Business Guide to Understand Nigeria’s Tax System: For Students, Tax Practitioners and Consultants, Tertiary Institutions, Chartered Accountants, Lawyers and Business Promoters

By FCA Remi Oyekola

About the Book
Business Guide to Understand Nigeria’s Tax System is a comprehensive exploration of taxation in Nigeria. The text includes details about the tax system, assessment of tax, collection of tax, and the tax resolution system for both individuals and corporate entities. Each of the text’s seventeen chapters includes detailed subsections that are easy for the reader to follow. This book was written by Remi Oyekola, who has been practicing auditing, accounting, taxation, and general advisory for over thirty years.
About the Author
FCA Remi Oyekola is a chartered accountant and a forensic accountant of the Institute of Chartered Accountants of Nigeria. He graduated with both a bachelor degree and a master degree in accounting from the University of Lagos. He worked for several years at Ernst & Young in Nigeria before he resigned to set up his accounting firm in April 2002. The Firm, at present, has in its employment over thirty staff members, ten of which are qualified accountants. Remi is married to ‘Nike Ejiwumi, his wife of nearly thirty years, and they have been blessed with three children who are all post-graduate students at different American universities.

• Language: English
• Publisher: Dorrance Publishing Company
• Release date: Sep 13, 2023
• ISBN: 9798888128121

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The contents of this work, including, but not limited to, the accuracy of events, people, and places depicted; opinions expressed; permission to use previously published materials included; and any advice given or actions advocated are solely the responsibility of the author, who assumes all liability for said work and indemnifies the publisher against any claims stemming from publication of the work.

All Rights Reserved

Copyright © 2023 by FCA Remi Oyekola

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ACKNOWLEDGMENTS

I will not be doing justice if I do not mention the efforts of other individuals that contributed immensely in the writing of this book.

Firstly, I must mention the effort of Tosin  Oyeniran, one of my staff who walked up to me wanting me to mentor him, after 12 weeks of mentorship I saw a potential in him and brought him in as a staff. He exhibited great patience and high sense of responsibility to search for information and documents used by us. Mostly ideas were always coming to me about this book in the course of sleep, would  write the ideas down, following morning would hand them to him, he would find meaning out of my muddled writeup.

Lekan Okanlawon is my source of data and information most especially, the forms and other important schedules that appeared in the book, he helped in formatting, structuring, typesetting and aligning the book, he never complained.

I cannot forget the contribution of the one I fondly call Bro Kofo,  Joseph Kofoworola, who is a Partner in our Firm, Frantivic & Associates, he wrote the FOREWORD to the book. Within three weeks he read through the pages of the books and came up with an appropriate and concise FOREWORD to the book.

The encouragement from Dr. Kola Olowookere, PhD can not go unnoticed, right from our Postgraduate class in University of Lagos, Lagos, Nigeria, he has been drumming it in my ear to write books on any of our core courses, he calls me Prof, while I am not even a PhD holder. Thanks Kola, your encouragement is a stimulant.

All my lecturers on Taxation in my schooling days are appreciated for their efforts in molding me to where I am today, without their efforts, I would not have had the knowledge to write this book for others usage today.

From corporate level, mention must be made of my former Managing Partner in Ighodalo & Co, Pastor Itua Ighodalo. He was the one who opened my eyes to the practice of taxation, joined him in 1990, after becoming a Chartered Accountant, he called me one day and instructed me to call any of the staff to start the Department of Taxation distinct from other units of the firm. I called my friend, Titus Osawe, and, I have remained a tax practitioner since then.

What of Chief A.O.Lasebikan, my Partner in Ernst & Young, encyclopedia of tax practice and management? I learnt a lot from him, he understands how to bring out the best in his staff. I thought I knew taxation, not until I came to Chief AOL, who helped in making me the tax man I am today.

What of tax administrators that became my friends along my way, both in mostly all the States of the Country and Federal inland Revenue Service, it is not an exaggeration that Tax offices are my second home, and I enjoyed my working relationship with them. Tax Audit, investigation and resolution, it is a cat and mouse game and I enjoyed every bit of it.

Basil Ojukwu, we have a working relationship of nearly 30 years, he is very knowledgeable, adept at research and meticulous. T.A Kareem and Azeez Alatoye are two good friends I always reach out for anytime I need clarification on some taxation areas. None of the two have either denied me of their help.

On my home front, thanks to my wife, Ejiwumi Olanike Oyekola, though she did not enjoy my working late into the night, she raised her concerns gently  and in polite manner and pray for strength and good health for me, and sometimes sat in my front to offer her assistance.

The contributions of Omolewa Oyekola, BSc, MSc, is tremendous, being an accountant, she offers great help, made some of her notes and books available to me for references, she edited some of the chapter and offered advices from time to time.

Omoyeni, not being accountant, but always encouraging, reminding me about the book and offers prayers for the completion of the book.

To my Partners in the office, Messrs Joseph Kofoworola and Adewale Ajao, thanks so much for the understanding, cooperation, conducive environment, supports and trust.

