TAX SERIES BY ENIOLA – SEASON 1
Canons of Taxation
“You can have a Lord and you can have a King, but the man to fear is the Tax Collector.”
Many of us today still share this sentiment of the Iraqi from almost 4 millennia ago that Tax is a necessary evil. Tax however, has a human face and is founded on important principles.
Adam Smith in his work ‘Wealth of Nations’, propounded the Principles/Canons of an efficient tax system thus:
- Equity: Taxes should be imposed in proportion to Taxpayer’s ability to pay.
- Certainty: The amount Taxpayer pays, time of payment and manner of payment should be sufficiently ascertainable.
- Convenience: We would definitely feel better doing a major test if we were given some lecture-free days to prepare than on the last day of lectures when we just want to burn our books and dance around the fire.
The Tax man should come when he will be welcome.
- Administrative Efficiency: Efficiency in administration is so so crucial. Tax Administrators implement and enforce tax legislations. They gather information and intelligence, identify and register tax payers, inform about tax, collect tax, audit and investigate tax returns, enforce tax obligations, keep records and provide tax services to tax payers.
The Canons of Taxation are not infallible, for example, equitable taxing would not work for a tax like VAT (Value Added Tax) which is at a fixed rate of 5%. Regardless, the Canons are an important framework to ensure a lasting tax system.
Episode 2 – Reasons for Taxation
Why must we endure the Taxman?
- Making Wakanda a reality: In case we didn’t notice, Vibranium doesn’t grow in Nigeria. So we have to gather that money!
- Generation of Revenue: Oil money, Oil money. Taxes are imposed to raise money for government. You guessed right – Bulk of revenue of government is gotten from Petroleum Profit Tax.
- Social Engineering: Not all governments are totally sane. One wonders at the sanity of government imposing taxes on naming your child without government consent like in Sweden. Also, the Pro-smoking Tax of China states essentially: ‘Smoke cigarettes or face a fine’. People are thus given a smoking quota such as 400 cartons of cigarettes per year. Beard Taxes, Breast Taxes and Window Taxes have also been collected at some point in some countries. These Taxes imposed to encourage or prevent acts to affect the behaviour of tax payers.
Personally, taxes should be imposed to get the millions of vehicles only fit for the bottom of the ocean off Nigerian roads!
- Control of the Economy: Rise and fall in rate of Tax imposed, Tax incentives, Tax exemptions, Tax holidays, Tax free zones, international and regional treaties among other things can be used to channel investment to certain areas, control inflation, stabilize our exchange rate etc.
- Redistribution of Resources: In Lagos we hear ‘Ambode is working, Lagos is working, Pay your tax.. Eko o ni baje o’. In essence, Ambode is using our taxes to renovate general hospitals, build boreholes, to contract with initiatives like ‘Cleaner Lagos’ who’s work is being seen in places like Obalende, to build better roads and bridges like the Ajah flyover, to pay our scholarships and bursaries, among other things. This is redistribution of income from the Rich to the Poor.
Episode 3 – The Tripod of Taxation
What drives the Taxman?
For Nigeria’s taxes to succeed, each rung of the tripod must be in sync. They are; Tax Policies, Tax Laws and Tax Administration. If any is deficient, there is a fundamental Tax problem.
- Tax Policy: Tax Policy is the first aspect of the tripod. It means the basic principles underlying the regular development of the Tax Laws and Tax Administration.
The canons of Taxation explained above (Equity, Certainty, Convenience, Administrative Efficiency) can thus be included to form a sturdy Tax Policy. If the policies are inadequate, the entire system will be defective.
- Tax Laws: Tax Legislation are created with the policies in mind to provide guiding steps for Tax administrators to take in performing their duties as explained above. The laws must be flexible, to adapt with social and economic circumstances.
- Tax Administration: It is implementing the Tax Laws to achieve their objectives. Bad administration is detrimental. The three tiers of government are responsible for Tax administration and must have an efficient system to collect taxes.
The following bodies are responsible for administration of Taxes in Nigeria:
- Federal Inland Revenue Service: The Current Chairman is Babatunde Fowler. Only the FIRS assesses, collects, accounts for and administers all taxes for the Federal Government. They ensure tax compliance and enforce sanctions for non-compliance. It is established by the Federal Inland Revenue Service (Establishment) Act of 2007.
- State Boards of Internal Revenue: They are established for each state by the Personal Income Tax Act (PITA). State Internal Revenue Service is the operational part of each SBIR e.g LIRS, OIRS etc. They ensure effective and optimum tax collection in the state and enforce penalties.
- Joint Tax Board: Current JTB Chairman is Babatunde Fowler as well. Administration of Personal Income Tax is split between the Federal and State Tax Authorities. Some people like those in the Army or who live in FCT pay tax to the federal authorities while others pay to the state. The JTB consisting of representatives from the Federal Government and each of the 36 states acts as a meeting point for the two authorities administering the same tax to meet, discuss and resolve issues. It advises all tiers of Government on Tax, resolves areas of conflict and promotes uniformity in tax administration.
- Joint State Revenue Committee: It is established for each state of the federation by the PITA. It implements decisions of the JTB, advices the JTB, State and Local governments on revenue matters and harmonises tax administration in the state.
- Local Government Revenue Committee: It is established for each Local Government Council in the State. It assesses and collects all taxes, fines, rates under the jurisdiction of the local government.
Episode 4 – What then is Tax?
Tax is a monetary charge imposed by the Government on persons, entities, transactions or properties to yield revenue.
It is also a compulsory levy imposed by government on goods, services, income and wealth primarily to obtain revenue.
Tax is never a voluntary payment or a donation. It is enforced and compulsory.
Tax is provided for in the Exclusive and Concurrent Legislative List of the 1999 Constitution.
Local governments also collect all levies and rates within their jurisdiction.
Tax can be direct or indirect.
Direct Taxes are imposed directly on Taxpayer and his property while Indirect taxes are paid by a person different from the person who created the obligation to pay the tax.
Taxes on Individuals in Nigeria:
- Personal Income Tax
- Development levy
On Corporate Entities:
- Companies Income Tax
2 Petroleum Profits Tax
- Tertiary Education Tax
- Technology Tax
- Capital Gains Tax
- Value Added Tax
- Stamp Duty
- Excise Duty
- Import Duty
- Export Duty
- Property Tax
These taxes, administration and means of calculation will be discussed in subsequent seasons.
Comments, questions and contributions on any of the Episodes are welcome!
This week, we will be discussing Tax Evasion and Avoidance.
Akinoso Eniola is a Tax and Litigation Enthusiast, a Fellow of the Obama Young African Leaders Initiative and the National Matching and International Relations Coordinator for AIESEC in Mauritius. She writes stories and articles to contribute to her AIESEC-cultured love for the SDG’s and to bring pertinent issues in Nigeria to light. The Tax Series by Eniola is her latest initiative to stimulate interest in Taxation.