Sustainability of the Nigeria Tax System Prof. Oyedokun.pptx

Sustainability of the Nigeria Tax System
Being a Webinar Lecture Paper Presented at the Institute of Chartered Accountants of Nigeria (ICAN) Oshogbo
& District Society on Saturday, 6th May, 2023.
Prof. Godwin Emmanuel
Oyedokun
Professor of Accounting and Financial
Development
Department of Management & Accounting
Faculty of Management and Social Sciences
Lead City University, Ibadan, Nigeria
Principal Partner; Oyedokun Godwin Emmanuel &
Co
(Chartered Accountants, Tax Practitioners &
Forensic Auditors)

ND (Fin), HND (Acct.), BSc. (Acct. Ed), BSc (Fin.), BSc. (Bus. Admin), MBA (Acct. & Fin.), MSc. (Acct.), MSc. (Bus & Econs), MSc (Tax),
MTP (SA), PhD (Acct), PhD (Fin), PhD (FA), FCA, FCTI, FCIB, ACS, ACIS, MNIM, FCNA, FCFIP, FCE, FERP, CICA, CFA, CFE,
CIPFA, CPFA, ACAMS, ABR, CertIFR, IPA, IFA, FFAR, FPD-CR, FSEAN, FNIOAM, ACIrb

Sustainability of the Nigeria
Tax System

Introduction
A tax is a mandatory levy imposed by the government on individuals, families, communities,
corporate or unincorporated organisations' income, profit, or wealth for the purpose of supporting
public expenditures
Taxation is the state's inherent power, exerted through the legislature, to impose financial burdens on
persons under its jurisdiction to raise revenue in carrying out the lawful tasks of government
Globally, governments spend huge amounts of money to provide basic utilities and other social
services to their citizenry, which are the primary responsibilities of an elected public official
A country's revenue can be generated through both an external and internal structured tax system
Sustaining the revenue collected from txes has an impact on the country's economic progress

Taxation in Nigeria
Taxation is a legitimate and sustainable source of government revenue, as well as a tool for
macroeconomic policy and fiscal management.
The tax system allows the government to collect additional income that is required to meet its
pressing commitments
A tax system is one of the most effective strategies of mobilising a country's internal resources,
and it contributes to the creation of an environment conducive to economic progress
Government may not run effectively or efficiently unless people pay the taxes that they are
required by law to pay
Nigeria has a range of alternatives for financing its public expenditures and implementing its
fiscal policies

The Tax System
A set of tax regulations, institutes,
and norms, bound in a unique
mechanism for the purposes of
achieving a certain tax policy
This system is a set of institutes and
instruments available to tax
authorities for achieving certain
fiscal, economic, social and political
goals within the economic system

The Nigerian Tax System
Tax Policy Tax Laws Tax
Administration

Specific Objectives of Tax Policy
Guide the
operation and
review of the tax
system
Provide the basis
for future tax
legislation and
administration
Serve as a point
of reference for
all stakeholders
on taxation
Provide
benchmark on
which
stakeholders
shall be held
accountable
Provide clarity on
the roles and
responsibilities
of stakeholders
in the tax system

Tax Laws
Tax Administration (Self Assessment) Regulations 2011 as amended to date
Federal Inland Revenue Service Act, 2007
Personal Income Tax Act 20004 as amended to date
Companies Income Tax Act 2004 as amended to date
Petroleum Profits Tax Act
Value Added Tax Act
Stamp Duties Act

Tax Laws
Capital Gains
Tax Act
National
Information
Technology
Development
Levy Act 28 of
2007
The
Constitution of
the Federal
Republic of
Nigeria 1999
as amended to
date
Revenue Laws
Finance Act
(2019, 2020
and 2021)
Other
Guidelines and
Circulars

Tax Administration
• Registration of Taxable Persons
• Tax Compliance
Tax authorities at all levels shall administer their mandates in
accordance to:
• Payment and Processing and Collection
• Record keeping
• Exchange of Information
• Enforcement of Tax Laws
• Funding of Tax Refunds
• Revenue Autonomy
• Technology and Tax Intelligence
• Dispute Resolution etc
Efficiency of Tax Administration

Basis of Tax Administration
Registration of Taxpaye
Assessment of Taxpayers
Returns
Tax Collection
Compliance Monitoring
Compliance Enforcement

Relevant Authorities for Tax Collection
Federal
Inland
Revenue
Service
Board
State
Internal
Revenue
Service
Board
Local
Government
Revenue
Committee
Joint State
Revenue
Committee
Joint Tax
Board

Guiding Principles of Nigeria Tax System
Equity/Fairness
Simplicity,
certainty and
clarity
Convenience
Low
compliance
cost
Low cost of
Administration
Flexibility
Sustainability

Basis of Tax Administration
Registration of
Taxpayer
Assessment of
Taxpayers
Returns Tax Collection
Compliance
Monitoring
Compliance
Enforcement

Tax Compliance
Compliance with reporting obligations involves filing all required tax returns on time and
accurately reporting tax liability in compliance with the Internal Revenue Code, regulations,
and court rulings in effect at the time the return is submitted
Individuals' readiness to comply with appropriate tax authorities by paying their taxes is
referred to as tax compliance
It can be characterised as a multifaceted metric and conceptually by evaluating three various
categories of compliance: payment compliance, filing compliance, and reporting compliance
The Organisation for Economic Cooperation and Development (OECD) classified compliance
as administrative or technical
Fiscal knowledge connects with attitudes toward taxation and a greater understanding of tax
rules could enhance tax behaviour

