Taxing system is basically structures as a tool for
revenue collection. The primary objectives of any tax system are to raise revenues
to finance government operations and programmes19.
To this extent, tax system may attempt to achieve other objectives, which are
to help stimulate and/or control the economy, encourage certain activities and
business, discourage socially undesirable behaviours and promote equity and
fairness in the system. It is for this reason, and in order for the public with
the necessary goods and services, to require revenue through taxation.20
This
revenue is generated through direct and indirect form of taxation. Direct are
paid on income. This effectively means that the more income you earn, the
greater your contribution is expected to be the state. Indirect taxes are
levied on expenditure. This tax is imposed on the basis of the individual
consumption; the individual pays only on what he consumed. However, it must be
noted that taxation is used not only to raise revenue but also to regulate consumption
and may even be used to curtail various forms of business activities. For
instance, alcoholic beverages many be taxed heavily on the grounds that their
uses is hazardous to the health of individuals. Such revenue, often called a
sin tax is in fact a penalty paid by the user of such substance.
In
order for a tax system to operate effectively, certain principles must be put
in place. They are regarded as cannon of Taxation, which are the basic rules
sets to build a “Good tax system”.
They
are21
a.
Canon of Equity: A good tax system is one,
which is designed on the basis of an appropriate set of principles (rules). By
equality, we do not mean that people should pay equal amount by way of taxes to
the government. Canon of equity is a principle aimed at providing economic and
social justice to the people. According to this principle, every person should pay
to the government depending upon his ability to pay. The rich class people should
pay higher taxes to the government authorities; they could earn and enjoyed their
income Adme argued that Smith agued that taxes should be proportional to income
i.e. citizens should pay the taxes in proportion to the revenue which they
repetitively enjoyed under the protection of the state.
b.
Canon of Certainty: This principle is of the
view that, the tax which an individual has to pay should be certain and not
arbitrary. The taxpayer should know in advance how much tax he has to pay, at
what time he has to pay the tax, and in what form the taxis to be paid at the
government. In other words, every tax should satisfy the cannon of certainty.
At the same time a good tax system also entrust that the government is also
certain about the amount that will be collected by way of tax.
c.
Canon of convenience: This implies that the mode
and timing to the tax payment should be as far as possible, convenient to the
taxpayer. For example, land revenue is collected at the time of harvest, income
tax deducted at source. Convenient tax system will encourage people to pay tax
and will increase tax revenue.
d.
Canon of Economy: This principle states that
there should be economy in tax administration. The cost of tax collection
should be lower than the amount of tax collected. It may not serve any purpose,
if the taxes imposed are widespread but are difficult to administer. Therefore,
it would make no sense to impose contains taxes, if it is difficult to administer.
As the time changed,
governance expanded and became much more complex than what it was at the Adam
Smith’s time. Soon, a need was felt by modern economist to Smiths principles of
taxation and a response, they put forward some additional modern cannons of
taxation22. They are:
e.
Canon of Productivity: It is also known as the
canon of fiscal adequacy According to this principle, the tax system should be
able to yield enough revenue for the treasury, so that the government should
have no need to resort to deficit financing. This is a good principle to follow
on a development economy.
f.
Canon of Elasticity: According to this canon, every tax imposes by
the government should be elastic in nature. In other words, the income from tax
should be capable of increasing or decreasing to the requirement of the country.
For example, if the government needs more income at time crises, the tax should
be capable of yielding more income through increase in its rate.
g.
Canon of Flexibility: it should be easily possible
for the authorities to revise the tax structure both with respect to its
coverage and rates, to suit the changing requirements of the economy with
changing time and conditions of the tax. Conclusively, a tax system is for
income generation purpose.
In modern tax system, however, its objectives go
beyond revenue generation. For example tax concession and inceptive are used to
stimulated private enterprises; taxation is now a tool for economic and social
polities that determines a country’s economic direction, wealth redistribution
and use as an effective resources allocation between private and public sector
of the country.
Generation
of Revenue involves so many challenges throughout this country Nigeria
1. Introduction
of local tax had already generated a very big impediment it was well known that
local governments receive some 40 -50% of their revenue from government grants,
it is obvious that if local government is going to have any real meaning, the
authorities must be able to raise a comparable amount from their own resources.
The most important item of this “home – produced” revenue is the local tax on
individual income or property which is usually known as a “rate” in certain cases
such as an education or water rate, it
is a payment for a specific service.
The
local rate when levied upon an individual’s income as distinct from his
property is still apt to become entangled with the central income tax assessed
and collected by the Inland revenue department or it’s equivalent, and it is
not always easy to disentangle the two.
It
was general practice in colonial days for the native authorities to collect the
tax (there being only one kind of tax) and for the proceeds to be divided
between the government and the native authority, each taking a fixed
percentage.
Often
this arrangement worked well for the native authorities who were allowed to
keep a high proportion, and sometimes the whole, but the proportion was inclined to very according to financial pressure on the government.
As
people became wealthier, and the assessment of a granted tax become more
implicated, it was clear that the native
authorities and the local authorities which have succeeded them were not
competent income tax as they had been to collect the flat tax of earlier days.
