Inequality Taxation in Nigeria
Halima Ali Abatcha
The idea of taxation involves three basic characteristics which must be properly stressed, viz it is a compulsory levy, it is imposed by an organ of government and that it is for public purposes.
Indeed, the legal ensure of tax lies in the compulsion of it to be period as required by law, and of course, the political assurance lies in the public purpose for which the payment is made.
Many Nigerians in some quarters are still in the very tight cobweb of confusion if the rationale and needs of taxation tax imposition has two major objectives and aims: the original purpose of taxation was to raise revenue to finance government expenditure. This is still the primary purpose. Nevertheless, since 1940s government has used changes in the level of taxation as an important way of influencing the activities in the economy as a whole. In sum taxation is used nowadays to achieve economic growth, to fight depression inflation and deflation, to achieve “equitable distribution of income and wealth”. To allocate resource is a socially desirable manner to discourage the consumption of certain goods to encourage and protect new industries within the country and to ensure that the balance of payment of the country is in a healthy position.
The above concept from the basic principle of taxation in any country of the world where taxes are paid.
Moreover, taxes are broadly categorized into two forms: Direct taxes and indirect taxes. Direct taxes are levied an people or corporate bodies, for example, personal income tax (PIT), company gain tax (CGT) and petroleum profit tax (PPT). the system of direct taxation had been in existence in Nigeria before the emergence of the colonial masters particularly in the North where efficient and stable administration of tax had idea put in place based on the Islamic principles and system i.e. before 1904. Thus, in the Northern Nigeria, there were various forms of taxation such as the Zakat or Jiza, which is a tax levied on Muslims for chartable, religious and educational purposes, Kud’n Kasa on agriculture, Shuka Shuka, a tax paid in all crops hot liable to Zakat, Jangali, which is a tax on cattle and livestock. These traditional tax system headed by Emirs and village heads formed the foundation on which Lord Lugard based his tax policy introduced into the Northern region in 1904.
In the western region comprising the Yoruba land and the Benin region taxes like Osakole, owe were collected by the Obas and the village heads from their subjects. Of course, there taxes were either collected in cash or in kind by contributing free service of providing communal amenities such as roads public toilets etc. Conversely, punitive penalties were imposed on tac defaulters.
It was not until 1927 after much debate and hesitation that the first income tax law was introduced into the Eastern region of Nigeria. The 1605 in their egalitarian world saw no contestable reasons why taxes should be imposed and believed that the concept of taxation was unpopular and unacceptable. This of course, sparked off tension, disorder and disturbances culminating into Aba riot of 1929 which resulted in the loss of lives and destruction of lives and destruction of properties.
Indeed, the term inequality, according to Longman dictionary of contemporary English (2000), third edition, is “an unfair situation, in which some groups in society have less money influence, or opportunity than others”. In the same vies inequality means “the unfair difference between groups of people in society, when some have more wealth, status, or opportunities than others” (Oxford Advanced Learner’s Dictionary 2001) sixth edition. With this view, it follows that the first phase of inequality taxation in Nigeria is attributable to the above. Hence, inequality with respect to taxation is the unfairness and disparity resulting from the way and manner Nigerian and inhabitants pay taxes. It is not out of place to say that inequality taxation in Nigeria is as old as the Nigerian tax system, in so far as there was a time variance between when the north, west and the eastern part began tax payment. While the northern and western regions began payment of taxes before 1904 through the already defined way of leadership of the Emirs and Obas respectively, the eastern regions which believed in family head syndrome had no such constituted leaders and resultantly legged behind for about 23 years later before taxation was planted in the area. The bottom-line is that while some Nigerians paid tax them, others never paid.
Nonetheless, the evil of inequality taxation was still unleashed on those Nigerians and resident tax payers between 1904 and 1957 when taxes were collected at various times from individuals and companies without distinctions. The basis of assessment allowable deduction and tax rates were the same. The period under review was bedeviled by slow tax law development, arbitrary imposition of taxes and multiplicity of tax liability and protests by tax payers were examples. They were actually engendered by inequality taxation.
In 1957, Sir Jeremy Raismank fiscal commission was set up and upon its recommendation, the income tax management Act (ITMA) 1961 was introduced when the ITMA came into operation on 1st April 1961 all the regional tax laws which predated it were amended by the respective regional legislations to bring their provisions in conformity with the provision of the ITMA (1961).
