2010). Employee performance fundamentally depend on many factors like performance appraisals, employee motivation, employee satisfaction, compensation, training and development, job security, organizational structure and others, but the area of study is focused only on employee motivation as this factor highly influence the performance of employees. Employee motivation is one of the policies of managers to increase effectual job management amongst employees in organizations (Shadare et al, 2009). A motivated employee is responsive of the definite goals and objectives he/she must achieve, therefore he/she directs its effort in that direction. Employee motivation is affected by both personalcharacteristics as well as workplaceenvironmentOrganizations benefit from „engaged workers” in a number of ways. Two-way communication helpsto shape employees perceptions and aid the company in understanding employee better. Employee satisfactionhas positive influence on customer satisfactions in the service industry (Harte, Schmidt, &Hayes, 2002). In addition, for organizations to achieve effective organizational managementtheremust be a free follow of communication between the employers andthe employees in the organization. The employee should be carried along in the decision makingof the company, it helps to reduce grapevine in work place. It is obvious to know that a satisfied employee works with enthusiasm in other to satisfy customersand achieve the organizational goals, while the reverse is the case to anunmotivated employee.Benefits of Employee Motivation in Nigerian OrganizationsThe importance of employee motivation in Nigerian organizationscannot be over emphasized, because it provides the following benefits: Improves level of efficiency of employees.The level of a subordinate or anemployee does not only depend upon his qualifications and abilities. For getting best of his work performance, the gap between ability and willingness has to be filled which helps in improving the level of performance of subordinates. This will result intoincrease in productivity, reducing cost of operations, and improvingoverall efficiencyin the work place(Adi, 2000).. Puts human resources into action
Every concernrequires physical, financial and human resources to accomplish the goals. It is through motivation that the human resources can be utilized by making full use of it. This can be done by building willingness in employees to work. This will help the organizationsin securing best possible utilization of resources (Rothberg, 2005).
Builds friendly relationshipMotivation is an important factor, whichbrings employees satisfaction. This can be done by keeping into mind andframing an incentive plan for the benefit of the employees. This could initiate the following things:Monetary andnon-monetary incentives,Promotion opportunities for employees, disincentives for inefficient employees.Industrial dispute and unrest in employees will reduce,theemployees will be adaptable to the changes and there will be no resistance to the change,this will help in providing a smooth and sound concern in which individual interests will coincide with theorganizational interests;thiswill result in profit maximizationthrough increased productivity (Anka, 1988. Leads to achievement of organizational goals.The goals of an organizationcan be achieved only when the following factors take place:-There is best possible utilization of resources, there is a co-operative work environment,the employees are goal-directed and they act in a purposive manner, goals can be achieved if coordination and cooperation takes place simultaneously which can be effectively done through motivation(Anka, 1988) Leads to stability of work force
Stability of workforce is very important from the point of view of reputation and goodwill of a concern.
Theemployees can remain loyal to the organization onlywhen they have a feeling of participation in the management. Theskills and efficiency of employees will always be of advantage to employersas well as employees. This will lead to agood public image in the market, whichwill attract competent and qualified people into a concern. As it is said, “Old is gold” which suffices with the role of motivation here, the older the people, more the experience and their adjustment into a concern which canbe of benefit to the organization(Rothberg, 2005)
Therefore this research seek to provide an evaluation of motivational policies in enhancing employee Performance in the public service.
1.2 STATEMENT OF THE PROBLEM
Employees constitute a vital resource of the organization in the civil service.
As a driver of organizational productivity , progress, and attainment of broad and sub objectives
Of the organization. However in the culture of Africa and in Nigeria employee performance
Can be only maximized if they are well motivated with the right motivational incentives.
Employees cut across defferent levels of cadre in the organisation as such proper motivational policy
Should be formulated and implemented if the civil service must maximize the performance of its work force. It is perplexing to note that the average attitude of the Nigerian worker to perform effectively at work lies on his being properly motivated.; otherwise what we find is redundancy, lateness to work, absenteeism, abandonment of duties, procrastination and gross misconduct .
Therefore the problem confronting this research is to profer an evaluation of motivational policies in enhancing employee performance in the public service.
1.3 RESEARCH QUESTION
1 What is the nature and significance of motivational policies
2 What is the impact of motivational policies on employees performance
3 What is the nature , significance and impact of motivational policies on employee performance
In Imo state civil services.
1.4 OBJECTIVE OF THE RESEARCH
1 To determine the nature and significance of motivational policies in the public service
2 To determine the impact of motivational policies on employee performance in the public service
3 To determine the nature ,significance and impact of motivational policies on employees performance
In imo state civil service
1.5 SIGNIFICANCE OF THE STUDY
The study shall highlight motivational policies for employee performance in the public service
It shall profer the impact of motivational policies on the performance of the employee
The study shall also serve as a source of information to managers and other professionals in the public service
1.6 STATEMENT OF THE HYPOTHESIS
1 Ho Employee productivity in Imo state civil service is low
Hi Employee productivity in imostate civil service is high
2 Ho Motivational policies in imo state civil service is not significant
Hi Motivational policies in imo state civil service is significant
3 Ho Impact of motivational policies on employee performance in imo state civil service
Is low
Hi impact of motivational policies on employee performance in imo state civil service is high
1.7 SCOPE OF THE STUDY
The study focuses on the evaluation of motivational policies in enhancing employee performance in the Public service with a case study of imo state civil service
1.8 DEFINITION OF TERMS
MOTIVATION DEFINED
motivation is viewed as a process of stimulating people to achieve organizational tasks as well as process of stimulating oneself to action to gratify a felt need
(Ajibola, 1976). In addition to this, Ajibola point out that employees are beingencouraged to achieve not only the organizational goals but also their own goals through motivation. This shows that organizations cannot do without the employees as their bedrock (employees) in achieving success.
EMPLOYEES DEFNED
Hornby (2010) defined an employee as “a person who is paid to work for somebody” (p.480). The International Labour Organization elaborate this definition by stating that employees are people who work for a public or private employer and receive remuneration in wages, salary, commission, tips, piece rate, or pay in kind. It is important to know that an employee is one who under a contract is employed by an employer in either a private or public entity of an organization to work for that particular organization, with a reward at the end of the work, be it a salary, wage etc on daily, weekly or monthly basis
In addition to this view, a Nigerian employee should not only be a salary, wage, etc earner, he/she should be given the liberty that is to have a voice or freedom to contribute in the decision making of the organization
ORGANISATION DEFINED
it is “an organized or cohesive group of people working together to achieve commonly agreed goals and objectives.... The basic objectives of most commercial organizations are to create a product or service that customerswil
l buy, thus creating profit (McGovern, 1999). However, not all organizations are for profit making. Some are service based. The hope of achieving goals and objectives may be the same, but the functions and activities will definitely differ.
ORGANISATION MANAGEMENT DEFINED
Organizational management is defined as “a process of planning, organizing, leading and controlling the effort of organization members and resources within an entity with the overall aim of achieving its objectives. The organizational management of a business needs to be able to make decisions and resolve issue in order to be both effective and beneficial. (Business dictionary.com). These simply highlight that for an effective organizational management, the basic function of management must be present and this alone cannot work without the resources and most importantly the lubricate of any organization which is the employee. This shows how important an employee is to the success of every organization.The relationship that exists between employee motivation and organizational management is very crucial; they are intertwined, an organization cannot work in isolation without the employees, because they serve as the engine that keeps the organization going. Therefore, where decisions are taken the employees must beput into cognizance,to achieve a long-lasting goal in the organization A motivated employee is a valuable asset, who candeliver immense value to the organization in maintaining and strengthening it business and revenue growth. | ABSTRACT
Revenue from tax which is a big source of revenue to the Government has been a major concern to many developing countries such as Ghana in recent times. This due to the fact that taxation faces a lot of challenges in developing countries, and once these challenges are not properly dealt with, it becomes a big disadvantage to the government and citizens of that country, as enough revenue will not be generated to the government. Various challenges such as complex tax structure, tax evasion, and inadequate logistics are making taxation difficult in Ghana. All these challenges reduce the amount of revenue generated by the Government. The inability of the government to tackle these challenges will encourage economic instability, poor infrastructural development and poor economic growth.
