Effect of Taxation on Revenue Generation in Nigeria” a case study of the Federal Inland Revenue Service (FIRS)
1.1 Background to the Study
A decline in the price of oil in recent years has led to a decrease in the funds available for distribution to the Federal Government, State Governments and Local Governments. The need for the three tiers of governments to generate adequate revenue from internal sources has therefore become a matter of extreme urgency and importance. This need underscores the eagerness on the part of state and local governments and even the federal government to look for new sources of revenue or to become aggressive and innovative in the mode of collecting revenue from existing sources (Aimurie, 2012).
The need for the government to provide social amenities, embark on developmental projects that would improve living standard of citizenry as well as meet its overhead or recurrent expenses necessitate intensified revenue generation efforts both internally and externally. One of the major sources therefore to generate revenue is by levying taxes on the tax object which could be individuals or corporate entities. This informed the establishment of three relevant tax authorities in Nigeria with capacity to collect various designated taxes, the Federal Inland Revenue Service (FIRS) collecting taxes on behalf of Federal government, the State Inland Revenue Services (SIRS) collecting State taxes and the Local Government Revenue Committee (LGRC) that collect taxes due to the local authorities in the country (Rotimi, Udu and Abdul-Azeez, 2013).
The significance of tax to the development of a modern economy cannot be underestimated in any free society or a nation. Imposing and collecting taxes has been in practice in Nigeria long before the advent of colonial administrators (Gurama and Mansor, 2015). In this vein, Aguolu (2004) asserted that taxation is the most important source of revenue to the government, from the point of view of certainty, and consistency of taxation; that is the government is assured at all times of its tax revenue no matter the circumstances.
Taxation symbolizes the redistribution of key resources between the public and private part in a country, thus, it is commonly enforced on persons and corporate bodies that make up a nation and country at large (Worlu and Emeka, 2012). The resources delivered by tax are recycled by the government to support positive responsibilities that would add value to the country such as education, health care facilities, pension scheme for retired public services, unemployment assistance as well as public transport system (Chinyere cited in Gurama and Mansor, 2015).
Today, taxes are imposed in many countries and by different nation globally, mainly to increase revenue for government spending even though the proceeds serve other purpose such as social welfare. In the developed nations, taxes are the most crucial and fundamental sources of revenue to government. It represent a broad-spectrum duty of individual tax payers for collective development as a nation (Leyira, Chukuma and Asian, 2012).
In Nigeria specifically, over the years revenue derived from taxes has been very low and no physical development actually took place, hence the effect on the poor is not being felt. It is the view of many people that the loss of revenue caused by widespread tax evasion and tax avoidance in Nigeria is due to inefficient and inept tax administration. Omorogiuwa (1981) has opined that ineffective tax administration is the main factor responsible for large scale tax evasion in Nigeria. Philips (cited in Samuel And Tyokoso, 2014) corroborates this view when he states that tax evasion is due principally to administrative ineffectiveness.
1.2 Statement of the Problem
The increasing running cost of government coupled with rapid infrastructural requirements to meet expanding social needs of citizenry has left various governments with formulating strategies to improve revenue generation; one of which was the establishment of the Federal Inland Revenue Service (FIRS). Nevertheless, the contending problems of tax evasion, collusion of tax officers and diversion of revenue belonging to government into private pockets remain insurmountable.
Moreover, the procedure of tax administration in Nigeria is inadequate and lacking efficiency. The procedures are orthodox in nature, in which staff of the board of Federal Inland Revenue Service (FIRS) are used as sole tax collectors and remitted to the government. The problems related to the procedures are primarily associated with inadequate skills and inefficiency with enormous bribery and corruption among the tax officials (Afuberoh and Okoye, 2014). Accordingly, levies collected as income to the government (tax revenue) are as a result, not been accurately accounted for, therefore, the under-performance in tax revenue is predictable over the years.
Inadequate tax personnel, fraudulent activities of tax collectors and lack of understanding of the importance to pay tax by tax payers are some of the problems of this study. It is against this backdrop that this study seeks to explore the Effect of Taxation on Revenue Generation in Nigeria with a special reference to the Federal Inland Revenue Service (FIRS).
1.3 Purpose of the Study
The primary purpose of this study was to evaluate the effect of taxation on revenue generation in Nigeria. Other purposes include:
§ To examine the contribution of taxation on revenue generation in Nigeria.
§ To ascertain the extent to which tax evasion and tax avoidance have affected negatively on revenue generation in Nigeria.
§ To explore the relationship between taxation and public service delivery in Nigeria.
§ To identify current problems and challenges to taxation in Nigeria.
§ To provide plausible recommendations on how to improve revenue generation in Nigeria.
1.4 Research Questions
This study was guided by the following research questions:
i. Is taxation related to the quantum of revenue generated in Nigeria?
ii. To what extent has tax evasion and tax avoidance impacted negatively on revenue generation in Nigeria?
iii. What is the relationship between taxation and public service delivery in Nigeria?
iv. What are the current problems and challenges to taxation in Nigeria?
v. How can the current problems and challenges facing tax collection in Nigeria be resolved?
1.5 Research Hypotheses
The under mentioned hypotheses were tested in the course of the research study at 5% level of significance in order to uncover the relationship between the dependent and independent variables in each of the hypothesis.
a) H01: There is no significant relationship between taxation and the quantum of revenue generated in Nigeria.
H01: There is a significant relationship between taxation and the quantum of revenue generated in Nigeria.
b) H02: Tax evasion and tax avoidance are not having negative effect on revenue generation in Nigeria.
H02: Tax evasion and tax avoidance are having negative effect on revenue generation in Nigeria.
Significance of the Study