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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.




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


•   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.


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


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.


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.


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?


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.


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.


Several methods of collecting taxes will employed by different states.   However, this research dwells mainly on the collections system in Federal Inland Revenue Services.


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.


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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