The researcher used Internal Revenue Service Ghana (Eastern Regional Office), as a case study to find out the challenges associated with income taxation in Ghana, as well as solutions to these challenges.
Concerning methodology, data used in compiling this research were gathered from both primary and secondary sources. The management and employees of Internal Revenue Service (Eastern Regional Office) were issued questionnaires. Text Books, Magazines and News Papers on Taxation were also used in compiling this research.
Based on the findings revealed from the data analysis and interpretation, the researcher came up with some suggestions and recommendations. The major findings in this study include: the challenges facing income taxation in Ghana, the causes of tax evasion in Ghana, and ways to properly address the challenges identified. These findings and recommendations, in view of the researcher, will help improve income tax administration in Ghana, if implemented by the government of Ghana, and other tax authorities such as the Internal Revenue Service of Ghana.
CHAPTER ONE
INTRODUCTION
The desire to build a civilized country with a strong and sound economy is the desire of every patriotic Ghanaian citizen. Tax payment is the demonstration of such a desire, although most income earners see it as a means of exploitation by the government. Tax payment is a voluntarily contribution imposed by the Government on personal income earners, companies, investors, exporters, importers etc. revenue realised from taxation is a major source of revenue to the Government of Ghana, and as such is an important tool used in the development of Ghana and her economy. However, tax evasion which is the wilful and deliberate violation of the law in order to escape payment of tax, posses a big threat to income taxation in Ghana as it reduces tax revenue to the Government, thereby hampering economic growth and development.
However, this research was undertaken to help increase revenue generated from income tax to the government, by pointing out the challenges faced by tax officials in discharging their lawful duties. Various challenges such as tax evasion on the part of the income taxpayers drastically reduce income tax revenue to the government. This has been a big problem for decades and needs to be properly addressed.
BACKGROUND OF THE STUDY AND PROFILE OF THE ORGANIZATION
After a thorough research on the revenue structure of Ghana, it became evident that revenue from tax was a big source of income to the government of Ghana, and needed much attention because; taxation in Ghana like most West African Countries faced numerous challenges such as Tax Evasion (which is the biggest challenge of Taxation).
The main reason for initiating this project is to research on the various weaknesses of tax administration in Ghana, throw more light on the weaknesses, and proffer solutions as well as recommendations for government agencies to deliberate upon and make informed decisions.
The study started with casual discussion among tax officials and tax payers concerning their views on taxation in Ghana and their expectations. It later developed into a full research when the researcher developed more interest in the topic, and decided to get more information from tax officials, government agencies, and other secondary documentations.
The Internal Revenue Service (IRS) is under a ministry of Finance and Economical Planning of the Republic of Ghana. It is a public service organization charged with direct tax administration. IRS as a revenue agency is very strategic in the achievement of national goals. It has therefore embarked on a mission of improving the quality of service delivery to taxpayers and the general public through simplifying processes and clarifying roles and procedures.
It has set up time frames for prompt completion of tasks in order to render more transparent services to the public. The objective is to create a customer-oriented revenue collection organization focused on providing quality service to enhance voluntary tax compliance. The IRS is assisted in its endeavour at improved quality service delivery by the Ministry of Public Sector Reform.
The IRS is headed by a commissioner who is responsible for the day-to-day running of the service. He is subject to the directions of the board on matters policy.
He is assisted by five (5) deputy commissioners who head the five(5) main departments:
Operations.
Research, Planning, and Monitoring.
Finance.
Administration.
Legal services.
IRS of Ghana is located in Accra and implements policies formulated by RAGB. There are two (2) regional offices in Greater Accra region and one each in the remaining nine (9) regions of Ghana. Their core functions are monitoring and supervision of district offices.
There is also a LTU located in the Revenue Towers at Osu. The LTU is a one stop tax office responsible for large taxpayers of the three (3) revenue agencies especially IRS and VAT service. All taxpayers at the LTU are on self assessment.
The service has a total of fifty (50) tax districts, thirty-eight (38) sub offices, and twenty-five (25) collection points located at vantage points for the identification of tax payers, assessment, and collection of direct taxes.
The Vision Statement of Internal Revenue of Ghana is ‘To excel as an effective tax administration agency’.
The Mission Statement of Internal Revenue Service of Ghana is ‘To effectively and efficiently administer the tax laws through a well-trained and motivated staff in order to promote voluntary compliance for the maximization of tax revenue’.
STATEMENT OF THE PROBLEM
Based on previous researches conducted on income taxation in Ghana, it is clear that revenue generated from income tax is at a decrease, as the challenges facing income taxation increases. A study conducted in 2008 by Raymond Baker, estimates that developing countries like Ghana loses over $22.4 million in tax revenue annually to tax evasion. Also, a similar study conducted by Internal Revenue Service of Ghana revealed that about 1.5 million of 7 million income earners pay their tax which indicates that 79% of total income earners evade tax. This can be attributed to the numerous challenges facing income taxation in Ghana.
Due to numerous challenges facing income taxation in Ghana, revenue generated from income tax is low as tax evasion in Ghana is at the increase. Challenges such as tax evasion and high poverty rate has made income earners who are eligible to pay tax to keep evading tax for various reasons ranging from insufficient profits on the part of the tax payer to expectations not being met by the government who collect the tax, and at times totally escaping from the tax net. Most personal income earners in Ghana, especially the self employed, business men and women, traders do not often pay their tax liabilities, and those who are captured in the tax net under-state their financial positions by not disclosing their full income, thereby paying less tax. This has been a big problem for long as enough revenue is not being realised to carry out activities that develop the country, and build a strong economy.
OBJECTIVES OF THE RESEARCH
The main purpose of this research is to identify means of increasing revenue generated from income tax to the government, by finding out the challenges of income taxation in Ghana, and ways all these can be effectively tackled.
In-order to achieve the purpose of this research, the following are the objectives of the research:
To identify the challenges of Income Taxation in Ghana.
To identify the causes of tax evasion in Ghana.
To identify ways of properly addressing the challenges of income taxation in Ghana, in order to capture more income earners into the tax net.
RESEARCH QUESTIONS
In order to achieve the objectives stated above, the following research questions were used as a guide in achieving the objectives of this research:
What are the various challenges facing income taxation in Ghana?
What are the factors that account for tax evasion in Ghana?
What must be done to address the challenges of income taxation in Ghana properly?
SIGNIFICANCE OF THE STUDY
This study gives a clear insight into the various ways in which revenue from tax can be increased and how the challenges facing income taxation in Ghana can be properly tackled. The study also gives a clear insight into the various causes of tax evasion-which is a major challenge of the income taxation in Ghana. The findings and recommendations of the researcher will help in building a strong and better income tax system in Ghana, if taken seriously by government and the general public. The challenges of income taxation in Ghana are outlined in-order for drastic measures to be taken to tackle these challenges and meet the prospects of the general public so that revenue from income tax to the government can be increased.
SCOPE OF THE STUDY
This research focuses mainly on the challenges faced by tax authorities when collecting personal income tax. The study only torches on the challenges tax officials face when collecting tax on income earned, from personal income earners such as the self employed, business men and women, traders, and other forms of sole proprietorship businesses.
Based on the findings of this study other possible researchable areas may include studies on the various challenges of other forms of tax such as the Value Added Tax (VAT), Capital gains tax, Import and Export duties tax. Etc. Further research can also be done on curbing tax evasion in Ghana.
TIME FRAME
This study lasted for four months before it was complete. The study lasted from January 2011 to April 2011.
LIMITATION
The only limitation faced by the researcher in the course of carrying out this study was the delay in getting data from the various respondents. Most respondents were reluctant in filling questionnaires administered to them due to their busy schedules and nature of their work. The researcher found it difficult to collect responses from the various respondents, and this almost hampered the success of this study.
