One of the major challenges of tax system in Nigeria is the administration of tax. Tax administrators face a lot of challenges in the assessment and collection of taxes. Some of these challenges are;
1.      Administrative challenge: Experience has shown that the institutional capacity to administrative taxes effectively is woefully lacking in this country.

Reinforced by third party audits, appears to ensure that taxes are paid and received albeit with potentially serious and costly internal lags. However, Nigeria lacks the capacity to assess the reasonableness of the returns submitted by taxpayers including costs and staffing, skills, pay scales and other funding and computer and Information Technology (IT) Infrastructure. Meanwhile and alternative administrative strategy has not been initiated17
2.         Compliance challenges: A recurring problem with personal income tax in Nigeria is the non-compliance of employers to register their employees and to remit such taxes to relevant authorities. This issue of compliance is heighten by the fact that people naturally do not want to pay tax.
3.         Poor Taxation Drive from The Tiers of Government: The political economy of revenue allocation in Nigeria does not compliment tax efforts. It is instead anchored on such factors as equality of states 40%, population 30%, land mass and terrain 10%, social development needs 10% and internal revenue efforts 10%. The approach discourage a pro-active revenue drive, particularly for internally generated revenue and makes all government tiers heavily reliant on unstable oil revenues, which are affected by the violability of the international oil markets. Although, some state governments have initiated measures to Enhance their tax generation attempts, the outcome has not reflected any level of serious effort18.  
4.         Challenge of multiplicity of taxes: There is the challenge of multiplicity of taxes, which is a major problem with the Nigeria tax system and laws. It should be noted that a good tax policy should sets out the fundamental objectives of a country’s tax system and prescribe some guidelines that would shape the government’s policy actions. In Nigeria, there is multiplicity of taxes and this at times leads to confusion in the mind of the tax payer who is often at a loss as to the one to pay and the ones not to pay, some times a company that normally pays taxes, development levies and even, company’s income taxes. Again if a taxpayer lives in Abakaliki, he normally pays his personal income taxes to the Ebonyi State Government. If he happens to owned landed property in Abia, the Abia State Government may normally insist that he should pay his personal income tax at Abia again, before he can be issued with the certificate of occupancy.
5.         Lack of Equality: Tax in Nigeria, especially personal income tax always fails in Nigeria for lack of equitability. Despite the fact that the self-employed persons in most cases do not pay their taxes and when they pay it, they do because they need the tax clearance certificate to process something with the
government. The employees whose salaries deducted at source therefore pay the bulk of revenue from personal income tax.
6.                  Lack of good record keeping: Lack of good record keeping is a popular culture in Nigeria. A lot of businesses do not keep good records. A robust record for the banks when they want they loan assistance, a lean one for tax authorities to avoid tax and another for their personal records. Usually the one for their personal record is the accurate one19
7.                  Tax Evasion and Tax Avoidance: The process of arriving at the chargeable tax is not as simple as clear-cut in practice as it seems on the taxpayer because of the divergence of interest between the taxpayer on one side and the tax administrators and the law on the other side. This divergence of interest leads to tax evasion and avoidance in the country leading to loss of huge amounts of money. Compliance has always been a problem in Nigeria and the truth is that generally speaking, no one at any time wants to pay tax. The tax evasion situation in the country makes taxation so inequitable because it is, mostly workers in the public and private institutions that pay tax through the P.A.Y.E and withholding tax system that pay taxes. What most others, especially the self-employers, do is to procure fake tax clearance certificate when necessary. Tax evasion can be described as the failure to pay one’s tax or the reduction of One’s tax liability through illegal or fraudulent returns. In Nigeria, the incidences of tax evasion are manifested by the glaring fraudulent concealment of income through false entries and failure to keep records of accounts20.

17 Abubakar Yasuf Mamud, Tax policy in Nigeria. www.buzzlecom. Assessed on the 18. July 2011.
18 ibid
19 AJBPCL “Taxation in Nigeria: Matters Arising” June 2010
20 Nnamdi Duru “Tax avoidance: Plateau state urgent to set up revenue court”. This Day of 26th March,
2006 p. 87 
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