ABSTRACT
A tax is a compulsory levy imposed on the income or profit of an individual, partnership and corporate organisations for the financing of government expenditure without recourse to a corresponding benefit from tax payer. Assessments are raised on total profit at the rate of either 30 percent or 20 percent if it is a small company whose turnover is below ₦1million naira. Various types of assessment s are raised on the company. This could be self-assessment, government assessment, back year assessment, best of judgement (BOJ) assessment or jeopardy assessment. Collection is basic necessity to tax revenue after assessment has been raised. This research work is aimed at appraising the tax collection system in Nigeria taking Federal Inland Revenue Service as a case study. It examined the workings both at the local and state levels but focused more on the Federal Inland Revenue Services. It reviewed the old system, the reasons why a new idea muffed. The operations of the new method were also explained and clearly stated. The methodology adopted in this study is the survey research design. There were interactions with staff of Federal Inland Revenue Service of various cadres and a few tax payers and tax consultants with structured questionnaire to know their opinion. 56 questionnaires were administered out of which 35 were duly completed and returned. The findings from research work revealed that appraisal of tax collection system will bring more money to the coffer of the government and all incidents of frauds, cheque diversion and other malpractices will be curbed. Based on the findings of this study, recommendations made are that constant monitoring of the activities of the designated banks is necessary to determine their level of compliance while adequate training should be provided for collection staff to enhance their efficiency and productivity.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
A tax is a compulsory levy imposed on the income/profits of an individual, partnership and corporate organizations for the financing of government expenditure without recourse to a corresponding benefit from tax payer.
Every tax imposed on Nigerian companies or organisations needs continual interpretation of its specific application and effect on the various transaction of the organisation. The field of taxation changes every moment or every day as announced by the new ruling courts and also as are being made by new government.
Tax is paid only on the profit of the company after all other deductions and allowances such as capital allowance, investment allowances. The rate of tax levied and payable for each year of assessment in respect of the total profit of every company is thirty kobo for every naira as contained in section 29 of Companies Income Tax Act 2007 as amended. A company which is yet to commence business after at least 6 months of incorporation shall for each year it obtains a tax clearance certificate pay a levy of (a)
₦20,000 for the first year and (b) ₦25,000 for every subsequent year before a tax clearance certificate is issued.
Where in any of the basis period for the year of assessment in which a company commenced business and the next following four years of assessment as determined under the provision of section 29 of the Act, a Nigerian company engaged in manufacturing or agricultural production, mining of solid minerals or wholly export trade, earns a total gross sales (turnover) of below one million naira, there shall be levied and paid by the company, tax at the rate of twenty kobo on every naira of the total profits.
Section 28A of Companies Income Tax Act 2007 states that where in any year of assessment the ascertainment of total assessable profits from all sources of a company results in a loss or where a company’s ascertained total profits results in no tax payable or tax payable which is less than the minimum tax then shall be levied and paid by the company the minimum tax as prescribed in subsection (2) of the Act.
(a) If the turnover of the company is ₦500,000 or below and the company has been in business for at least few calendar years, be;
(i) 0.5 percent of gross profits or
(ii) 0.5 percent of net assets or
(iii) 0.25 percent of paid up capital or
(iv) 0.25 percent of turnover of the years, whichever is higher.
If the turnover is higher 500,000 be whatever is payable in paragraph (a) of this subsection plus such addition tax on the amount by which the turnover is in excess of ₦500,000 at a rate which shall be 0.125 percent.
The provision shall not apply to a company carrying on agriculture trade or business or the company with at least 25 percent imported equity capital and lastly, any company for the first four calendar years of its commencement of business. Collection is basic necessity to tax revenue after assessment has been raised. The tax payer is expected to pay the assessed tax liabilities to any of the collecting banks in his or her region with the assessment notices indicating the tax type being paid. This could be company income tax, Education tax, Capital gains tax, Personal Income Tax for resident of Abuja, and non resident individuals, Value Added Tax.
After the payment, the tax payer will be issued an electronically generated receipt from the bank (e-ticket), then, the collecting bank is expected to remit the funds same day to lead bank via Inter Switch net work. The lead bank remits to Central Bank of Nigeria after two days. The e-receipt and on line schedule of remittance by lead banks are forwarded to Federal Inland Revenue Service office and checked before receipts are issued.