Determinants of Tax Compliance
Economic Factors
• Tax rates
• Tax audits
• Perceptions of
government spending
Institutional Factors
• Role of tax authority
• Simplicity of tax returns
and administration
• Likelihood of detection
Social Factors
• Ethics and attitude
• Perceptions of equity
and fairness
• Political
affiliation/changes in
government policy
• Referent groups
Individual Factors
• Personal financial
constraints
• Awareness of offenses
and penalties
• Age
• Income level
• Culture
• Education
• Gender

Tax Behaviour
Tax behaviour describes
an individual's approach
towards tax compliance
It is the level at which
taxpayers follow their
tax duties (contrary to
the degree of tax
evasion and avoidance)

Taxpayer Behaviour and Compliance
Behavioural Factors
Individual
differences
Perceived
inequity
Perception of
minimal risk
Risk-taking Equity
Opportunity
for non-
compliance
Social norms
Dissatisfaction
with revenue
authorities
Economic Factors
Financial burden The cost of compliance Disincentives Incentives

Tax Justice
Tax justice seeks to restore the taxes to
whom they are due
This occurs through mechanisms which
are legal (tax avoidance) and illegal (tax
evasion)
Tax justice are ideas, policies and
advocacy that seek to achieve equality
and social justice through fair taxes on
wealthier members of society and
multinational corporations

Tax Rate, Compliance Cost, and Tax Penalty
The financial value
of tax compliance is
determined by the
tax rate and penalty
structure, which
influences taxpayer
compliance habits
Penalising tax
evaders can make
others feel certain
that they are doing
the right thing
Taxation is widely
perceived as a
burden by
taxpayers,
particularly small
and medium-sized
businesses
Tax compliance cost
investigations can
provide important
insight into how
small firms might
reduce compliance
costs and hazards
Individual taxpayers
do not exist in this
world alone as they
must interact with
others regularly

Tax Rate, Compliance Cost, and Tax Penalty (Con’t)
High compliance costs can lead to tax evasion and fraud, as well as deter
investment by lowering the country's competitiveness in terms of taxation
attractiveness
Influence of tax rates on tax compliance is still unclear and debatable,
lowering tax rates is not the only strategy to reduce tax evasion
Increased tax rates discourage tax compliance, whereas lower tax rates do
not prevent tax evasion
Tax rates had a favourable and considerable influence on income tax
compliance

Tax Compliance, Tax Evasion, and Tax Avoidance: A Nexus?
On the surface, the distinction between tax compliance and non-compliance is evident
Tax evasion is the purposeful violation of tax law to lower tax liability
Tax avoidance refers to measures to lower tax burdens that are questionably legal
Tax compliance necessitates sufficient record keeping, timely and accurate filing of tax forms, and payment of all taxes
owed
The fundamental distinction between avoidance and evasion is the latter's illegality: Tax evasion occurs when
noncompliance is demonstrated legally to be an intentional effort to reduce tax liability
However, the distinction between the two is hazy
Tax authorities, lawyers, and taxpayers struggle to reach an agreement on many ambiguous instances

Tax Revenue, Audit, Compliance, and Remittance
The goal of tax auditing is to guarantee
that taxpayers follow tax rules and
regulations to increase the government's
income stream
Tax audits assist the government in
collecting taxes, which are critical in
financing the budget and ensuring
economic and financial order and
stability
Tax compliance is based on taxpayers'
willingness to cooperate with tax rules
and regulations without being pushed or
pressured
Taxpayer non-compliance with tax rules
and regulations is a key challenge for tax
administration in developing countries,
and it necessitates an urgent solution
due to the importance of tax revenue to
state development

Tax Revenue, Audit, Compliance, and Remittance (Con’t)
The goal of tax auditing is
to guarantee that taxpayers
follow tax rules and
regulations to increase the
government's income
stream
Tax audits assist the
government in collecting
taxes, which are critical in
financing the budget and
ensuring economic and
financial order and stability
Tax compliance is based on
taxpayers' willingness to
cooperate with tax rules
and regulations without
being pushed or pressured
Taxpayer non-compliance
with tax rules and
regulations is a key
challenge for tax
administration in
developing countries, and it
necessitates an urgent
solution due to the
importance of tax revenue
to state development

Conclusion
This revealed several measures to curb
tax evasion and strengthen tax
compliance culture in Nigeria
Tax compliance in Nigeria seems to be
low and this can be ascribed to the
combination of the Nigerian tax system,
tax behaviour and tax justice
The Nigerian tax system has failed in
various ways such as its unjust attributes,
insufficiency to cover societal needs, lack
of transparency amongst the masses and
its complexity in tax administration
Compliance level of individuals may be
influenced by incentives and perceived
values, however, the compliance level can
reduce drastically because of high
financial burden and cost of compliance
Meanwhile, the tax justice in Nigeria has
been less effective in tax matters as tax
laws are not equal to all and the
penalties that were set up for tax evaders
are not strictly implemented.

Recommendations
Government should continue to provide basic amenities to its citizens and be accountable
Tax education should be carried out frequently
Tax administrators should administer taxes within the ambit of the law
The use of technology and professionally trained employees should be encouraged
Government should put in place structures that will make it difficult to evade tax
Tax authorities should seek to be honest and be people of integrity
Tax evaders should be prosecuted, and a fair judgement should be carried out to the knowledge
of the public
Tax administrators should ensure that updated records of individuals and companies are
maintained

Prof. Godwin Emmanuel
Oyedokun
Professor of Accounting and Financial
Development
Lead City University, Ibadan, Nigeria
Principal Partner; Oyedokun Godwin
Emmanuel & Co
(Chartered Accountants, Tax Practitioners &
Forensic Auditors)

Sustainability of the Nigeria Tax System Prof. Oyedokun.pptx

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