Finally, I am just a tiny pencil in the hand of a gracious and merciful God, if not the grace of the ALMIGHTY GOD, I can do but nothing, and all glory goes to my God and Creator.

Remi Oyekola

April, 2023.

Foreword

The importance of Taxation in the economy of the whole world cannot be overemphasized. Some economies are run majorly from Taxation and this underscores the need for Taxation on international level. It is doubtful if any nation can completely remove Taxation from the means of generating revenue to fund government activities and governance in general.

Apart from the general concept of Taxation, the author has narrowed it down to Nigeria. In the first chapter, topics such as The different types of collectible taxes in Nigeria and Impediments to tax collection in Nigeria have peculiarities in Nigeria. Other nations may not have similar situation or experience.

This book also contains details of the National Tax Policy and discusses issues such as the objectives of the National Policy, the roles of the various stakeholders such as various arms of government and agencies, the judiciary as well as professional bodies, tax practitioners and consultants.  

Chapter five of the book enumerates the various types of taxes in Nigeria such as Personal Income Tax, Company Income Tax, Value Added Tax, Tertiary Education Tax, advance income tax known as ‘Withholding Tax’, Petroleum Profit Tax and some levies like the Industrial Training fund and Information technology Development Levy.

Other chapters address issues such as: Tax Administration in Nigeria, Basis of computation of the various types of Taxes, Tax-based incentives, Tax Audits and Investigations. The issue of Tax Planning, Tax Evasion, Tax avoidance and all the implications were also discussed.

The penultimate chapter addresses the role of the Rule of Law in Taxation and the Landmark Tax rulings while the very last chapter delves into the Religious perspectives to Taxation with particular reference to the Christian and Islamic Religions.

This seventeen chapter book is very comprehensive having covered all aspects of Taxation from even the colonial era to the present day Nigeria. It is a must read for all those involved in taxation and tax practices in Nigeria.

I am delighted to recommend this ‘all-round’ book for Tax students, Tax Practitioners and Consultants, Tax Administrators, Tertiary Institutions as well as The Chartered Institute of Taxation (CITN) and Institute of Chartered Accountants of Nigeria (ICAN).

JOSEPH SUNDAY KOFOWOROLA, BSc, FCA, ACTI, ACIB

CHAPTER ONE

Nothing is certain but death and taxes - Benjamin Franklin

Taxes are the price we pay for a civilized society- Olivier Wendell Holmes, Jr.

INTRODUCTION

1.1 CONCEPT OF TAX & TAXATION

The concept of tax does not carry a universally accepted definition and therefore is not possible to be exhaustively define. This is especially because definitions are developed based on the definer’s emotions, environment, background, idiosyncrasies, outlooks, inclinations, orientations, and prejudices.

The statutes and laws which border or relate to tax have not provided a legislative definition of the concept of tax. So, there is no definition of tax in all our laws relating to tax, hence, the diverse definitions from various scholars provide some common identifiers with respect to tax.

Taxes have been described in many terms: some positive, some negative, some printable, some not. Now let us go directly to series of definition of a tax for our understanding. The Oxford English Dictionary (1973) has defined tax as: A compulsory contribution to the support of government levied on persons, property, income, commodities, transactions, etc., now at a fixed rate proportionate to the amount on which the contributions is levied.

Oxford Advanced Learner’s Dictionary (2006) defined tax as: Money that you have to pay to the government so that it can pay for public services. It further concluded that people pay tax according to their income and businesses pay tax according to their profits. Tax is also often paid on goods and services

The Webster Business Dictionary defines tax as: A charge or burden, usually pecuniary, laid upon persons or property for public purposes without any direct benefit to the people or property on whom these taxes and levies were imposed.

Other attempts to describe the concept of tax in the work of Olugbenga S. Obatola, The Rudiments of Nigerian Taxation, defined the concept of tax as: A compulsory levy imposed by the government or any of the recognised authority of a state on the property, goods, services and people living in a given geographical area for the purpose of generating revenue to defray the expenses incurred by the government or authority on behalf of the people.

In another way, a tax is a payment required by a government that is unrelated to any specific benefit or service received from the government. Taxes differ from fines and penalties in that. Taxes are not intended to punish or prevent illegal behaviour. The general purpose of a tax is to fund the operations of the government by raising revenue for the use of the governments. There is a true saying that without taxes many Government of Nations will collapse. To some individuals" taxes are involuntary fees, levied on individuals or corporation and enforced by an identified government entity, it could be Local, State or Federal Government. The purpose is to finance government activities. Without tax revenues to the governments, the economic functions will collapse and the politicians will find it difficult to run the government.