CHAPTER SCHEME
Chapter one of this study includes the general introduction, background information about the study, statement of the problem, objectives of the study, research questions, scope of the study, significance of the study, and the limitation of the study.
Chapter two reviews all relevant literatures relating to the study as well as the researcher’s views concerning previous studies on the challenges of income taxation.
Chapter three includes the methodology applied in collecting and analysing data, population definition, study site, and limitations.
Chapter four presents the results of the study as well as data analysed, and the interpretation of the analysed data.
Chapter five includes a summary of the study, conclusion and recommendations based on the findings from the study. | CHAPTER ONE
INTRODUCTION
BACKGROUND TO THE STUDY
Taxation is a compulsory levy imposed by the Government on the incomes of taxpayers in a geographical territory in order to defray the expenses of governance. This implies that anybody that generates income must compulsorily pay taxes. There are different types of taxation. These include the personal income tax, company’s income tax, and petroleum profit tax, value added tax and the capital gains tax. Recently, the issue of capital gains tax in the Nigerian has come to the fore. Government, from time to time, has the responsibility of reviewing the tax position as a component of the subsisting fiscal policy for the purpose of meeting given objectives. However, each review naturally elicits mixed reactions from the stakeholders.
Governments in all parts of the world and at all points in history have faced similar challenges when it comes to funding their ambitions to develop their country or state and to give a good standard of living to the masses in their country or state. We do not believe that governments in the past or in today’s developing world are any less rational or farsighted compared to those in today’s developed world. For this reason, in most countries of the world, the primary objective and purpose of taxation is essentially to generate revenue or raise money for government expenditures on social welfare.
The importance of taxation lies primarily in its ability to raise capital formation for development and growth of the economy and also, in assisting in the regulation of consumption pattern resulting in economic stabilization and effective redistribution of income (ICAN, 2009).
If these are the main objectives of taxation, it is therefore highly important to have in place a strong and vibrant tax system, not only at the Federal level but also at the state and local government levels, so as to ensure that the objectives of tax system are achieved.
With the federal government poised to eliminate the budgetary deficit in the coming year, a debate has commenced about how best to direct future budget surpluses. Some voices have called for tax relief while others have emphasized new spending.
In Nigeria the Capital gain tax administration aims and tries to tax each company in the state more effectively. However the level at which the capital gain tax Administration in Nigeria tend to achieve its desired goals and objectives depends mostly on the tax office and the company that is operating in each state, also when an individual or company is been taxed by the federal board of inland revenue (FBIR) such taxpayer is meant to give an accurate information about their gain or income but some go to the extent of forgery in provision of their documents which gives an incorrect information to the board, thereby causing reduction in their tax assessment.
The backdrop to these fiscal policy discussions is a sluggish economy. The consensus view of most economists is that the Nigeria economy will continue to struggle with lowers than “normal” or historic levels of economic growth. Low economic growth has broad implications including slower growth in employment, income, and ultimately living standards. This means any debate about using future budgetary surpluses should focus on policy measures that can improve economic growth in both the short and the long term.
One area of policy reform that could contribute to higher levels of economic activity is capital gains taxation. A wealth of research shows that capital gains tax reform can increase the supply and lower the cost of capital available to new and expanding firms, and in turn lead to higher levels of entrepreneurship, economic growth, and job creation.
The primary reason that capital gains tax reform can have these positive effects is related to what economists call the “lock-in effect.” Because capital gains are only taxed upon realization, high tax rates on capital gains can create an incentive for investors and asset holders to retain their current investments even if more profitable and productive opportunities are available. The magnitude of the lock-in effect depends on a number of factors, but a series of empirical studies has found a negative relationship between capital gains tax rates, asset sales, share prices, and other proxies for investor activity.
A capital gain (or loss) generally refers to the price of an asset when it is sold compared to its original purchase price. A capital gain occurs if the value of the asset at the time of sale is greater than the initial purchase price. A capital loss occurs if the value of the asset at the time of sale is less than the purchase price.
Capital gains taxes, of course, raise revenues for government but they do so with considerable economic costs. Capital gains taxes impose costs on the economy because they reduce returns on investment and thereby distort decision making by individuals and businesses. This can have a substantial impact on the reallocation of capital, the available stock of capital, and the level of entrepreneurship.
Capital gains are taxed on a realization basis. This means that the tax is only imposed when an investor opts to withdraw his or her investment from the market and realize the capital gain. One of the most significant economic effects is the incentive this creates for owners of capital to retain their current investments even if more profitable and productive opportunities are available.
Capital gains tax has been justified on the ground that capital gain on assets increases a person or person’s taxable capacity by increasing his power to spend or save. Capital gains are not distributed among the different members of the tax paying community in fair proportion to their taxable incomes, but are concentrated in thehands of property owners and it has been argued that theirexclusion from the scope of taxation constitutes a serious discrimination in tax treatment in favour of a particular class of taxpayers.
Non payment of capital gains tax will create discrimination in favour of property owners that will lead to further reinvestment of those gains in assets thereby perpetuating further severe inequalities in income and wealth as capital gains only accrue to those who own property. Non payment of capital gains tax accruing especially to those in the upper income bracket puts a greater relative burden on the income tax of those who do not enjoy such gains (Ayua, 1999).
In developing countries capital gains tax is a lucrative ground for raising money for purposes of development. In addition, In a (developing) countries like Nigeria there exist large opportunities for the realization of capital gains because of the tendency of rising prices inevitably accompanying a process of accelerated economic development, besides, the process of economic development itself tends to generate capital gains because of the rise in real income, company profits and the value of shares. But as the proportion of wealth held in the form of equity shares of the capital gain arises to the owners of property such as land and real estate. Thus, the taxation of capital gains tax constitute an important fiscal mechanism to plough back a proportion of the increase benefits accruing to the holders of property as a result of a process of development into the developmental funds of public sectors.
There are many types of taxes that are often levied on individual and corporate entities. Capital gain tax is on income derived from the sale of a capital asset. This paper will examine the concept of tax, reasons for taxation, features of a good tax system, nature, arguments against Capital Gain Tax and recommendations for effectiveness of this form of taxation.
1.2. STATEMENT OF PROBLEMS
Whatever arguments are in favour of or againstcapital gains tax, capital gain tax like other type of taxation have been criticized as having a kind of a lock-in-effect on business in the sense that it inhibits the sale of capital assets which have appreciated in value (Brown, 1955). It is also argued that capital gain tax reduces the flow of investment especially in developing countries where there is high need for greater investment mobility (Amatong, 1975). The negative effect on sale of asset will be minimal where capital gains are payable on the value of appreciation, where the tax is not only through sale of asset.
Secondly, There are some challenges in connection with CGT Act one of them being that should the same transaction bear tax consequences in another jurisdiction double taxation is likely to occur. It appears the tax consequences and tax point obligation is the burden of the resident entity. It is not clear how the resident entity will arrange for the funds to meet its tax obligation. The amendment has not made any clarifications when it comes to cases where the shares are listed and traded on a stock exchange on a regular basis, thereby potentially triggering a change in control as result of regular trading. Also, unlike other jurisdictions, no limitation has been provided for under the amendment with respect to companies which are land rich or own natural resources which were/are the main target of taxation.
Thirdly, despite the fact that the existing tax provisions provided for taxation of direct share transfers in Nigeria, there was no specific mechanism in place to enforce collection of the tax on the gain. This has now changed following the amendments made to sum section of the CGT Act whereby a single installment tax payment will be required with respect to gains arising from direct share transfers or interest derived from Nigerian entities. The installment rate applicable is ten percent for resident shareholders and twenty percent for nonresident shareholders. A point to note is that the said installment will be available to the taxpayer as a tax credit for the given year of income at the time of the final tax payment.
Fourthly, Capital gains taxes also contribute to tax avoidance. The level of tax avoidance is the extent to which actual tax revenue collected by a government differed from what would have been collected if every taxfiler paid exactly what is required by law. Tax avoidance has important implications for tax efficiency since resources expended on avoidance could be put to more productive uses.