For
this reason, income tax departments grew up in the central government for the
purpose of collecting tax from people of easily ascertainable incomes or from
traders and merchants who moved from commercial firms, or from others whom the
simple apparatus of the local governments tax office was inappropriate. Income
tax would go to the central government and local rates to the local government.
In Eastern Nigeria, the Federal Government become the taxing
authority 1956, and for some years afterwards, the local rate imposed in
notation had to kept down by the government in order not to prejudice the
collection of income tax.
The
following are more challenges to the federal government revenue generation thereby
allowed the Local Councils to impose rates in the conditions.
1.
A capitation Rate this is the oldest form of rating in the country,
dating from early colonial days. It used to be called such names as ‘poll’ or
head’ tax. It is now generally regarded as an archaic form of taxation but
provision is still made for it, since there are still many people who ought to
be taxed but whose income is small and not easily ascertained.
In Nigeria, it was imposed on people over sixteen
years of age and in Ghana
over eighteen, in western Nigeria,
the assumption was that anybody who appeared to be taxable must have a minimum
of income of £50 per annum and the capitalization rate was fixed at £1.17s 6d.
In eastern Nigeria,
it was reduced to 5s when government took over responsibility for central
taxation but it later rose to £.
Another
challenges
i. Poverty: Poverty level in our rural
areas in high this makes responsible men tend to run away from their
responsibility. The little they have could not hardly be taken away from then
in the name of taxation. If they however submit themselves for taxation, the
revenue generated from this exercise are always nothing to write home about.
ii. Nature
of occupation: Most of the inhabitants of our rural communities are subsistence
farmers and petty traders make basically
more than their daily bread. Taxation is only done on income. This poses a
great threat to the achievement of set objectives by the board of internal
revenue.
iii. Improper/unorganized
rate collection system: over 80% of the taxable adults do not pay their taxes
in Nigeria
unless they are civil servants. This is because an efficient and organized
strategy has not, been devised. The lack of this strategy has continued to deny the local authorities the ability to meet its set objectives in the
generation of revenue.
iv. Favoritism and partiality and revenue
officers
Often
favour their brothers and sister in the taxation process. They under tax them
and also help to avoid payment of most special rates imposed on the society at
large. In the calculation of rates on their various properties, these class of
people are often flavoured at the expense of the government purpose through
local taxes (or rates, these problems ranges from corruption, falsification of
receipts, taking or bribes, poverty, lack of efficient collection strategy, favoritism
and partiality etc.
Loan
This
is the last source of income into the purse of the local governments. The
problems facing this particular source lies between the our customer bank
relationship and the ability of the local authorities to provide adequate
collateral.
The
money usually issue to local government as loan are always huge and because
more banks fear the risk of getting distressed, they do not agree to this
business arrangement in some cases.
The
interest on loans are always high. This scares away local authorities since
they do not want to remain eternal debtors.
Challenges of
loan taxes (or rate)
This
method of revenue generation locally. It has faced a lot of set backs which are
caused by some of there factors.
a. Challenges of illiteracy: Most rural dwellers are illiterate and lack
of comprehensive knowledge of the method
b. Challenges of
corruption: some of the revenue officers from time to time indulge in
corrupt practices which range from taking of bribes from defaulters to
falsification and printing of receipts. This defrauds the local government to a
great tune and deserve to be checked.
c. Challenges of lack of
access road: The roads leading to most communities in our local government
areas are almost in accessible. This makes it difficult for revenue officers to
move into these places to collect the rates and taxes.
d. Avoidance of payment:
Most members of the society because of unpatriotic avoids the much they can
payment of their taxes and different rates. This is mostly common among traders
and craftsmen.
e. Political
consideration: In levying of rates on communities and individual parties on
politics is often encountered. This question the minds of those not favored by
the decision (which are in majority in most cases) and thereby gears them to
wards revolting against the payment of such special rate.
f. The
Traditional Rulers: These people had always sought to protect the interest of
their kinsmen. They tend to protect some people within their domain from
exposure to proper taxation. This directly dwindles the prospect of revenue
collection generations.
Challenges Of Crude
Oil Theft
Corruption: The minister for petroleum
Mrs. Alison Madueke had expressed worry that oil theft was assuming an alarming
dimension adding that the country loss $7 billion annually to the crime and
another $5 billion for repair of vandalized pipelines
Another
way theft of crude oil creates bad impact in terms of the economic loss and
environmental impact to this nation these are the following breakdown of the
oil subsidy payment, according to the minister, for finance Mrs. Ngozi Okoji
Iwuala N1.7 trillion paid as at last
December and N451 billion paid this year.
On
the controversial crude oil sales foreign account maintained by the NNPC the chairman
of the penal of enquiring, though Abe insisted that the NNPC has no power to
keep and maintain a foreign account because all Federal government revenues
should be paid into the federation Account. Thereby this portrays the level of
challenges against revenue generation in Nigeria this was reported on the
Nation Tuesday, July 3, 2012.
19 Ibid
20 Ibid
21
Adam
Smith, “an inquiring into Nature and capture and causes of the wealth of
Nation. (1776) First edition Edwin Cannan. (ed). 1904. London: Methuen and co. publisher ltd.
22
Percardo D
(1817) Principle of Political Economy and taxation. Voll p. b in: Craffa (ed).
1951. Cambridge University Press.