At this junction, it is imperative to highlight the felt that the federal government of Nigeria inequality taxation in the country source of worry. This is exemplified by the introduction of the pay-As-You-Earn system of taxation in 1956. the PAYE system per se is not a separate tax but a system whereby tax is deducted or taken away from employees wages and salaries by directed employers. The directed employers are required to handover the tax so held or deducted to the relevant tax authority. The ITMA 1961 with all it amendments were all codified in 1960 under the laws of the federation of Nigeria cap 73 of 1990. The ITMA was repeated by the personal income tax decree No. 104 1993 by its provision, state board of internal revenue (SBIRS) now assumes jurisdiction over tax matters of individuals living in their respective states and accounting for collection. It must not be forgotten that the above system (PAYE system) is only pronounced in the case of employer employee relationship. In the case of the self employed individual who deducts the tax due from lies income?
Many attempt to answer the above question that the relevant tax authority will assess the tax payer’s assessable and charge the tax liability thereon.
The claim may not be inaccurate. However what seems to be a source of worry relates to the profit or loss figured presented as profit or loss. How credible, accurate and reliable are there figure pretended for tax purposes? The resultant effect of the unreliability of foreign presented for tax purposes by many taxable individuals and cooperate bodies speak volume of the inequalities, the yawing gap between the rich and the poor and the pitiable situation of a few virtuous tax payers in the country brought about inequality taxation.
In another dimension, it would be recalled that, from the beginning, two forms of taxes had been identified. The one that has not been highlighted so far is the indirect farm of taxation. Hence, indirect taxes are taxes levied on goods and services. For example, excise duties, impart duties (terrifys) and the value added tax (VAT). The indirect tax could be SPECIFIC in which case, a fixed amount is levied on a commodity per unit. It could also be AD-VALOREM in which case the tax imposed is a percentage of the cost of the commodity. In whichever case it comes, the saga of indirect tax is that the tax sufferer is pitiably resulting from every taxable goods or taxable service he buys or enjoys. Traditionally every business concern or VA table bodies has a superior objective of profit maximization, therefore, to achieve this motive, they shift the tax burden imposed an them by the appropriate tax authorities and the mark-up elements to the consumers who by their goods or engage their services. Here also, the idea of inequality taxation sets in, in so variation in the income levels of individuals and distinct expenditure muscles, yet pay the same and equal amount of money on they goods and service when they both go for them. The poor and low income earners appear to be cheated.
Furthermore untold inequality taxation in Nigeria resulting from tax avoidance and tax evasion is seemingly endemic it is not unwise to recognize at this juncture that tax collection is a problem encountered by all nation of the world, but developing countries (which Nigeria is one) are more plagued in intensity than developed countries because of ignorance. Poverty, illiteracy, blatant refusal by some taxable person to offset their tax liabilities and inefficient collecting machinery. Many Nigerians indulge in the very woeful act of devising shady means of paying the smallest amount of tax that they legally supposed to, while others commit the crime of deliberately not paying all the taxes that they should pay. These represent tax avoidance and tax evasion respectively. Inequality taxation at its peak.
Conclusively, taxation is a form of compulsory levy imposed by government on individuals, corporate bodies, goals and services in order to finance its expenditure and create condition for the economic well being of the society. However, these sagacious and magnanimous intention of the government are bedeviled by a number of drawbacks ranging from unfairness of tax payments to tax payers, arbitrary importation of taxes, slow tax law development, inaccurate presentation of income figure for assessment, indirect taxation poverty, illiteracy, poor vehicle as a tool for tax collection etc. indeed the above shortcoming engender inequality taxation in Nigeria.
It is suggested that in addition to the PAYE system of taxation already in use by the government, a more vibrant use of progressive tax system should be in force to curb the evil and menace of inequality taxation in Nigeria as against the regressive tax system. It is the duties of the tax collectors and not tax inspectors to collect taxes due appropriately from all taxable persons or cooperate bodies, therefore, efforts should be made to fortify the machinery for tax collection with the necessary wherewithal and impetus. This will go a long way to resuming those already sunk in the abysmal ocean of inequality taxation in Nigeria and acting as a blockade to those on the esplanade.
Halima Ali Abatcha
Department of Mass Communication