The incidence of taxes falls on whoever pays the tax, whether the individuals, the entity being taxed, such as business or the end consumers of the business’s goods or services. Taxes are raised or imposed to help fund the public works or services, build and maintain the infrastructures at the Local, State or Federal government. The taxes collected are used for the good of the economy.  Taxes are charged from the incomes received by taxpayers, e.g. salaries, rent collected, capital gains, profits from. Trade and business etc. Taxes are also imposed on gains on investment, dividend received from companies and payments made for goods and services. The only exceptions are those statutorily exempted from tax payments or taxpayers that apply for tax exemption from the Ministry of Finance trough the Federal in land Revenue Service.

The important words to note in the description of taxes are: involuntary fees, enforced by the government and collected for the good of individuals and of the country. Taxes are so compulsory and certain of imposition that made it to be stated that taxes are as certain as death How certainty is left to government from government.

Taxation does not require consent, not directly tied to any services rendered. It is also not for goods or services purchased by individuals, or corporate bodies from the government. Taxes is an act of the Parliament.

Taxation may not be the most important source of revenue to the government in terms of magnitude of generated revenue, but it can rule out that it is the most secured, less expensive, certain and consistent source to the government. Owing to the inherent power of the government to impose taxes, the government is assured at all times of its tax revenue, no matter the circumstances.

Let us just imagine for a moment, a situation where the government cannot assess tax revenue, how will it run the government? There will be chaos, unrest and this may lead to the collapse of such government and the governmental system. Taxation is very important and a key factor in the smooth running of the Public government.

For a government charge to be considered a tax, there are some common traits observable in all taxes:

a. Compulsoriness of the levy as is established in Section 24 of the 1999 constitution of the Federal Republic of Nigeria which vests all citizens of Nigeria with the obligation to declare his income honestly, to appropriate and lawful agencies and pay his tax promptly. To further ensure that this law is obeyed, tax offenders face sanctions in form of interest, penalties or even imprisonment. Tax should however not be confused with other forms of compulsory contributions which appear to be similar to it (an instance being a charge for a government service). Tax is a compulsory charge i.e. not a voluntary contribution.

b. It is imposed by legislation (government) on people, incomes, properties and transactions. Whatsoever it is imposed on constitutes the bases of the taxation.

c. These tax bases must be in a known geographical area.

d. The major purpose of taxation is the generation of revenue for the treasury of the government to enable it to perform its functions and for the development of the country.

e. Taxes are to be based on and backed by enabling legislations particularly, the constitution, laws of states, tax related laws, levies, rates etc.

f. Tax is not tied directly to the benefit received by the taxpayer from the government. It is compulsorily required to run the government.

Other essential ingredients of taxes include:

• It must be equitable and fair to all tax payers. In other words, the higher you earn, the higher you pay and vice versa. Otherwise called Pay As You Earn (PAYE).

• It must be simple for the tax payers and easy to pay.

• It must be cost effective and certain.

• The administrative costs should not be higher than the revenue yielded i.e. it must be economical and neutral.

• The tax charged on the tax payer must be determinable by the tax payer.

For easy comprehension therefore, tax can be defined as: An exaction imposed on citizens, non-citizens, companies, goods, incomes, transactions etc., by the government of a country or state; made compulsory especially through enabling laws; for the purposes of executing the functions of the government in a country or state. Critically, the legitimacy of the tax is found in its creation by legislation.

1.2 ROLE OF TAXATION IN THE NATIONAL ECONOMY

Nigerian tax system is expected to contribute to the well-being of all the citizens, and taxes collected by Government, should positively impact on the growth and development of citizens. This can be accomplished through proper and judicious utilization of the revenues gathered by government. The following are some of the benefits of taxation in the Nigerian society.

i. It provides a major source of revenue to the Nigerian government. It is one source of revenue usually adopted in both the federal and the state budgets.

ii. Taxes have been adopted by the government as a means of enforcing government policies either geared towards encouraging and discouraging certain activities of companies in the private sector. Most times, locally producing industries are encouraged and may enjoy tax holidays wherein dividends from such companies are not taxed.

iii. Taxes have been known to reduce the net return on investments and decrease the balance available for private savings.

iv. Through taxes, benefits like water supply, electricity, and land allocation are being enjoyed by people who engage in various types and forms of businesses.

v. With regards to the social structure of the country, income taxes have encouraged the provision of means of various reliefs especially to the people. These reliefs include; reliefs in the aspects of children and tuition like scholarships and grants, relief on insurance policy premiums e.g. gratuities of a dead civil servant, personal reliefs like aids and assistance, reliefs from or of dependent relatives.

vi. Income tax has also been observed to affect the population of states within the country. States with low income rate have been observed to have more people moving into such states while traders have been observed to leave states with high income tax rates or states engaged in various schemes of tax avoidance and tax evasion.

vii. Taxes contribute significantly in the redistribution of wealth in the society. This is in a bid to bridge the gap between the rich and poor.

viii. Taxes are necessary in a society as they facilitate the provision of social amenities like good roads, modern good health facilities.

ix. Taxes facilitate the payment of public and civil servants salaries, wages and other emoluments.

x. Taxes provide an avenue for citizens to fulfil their own part of the social contract as it enables citizens to contribute to the growth and development of the country’s economy.

xi. It is used to reduce the purchase, and ultimately the utilisation and/or consumption of certain harmful goods.

xii. When used wisely, taxes can be used to protect infant industries.

xiii. It is also used to reduce the importation of some goods (not necessarily harmful) but with the aim of protecting the products produced within the country.

xiv. Conversely, taxes are also used to encourage the exportation of goods.

xv. It has also proven to provide an avenue to attract investors to Nigeria especially to invest in the green acres i.e. places without social amenities through tax incentives.

