Taxation, Meaning;
Taxation has been variously
defined over the year. These definitions, when looked at as a whole gives a
more comprehensive picture of the term as opposed to a single definition.
Taxation refers to the system of collecting money by taxes1.
While this serves in crude terms to tell us what a tax is, it is however
deficient in the sense that it does not reveal the purpose of taxation.
A
perusal of the Nigeria
tax laws shows that no attempt has been made to define the term tax. Taxation
is a means by which the government through specific enactment imposes a
compulsory level on a person or upon a property. Taxation has been defined as
monetary charge imposed by the government on persons, entities, transactions or
property to yield public revenue2, it has
also been define as enforced proportional contributions from persons and
property, levied by the state, by virtue of it’s sovereignty, for the support
of government and for all public needs3.
We however, find more scholarly definitions in decided cases. In the case of
Mathews v. Chicory Marketing Board4, it was
defined as
“A compulsory exertion of money by a public authority for public
purpose, or taxation is raising money for the purpose of government by means of
contribution of individual persons”
Similarly, in United
State v. Butler5
it was opined per Justice Roberts
That:
Tax in the general understanding of the term and used in the
constitution signifies an exertion for the support of the government. The word has
never been thought to connote the expropriation of money from one group for the
benefit of another”
Again,
in R. v. Berger6 the court held as
follows:
“The primary meaning of the taxation is raising money for the purpose of government by means
of contributions from individual persons
From this definition, it is clear
that a tax basically is a fund pooled from members of a society public or
government use. No matter what definition given to taxation, the key word to
note is the fact that is a “levy” charge. It is a pecuniary burden laid upon
individual or property owners to support the government. Taxation is a charge
imposed by governmental authority upon property, individuals or transaction to
raise money for public purposes77
History of Taxation
The first know system of taxation was in Ancient Egypt
around 3000BC-2800BC in the first day dynasty of the old Kingdom8 King Pharaoh would conduct a biennial
tour of the Kingdom, collecting tax revenues from the People. Other records are
granary on limestone flaks and papyrus. Early taxation is also described in the
Holy Bible, in Genesis9 it
states
“But when the crop comes in, give a fifth of it to pharaoh. The other
four-fifth you may keep as seed for the field and as food for yourselves and
your household and your children”.
Here, Joseph was telling the people of Egypt how to
divide their crop, providing a portion to Pharaoh. A share (20%) of the crop
was the tax. Later in the Persian Empire, a
regulated and sustainable tax system was introduced by Darius I the Great in
500 BC10; the Persian system of taxation was
fertilized to each satrapy. At differing times, there were between 20 and 30
satrapies in the Empire and each was assessed according to its supposed
productivity. It was the responsibility of the satrap to collect the due amount
and to send it to the emperor. This was exclusively a tax levied on subject
peoples. Persians and Mades paid no tax11.
In India, Islamic
rulers imposed sizya (a poll tax on non-Muslims) starting in the 11th
century. It was abolished by Akbar. During the war filled years of the
eighteenth and early nineteenth century, tax rates in Europe
increased dramatically as war became more expensive and governments becomes
more centralized and adapt at gathering taxes.
This increase was greatest in
England,
Peter Matthias Patrick O’ Brien found that the tax burn increases by 85% over
this period. Average tax rates were higher in Britain
than France
the years before the comparison, but they were mostly placed on international
trade. In France,
taxes were lower but the burden was mainly on landowners, individuals, and
internal trade and thus, resulted in more resentment12.
Origin of Taxation in Nigeria
A system of direct taxation as a form of
revenue generation had been in existence
in this country before the advent of colonial rule, particularly in the north
where there was an efficient and stable administration of tax for most part in
Islamic system.
Thus,
in Northern Nigeria there were various forms
of taxation such as the Zaket, a tax
levied on Muslim for charitable, religious, and educational purposes, Kurdin kasa- an agricultural tax; Shukka – another tax levied on
livestock.
It
is perhaps necessary to emphasis here, that during that pre-colonial period, revenue
generation functioned more or less on an ethnic basis. In the chiefly society with
administrative machinery and judicial institutions such as the areas on
Northern Nigeria, Yoruba land and Benin
Kingdom where you have
Emirs and Obas respectively, there was a system of taxation. In the chief less
societies like the Igbo, Tiv, Bira Igbirra and Bachama area, there existed
little or no form of organized taxation.
Furthermore,
taxes where not necessarily paid in money. They were mostly paid in kind and
obligatory personal services otherwise known as tribute taxes. When money came
into general use, this did not abrogate the obligatory personal services but
only supplemented them. As stated earlier, however, the system of taxation in Northern Nigeria was far more organized, more
sophisticate and more established than anywhere else in the country.
