A Review of Effective Tax Regime in Nigeria

By Tunde Ogunsakin

This book reviews various taxation methods and history of taxation in Nigeria, most importantly the impact it has on sustainable development in the country. The author skilfully explores Nigerias fiscal relations and revenue allocations with thorough descriptive historical analysis aimed to bridge the gap on similar titles in circulation. Backed with empirical data, his emphasis hinge on Colonial Era and the introduction of taxation in Nigeria. The Raisman Fiscal Commissions recommendation of 1958 was critically appraised in tandem with resource distribution/allocation in Nigeria. Readers will be riveted with the authors style and the information shared in the book.

• Language: English
• Publisher: Xlibris UK
• Release date: Mar 16, 2017
• ISBN: 9781514464922

Tunde Ogunsakin

Tunde Ogunsakin is a police officer who once had his mind set to work as a diplomat or an academic. He graduated from Obafemi Awolowo University Ile-Ife with the intention of fulfilling this ambition. However, a visit to Lagos altered the course of his life career forever as he became a police officer with unparalleled achievements. That was the story of the humble beginning of Tunde Ogunsakin, who was promoted in 2014 as Assistant Inspector General of Police. Prior to his promotion he was the Commissioner of Police for Rivers State where he brought peace to a once political turbulent state. Tunde Ogunsakin was also a member of the presidential task force on education tax funds 1999–2000. His concerted efforts ensured the panel recovered 7.8 billion Naira unpaid tax to the Nigeria Government. The development of Nigeria is his passion, and he feels the development in Country may not be sustainable without appropriate fiscal policy like good taxation system. The huge tax evasion and avoidance by Nigerians and business organisations cannot be exaggerated, a prompt for Tunde Ogunsakin to write this book: ‘A Review of Effective Tax Regime in Nigeria’.

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Copyright © 2017 by Tunde Ogunsakin.

Library of Congress Control Number:   2016902431

ISBN:      Hardcover      978-1-5144-6494-6

                Softcover         978-1-5144-6493-9

                eBook               978-1-5144-6492-2

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Rev. date: 02/28/2017

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CONTENTS

ACKNOWLEDGEMENTS

PREFACE

TABLE OF STATUTES

TABLE OF CASES

CHAPTER 1: GENERAL INTRODUCTION

CHAPTER 2: TAX LAW AND POLICY IN NIGERIA

CHAPTER 3: PROBLEMS OF TAXATION IN NIGERIA

CHAPTER 4: TAX ENFORCEMENT PROCESSES AND PROCEDURES IN NIGERIA

CHAPTER 5: PERSONAL INCOME TAX

CHAPTER 6: CONCLUSION AND RECOMMENDATIONS

REFERENCES

To those

who undauntedly continue to

do good in the face of

man’s inhumanity to man,

and

those who strive forthe

greatest good for the

greatest number of

our people.

ACKNOWLEDGEMENTS

I would like to express my profound thanks to all those who encouraged me and provided support and systems through this book.

My deep sense of gratitude goes to my cousin Ola Olakoyede Esq. for his keen interest in this enterprise. His incisive, informed and robust criticism spurred this work to the quality attained while the contributions of Steve Amadi and Jerry Akubo in typesetting the manuscript cannot be gloated over.

I must thank the Publishers, Xlibris publishing Co UK, the Xlibris Author representative, Ann Minoza and Vanessa Diaz, the Operations Supervisor in Author Solution, working with Adetokunbo Banjo, whose patience, dynamism, motivation and immense knowledge guided me tremendously in the production of this scintillating book.

I can never thank Tunji Wusu enough. He is a brother and friend, he has toiled to give this effort flavour and flesh who together with Adetokunbo Banjo actually laid the stones on the Book foundation.

To my wife, Chinyere, I say thank you for your encouragement and support, which stirred my determination for good measure on this effort. You are an amazing partner.

Yet more importantly, the incessant inquisition of my ten year old Son, Ayodele repeatedly asking Daddy what are you always writing? was an invaluable inspiration that fired my imagination to no end.

Thank you all. God bless.

Sept. 2015

PREFACE

This book gives a deep insight into the effective tax regime in Nigeria and went ahead to make recommendations aimed at paving way for a flourishing tax regime that will drive a formidable economic growth and development in Nigeria. While approaching effective tax regime from a historical perspective, it nonetheless makes an in-depth analysis into the tax law and policy in Nigeria and the role of tax authorities and stakeholders in the Nigerian tax system.