Furthermore, there are many problems with the management and administration of capital gain tax as presently implemented in Nigeria. Oserogho (2004) posited that the principal problem is that of lack of data or record keeping in order for the tax authorities to be aware of when the capital gain has been made and liable to payment of this tax. This is especially as Nigeria continues to maintain a cash base economy as opposed to an electronic one.
If the potential returns are taxed heavily, the entrepreneur’s motivation is reduced. Hence, high capital gains tax rates may divert innovative, would-be entrepreneurs toward different career paths. The economy is harmed by the reduction in entrepreneurial activity, not only because business and job creation declines, but also because possible improvements to living standards are left undiscovered.
Finally, Nigeria is richly blessed with oil and gas among other mineral resources, but the over dependence on oil revenue for the economic development of the country has left much to be deserved. The inability of the tax system to generate revenue affects the services offered by the government. The Nigerian tax system has not been able to perform the expected role of revenue generation and regulation of income distribution. This stemmed from the structural and administrative defects of the tax system. The machinery and procedures for implementing tax systems are inadequate, resulting into tax evasion and avoidance by most individuals and institutions and the resultant effect of this, is low revenue yield for the development of the country or state.
1.3. OBJECTIVES OF THE STUDY
The capital gains tax is different from almost all other forms of federal taxation in that it is a voluntary tax. Since thetax is paid only when an asset is sold, taxpayers can legally avoid payment by holding on to their assets—aphenomenon known as the "lock-in effect." Today there is an estimated $7.5 trillion in unrealized capital gains thathave not been taxed. Over the past 40 years the appreciation of capital assets has outpaced realized capital gains 40-fold. That suggests that a capital gains tax reduction has the potential of "unlocking" hundreds of billions of dollars ofstored up wealth.
OBJECTIVES OF STUDY
The main objective of this paper is to assess and evaluate the administration of capital gain tax in Nigeria Tax system.
Other specific objectives include:
Ascertain the relationship of Capital Gain Tax and economic development of Nigeria for the enhancement of the standard of living of the citizens.
Examine Capital Gain administration with a view to putting in place a good policy of administering the tax system.
Ascertain whether sharp practices in administration of Capital Gain Tax between the staff of FBIR and assess company contributed to tax evasion.
Determine how Capital Gain Tax contributes to revenue generation in Nigeria.
Determine the extentto which Capital Gain Tax has contributed to the steady growth in GrossDomestic Product in Nigeria.
Identify problems that militate against the use of Capital Gain Tax as revenue generation in Nigeria Tax administration.
Making recommendations that will assist to increase the revenue generation through Capital Gain Tax.
1.4. RESEARCH QUESTION
Based on this, the following three research questions are formulated to guide
The study:
Is there any relationship between Capital Gain Tax and economic development in Nigeria?
Examine Capital Gain administration with a view to putting in place a good policy of administering the tax system?
Are thereany sharp practices in administration of Capital Gain Tax between the staff of FBIR and assess company contributed to tax evasion?
How Capital Gain Tax has contributes to revenue generation in Nigeria?
To what extent has Capital Gain Tax contributed to the steady growth in Gross Domestic Product in Nigeria?
Problems that militate against the use of Capital Gain Tax as revenue generation in Nigeria Tax administration?
1.6. STATEMENT OF HYPOTHESIS
Two hypotheses stated in null forms were formulated to carry out this work.
Hypothesis One
There is no significant relationship between Capital Gain tax and economic development of Nigeria.
Hypothesis Two
H01: Capital Gain Tax has not contributed significantly on revenue generation in Nigeria.
1.5. SIGNIFICANCE OF STUDY
The most recent study (Speer & Palacios and Lugo & Vaillancourt, 2014) finds that individuals who reported capital gains income incurred, on average, higher compliance costs than those who did not report any such income. Specifically, the direct compliance costs for those individuals reporting capital gains income was, on average, 13.8 percent higher. This provides some sense of the compliance costs associated with capital gains taxation.
This research study, would contribute to the existing literature by focusing on Capital Gain tax reforms and administration of tax policy/laws in Nigeria with a view to identifying the critical problems that are confronting the Nigerian tax system so that appropriate measures could be taken to tackle them.
This study shall set out, a comprehensive analysis of Capital Gain Tax and it laws in Nigeria and it will also consider the ‘dark’ side of professional practice by examining the involvement of FIRS Tax officials in facilitating tax avoidance, tax evasion and corruption in Nigeria.
The result of this study will throw more light on the problems of Capital Gain Tax Administration in Ogun state Nigeria. The special emphasis on the federal Board of Inland revenue (FBIR) will highlight peculiar problems and difficulties in administering the Capital Gain Tax.
Finally this study will be of great significance to schools and students, it will serve as a reference point for future researchers who will want to research more on the topic.
1.7. SCOPE OF THE STUDY
From the foregoing discussion, the research study focus on the Administration of Capital Gain Tax in Nigeria, it also examineit problems and prospect, effect on economy, and income generation in Nigeria, using the Ogun State FBIR as the case study. The period covered by this research enabled the research to be reliable.
1.8. LIMITATION OF THE STUDY
This research study is limited to detailed study of (FBIR) and the relevant Act setting it up with particular emphasis on the overall administration of the act in Ogun state.
Gathering of relevant data for this study was a hectic task it is also expected that there will be limited mostly in areas of questionnaire distribution answering the question sincerely and returning them (especially the tax officials) due to fear of the unknown.
Also, Financial challenges serves as a deficiency for the research work, and as a result of low financial capability, it was not enough to give us desired results.
1.9. DEFINITION OF TERMS
Tax: this is defines as a levy imposed by the government against the income, profit orwealth of the individuals and corporate organizations.
Taxation: is defined by Ogundele (1999) as the process or machinery by which individuals, groups, or communities are made to contribute in some agreed quantum and method for the purposes of the administration and general development of the society they belong.
Capital Gain/Loss: A capital gain (or loss) generally refers to the price of an asset when it is sold compared to its original purchase price. A capital gain occurs if the value of the asset at the time of sale is greater than the initial purchase price. A capital loss occurs if the value of the asset at the time of sale is less than the purchase price.
Transfer of Capital Asset: this is defined in relation to Transfer of capital asset includes sale, exchange, relinquishment, or compulsory acquisition of the asset or extinguishment of any rights therein.
Capital Assets: It is defined to include property of any kind, whether fixed, circulating, movable, immovable, tangible or intangible and whether or not used for the purpose of his business and profession.
Cost of acquisition: Cost of acquisition of an asset is the value for which it was acquired by the transferor. Expenses incurred for completing title are a part of the cost of acquisition.
Corporation Tax: All other gains are charged to Corporation Tax. These include gains accruing to a non-resident company onthe disposal of assets situated in the State and used for the purpose of a trade carried on by it in the Statethrough a branch or agency.
Asset: All forms of property, wherever situated, are assets for the purposes of Capital Gains Tax. Assets include foreign land and buildings (for example, holiday homes and apartments) incorporeal property (for example, goodwill or an option) and any interest in property (for example, a lease)
Disposal of Asset: Disposal of an asset includes any transfer of ownership of the asset by way of sale, exchange, gift, or settlement on trustees. A part disposal occurs where less than the whole of an asset is disposed of or an interest in an asset is transferred (for example, granting of a lease at a premium).
A loss on a disposal will normally be allowable if a gain on the same transaction would have been chargeable. Allowable losses are set against the chargeable gains of the same year and if the losses exceed the gains, the excess may be carried forward against gains of later years.
Qualifying Asset: The chargeable business asset of the individual which (apart from tangible movable property) he/she has owned for a period of at least 10 years ending on the date of the disposal and which have been his or her chargeable business assets throughout that 10 year period. | ABSTRACT
Governments need to put in more effort in attracting investors into their country through tax reforms if it wants to achieve economic growth and enhance standards of living. The research considered certain variables that affect investor’s decision as to where to invest. These included the location, type of activity and time variables, which were very important due to the fact that, the laws pertaining to each one of them concerning the tax rate to be paid, incentives, exemptions, relief and holidays to be enjoyed varies.