When
the British came to Nigeria
they were therefore naturally attracted by the organized tax system in Northern Nigeria and so they immediately consolidated all
the various traditional taxes there under the Land Revenue Proclamation Law of
1904. There was no such Law in Southern Nigeria, until after the amalgamation
of the Northern provinces with the colony and
protectorate of Nigeria
in 1914 when the Native Revenue Ordinance 1917 was enacted to cover the areas
of the Western Regional of Nigeria.
It
was not until 1927 after much debate and hesitation that the first personal income
tax was introduced into the Eastern region of the country. This sparked off
disturbances culminating in the Aba Tax Riot of 1929. Among other amendment in
the 1930s, is Non-native Protectorates Tax Ordinance of 1931, which later consolidated
the subsequent amendment in 1939. This ordinance was later repealed and
incorporated into the taxation ordinance, No 4 of 1940 and subsequently
re-enacted as the income Tax ordinance, 1943. The above tax laws were
administered on individuals and corporate entities by tax controllers that is,
district officers, in the district, provinces and regions.
In
order to achieve uniformity in the system of taxation throughout the
geographical entity called Nigeria,
the colonial Government set up the Riesman commission of 1958. One of the
recommendations, of the Riesman commission led to the Income Tax Administration
Ordinance No 39 1958. The ordinance among other things, provided for the establishment
of the Federal Board of Inland Revenue. However, full effect was only given to
this provision under the Companies’ Income Tax Act (CITA) 1961. The Federal
Board of Inland Revenue, (FBIR), as created under CITA 196 consisted of
a.
A chairman
b.
A Deputy Chairman
c.
The Senior Assistant Secretary with responsibility for revenue matters
in the Federal Ministry of Finance;
d.
The Legal Adviser in the Federal Inland Department;
e.
Two other Member being chief Inspector of taxes or Officers of
equivalent rank; and
f.
One further member appointed by notice in the Gazettes by the Minister.
The
Chairman of the FBIR was also Chairman of the Federal Inland Department, which
was the executive arm of the FBIR. In line with the new statutory structures, Ephraim
Osindero was appointed as the first Chairman of the FIBIR on 29th
April 1961. In 1977, the reorganization of the FBIR and its executive arm, the
Federal Inland Department was formally approved by the federal government. The
highlights of the reorganization were as follow: the posts of chairman and
Deputy Chairman of the Federal Inland Department were re-designated Director and
Deputy Director of the Department respectively: there was an increase in the
number of Deputy Director; the membership of the FBIR was increased from seven
to ten; ministries and other organizations whose mandates had bearing on the
functions performed by the Board were to be represented on the Board; there was
increase in the number of posts of Chief inspectors and other established
senior posts; upgrading of the post of the Board Secretary; creation of an
intelligence section. In 1991, about twelve years after the 1977 reform as
mention above, the Federal government set up a study Group13 whose term of reference included of
review of the country’s tax administration. The report of the study led to the
promulgation of the finance (Miscellaneous Taxation Provisions) Amendment
Decree No 3 of 1993. The Decree was a landmark statute in the history of tax
administration. Some of the salient provisions of the decree include:
a.
Reconstitution of the FBIR by expanding the number of
members of the Board to
Fifteen inclusive of the Board Secretary;
b.
The establishment of the Federal Inland Revenue Service (FIRS) as the operational
arm of the FBIR;
c.
The re-designation of the Board Chairman as executive chairman; and
d.
Establishment of a technical Committee of the Board
In spite of the above reforms
introduced by Decree No. 3 of 1993, tax administration still remained a
function of the civil service and the Chairman of the federal Inland Revenue
Service was appointed from among the Directors of the Federal Ministry of
Finance. In 2002. the government set up a study group headed by professor Dotun
Philips to examines the Nigerian tax system and make appropriate recommendations.
Further to the study Group’s recommendations a working group headed by Mr. Seyi
Beckersteh was constituted. The realigned recommendations of the two groups had
far reaching impact on tax administration and the implementation of the
recommendations commenced in late 2003.
Overall, since 1943 when the
Nigeria Inland Revenue Department was established, it has undergo one series of
modification with the period of 68 years existence to attain its present form.
2.4 Nature of Taxation
Taxation
is system of compulsory contribution levied by government on persons,
corporations and properties, primarily as a source of revenue for government expenses
and other public purposes14.