Other Roles of Taxation

The role of taxes should also be extended to other important reasons than economic or finance as listed above, such as:

1. Taxation can help investors or entrepreneurs to decide on what type of business organisation to form, either as venture, or limited liability company.

2. It will also assist in determining whether the business should be sited in rural area or urban. There are some tax benefits if companies ate set up in rural areas where the roads are non-existence, no water or electricity.

3. It can also help in deciding how the net profit of the business will be distributed, either as dividend or recapitalised as script shares.

4. It also helps in deciding whether the equipment or office, factory etc. will be rented or owned. If rented, the rent paid will be 100% charged on the income of the business, but if owned capital allowances would be granted.

5. Taxes also help in the mix of company’s capitalisation, either as both debt and equity, debt alone, or fully equity capital. Each of these have tax implications.

6. It also helps in business structure and how the businesses could be acquired or merged.

7. Taxes can also help in determining how the business owners compensate their employees.

1.3 ATTRIBUTES OF A GOOD TAX SYSTEM

The tax system usually involves a tripartite aspect, namely the policy, the tax laws, and the tax administration.

A good tax system will have the following attributes:

(a) Certainty

Tax certainty refers to the creation and maintenance of stable regulatory and policy frameworks for tax administration, taxpayers and tax compliance. It is important that the taxpayer knows the exact amount he/she is expected to pay, the basis of the taxation and the rate of tax applicable and the relevant tax authority to pay to. Such information should be adequately accurate and clearly stated in the information circulars, tax law by the tax regulators and administrators

Under this certainty, tax law and regulations must be easily understood by the general taxpayers. They must be as simple as possible, must not be ambiguous and must be certain to the taxpayers and to tax administrators. If the tax law and regulations are clear, it would reduce considerably, the likelihood of errors and misunderstanding.

(b) Economy in Collection Cost

The cost of collecting taxes should be relatively lower than the amount of tax collected. Both the compliance and administrative cost must be kept lower than the revenue raised to avoid any resentment from the taxpayers especially those of them with smaller income.

(c) Convenience

The method and timing of tax payment must be convenient to the taxpayers. It must be easy to locate the taxpayers. Tax collection should be made payable when the taxpayers have capacity to pay; for example, PAYE should be made collectible monthly, immediately after salaries payment, while the most convenient time for farmers is during harvest time. Daily payment is appropriate for peasant, bus drivers and market women in Nigeria. In this principle, payment of taxes should cause taxpayers as little inconvenience as possible. There should be ample cars park, locational advantage and the tax offices should not be far from businesses concentration. One of the ways the government can do this is by allowing the payment of large tax liabilities in instalments and set generous time limits for completing tax returns, allowing mutual agreement on when to carry out tax audits or tax investigations.

(d) Equity

Taxes should be seen to be fair to gain acceptability of the taxpayers. It is important that attention be paid to vertical equity and horizontal equity. Vertical equity involves a system whereby the rich pay higher than the poor whilst horizontal equity is a situation which requires equal treatment to people in similar situations. Each taxpayer should contribute to the support of government as nearly as possible in proportion to taxpayer’s ability to pay.

(e) Flexibility

The tax system must be flexible for it to serve as a veritable fiscal tool. The rate of tax should be capable of being altered without much difficulty.

(f) Stability/Continuity

Tax law should be seldom changed. Frequent or yearly changes to tax law can result in reduced compliance. It will also increase the cost of tax management, this is because these new changes have to be made known and cleared to taxpayers and tax administrators which cost money in terms of training, sensitization, and production of flyers. When changes are made in the tax law, they should be done in the context of a general and systematic tax reform.

(g) Neutrality

A good tax system should not distort the economic choices in any form as to cause excess tax burden. Taxes should be neutral and should not be made to impinge adversely on economic activity.

(h) Economy Principle

The principle of economy emphasises that the cost of assessing and collection of taxes should be reasonable in relation to the revenue collected. This means that for taxers collected to be economical, the cost should be far lower than the revenue from. Taxes. The cost of managing taxers such as assessing, collection, monitoring and controlling taxes should be kept to the lowest level consistent with other goals of taxation. Equity and economic rationality should not be sacrificed for the sake of cost consideration. The cost to be minimised include not only government expenses but also those of the taxpayers and in addition, agent such as employers who collect payroll taxes through the withholding procedure.