The data for the research were obtained from both primary and secondary data. To obtain first hand information on whether investors in the country did consider the tax system in their investment decision, the study used questionnaires and interviews. The researcher designed 22 questions for the taxpayers and was distributed to 30 companies and individuals.
In the research, it was discovered that tax laws influences investment and location decision and for that matter a very important tool in attracting investors into the country. Again, the tax incentive that has the greatest impact on investment was also the reduction of corporate tax rate. However, certain constraint such as the level of interest rate and uncertainty about the economy were also discovered.
The researcher recommended that there was the need for reforms of the general tax system by creating efficiency and transparency in tax collection and elimination of unnecessary taxes and levies, which adds unnecessary costs to transactions.
CHAPTER ONE
1.0 INTRODUCTION
Every government and most especially those in the developing economies are concerned about the economic growth of their nation. As a result, they put in much effort to achieve higher rate of economic growth and raise the standard of living of its citizens.
The critical issue has been how to attract investors and generate the needed resources domestically using tax instruments that are least harmful to both the government and the investors. This will obviously involve reforming the tax system to ensure efficiency by widening the tax net without necessarily increasing the tax rate.
Governments continue to encourage foreign investment as an integral part of its economic policy. Ghana embarked on a privatization program in the early 1990s. The government at one point controlled more than 350 state-owned enterprises but nearly 300 were privatized by the end of 2000 and as at December 31st 2005, 351 had been privatized leaving just a handful of state-owned enterprises. For example, the government’s, stated priority privatization in the 2007 budget included Ghana Telecom, Western Wireless (Westel), Tema Oil Refinery, Ghana Oil Company and State Insurance Company. They also pursued privatization through selling of State-owned shares on the Ghana Stock Exchange (GSE).
The government recognizes attracting foreign direct investment requires an enabling legal environment and has passed laws that encourage foreign investment and repeated some that has previously stifled it. In the United States for example, there was a decline in investment some years ago. In order to stimulate investment, a new tax Act was introduced in 2002 and 2003. This helped the economy to regain its stand by the late 2003, investment returned to its pre-recession trend and the economy expanded at a healthy rate of 3.9% and despite the dislocations that was as a result of the hurricanes and steep rise in energy prices, registered 3.2%. A research conducted in United States by a Joint Economic Committee presented a case that, “lowering the cost of capital through tax legislation can be both timely and effective in stimulating economic growth”.
Governments need to put in more effort in attracting investors into their country through tax reforms if it wants to achieve economic growth and enhance standards of living.
The most important source of government revenue is from tax. According to the 2006 budget, the government introduced some tax incentives for venture capital investment and reduced tax rate on personal and corporate income in order to strengthen the private sector and enhance the disposable income of householders. Tax rate for companies in categories A and B were lowered, and rate for other categories were abolished with regard to the National Reconstruction Levy.
Various studies have shown that changes in the tax system have great impact in investment decisions. Feldstein (1982) observed that “adverse changes in the tax variables since 1965 have depressed investment by more than 40%” Hassett and Hubbard “recent empirical studies appear to have reached a consensus that the elasticity of investment with respect to the tax-adjusted user cost of capital is between -0.5 and -1.0” Hassett and Hubbard cited other studies that concluded that tax over the last forty years have had a large effect on investment. A research by House and Shapiro showed that temporary investment tax incentives did stimulate investment.
1.1 BACKGROUND STUDY
In my study, I will consider certain variables that affect investor’s decision as to where to invest. These, which include the location, type of activity and time variables, are very important because the tax laws pertaining to each one of them concerning the tax rate to be paid, incentives, exemptions, relief and holidays to be enjoyed varies.
Due to these continuous changes in the tax law, there is the need for such information to be publicized since it goes a long way to determine the growth of the economy, divert resources to a particular sector of the economy and also protect the local industries, at the same time attracting foreign investors.
This is what Ghana has embarked on in recent times and my study will try to analyze the budget from January 2010 to April 2012 and see the various attempts by the government to generate more revenue by attracting investors into the country.
Analyses of the budget in recent times had indicated that the government continually decreases the tax rate to widen the tax net. Even though in terms of tax revenue composition, our main source of revenue is derived from indirect taxes (VAT especially), these are indirect taxes paid by consumers on some goods and services to the state through registered individuals or businesses. It has been realized that revenue from direct taxes continues to rise. In 2010, it constituted 38.71% of total tax revenue and increased to 42.84% in 2011 and this can be attributed to the persistent reduction of the corporate tax rate by the government as part of its efforts to improve the environment for private sector businesses.
These few changes and many others that have not been mentioned here brought to the fore the need to observe how decision on where to invest, what to invest in and when to invest changes as the tax system pertaining to these changes. These are serious issues which must be considered because the transition of developing countries into developed countries depend largely on the extent to which people invest their resources to promote economic growth.
1 ORGANIZATIONAL PROFILE
The Ghana Revenue Authority (GRA) under the ministry of finance and economic planning of the republic of Ghana is a public service organization charged with direct tax administration.
GRA as a revenue agency is very strategic in the achievement of national goals. It has therefore embarked on a mission of improving the quality of service delivery to taxpayers and the general public through simplifying processes and clarifies rules and procedures. It has set up time frames for prompt completion of tasks in order to render them more transparent to the public. The main objective of the Ghana Revenue Authority (GRA) is to create a customer oriented revenue collection organization focused on quality service to enhance voluntary tax compliance.
The Ghana Revenue Authority (GRA) is assisted in its endeavor at improved quality service delivered by the ministry of public sector reform.
VISION
The Vision of the GRA is to be an effective Tax Administration Agency that applies the tax laws fairly, efficiently and with integrity in order to collect revenue for National Development.
MISSION
The Mission of the GRA is to optimize tax revenue through the fair application of tax laws, to promote voluntary compliance through improved customer service and taxpayer education, and to effectively and efficiently administer the tax laws through well-trained and motivated staff.
The Ghana Revenue Authority (GRA) has five (5) main Departments. These are:-
1.2 STATEMENT OF THE PROBLEM
In every thriving economy, investors’ main aim is to invest scarce resources to yield maximum returns on them. The government also needs to cater for its expenditure and development of the country.
It has therefore become necessary to generate the needed resources from domestic economy using tax instruments that are least harmful to both the investor and the government
In Ghana, there have been several policies to attract investors into the country but it is not clear whether investors utilize these policies which have been put in place to benefit both the Government and investors in all.
It is in light of this, that this research tries to investigate into the following issues:
How the changes in the tax system affects investment decision in the country.
Whether tax reliefs, incentives, exemptions and holidays have an impact on investment decisions on a particular location.
1.3 RESEARCH OBJECTIVES
To find out the extent to which the various tax reforms affect investment decision in the country.
To evaluate the various tax reforms in the formal sector over the past few years.
To explore the impact of corporate tax on firm location decision in Ghana.
1.4 RESEARCH QUESTIONS
i. What are the rationales behind or the reasons for tax reforms?
ii. What are the problems of tax reforms?
iii. What are some of the tax incentives used in attracting foreign direct investment?
iv. Should tax rate concepts be used to examine the effect of tax reform on investment?
1.5 SIGNIFICANCE OF THE STUDY
The study will be useful in the following ways:
Firstly is that, it will educate prospective investors on the best alternative business to invest in, based on the tax law for that particular sector.
Secondly, it will also encourage existing investors to expand their investments to other sectors of the economy as well.
Furthermore, it will also enlighten investors to the various tax incentives, reliefs, exemptions and holidays available to and how they can take advantage of them.
Moreover, it will help individuals to also understand how investors react to changes in the tax system and how it affects the economy both negatively and positively.
And fifthly, the study will add more value to existing literature since it will be updated with current issues and rates in the various sectors of the economy.
And lastly, in Ghana, it is a requirement for the attainment of a Bachelor of Science degree. It is also a requirement of All Nations University for a degree program.
