There has been increased drive by the federal government to generate more revenue from tax in recent years, as oil income continued to decline. Tax is a levy or charge or involuntary contribution imposed by government on people for the purposes of executing public projects or providing social amenities.
On the other hand, taxation is the entire process or system by which government generates revenue through the imposition of tax. This system usually involves tax policy, tax law and tax administration.
In Nigeria, tax is one of the ways governments at all levels fund projects and social amenities. Sections 4, 5 & 7, Parts I & II of the 2nd Schedule and 4th Schedule of the 1999 Constitution (as amended) set out the powers and jurisdiction of the 3tiers of government to impose tax.
Specifically, section 24(f) says “it shall be the duty of every citizen to declare his income honestly to appropriate and lawful agencies and pay his tax promptly.” Tax laws enacted by law making bodies include Personal Income Tax Act (PITA), Companies Income Tax Act (CITA), Value Added Tax Act (VATA), Stamp Duties Act (SDA), Tertiary Education Trust Fund (Establishment) Act (TETFUND Act), The Finance Act, amongst others.
Speaking on “Understanding the Law of Taxation for Effective Tax Management: Citizens’ Obligations and Rights” at a One-Day Capacity Building Training Programme Organised by OMNI MEDIA and the Federal Inland Revenue Service (FIRS), Dr Philip Folarin, of the Faculty of Law at the University of Lagos, explained that tax is “payment that gives you direct access to public services e.g. highway tolls, parking fees, water and electricity bills, vehicle licence fees.”
According to him, a good and effective tax system stands on a tripod of Tax Policy, Tax Laws as well as Tax Administration. He described tax policy as the underlying guidelines or directions guiding the execution of tax law and administration.
Prior to 2012, Nigeria had no written Tax Policy except for the general principles of taxation by Adam Smith viz: principles of fairness, certainty, convenience and administrative efficiency. In 2017, the policy was revised. Recommendations made by the policy include, ease of payment and collection of tax, use of electronic means, focus on informal sector, focus on indirect tax, reduction of multiplicity of taxes amongst others.
On tax administration, he explained that Sections 7 & 61 of the Federal Inland Revenue Service (Establishment) Act, 2007 empower the FIRS to administer taxes such as personal income tax (for military personnel, diplomats and non-residents), companies income tax, VAT, capital gains tax and stamp duties(where transactions involve corporate bodies, import and export tax.
Folarin noted that a good tax system must be straightforward, simple and coherent. “Provisions of tax law must be unambiguous. Therefore, any ambiguity in tax law provisions is usually resolved in favour of the tax payer.”
He noted further that tax systems must be run on the wheels of equity and fairness, with equity being horizontal and vertical. This is as he explained that horizontal equity is when people in the same circumstances should pay an equal amount of tax, while vertical equity is when those in unequal circumstances pay different amount of tax.
Folarin also stressed that tax should be imposed based on tax payer’s capacity to pay, with the cost of administering the tax by the tax authority not exceeding total revenue generated from the tax adding that the scope of tax must be clear and certain to all tax payers.
There are different classes of tax some of which include personal taxes that are imposed directly on earned income or interest of individuals such as the personal income tax. Taxes are also imposed on property owned or occupied by tax payers such as Land Use Charge under the Land Use Charge Law of Lagos State, 2015.
This law consolidated old taxes, tenement rates, land rates and neighbourhood improvement charge. Land use charge is administered by the state and question remains whether it is lawful for the state government to take over a tax belonging to the LGC.
Service/transaction taxes e.g. VAT, stamp duties, CGT, sales tax, etc Commercial/business tax: taxes imposed on annual profits of companies e.g. companies income tax, education tax, technology tax, etc. Import/export taxes : tax imposed goods imported or exported e.g. custom and excise duties, VAT (International dimension), etc.
On his part, managing partner, GBC Reanda, Chartered Accountants &Tax Practitioners, Gbenga Badejo, affirmed that a good tax system must have the features of equality and fairness. According to him, the tax burden has to be equally distributed among all the tax payers.
“Here, the tax should be imposed on tax payers based on their ability to pay. And since the rich have greater ability to pay more taxes than the poor, equality and fairness is achieved when the rich pay more taxes than the poor. A good example of a tax system that meets this principle is the progressive tax system.
“A good tax system should be made in such a way that it is convenient to collect and convenient to pay. We already know how unpleasant paying taxes can be for people, which is the reason why it is imperative that a good tax system is made as convenient as possible for the tax payers. A good example of tax system that meets this principle is income tax that is collected at source by the employer. This is what is normally referred to as PAYE (Pay As You Earn).
“Any good tax system has to be flexible in nature. By being flexible, the tax system should be able to be easily increased or reduced as the situation demands. Basically, whenever changes are required, the good tax system should be able to undergo changes easily.”
