The Structure of Taxation System in Nigeria

The Structure of Taxation System in Nigeria

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Taxation in Nigeria

The Nigeria tax system is basically structured as a tool for revenue generation. This is a legacy from the pre- independence government based on 1948 British tax laws and have been mainly static since enhancement. The need to tax personal incomes throughout the country prompted the income tax management act (ITMA) of 1961.
In Nigeria, personal income tax (PIT) for salaried employment is based on a pay as you earn (PAYE) system, several amendments have been to the 1961 ITIMA Act. For instance, in 1985 PIT was increased from N600 or 10 percent of earned income to N2000 plus 12.5 percent of income exceeding N6000. In 1989, a 15 percent withholding tax was applied to savings deposits valued at N50000 or more while tax on rental income was extended to cover charted vessels, ships or air craft. In additions, tax on the fees of directors was fixed at 15 percent, these policies were geared to achieving effective protection for local industrial, greater use of raw materials, generating increased government revenue among other (Mamud, 2008) consequently, and attention has been focused on promoting exports for manufactures and reducing the tax burned of individual and companies. In line with this change in policy focus, many measures were undertaken. These involved, among others, reviewing custom exemption and rebats introduction capital allowanced, expending the duty drawback scheme and manufacturing-in-blood scheme, abolisng excise duty. Implementation VAT, monetizing firings benefits and increased tax relief to low income earners.
Relevant Tax Regulations In Nigeria
Taxation in Nigeria is enforced by the three (3) tiers of government, i.e. federal, state, and local government with each having its sphere clearly spelt out in the levies (approved list to investors both foreign and local. The major tax laws in existence as of September 2003, and various related amendment. Before a country considers how best to administer its tax system it must possess a clear picture of the scope of its tax system. The quantity and quality of resources required by tax administrators are to a large extent determined by the type of tax system which is introduced.
               A nation’s tax goals are not achieved by designing a tax system which is fair. Any fair system which is not administered as planned becomes inequitable. Thus, a good tax system is capable  of financing the necessary level of public spending in the most efficient and equitable way possible. It should also (1) raise enough revenue to finance essential expenditures without recourses to excessive public sector borrowing, (2) raise the revenue in ways that are equitable that minimized its disincentive effects on economic activities, (3) do so in ways that do not deviate substantially from international norms. (Tanzi and Zee, 2000). The Nigerian Tax system is lopsided and dominated by oil revenue and therefore the establishment of effective and efficient tax systems faces some formidable challenges. The first of these challenges is non availability of tax statistics.
              The second is the inability to prioritize tax effort. The third is poor tax administration. The fourth is the multiplicity of taxes. The fifth is the structural problems in the economy that affects the maximization of VAT. Finally, the challenge of underground economy. It would take too much space to enumerate all the challenges so a few comments on some of them will have to suffice. The main objective of this paper is to examine these challenges affecting the proper implementation of a good tax system in Nigeria and proffer strategies for an efficient tax regime.
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