It is also interesting to mention that I was a member of the Panel on Education Tax, known as THE FEDERAL GOVERNMENT PANEL ON EDUCATION TAX constituted on January 3, 2000 by the then President of Nigeria, Chief Olusegun Obasanjo, GCFR. The Panel was to amongst other terms of reference ascertain companies operating in Nigeria which are eligible to pay tax, and which have paid or failed to pay in accordance with the provisions of the Education Tax Act. As a Sub-Committee Chairman on Operations of this Presidential Panel, I travelled widely within the Country and gathered immense experience in the course of the Panel’s activities. This experience garnered during the Panel’s activities was an impetus to the writing of this book and was a veritable source of background information which will no doubt be of immense benefits to the Nigerian populace and institutions in the area of tax administration in Nigeria.

This book therefore could not have been timelier coming at a time when tax evasion seems to be on the rise and there is therefore the need to embark on a robust capacity building drive in the area of tax collection strategies by Tax authorities and enlightenment campaign to encourage the Nigerian populace and institutions to pay tax. I have, therefore, in a very lucid fashion carefully put the facts in a sequence by also examining the problems of taxation, cumbersome legislative process and changing tax policies of government. This will help the reader capture the dynamics and patterns of tax enforcement processes and procedures in Nigeria.

Drawing great insights from the expositions in this book will invariably assist us in advancing the course of reducing tax malpractices in Nigeria through voluntary compliance with taxation. I have made recommendations that are very germane to the resolution of the problems associated with tax and taxation.This book will undoubtedly be a great asset to lawyers, researchers, undergraduates, police officers, law enforcement officers and persons in the specialized area of Tax Administration in Nigeria.

TABLE OF STATUTES

Section 14 (2) Constitution of the Federal Republic of Nigeria 1999

Northern Provinces Proclamation Law No. 4 of 1904

Income Tax Management (Uniform Taxation Provision) Act 1995

Federal Inland Revenue Service, Establishment Act 2007

Capital Gains Tax Act, Laws of the Federation, 2004

Vat Act, 1st Schedule of Vat Act, LFN 2004

Section 74 CITA LFN, 2004

Section 8 and Stamp Duties Act, LFN 2004

Section 59 of the Customs and Excise Management Act

Cap–C45 Laws of the Federation, 2004

Section 27 (1) of the Income Tax Management Act 1961 No. 21

Section 3 of the Federal Inland Revenue Service (establishment) Act 2007

Section 88 (1) (a)–(d) Personal Income Tax Act

Part II of the Schedule of the Taxes and Levies (approved list for collection) Act, Cap 18 Laws of the Federation, 2004

(2000) 3 NWLR, Part 650 and P. 565

(1997) of NWLR, Part 514, Page 698

Section 40 PITA, Cap 88 Laws of the Federation, 2004

Section 47 of the Federal Inland Revenue Service (establishment) Act 2007

Order 3, Rule 2 (1) of the Lagos Rules, 2004, Order 6, Rule 8 of the Federal High Court Rules, 2000