1.6 SCOPE OF THE STUDY
This study is to assess the changing structure of the tax system in Ghana from January 2010 to April 2012 and suggest ways to improve the tax administration in the country to bridge the gap between public expenditure and domestic revenue.
Abdallah (2006) Taxation in Ghana defines taxation as the levying of compulsory contributions by public authorities having tax jurisdiction to defray the cost of their activities. It can also be seen as a means by which government implement decision to transfer resources from the private to the public sector.
Various types of tax can be grouped into Direct or Indirect. Direct Tax include: Income tax, capital gains tax, gift tax and corporate tax. Indirect Tax includes Excise duty, Custom duty and Value Added Tax (VAT). They are called indirect because the Administering authorities, the Customs, Excise and Preventive Service and the VAT Services do not collect taxes from consumers but do so indirectly through importers, manufactures and other intermediaries.
Reilly and Norton, Investments (2003), 6th edition defines investment as the current commitment of resources for a period of time in the expectation of receiving future resources that will compensate the investor for:
The time the resources are committed
The expected rate of inflation
The risk, that is uncertainty of the future payments
Internal Revenue Act (2000), Section 94 defines investment as a manner in which a person may derive gains, profits or income other than from a business or employment.
Details of this will be given in chapter two.
1.7 LIMITATIONS OF THE STUDY
During the study, the researcher encountered certain limitations such as time constraint. This did not permit the researcher to expand his population base and to make certain enquires into areas that could have been useful to the study.
There was difficulty in having access to certain information due to the fact that sufficient records were not available.
And lastly, target respondents may not be willing to provide adequate and prompt feedback of questionnaires.
1.8 METHODOLOGY
This study took the form of cross sectional studies employing the survey strategy. This will enable me to collect large sample of data from a sizeable population in a highly economical way and allow for easy comparison. The researcher used purposive sampling technique in selecting his sample size of 30 respondents. My case study will be the staff and management of The Ghana Revenue Authority, koforidua Branch.
Source of data:
Primary source data will be collected through structured interviews and questionnaires. Secondary source of data will also collected from journals, books, academic or scholarly articles, government publications reports and articles from the internet.
1.9 CHAPTER SCHEME
This study will be organized in the form of five chapters:
Chapter one deals with introduction, problem statement, objectives significance, methodology limitation and scope of the study.
Chapter Two will deal with a discussion of the trends and reforms of the tax system.
Chapter Three will analyze data collected.
Chapter Four will look at the impact of changes in the tax system on investment decision in Ghana.
Chapter Five will deal with findings, recommendations and conclusions. | CHAPTER ONE
INTRODUCTION
Background to the study
Taxation is a compulsory levy imposed by the government on the incomes of taxpayers in a geographical territory in order to defray the expenses of governance. This implies that anybody that generates income must compulsorily pay taxes. There are different types of taxation. These include the personal income tax, companies income tax, petroleum profit tax, value added tax and the capital gains tax. Recently, the issue of taxation on capital gains in the Nigerian capital market has come to the fore (Makin, 2010). Government, from time to time, has the responsibility of reviewing the tax position as a component of the subsisting fiscal policy for the purpose of meeting given objectives considering the level of inflation in the country (Hummel, 2007).
Taxation of capital gainsmeans a tax on capital gains, the profit realized on the sale of a non-inventory asset that was purchased at a cost amount that was lower than the amount realized on the sale. The most common capital gains are realized from the sale of stocks, bonds, precious metals and property (Glahn, 1996). Not all countries implement taxation of capital gains and most have different rates of taxation for individuals and corporations.
Regarding capital gains, an example of a popular and liquid asset, national and state legislation often has a large array of fiscal obligations that must be respected. Taxes are charged by the state over the transactions, dividends and capital gains on the stock market. However, these fiscal obligations may vary from jurisdiction to jurisdiction. Although, taxation on capital gains are a tax on the profit obtained from a disposal or exchange of certain kinds of assets. In Nigeria, taxation on capital gain is 10% of the profits from the sale of the qualifying assets. It is recognized in law under the Capital Gains Tax Act. Generally, Tax is a financial issue and its payment is a civil duty. It is the imposition of a financial burden for the government on individual firm and companies. In general based, the word tax means any contribution imposed by the government upon individual and companies for the use of government to provide facilities or services as rendered by the state. It is not a voluntary payment or donation but an enforced contribution made on the pronouncement or directive of legislative authorities (Herderson, 1999). Taxation is also greatly influenced by inflation.
Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time (Barro, 1992). When the price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index, usually the consumer price index, over time. The opposite of inflation is deflation.
Inflation affects economies in various positive and negative ways. The negative effects of inflation include an increase in the opportunity cost of holding money, uncertainty over future inflation which may discourage investment and savings, and if inflation were rapid enough, shortages of goods as consumers begin hoarding out of concern that prices will increase in the future (Barro, 1992). Positive effects include reducing the real burden of public and private debt, keeping nominal interest rates above zero so that central banks can adjust interest rates to stabilize the economy, and reducing unemployment due to nominal wage rigidityInflation distorts all aspects of the taxation of personal income but isparticularly harsh on the taxation of capital gains. When corporate stockor any other asset is sold, current law requires that a capital gains tax bepaid on the entire difference between the selling price and the originalcost even though much of that nominal gain only offsets a general rise inthe prices of consumer goods and services. Taxing nominal gains in thisway very substantially increases the effective tax rate on real price-adjustedcapital gains. Indeed, many individuals pay a substantial capitalgains tax even though, when adjustment is made for the change in theprice level, they actually receive less from their sale than they hadoriginally paid.
Statement of the problem
Several research works has been described as arguments from a very narrow position based on the fact that it prays for government policy on tax to facilitate reduction in taxation on capital gains because of the inflation in some countries of the world including Nigeria. High or unpredictable inflation rates are regarded as harmful to an overall economy. They add inefficiencies in the market, and make it difficult for companies to budget or plan long-term. Inflation can act as a drag on productivity as companies are forced to shift resources away from products and services in order to focus on profit and losses from currency inflation. Uncertainty about the future purchasing power of money discourages investment and saving. Inflation can also impose hidden tax increases, for instance, an increase in the taxation of capital gain. It is therefore the purpose of this study to examine the various impacts of inflation on the taxation of capital gains with a view of proffering suggestions for appropriate policy initiatives.
Objectives of the study
The following are the objectives of this study:
To examine the trends in taxation of capital gains between 2000 and 2015.
To examine the impact of inflation on taxation between 2000 and 2015.
To examine the impact of inflation on taxation of capital gains between 2000 and 2015.
Research hypothesis
There is no significant difference in the trends of capital gains taxation between 2000 and 2015
There is no significant relationship between inflation and taxation between 2000 and 2015
There is no significant relationship between inflation and taxation of capital gains between 2000 and 2015
Significance of the study
The following are the significance of this study:
Findings from this study will provide a comprehensive framework and guide for stakeholders in business sector as regards impact of inflation on the taxation of capital gains. It will also reveal the trends in taxation and how inflation has distorted the process.
This research will be a contribution to the body of literature in the area of memorandum of understanding MOU as an instrument in maintaining relationship between a company and the host communities, thereby constituting the empirical literature for future research in the subject area.
Scope and delimitation of the study
This study is delimited to the impact of inflation on the taxation of capital gains in Nigeria between 2000 and 2015. It will also cover the trends in inflation and its effects on taxation within the years under study.
Definition of terms
Inflation: a general increase in prices and fall in the purchasing value of money
Fiscal policy: is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy
Tax: a compulsory contribution to state revenue, levied by the government on workers' income and business profits or added to the cost of some goods, services, and transactions.
Bond: a debt investment in which an investor loans money to an entity
Stocks: the capital raised by a business or corporation through the issue and subscription of shares
Capital gain: a profit from the sale of property or of an investment
References
Barro, R.J. (1997). Macroeconomics. Cambridge, Mass: MIT Press. p. 895.ISBN 0-262-02436-5.