1.4 WHAT WILL BE TAXED?

There are various ways in which taxes can be classified depending on the perspective at which one is looking at taxes. One can classify taxes from the perspective of the tax subject, the tax base or the distribution of the tax burden. We’ll look at these in further detail:

1.4.1 Perspective of Tax Subject – Direct and Indirect Taxes

a) Direct Tax

This type of tax is levied directly on the taxpayer’s income. Examples include Companies Income Tax, Pay-As-You-Earn (PAYE), Capital Gains Tax, etc.

b) Indirect Tax

This is levied on goods and services. It could be specific; in which case, a fixed amount is imposed on a commodity per unit or, it could be ad-valorem if the tax levied is a certain percentage of the cost of the commodity. Examples of indirect taxes include Import and Export Duties, Excise Duties, Value Added Tax.

The following is the merit and demerits of Direct tax and Indirect tax system.

Merits of Direct Tax: These include:

(i) It has lower cost of collection;

(ii) It is more equitable as the tax payer with higher income bears a greater burden; and

(iii) It is easier to ascertain tax incidence.

Demerits of Direct Taxes: These include:

(i) It may discourage hard work;

(ii) It can give room for tax evasion especially if the tax rates are high; and

(iii) It may cause social unrest especially if the tax rates are very high since the tax payers bear the whole burden.

Merits of Indirect tax: These include but not limited to:

(i) It is a good source of revenue to government;

(ii) It can be adjusted easily;

(iii) It is a veritable fiscal tool to check pattern of consumption of undesirable goods;

(iv) It can be used to protect infant industries; and

(v) It is more difficult to evade.

Demerits of Indirect Tax: These include but not limited to:

(i) The cost of collection may be higher;

(ii) Where there is collusion between tax officials and taxpayers to evade tax, there could be loss of revenue; and

(iii) May discourage investment in local industries especially in the case of high export duties or excise duties.

1.4.2 Perspective of Tax Base

Tax can also be classified according to what is being taxed. In Nigeria, the following bases are in use:

(a) Capital;

(b) Income; and

(c) Consumption.

Examples of taxes classified on basis of income are Personal Income Tax and Companies Income Tax. For capital, it is Capital Gains Tax. The examples of the case of consumption are Value Added Tax and Excise Duties.

1.4.3 Perspective of Distribution of Tax Burden

The following can be identified:

(a) The Proportional Tax

The taxpayer, in this case, pays the same percentage of income as tax. Examples are Capital Gains Tax and Companies Income Tax. A practical to view proportional tax is this: At a flat rate of 20%, a taxpayer with total assessable income of N100,000 will pay tax of N20,000, while a taxpayer with income of N1,000,000 pays tax of N200,000.

(b) Progressive Tax

In this case, the more the taxpayer earns, the more he pays. i.e the tax is graduated as it applies higher rates of tax as income increases. Example is the Personal Income Tax (PAYE).

The objective of this type of tax is to redistribute income from the well to do, to the less privileged.

The progressive tax concept can be explained using the current personal income tax table as follows:

Taxable Income (Naira) Tax Rate

(%)

First 300,000 7

Next 300,000 11

Next 500,000 15

Next 500,000 19

Over 1,600,000 21

Above 3,200,000 24

(c) Regressive Tax

Here, the taxpayer with smaller income pays a greater percentage of the income as tax compared with a person with higher income. All flat rates are regressive. Example is Value Added Tax (VAT).

1.5 BASIC CONCEPTS IN TAXATION

There are some basic concepts in taxation which will assist the reader in having better understanding of taxation. Some of these concepts are discussed below:

(a) Tax Base

This is a measure upon which the assessment or determination of tax liability is based. It is that portion of a taxpayer’s income or property which is expected to suffer tax.

(b) Tax Rate

It describes the burden ratio (usually expressed as a percentage) at which a business or person is taxed. For example, the Valued Added Tax rate is 7.5% on vatable goods and services.

(c) Tax Incidence

It is an economic term for the division of a tax burden between buyers and sellers. It does reveal the person that will pay the tax liability. For instance, if the government decided to impose an increased tax rate on cigarettes, the producers may increase the sale price by the full amount of the tax. If the consumers still purchased cigarettes on the same amount after the price increase, it will be said that the tax incidence fell entirely on the buyers.

(d) Tax Burden

This is the amount of income, property or consumption tax levied on an individual or business. Tax burdens vary depending on a number of factors including income level, jurisdiction, and current tax rates. Income tax burdens are typically satisfied by deductions from an individual’s pay slip each time he or she is paid.

(e) Tax Impact

This is the effect of a tax on the production or consumption of the product being taxed. For example, the tax impact of raising the levy on tobacco might be a reduction in tobacco sales.

(f) Tax Shift

This is also referred to as tax swap. It is a change in taxation that eliminates or reduces one or several taxes and establishes or increases others while keeping the overall revenue the same.

(g) Tax Effect

This is a general term that describes the consequences of a specific tax scenario with respect to a particular tax-paying entity.