The FIRS taxes are being collected by agents. These agents are the collecting banks. These are twenty four in number (24). The Lead banks are four (4), Ministry Departments and Agencies, Nigerian Customs Services, The medium of collection are cash, cheque and electronic transfers.
Accounting for revenue collected is mandatory for FIRS to all relevant government agencies and stake holders. The accounting procedure is as follows:
Firstly, all revenues collected through the web portal/pay direct, KP Morgan statement of account, Auto Swift are generated. Secondly, the receipts of schedule of VAT on import from Nigerian Customs Service are collated. Then reconciliation of receipt of
remittances with collecting banks, CBN and others are carried out to ensure proper accountability of the revenues.
There is proper monitoring to ensure that all revenues collected are remitted to the appropriate account to CBN as at when due. The types of monitoring include:
• On-line monitoring via PEACT
• Daily monitoring of remittances to CBN
• On-line viewing of foreign payments
• Data base on incorporated companies and Enterprises in
Abuja
• Auto swift viewing on line FIRS transactions in CBN
• Tax payer enumeration database
• Introduction of TIN (Tax Identification Numbers)
• Monitoring of business to ensure, remittances of taxes deducted from customers and staff.
There are challenges for collecting Agents. These include delayed or non remittance of taxes.
Non remittance of Taxes:
It has been observed that some of these collecting agents deliberately delayed the remittance of taxes paid and in most cases
these payments are not remitted at all to the coffer of Federal
Inland Revenue Services.
Delayed Posting: This is a situation whereby banks collect cash or cheques for FIRS and refuse to post as and when due, this can be deliberate or not. This can be noticed when posting is made as huge cash deposit, extended numbers of days, cheque value date, non stamping of deposit slips, deposit slip date being different on date of posting on web portal especially on VAT and WHT collecting agents.
On discovery of this type of practice, the Integrated Tax Office
(ITO) usually charge appropriate penalties and interest as follows:
Steps to deal with Delayed Postings
• Identify the period of delay
• Impose 1% penalty on the principal amount delayed
• For delayed below 30 days impose interest at NIBOR rate +
3% i.e
• Amount x (NBOR +3%) x No Days Delayed
No of days in year
• Where the Number of days is above 30days
• Penalty is charged at 1% flat of the principal sum
Non-remittance: This comes about when a bank collects FIRS cheques/cash and refuses to remit out rightly. Here the money is diverted for use by the bank forever. The situation is aggregated by the tax payer not demanding for his e-ticket or receipt.
The detection of the above shoddy deals can be made by the adoption of the following methods:
• Know your customers (tax payers)
• Visit tax payers to enquire of their payments
• And obtain evidence
• Check payment made against web portal
• Reconcile with the receiving banks and request for posting immediately
When payment is posted, calculate appropriate penalties and interests.
1.2 STATEMENT OF THE PROBLEM
Tax collection is an important function of the Federal Inland Revenue Service. However, there are some teething problems that inhibit effective and efficient collection system. They are as follows:
1. Inadequate government regulation on collection system
2. Lack of total commitment and adequate tax policies.
3. Lack of transparency on the part of the tax administrators.
4. Frauds committed by both F.R.S staff and collecting agents.
5. Delay in remitting taxes collected and in some cases outright diversion of taxes collected.
6. Lacking adequate remuneration for collection staff of
F.R.S.
7. Lack of functional equipments to detect frauds.
8. Lack of proper monitoring
9. Lack of shift penalty for erring
10. There is no proper accountability of the amount collected by various agents by the government and this brings about apathy among the tax payers.
1.3 AIMS AND OBJECTIVES:
The aim and objective of this research work is to appraise the systems of tax collection generally with special emphasis on the
Federal Inland Revenue Services and the possibility of improving it. To do that the following objectives are set:
1. To investigate whether the subject of every state or community pays tax to support the legitimate authority within the requirement of the social contact.
2. To investigate whether the tax to be paid is certain in relation to the amount to be paid the authority to collect it, the time or period when it is to be collected.