Henderson, D.R. (1999). "Does Growth Cause Inflation?".Cato Policy Report. 21 (6 September 18, 2012)./2011/01/02/business/20110102-metrics-graphic.html "In Investing, It’s When You Start And When You Finish"], New York Times, January 2, 2012
Hummel, J.R. (2007) "Death and Taxes, Including Inflation: the Public versus Economists" (January 2007).[1] p. 56
Makin J. (2010)."Bernanke Battles U.S. Deflation Threat" (PDF).AEI.
Richard von Glahn (1996). Fountain of Fortune: Money and Monetary Policy in China, 1000–1700. University of California Press. p. 48. | CHAPTER ONE
INTRODUCTION
BACKGROUND TO THE STUDY
The recent global crisis in the world has brought to the fore the need to note that this overdependence on oil creates unnecessary shocks and thus, the need for diversification of the nation’s resource base and long term growth path. The oil is an exhaustible and dwindling resource, while taxation is the only non-exhaustible veritable source of resource and revenue generation to the government both at the tiers of government.(Oloyede, 2010:1).
Nigeria is a monolithic economy with strong dependence on the oil sector; this over-dependence makes the economy to be more vulnerable to external manipulation and adversely affects the planning horizons in the country.
Taxation has rightly been identified as a major tool in the strengthening of domestic resource mobilization and consequently, the search for ways and means of expanding the tax base and also strengthening tax administration has been intensified. Taxation is considered a veritable source of revenue for financing developmental as well as people oriented programs in virtually all countries, irrespective of whether they are classified as developed or developing economies. That taxation has been one of the most important weapon available to government for marshalling financial resources is undisputable (Atta-Mills, 2002: Teidi, 2003 and Oloyede, 2010).
Nigeria is governed by a federal system; hence its fiscal operations also adhere to the same principle. This has serious implications on how the tax system is managed in the country. In Nigeria, the government’s fiscal power is based on three – tiered tax structure divided between the federal, state and local governments, each of which has different taxes jurisdiction. As of 2014, all three levels of government share about 50 different taxes and levies.
It is needless to emphasize that the existence of well defined tax laws alone cannot guarantee the success of tax collection effort. There must always exist an efficient and effective tax administration as a sine qua non to successful domestic resource mobilization.
In some developing countries, Governments impose many types of taxes, individuals pay income taxes when they earn money, consumption taxes when they spend it, property taxes when they own a home or land, and in some cases estate taxes when they die. In the United States, federal, state, and local governments all collect taxes. Taxes on people’s income play critical roles in the revenue systems of all developed countries.
Taxation as a major non-oil revenue has been the mainstay of most developed countries, in contrast to developing countries that still depend on primary products. Also, indirect taxes appear to be in vogue in developed countries, due to higher return, lower administration cost and higher compliance rate, however, most developing countries still rely on direct taxes with lower compliance rate (Oloyele, 2010: 3).
it is increasingly apparent, however, that tax administration must receive far greater attention if the goals of tax reforms and policies are to be achieved in the face of ever growing economy. Much of tax policy is being directed to obtaining increased revenues to enable governments and their agencies or parastatals to carry out their economic planning. Yet it is true in Nigeria that effective administration of some of the existing taxes would provide a considerable and reasonable part of the needed revenue.
The Nigerian tax system has undergone several reforms geared towards enhancing tax collection and administration with minimal enforcement cost. The recent reforms include: the introduction of TIN (Tax Payers Identification Number), which became effective since February, 2008. Automated Tax System (ATS) that facilitates tracking of tax positions and issues by individual tax payer, E-Payment System (EPS) which enhances smooth payment procedure and reduces the incidence of tax touts, Enforcement scheme (special purpose tax officers), all these have led to an improvement in the tax administration in the country.
Without recourse to argument, taxation no doubts, remains a veritable and inexhaustible source of revenue to the government; but Nigeria‟s dependence on Oil as the major foreign exchange earner makes her economy vulnerable to external manipulations.
An effective and efficient tax reforms or administration in the country will go a long miles in helping the governments in devising means to tax successfully the informal and agricultural sectors of the economy which has remained largely untaxed in spite of their inherent potential to provide a reasonable portion of the revenues needed by the governments. However, one common and easily noticeable feature of the country is her low tax effort. While the overall average tax effort level of developing
countries is estimated at about 18% of Gross Domestic Product (GDP), the average for industrialized countries is around 24% (Atta-Mills, 2002).
It is in the light of the above therefore, that this work is tailored to bringing into public domain the critical challenges, problems and prospects of tax reforms and administration in Nigeria with Ogun State Board of Internal Revenue as the case study.
1.2. STATEMENT OF PROBLEM
Aside from being a major source of revenue to most nations, taxation also plays very significant roles in the promotion of social and economic welfare, provision of public goods, redistribution of income, promotion of economic stability, as well as regulation of economic activities and consumption of goods and services. Because of the aforementioned importance of taxation, developed economies have invested considerably on legislative tax reforms, taxpayer education, and development of new technologies to aid in evolving effective tax systems, and to boost tax collections.The institutional framework, within which the revenue administration operates impact directly on the effectiveness and efficiency of the tax administration. The institutional framework in operation in Nigeria is many and varied. The general trend has been to have separate administrations for internal taxes and custom duties. However this policy and method of operation is common in some other countries.
Another challenging problems in the administration of tax in Nigeria is the location of the assessment and collection functions within the tax administration. Problems also emanate from the frequent changes in the tax laws and policy: Every year the annual budget estimate introduces new measures and procedures, amends or cancels existing ones.
These frequent changes can make the law confusing as well as complicate the tax structure. After a few years these changes and amendments become so many that the tax payer finds it difficult to know which laws are applicable.
Another frequent and alarming problem is, Non-Compliance Strategy: Mamud (2008:2), observes that the recurring problem with Personal Income Tax (PIT), is the non-compliance of employers to register their employees so as to remit such taxes to relevant authorities. According to him, government in 2011 amended the 1973 PIT Act to make non-compliance employers liable to penalties up to #5000.00 as well as liable for the payment of all tax arrears. Employers that failed to keep proper records also face a penalty of #10, 000.00. The implication of the above is that these employers may feel reluctant to remit their employees names to the relevant authorities hence they may always bribe their way through. This problem is not limited to PIT but also Pay As You Earn (PAYE), withholding taxes, and taxes paid by ministries and agencies in the three tiers of government.
Multiple Taxes: The study group of 2002 highlighted the multiple taxes in the three
tiers of government as the most serious problem for the country’s tax administration system. The group emphasized that companies are subjected to a wide range of taxes, levies and rates at the state and local levels in addition to the federal income tax. According to Odusola (2006: 3), the imposition of multiple taxes in the system imposes restrictions on inter-state commerce and trade, making locally produced goods uncompetitive and in some instances causing business closure. The failure of government to address this issue has affected resources that could have accrued to it as some business organizations have folded up as a result. Some of those who have remained in business usually put up hostile and confrontational attitudes when approached to pay these taxes.
Tax evasion and tax avoidance: Despite the emphasis on the importance of taxation and the efforts made at improving its efficiency, citizens’ aversion to taxes have remained a problem that most tax authorities have to grapple with. This is because individuals will always look for a means –legal or otherwise–to reduce or even completely avoid paying taxes. This result in heavy revenue losses to governments and ultimately affects their ability to meet their obligations.
Corruption: AmartyaSen.argued that corruption or corrupt behaviour involves the violation of established rules for personal gain and profit. (Sen ,1999) Corruption is efforts to secure wealth or power through illegal means private gain at public expense; or a misuse of public power for private benefit. The widespread of corruption in the tax system in Nigeria and frustrate effective tax administration and reforms in Nigeria. for example, Taxpayers prefer to bribe the tax officials than to pay tax and big companies are also not exempted from this practice. This leads to lack of proper accountability and paucity of funds as the resources available are not enough to cater for the well being of the country and thereby leading to loss of revenue.