1.6 SOURCES OF TAX RULES IN NIGERIA

The tax system in Nigeria is administered through statutes rather than common law. The sources of Nigerian tax laws are:

(i) Customary Laws

These are the Native Laws and Customs, governing the taxation of incomes, goods and properties of persons or communities within an ethnic group. Included under this heading, is the Islamic law which is the basis of Moslem laws that are usually applicable in the Northern part of Nigeria.

Examples of taxes collected under the customary Laws are:

i. Ishakole: Payable in Yoruba Land, to titular heads of communities or Obas on the produce from farm land.

ii. Osusu- Nkwu: Applicable in the Eastern part of Nigeria.

iii. Zakkat: Tax payable by adherents of the Islamic faith, on their wealth, which has been in their possession for a full year. Such wealth includes money, properties, etc. The Islamic Law provides the basis for determining the amount of tax payable and to whom payable.

Details of these customary laws are discussed in chapter two.

(ii) Statute Laws

These are tax legislations passed by Acts of the National and State Assemblies and bye-laws by Local Government authorities in a democratic government or Decrees or Edicts under a military Government. These legislations confer necessary powers on the taxing authorities to impose taxes on the citizens, that is, individuals, companies, trusts, settlements, etc.

Examples of such tax legislations are: The Personal Income Tax (Amendment) Act 2011, The Companies Income Tax Act CAP C21 LFN 2004 (as amended), Case Laws etc.

This is the doctrine of Stare decisis, that is, judicial precedents. Under this doctrine, judgements pronounced by superior courts of records, namely: High Courts, Appeal Courts, and the Supreme Court, on principles of tax laws and their interpretations of the provisions of tax statutes, are binding on the lower courts.

In view of the fact that Nigerian tax laws had their origin from the English tax laws, it would not be out of place to state, that the principles of English common law pronounced upon by the Judges in England and interpreted by them, also form another source of Nigerian tax laws. This position is buttressed by the decision in the case of Aderawos Timbers Trading Co.Ltd V Federal Inland Revenue Service Board (1966) Ll.R 195, (1969) All Nlr 247.

In this case, it was held that the decisions of English Courts can be invoked for the purpose of interpreting Nigerian tax statutes where the expression and terms used are similar and substantially the same as those used in English Statutes.

(iii) Circulars issued by and practices of the Inland Revenue.

(v) Opinions of tax experts and authors insofar as the courts take judicial notice of them.

(vi) Budget and pronouncement of relevant ministries.

(vii) The Constitution of the Federal Republic.

1.7 DIFFERENT TYPES OF COLLECTIBLE TAXES IN NIGERIA

There are so many classifications of taxes from which government collect its revenues, some of these are:

1. Income Tax

As the word indicates, it is tax on income earned by individuals and corporate bodies, such as: salaries, wages, rent, dividend, profit and gains etc. The burden or incident of the tax payment is on the taxpayer, be it individuals or corporate bodies.

2. Corporate Taxes

This are taxes charged on corporate profit after all expenses have been deducted and other allowable deductions have been granted. The Profit before tax of the companies are adjusted before tax at the specified tax rate is imposed.

3. Sales Taxes, these are levied on certain goods and services.

4. Property Tax, these are taxes levied on value of land and property, e.g. Land Use Charge as applicable in Lagos State, Nigeria.

5. Tariffs are taxes levied om imported goods imposed to protect the local products from international competitive prices.

1.8 IMPEDIMENTS TO TAX COLLECTION IN NIGERIA

In general, paying taxes does not come naturally to anyone. Nigerians dodge tax payment with all schemes the y can think out. In some of the villages, the adult young men will run out of their houses to their various farms in the early morning and would not return until late in the evening, when they believed the government officials would have closed for the day, all in an attempt to dodge tax payments.

If tax payment is voluntary, no one will pay tax, including the President and governors. Tax is considered as unwelcome burden and to be avoided. Some few individuals do pay taxes, but a lot try to avoid it, especially in developing country like Nigeria where little or nothing to show for tax payments and where tax is not been accounted for.

There is no well-defined optimum taxation level, but it is normal to assume that income from taxes should at least finance country’s needs in infrastructures, social services, and provision of public goods. The reality is that the low level of collection in addition to tax leakages the more the economic development is in jeopardy.

In some developing countries, many citizens are reluctant to pay taxes because taxes are seen as unfair, burdensome, non-transparency, and there is no value for taxes paid and collected by the government. The economic connection between the government and citizens is so wide that citizens feel government officials are living big on their money.

Some of the reasons taxes are not easily embraced in developing Nations are:

1. Difficulty in catching tax evaders and inability to apply stringent punishment. According to Lord Dewar Nothing hurts more than having to pay income tax Most people do not see taxation from positive and beneficial stand.

2. The leakages in taxation system: The government officials waste or steal tax revenue. They took bribes to evade tax payments or reduce tax assessments.

3. Poor and non- provision of infrastructure discouraged citizens from tax payments

4. In some cases, taxes are too high or unaffordable relative to taxpayers" income and citizens may not mind the consequences of disobedience. We have cases where companies relocated due to high incidence of taxes.