Section 3, PITA Section 2 CITA

Halsbury Laws of England 715 3rd Simmons Ed, 195

Criminal Law in Nigeria 2nd Ed Sweet and Maxwell 1980, pp. 66–80

(1952) 14 WACA 238

(1936) 12 WACA 379

(1963) CCR, 245

Section 47 (b) CITA

1930 10 NCR

1957 1 QB 159 at 1972

Section 86 (6) of CITA

Section 59 and fifth schedule of the FIRS Act, 2007

Section 2 (i) of the Fifth Schedule of the FIRS Act, 2007

Section 24 of the Federal Inland Revenue Service (establishment) Act, 2007

Section (8) of the FIRS Act, 2007

TABLE OF CASES

1) AG Quebec V Reed

2) Cotton V R

3) Alhaja Aberuagba and seven others V A. G. Ogun

4) 7UP Bottling Company PLC V Lagos State International Revenue Board

5) Gulf Oil Company Nigeria Ltd V FBIR

6) Bida V Commissioner of Income Tax

7) FBIR V Solanke

8) Commissioner Inland Revenue V Jackson

9) Helvering V Mitchell

10) Amota V R

11) Cotteril V Penn

12) Re DPP (Western Nigeria Associated Newspapers of Nigeria

13) R V Anglo Nigeria Tin Mines Ltd

14) H. L. Bolton (Engineering) Co Ltd V. V. T. J. Graham and Sons

15) Hochastrasser V Mayes

16) Unipetrol Nig Plc V Edo State Board of Inland Revenue

CHAPTER ONE

GENERAL INTRODUCTION

Definition of Tax and Taxation

The Black’s Law Dictionary defines tax as a charge by the government on the income of an individual, corporation, or trust as well as on the value of an estate or gifts.¹ The Chambers Dictionary defines tax as contribution to revenue exacted by the state from individuals or businesses, a burden, drain, or strain.² Tax has also been defined as compulsory contribution toward a country’s expenses raised by the government from people’s salaries, property, and from the sale of goods and services.³ Tax is equally a compulsory contribution to the support of government on persons, property, income, commodities, transactions, and services at a fixed rate mostly proportionate to the amount on which the contribution is levied.⁴ From the above definitions, tax can be said to have the following characteristics:

i. It is a compulsory imposition.

ii. It is imposed by government.

iii. It is a payment of money.

iv. It is a burden on the tax payer.

v. It is for public good.

It must be noted that there is, however, a limitation to the power of government to levy taxes (i.e., territorial limitation). Government can only—for instance in Nigeria—levy taxes on income accruing in Nigeria, derived from Nigeria, brought into Nigeria, and received in Nigeria. Apart from being a source of revenue, taxation as global phenomenon can also be used as a mechanism for achieving equitable distribution of income and wealth, ensuring economic growth, fighting inflation and deflation, allocation of resources in orderly and social manner. It can also be used to discourage the consumption of certain goods, to encourage and protect new industries within a country, and to ensure that the balance of payments in a country is in a healthy condition. The perception of individuals on tax varies because while some view it as a social justice or means of encouraging investment, others view it as tool of injustice and social disequilibrium.⁵ This is the reason why foreign investors are always curious about the character of the tax regime of the host country.

Uses of Tax and Taxation

The use of tax as a form of redistribution is employed when tax is used as a means of transferring wealth from the richer in the society to the poorer. The payment of Zakat in accordance with Islamic injunction, and the progressive form of taxation falls within this category because both are means of transferring wealth from the richer to the poorer. Zakat is the annual amount of wealth in kind and in coins paid to the cause of improving the well-being of the society by the wealthy through redistribution of wealth. The use of tax to address certain apparent or outward occurrences or behaviour such as consumption of certain goods or the behaviour of citizens in respect of smoking (for instance), which is considered dangerous to health. As a matter of fact, the Framework Convention on Tobacco Control (FCTC)—of which 168 countries including Nigeria, which became a full member on 20 October 2005, are signatories—have all agreed to impose heavy taxes on cigarette products as a way of reducing the number of smokers or to discourage smoking.⁶

The prevailing state of insecurity, economic hardship, and political situations in many jurisdictions can equally influence the imposition of taxes. For instance, in the United Kingdom, income tax was first imposed in December 1798 as a source of revenue for the payment of money for weapons and equipment in preparation for the Napoleonic War. Also in the United States, the federal income tax was adopted by Congress in 1862 to finance the Civil War. As earlier pointed out, tax can be imposed by government that has authority over the person, property, or thing. However, before the government can levy such tax, there must be specific statutory authorization.

Historically, it is only in a democratic society and representative government—which may take various forms depending on the type of government within a geographical location—that we can talk of government acting in a representative capacity for the citizens who expressly, by way of voting, give authority to the government. This implies that citizens have given the government the authority to exercise power over them. This is called the Doctrine of Social Contract. However, once the government imposes taxes, there is a corresponding power of the citizen to demand accountability from the government.

The Nigerian Constitution 1999, for instance, makes it a directive principle of state policy for the government to ensure the welfare of the people by providing for essential services to its citizens.⁷ Personal income tax is one of the major sources of government revenue in Nigeria paid into the federation account, and distributed among the tiers of government in conformity with the provisions of the constitution. Section 80 (3) of the constitution provides:

‘any amount standing to the credit of the Federation Account shall be distributed among the Federal and State Government and Local Government Councils in each State on such terms, and in such