1.3. OBJECTIVE OF THE STUDY.
Identifying critical tax administration challenges in the 21st century Nigeria and measures required to meet challenges will not only guarantee improved revenue base for the country but also position the country properly to take full advantages offered by the new millennium. This research work shall examine the tax reform and administration and it’s compliance in Nigeria by analyzing the tax gap in the system over the years thereby revealing the critical challenges that need be tackled.
The main objective of the study is to examine the problems and challenges affecting effective tax administration and reforms in Ogun State Board of Internal Revenue, with a view to proferring solutions, recommendation and strategies through which such problems can be eliminated completely.
The specific objectives are:
To find out whether lack of staff training affect of poor revenue collection in the state.
To identify if poor tax collection is because of pronounced poverty among the tax paying public of Ogun State.
To ascertain the rate of non-compliance of individuals, companies with tax laws and policy.
Eliminate the constraint affecting effective tax reform and administration in Nigeria.
Identify the effect of poor tax administration on the Nigeria revenue generation.
Identify new techniques to uncover corruption, tax avoidance and evasions by tax paying public of Ogun State.
RESEARCH QUESTION:
The research question refers to tentative questions in a research studies which tends to provide a guidance and in which answers are provided for in the research studies.
For the purpose of the research study, the following research questions were asked:
Does lack of staff training affect of poor revenue collection in the state?
Does pronounced poverty among the tax paying public affects effective tax administration and reform in Ogun State?
The rate of non-compliance of individuals, companies with tax laws and policy?
Are there any constraint affecting effective tax reform and administration in Nigeria?
What are the effect of poor tax administration on the Nigeria revenue generation?
Identify new techniques to uncover corruption, tax avoidance and evasions by tax paying public of Ogun State?
1.5. SCOPE OF THE STUDY
From the foregoing discussion, the research focuses on the problems, prospects of tax reforms and administration in Nigeria using the Ogun State Board of Internal Revenue as a case study.
1.6. LIMITATION OF THE STUDY
Limitations envisage in this research work are:
Information Generation: The work however, has experienced limitations by way of extracting information from some staffs of Ebonyi State Board of Internal Revenue, who for some reasons found it difficult to respond to questions.
Financial and transportation constraints: Also there might be financial and transportation constraints to this study as these two factors will be at our capacity which might not be enough to give us desired results.
1.7.SIGNIFICANCE OF THE STUDY
Taxes pay teachers. Taxes train nurses. Taxes maintain roads, deliver medicine, provide clean water. This is as true in the developing world as it is in the developed world. Tax is the most important, sustainable and predictable source of public finance for almost all countries.
Succinctly, there cannot be a better time to work on the critical problems of tax administration in the 21st century than now especially with the growing tax consciousness among the various tiers of governments in Nigeria, especially in Ogun State.
If countries are to eradicate poverty and hunger, then they will need to do so by increasing their own public finances; principally through tax revenues.
This study will continue to be of interest to majorly the governments, civil servants, government establishment, agencies, parastatals, and other public corporation in the public sectors.
It will also be of great importance to various management of companies, tax administrators, revenue collector, and tax officials and other users of laws and policy;It will also give them general insight on the challenges affecting effective tax reforms and administration in Nigeria.
This research would contribute to the existing literature by focusing on tax administration in Nigeria with a view to identifying the critical problems that are confronting the tax system so that appropriate measures could be taken to tackle them.
The work will be of immense benefit to students of tax policy, tax administration and taxation generally as it will provide them insight into the various challenges of tax administration.
Finally this study will be of great significance to schools and students, it will serve as a reference point for future researchers who will want to research more on the topic.
1.8. DEFINITION OF TERMS
Tax: tax is a compulsory levy payable by individual economic units or corporate bodies to government without any direct quid pro quo from the government.
Administration is the capacity to coordinate and execute many and often conflicting social demands in a single organism so perfectly that they should all operate as a unit
Thhax administration: according to Dale , implies tax policy making and execution. That is, it involves planning, organization, commanding, coordination and control.
Non-Compliance: can be defined as the failure on the part of a taxpayer to correctly file returns, report actual income, claim the correct deductions, reliefs and rebates and remit the actual amount of tax payable to the authority on time.
Taxation: is defined by Ogundele (1999) as the process or machinery by which individuals, groups, or communities are made to contribute in some agreed quantum and method for the purposes of the administration and general development of the society they belong.
Tax evasion: refers to any intentional, illegal reduction of tax payments, which usually takes the form of underreporting income, sales or wealth, or overstating deductions (Schneider, Braithwaite & Reinhart 2001), including failure to file appropriate tax returns.
Tax Avoidance: refers to the reduction in tax burden by means of practices that take full advantage of the tax code or exploiting the loopholes in the tax laws to reduce tax liabilities by arranging ones tax affairs using tax shelters in the tax law, and avoiding the tax traps in the tax laws.
Corruption: is an anti-social behaviour conferring improper benefits contrary to legal and moral norms, and which undermine the authorities to improve the living conditions of the people.
BRIEF HISTORY OF CASE STUDY (OGUN STATE BOARD OF INTERNAL REVENUE)
The Ogun State Board of Internal Revenue is the organ responsible for the generation of revenue for the state government on Ogun State.
The Ogun State Internal Revenue Service is a State Revenue Agency that derives its existence from the Personal Income Tax Act Law of the Federation 2004, which stipulates the establishment of the THE BOARD OF INTERNAL REVENUE by all the States of the Federation. The Ogun State Edict of 1996 established the Board to carry out the functions of assessing, collecting and accounting for taxes, levies and fees with the additional responsibility of tax policy formation for the state.
The Ogun State Internal Revenue Service is a State Revenue Agency that derives its existence from the Personal Income Tax Act Law of the Federation 2004, which stipulates the establishment of the THE BOARD OF INTERNAL REVENUE by all the state
of the federation in Nigeria.
The Ogun State Edict of 1996 established the Board to carry out the functions of assessing, collecting and accounting for taxes, levies and fees with the additional responsibility of tax policy formation for the state.
In April 2004, The Governor of the State(Ogun) gave the Board the authority to implement the said Edict of 1996, in its entirety. That mandate led to the restructuring of the Board in terms of organisational structure and improved revenue generation.
The States‟ Board of Internal Revenue in Nigeria are empowered through the Income Tax Management Act (ITMA) as amended in 2004,to levy income taxes on individuals, communities families and trusts. According to the Income Tax Act of (2004).
SERVICES PROVIDED BY OGUN STATE
PERSONAL INCOME TAX
Pay As You Earn (P.A.Y.E)
Direct Assessment (Self Employed)
Minimum Tax
Back Duty Assessment
PROPERTY TAX
Capital Gains Tax
Landed Property
Stamp Duty
ROAD TAXES
Vehicle Registration & Licensing (Motor Vehicle and Motorcycle)
Number Plate (Motor Vehicle and Motorcycle)
Learner's Permit
Trailers & Tippers Permit
Motor & Cycle Stickers/Badges
OTHER TAXES
Lottery
Slot Machine Gaming
Pools Betting
Lotto
Casino
WITHHOLDING TAXES
Rent
Interest
Dividend
Director's Fee
Consultancy/Management Services
Contract Supplies
LEVIES
Education
Development.
Structure
At the head of Ebonyi State Board of Internal revenue is the Chairman. He is assisted in the management of the Revenue Board by a management team of four members.
The team comprises: The Directors of direct and indirect taxes, the PRS and the Secretary, who doubles as Head of Department of Administration.
Other heads of departments who are not members of the management are: the head of Internal Audit,and the head of finance and supplies department.
In order to achieve the goals and objectives for which the Board was set up, each of the departments performs distinct but related roles which are explained thus:
The Chairman
The chairman is the head of the tax collection machinery of the state. He therefore, makes sure that the state tax policy is strictly adhered to.
He leads the Board to defend their budget during budget defence.
He represents the state at the Joint Tax Board (JTB) meetings and brings the
resolutions of the Board to bear on the Board of internal revenue in particular and the State in general.
He takes decisions that are in the best interest of the Board and the State.
He ensures that materials necessary for the execution of the duties of the office are made available at all time. |