5. Corrupt enforcing agents of government.

6. Long duration of tax resolutions by the Revenue officials, which may lead to missing files and relocation of the tax case file officials.

To improve and encourage tax payment by citizens, the government must ensure that taxation system must be perceived as fair, taxes must be affordable, tax operators must be transparent and above board in collections and accountability, and the government must deploy tax funds to improve the welfare of its citizens by the provision of infrastructures, social services and public goods.

1.9 WHY SHOULD WE PAY TAX?

Paying taxes is generally considered as painful, hurting, drains out money from pockets without direct corresponding benefits, and what cheer can an individual find in writing a cheque to someone he doesn’t know, for a purpose he cannot specifically define, and for use by a lot of people whom many taxpayers accuse of incompetence and corrupt?

Rather than being extreme, there are purposes for the pains that taxes cause people. Citizens should have personal satisfaction for helping finance government. Though, we pay taxes for orderly society, but if we all have option not to pay taxes, revenue to government will dry up and the whole system would break down into chaos

Judging from the above, some of the justification for taxes are:

1. Taxes provide us the free society we all cherish. Government is an orderly society which manages public goods and there is no way a free society can function without government administering such a society. Public goods are infrastructures requirements but could not be produced by the individual in a given society. Such as good roads, communication. Systems, electricity, Armed forces for security purposes, etc.

2. We need judges, law courts for conflict resolutions, the judges, registrars of courts, court clerks must be paid for their services. Governments are responsible for these payments and revenues must be accrued to government to meet these expenses.

3. We need relaxation parks, bridges, airports, seaports, individual cannot on its own finance these, government must provide all these for the use of the citizens.

4. We want soldiers to defend our country, they required equipment and ammunitions, there is no one that can personally see to these other than the government.

5. What of education of children, equipping the schools etc. Does it make sense to build schools, recruit teachers, equip the school just only for the training of a family’s children? These would be too much for an individual, it is better left for the government.

In summary, paying taxes is the only way to have public goods and services that benefit all of us. Government is therefore to design devices to help the society pool their means together and share the burdens through collective payment of taxes by the citizens of that society.

CHAPTER TWO

People without the knowledge of their history, origin and culture is like a tree without roots – Marcus Garvey

HISTORY OF TAXATION IN NIGERIA

2.1 GENERAL HISTORICAL OVERVIEW OF THE ORIGIN OF TAXATION

Taxes are as old as the history of organised human society. The first record of organized taxation comes from Egypt around 3000 B.C. during the reign of Pharaohs and is mentioned in numerous historical sources including the Bible. Chapter 47, verse 33 of the Book of Genesis describes the tax collection practices of the Egyptian kingdom, explaining that the Pharaoh would send commissioners (scribes) to take one- fifth of all grain harvests as a tax.¹

In the ancient Greek city of Athens, taxes were especially important in times of war. The tax imposed during times of war was known as eisphora and no one was exempted from this tax. After the war, when additional resources were gained, the eisphora tax was refunded to the taxpayers. Aside this tax, the Athenians imposed a monthly poll tax called metoikion on foreigners.

In ancient Rome, the earliest taxes were called portoria. These were custom duties on imports and exports. During the reign of Caesar Augustus, several tax reforms were carried out by the Roman government. These included replacing the publicani (tax collectors) with city councils as tax collectors, imposing a 5% inheritance tax to provide retirement funds for the military and a 1% sales tax on every item except sale of slaves which attracted a 4% tax rate. Tax practice continued to develop as Greek civilization overtook much of Europe, North Africa and the Middle East in the centuries leading up to the Common Era.²

From the Roman age and through medieval European history, new taxes on inheritance, property and consumer goods were levied, and often played a role in war, either by funding them or provoking them. Other cradles of civilization, such as ancient China, also levied taxes under the authority of a strong centralized government. The Chinese T’ang and Song Dynasties employed a methodical census record to track their populace and impose the proper taxes on them. These funds and materials were then used to support armies and construct canals for transportation and irrigation, among other projects. The Mongol Empire that took control of much of Asia around 1200 instituted tax policy designed to influence large-scale production of certain goods like cotton.³

In England, the first known tax assessment was during the Roman occupation which began in the year 43 AD with the invasion of Britain by the Roman Emperor, Claudius I and ended about 410 AD. After the collapse of the Roman Empire, the Saxon Kings imposed various types of taxes such as danegeld (land tax), scutage (a tax paid in lieu of serving in the army) carucate (another land tax that replaced danegeld and was collected only on ploughed land).⁴ Most of these taxes were either replaced or modified following the Norman conquest of England in 1066. The first law on income tax was passed by the English Parliament in 1404 and the first deduction of income tax at source was done in 1512.

