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.
Procedures
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