AN APPROVAL OF PAY-AS YOU EARN SYSTEM OF TAXATION IN NIGERIA (A CASE STUDY OF NSUKKA LOCAL GOVERNMENT AREA)
This chapter examines the general principles and objective of taxation. It also consider the ways of regulating tax of Pay-As-You-Earn system of taxation in Nigeria .
- DEFINITION OF TAXATION
The income Tax Management Act (IMA), 1961 defines tax as “Any income tax impose by a law of a territory in conformity with the provisions of the act’’. A.k Aayel defines “tax as the transfer of resource from the private to the public sector in other to accomplish some of a nation’s economic and social goals’’.
To S.A Ratiu, taxation is the demanded made by the government of a country for a compulsory payment by the citizens of the country.
John .F due see taxation as the primary instrument for the transfer of resource’’.
Rabiu’s definition reference to money’’ and due to fund’’ do not seem to recognized that taxes were also paid in kind.
According to C.S Ola, previously, Nigeria cheerful paid their taxes in kind by rendering such services as clearing the bush, digging pit toilet, wells etc, for the benefit of the community as a whole’’. We shall therefore define taxation as the primary instrument for the transfer of resource from the resident of a territory to the government of the territory in order to achieve some of its economic and objectives.
- FUNCTION OF TAXATION
John F. due state that in a developing economic the tax system may be used to accomplish the following function.
- curtailing consumption and thus freeing resource for government service or capital formation:
- re-allocating resource from investment regard as having little benefit special effect upon economic development leg office building to those of are eater benefit of growth.
- Providing incentive to save to enter the market sector to work longer0 period and to undertake private sector capital formation’’
- Providing a flow of fund into government lands to facility the transfer of resource’
- To control monopoly :- some taxes are imposed by the government as anti-monopoly measure such taxes include undistributed profit tax etc.
- To reduce income inequalities:- taxation is used to re-distributed profit tax, excess profit tax etc.
- To improve balance of payment certain taxes may be imposed to reduce import and encourage export such that the balance of payment deflect are avoid or corrected when they arise.
- To check inflation:- to stabilize price with reasonable level of full employment and economic growth certain taxes are impose. A higher taxation that is not accompanied by increased government expenditure will decrease consumer’s purchasing power and hence check inflation.
- To protect infant industries:- the government give it a duty to protect and encourage domestic infant industries protective tariffs are imposed as a result of foreign competition. Import duties serve this purpose.
- To check the production of harmful goods – taxes may be imposed to regulate and control the production if certain commodities considered harmful to the health of either the worker or the consumer.
- To regulate the consumption of harmful good: taxes may be imposed on harmful goods is reducing their consumption.
To S.C Ola, “a relatively good tax system should be expected to achieve four general goals namely full employment, resource allocation, economic growth and income redistributed’’.
R .J chelliar says interracial that mitigating economic inequalities is an objective function of taxation which is avoid inflation, that if there are substantial used resource, unemployed men and idle equipment, in an economy, a government need not tax, it could pay for the goods and serve it wished to purchased by borrowing from the public or the banking system’’ the desire to accomplish the function enumerated above can result to conflicts.
In other world, the attainment of one function may lead to a displacement of another for instance, to maintain a tolerable level of unemployment; certain level of inflation has to be tolerated. If a country uses deflationary policies to reduce inflation, certainly the unemployment level will increase. This a relating higher level of inflation may have to be tolerated in order to achieve a relatively high level of employment.
Also Read: Taxation as an Instrument of Fiscal Policy in Nigeria
- WAYS OF REGULATING TAXATION
Income tax was introduce in Nigeria in 1914 by the late lugard. At that time communities tax became operative in northern Nigeria. Later changes brought in to focus native revenue ordinance of 1917 when was amended in 1918 to include abeokuta and city in southern Nigeria. This was further amended in 1928 to in clued eastern Nigeria. Direct taxation ordinance No.4 of 1940, cap –54, incorporate the aforementioned ordinance and replace native direct 5taxation (colony) ordinance No. 4 of 1937. Another slaw, the income tax ordinance No. 3 of 1940 was passed while the direct taxation of 1940 applied to all citizens except those in Lagos township. The income tax ordinance of it applied to expatriates and to Nigeria living in Lagos. Income tax ordinance was passed sin 1943 to repeated that of 1940 while direct taxation ordinance, 1940 was also amended in 1943. the two stat tics continue until 1962. The western region repeated by another law in 1962. the western religion repeated the direct taxation ordinance by passing the income tax law in 1957 which was amended in 1961.
The income tax management act was passed in 1961 and it’s main provision are applicable to all individual in Nigeria.
The income tax management act 1961 as amended by various finance act as the principal static’s regulating personal income taxation in Nigeria
The company’s income tax act is a federal law operated by FIRS. It deal with the taxation of all limited liability companies in Nigeria with the exception of those engage in petroleum operation.
The most signi9ficant engagement on companies in Nigeria companies tax was the companies income tax act No 28 of 1979 which replace CITA 1960. CITA 79 codifies all the companies’ income tax enactment to CITA 79. All the amendment is finance (miscellaneous taxation provision) decree namely:
Decree 98 of 1979
Decree 4 of 1985
Decree 12 of 1989
Decree 55 of 1989
Act 21 of 1991
Act 63 of 1991
All these of amendment were codified into the CITA CAP 60 law of the federation PF Nigeria (FN, it took effect retrospectively from 1st april 1977. the 7 amendment xin conjunction with the decree No 3 1993 make up the Nigerian tax law 1995 first edition prepared under the authority of FIRS [1]
Force on the 31st day of December 1993. the cap 60 has been amended to date the following finance (miscellaneous taxation provision)Enactment
(a) Act no 3 of 1993 1st January 1993
(b) Act No 30 of 1996 1st January 1993 and 1st January 1996
(c) Act No 31 of 1996 1st January 1995
(d) Act No 32 of 1996 1st January 1996
(e) Act No 18 of 1998 (a) 1/1/94 (b) 1/1/96 &1/1/97
(f) Act No 19 of 1998 1st January 1998
(g) Act No 21 of 1998 1st January 1990
(h) Act No 63 of 1993 1st January 1991
(i) Act No 39 of 1996 1st January 1993
(j) Act No 31 of 1996 1st January 1996
(k) Act No 18 of 1998 1st January 1993
(l) Act No 19 of 1998 1st January 1994
(m) Act No 21 of 1998 22nd January 1998
(o) Act No 30 of 1999 1st January 1999
As outline above, the act brought together all previous taxation enactment and ordinance in respect of company income taxation ion Nigeria.
Significant changes were made on the face of the CITA 19661 consequent upon the consolidation of the companies income tax act in 1979. Many sections of the 1961 CITA were repeated. Those repeated include certain double taxation arrangement, establishment and constitution of the scrutinizer communities etc, assignment in case of emergency, losses for scrutinizer committees lists, relief for small companies, relief for small companies, relief for civil war damage.
There were also notable changes in the arrangement of the various section. Since 1979 CITA, considerable amendment and enactment have taken place in company tax legislature suffice if to say here however, that companies income tax act as amend by the finance (miscellaneous provisions) decree 1993.
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