Various pre-colonial Nigerian empires practiced various forms of taxation. In the northern territories, these included the zakat which was charitable tax levied on Muslims for religious and educational purposes, the kurdin kasa which was an agricultural tax and the jangali which was a cattle tax levied on livestock. In the Yoruba states of southwestern Nigeria, pre-colonial taxes included the owo-onibode, a border fee similar to customs duty that was imposed on cross border trade; the tribute tax and capitation tax that were administered by the Bales (ward heads) on behalf of the Obas, just to mention a few.

The Benin Kingdom also had an advance system of taxation which the British found upon their arrival at the close of the 19th century. In 1897, for example, the British Consul-General at Calabar directed the Political Resident in Benin to the effect that in assessing the people for tax purposes, the Resident should take into consideration the basis of assessment which the Edo people were formerly called upon to pay to the Oba of Benin and ensure that the assessment by the Resident was carried out with more fairness.

Following the expansion of the British Empire and the establishment of colonies abroad, Britain either introduced taxation into her colonies or modified the existing systems to suit British imperial interests. In the American colonies for example, colonists were paying taxes under the Molasses Act which was amended as the Sugar Act in 1764 to include import duties on sugar, wine, and other commodities. These were subsequently followed by the short-lived Stamp Act 1765 which was the first case of direct taxation of the American colonies.⁵

In the case of Nigeria, the British introduced direct taxes first in the north in 1906, in the west in 1918 and the east in 1927. The introduction of taxation in eastern Nigeria sparked off rebellions reminiscent of the Stamp Act rebellion in the American colonies, prompting the colonial government to set up a number of Commissions to look into the revolts.

2.2 HISTORICAL PERSPECTIVE OF TAXATION IN NIGERIA

The history of taxation in Nigeria will be discussed in more details through the major phases of Nigeria history i.e., pre-colonial, colonial, and post-colonial era.

2.2.1 Pre-Colonial Era

THE YORUBA KINGDOMS

Ile – Ife

It is generally considered among the Yoruba people that Ile–Ife was the centre from which the whole world was created. Ife is also known as the centre of cultural and religious life. There are about two different migratory theories of the creation of Ife. A version tells of a period when the whole earth was covered with water and God sent his messengers to go and create farmland out of the liquid mass. According to this tradition, the party consisted of the leader, Obatala and sixteen Oye (mortals). They were given five pieces of iron and a lump of earth tied in a white piece of cloth. Somewhere on the way, Obatala got drunk with palm wine and Oduduwa seized the paraphernalia of authority from him and eventually led the delegation. The site on which these messengers landed is traditionally identified as the Oke Oramfe, in Ife. From this episode the town probably took its name Ile-Ife (the land of spreading).⁶

As the father-kingdom and national headquarters of the Yoruba, Ile-Ife enjoyed a unique constitutional and historical status. It was surrounded by other Yoruba kingdoms that acknowledged its fatherhood and as a result, Ife had no fear of attacks from any quarters. Ife, therefore, did not possess an army and the Orisa of Ife were not known to be great military leaders. Instead Ile-Ife took its duties as ‘ritual father’ kingdom very seriously. An elaborate chieftaincy system was developed to look after all the known national gods, create and worship more of such gods and bury the remains of the kings brought back from their distant domains. Another notable development in Ife was art. Various objects were made in wood, stone, and bronze. The bronze figures were made through the melted wax process which was a technological advancement of the highest kind.⁷

The demand of the Islamic world for forest products and the resultant pull of trade towards the north were especially felt in the geographical belt between the Lower Niger and Dahomey.

Ife, situated in the centre of this belt obviously took advantage of the trade and generated revenue through trade tolls and levies. Later there was an important trade route which crossed the Niger River and led northwards to the cities of the Hausa states.⁸ In addition to trade tolls, Ife exported its artistic achievements and Benin became the most famous of those who learnt this artistic skill. Furthermore, Ife developed a system of annual levies, special contribution at specific festivals, fees, presents and bribes all collected through the heads of families. These sources provided revenues to the kings and chiefs relied on tributes, tolls, and arbitrary levies for their revenues⁹.

Ibadan

Until the late 1950s, Ibadan was the most populous city in Nigeria.

Ibadan was created in 1829 as a war camp for warriors coming from Oyo, Ife and Ijebu. A forest site and several ranges of hills, varying in elevation from 160 to 275 metres, offered strategic defence opportunities. Moreover, its location at the fringe of the forest promoted its emergence as a marketing centre for traders and goods from both the forest and grassland areas. Ibadan thus began as a military state and remained so until the last decade of the 19th century. The city-state also succeeded in building a large empire from the 1860s to the 1890s and extended over much of northern and eastern Yorubaland. It was appropriately nicknamed idi Ibon, butt of a gun, because of its unique military character. The warriors constituted the rulers of the city and the most important economic group.¹⁰

Awe B.A(1964), describes Ibadan a Republic of warriors as Ibadan town was founded as a war camp in the 19th century¹¹

Akinyele also opined in his book, Outline of Ibadan History, that in Ibadan, the leading enterprise was warfare; very few people were farmers, and the few were despised. Traders were few.¹²

Ibadan military prowess is