Taxation is generally by nature a production of legislation. In Nigeria, the
three tiers of government, that is Federal, State and Local Government have the
constitutional power to legislate on tax related issue that is appropriated or
approved to it15. The effectiveness of
any government depends on the willingness of the people governed to surrender or
exchange a measure of control over their persons and property, in return for
protection and other services16.
Taxation is one form of this exchange. In designing tax system, governments
customarily considered three basic indicators of taxpayer wealth or ability to
pay tax, what people owns, what they spend and they earn. It is well settled principle
that taxation is statutory17. In
other words, for a levy or imposition to be classified as tax, the levy or
imposition has to be backed by law. The kinds of taxes raised by government for
revenue are numerous. The most common forms of taxation are:
Personal income taxes, corporate income taxes,
property taxes, death and gift taxes, and import – export duties.
Taxation structure is a part
of economic organization of a society and therefore, in it’s overall economic
environment. The ultimate design of any tax system is frequently complicated by
the dynamies of political, economic and social forces18 people designing and analyzing tax
systems often talk about the fanciness of the tax system or hoe the tax burden should
be distributed across taxpayers. More often this fall back on the cannons of
Taxations. No tax system that does not satisfy these basic conditions can term
as good one.
The regulatory aspects of
taxation are more apparent in indirect taxes, such as custom duties than in
direct taxes such as income tax. For instance, government can control private
consumption, especially of imported goods by increasing custom tariffs. An
increase in taxation on personal income on the other hand, may result in a
decrease in private saving without affecting the level of consumption. It is to
be noted that not all revenue to government are taxes. A fine or penalty is not
a tax, for example, penalty for late payment of due is not tax neither is
penalty for contravening tariffs regulations tax. Furthermore, a charge for
specific services rendered by government or its agency is not a tax. It is paid
for consumption of the service. Payment of water corporation bills for
instances is not a tax. Anyone can choose in Nigeria not to enjoy the services
of the Water Corporation by providing his own sources of water supply. Such a
person does not need to pay water corporation charges anymore. But this is not the
case with the tax, once there is a taxable income; the tax thereon has to be
paid irrespective of the enjoyment of any related benefits by the taxpayer. The
basic characteristics of taxation can be summed up as follows:
1.
Tax is a compulsory contribution imposed by the government on the
people residing within a country. Since it is compulsory, it then means that
people whom falls under a tax jurisdiction and refuses to pay is liable to
punishment.
2.
Tax is not a levy in return for any specific service rendered by the
government to the taxpayer. In other words, an individual cannot ask for any
special benefit from the state in return for the tax paid by him.
3.
Tax is a contribution to settle the cost incurred by government of the
state. The state uses the revenue collected from the tax to provide goods and
social services such as hospitals, schools, public utility service and so on
which are beneficial to all people.
1
Oxford Advance
Learner Dictionary 7th Edition
2
The Black law Dictionary 8th Edition
3
Cooley. Thomas
M. A… A The law of Taxation including the law of local Assessments, Chicago: Callaghan and
company. 1886. Reprinted 2003 by the law book Exchange. Ltd.”
4
(1938) 60 CLR 263
5
2276US1(1936) at p. 61
6 (1908) 6
CLR 41
7 John
Hopkins, New Webster’s Dictionary of the English Language College Edition
(2000, India Subject Publication) at 15742
8 Olmert.
Michel Adventures in History: New
York (1995). P.41.
9 The
Holy Bible. Genesis Chapter 47:24(King James Version)
10 Alberecht socin
(1890). Mesopotania
htt:p//www.1902encyclopedia.com/D/DAR/darius.l.thegreat.htmp(visited on July
10.2011)
11 History of
Renaissance. Http://www.historyworld.ne/weildtreins/plarintexthistories.asp?historyid=aabs(visited
on July 10.2011)
12 Ibid 8
13
Study
group on the … Nigerian Tax System and Administration; headed by professor.
Emmanuel Edozie, www.nigeriantaxbook.com/index.php.assessed on the 18th of
August 2011
14 L.A
Ayua. “ Nigerian tax Law. (Ibadan: Spectrum Law publishers 1996). P.3
15
John Ogbonna “Nature of Taxation. (Unpublished lecture note. Ebonyi State
University. 2009)
16
Thomas Hobbes “Social Contact Theory” in: Lnya A. Eteng (ed..) The Fundamentals
of sociology. Vol Revised Edition (copyerft publication 2006)p.22
17 S.
A. v. Regional Tax Board (1970) ALR Aomm. 68 and Adarwos Timber Tradding
Company Ltd V. FBIR (1969)… All NLR 247.
18
Abubarkar Yusuf
Mamud “Tax Policy in Nigeria”
www.buzzel.com assessed on the 10th of July, 2011.