3. To investigate whether the tax is simple to understand and administer.
4. To investigate whether the tax system is flexible in federal and democratic country where there are always changes of government.
5. To investigate whether the request for payment of taxes is done at a time when it is most convenient for the tax payers.
1.4 RESEARCH QUESTION
Based on the objectives stated, the research questions are as follows;
1. Is every subject of every state or community pays tax to support the legitimate authority within the requirement of the social contact.
2. Is the tax paid certain in relation to the amount to be paid, the authority to collect it, the time or period is to be collected?.
3. Is the tax system simple to understand and administer?
4. Is the tax system flexible in Federal and democratic country where there are always changes of government?
5. Is the request for payment of tax done at a convenient time for the tax payer?
1.5 RESEARCH HYPOTHESIS
In line with the problem statement and the objectives of the study, the following hypotheses are formulated.
H1: Every subject of every state or community pays tax to support the legitimate authority within the requirement of the social contact.
H2: The tax paid is certain in relation to the amount to be paid;
the authority to collect it, the time or period is to be collected. H3: The tax system is simple to understand and administer.
H4: The tax system is flexible in federal and democratic country where there are always changes of government.
H5: The request for payment of tax is done at a convenient time for the tax payer.
1.6 SIGNIFICANCE OF THE STUDY
The need for efficient and effective tax collection system makes it imperative that a research of this nature be carried out.
Over the years, citizens have been subjected to harsh and intimidating processes with a view to making money for government especially state level where consultants were hired to do the job of state Internal Revenue Departments. The same harassment threats of tax payers both individuals and corporate bodies were also used during collection of revenue.
Equally too, by undertaking this research, one is privileged to see if the present facilities on the ground are adequate for efficient tax collection or whether there is the need for review. These facilities are in terms of human and material resources. On the whole, research work in this area is justified in the light of the
above for the defects or anomalies in the process are detected and solutions preferred.
1.7 SCOPE OF THE STUDY
Several methods of collecting taxes will employed by different states. However, this research dwells mainly on the collections system in Federal Inland Revenue Services.
1.8 LIMITATION OF THE STUDY
It must also be noted that non-availability of materials on this topic can limit the extent of which one can go in this exercise. While an attempt will be made to review what the topic is all about at the first two levels of governments, our central focus will be the Federal Inland Revenue. This will entail discussing with the various relevant units, within the service, the means of collecting the taxes, relationship between the designated banks and the service.
1.9 DEFINITION OF TERMS
BALANCING ALLOWANCES:- Where in any accounting period of a company, the company owing any asset in respect of which it
has incurred qualifying expenditure wholly and exclusively for the purposes of operations carried on by it, disposes of that asset an allowance shall be due to that company for that accountancy period of the excess of the residue of that expenditure of the date such asset is disposed of was the value of that asset of that date.
BEST OF JUDGEMENT ASSESSMENT – This is the assessment raised on the company when returns are not submitted to the Board or where a company has delivered audited accounts and returns, the Board may refuse to accept the return and to the best of the judgement, determine the amount of the total profits of the company and make an assessment accordingly.
DEMAND NOTE: It is a notice asking a tax payer to pay after interest and penalty might have been computed.
DESIGNATED BANK – It is a branch of a selected bank zoned to a particular area for the collection of taxes.
F.I.R.S – Federal Inland Revenue Service. I.T.M.A- Income Tax Management Act
JTB – Joint Tax Board
LEDGER CARD- This is the card where assessments received from assessing section or department are recorded.
OFFSHORE COMPANY – A company doing business in
Nigeria, deriving income from it but not resident in Nigeria. P.A.Y.E – Pay As You Earn
PROVISIONAL ASSESSMENT – This is an assessment issued every January to the tax payers before returns are submitted to Federal Inland Revenue Office. It is equal to the amount paid in the immediate preceding year when the current assessment will be raised.
UNCLEARED EFFECT- Money not yet cleared by the bank. VAT – Value Added Tax
WITHHOLDING TAX – An advance payment of income tax withhold for the purpose of bringing prospective tax payers into the net.
This material content is developed to serve as a GUIDE for students to conduct academic research
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