PERSONAL INCOME TAX IN NIGERIA

A LONG ESSAY SUBMITTED TO THE FACULTY OF LAW OBAFEMI AWOLOWO UNIVERSITY ILE-IFE

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF A BACHELOR OF LAW (LL.B) DEGREE

BY OSHO OLUMIDE TEMIDAYO LAW/2005/224

OCTOBER 2010

CERTIFICATION
This is to certify that this long essay written by Osho Olumide Temidayo LAW/2005/224 under my supervision.

__________________ DATE

____________________ Mr. O.A. ORIFOWOMO

DEDICATION
I dedicate this project to God Almighty who has always been everything to me. He has and will always be my God.

ACKNOWLEDGEMENT
I would first and foremost like to appreciate my parents Mr. and Mrs. C. O. Osho for their love, care, devotion, goodwill, support, encouragement, guidance, and for always being there for me. I wouldnt have wished for any other parents than you. Also, thanks for my brilliant brain; it is the most important thing I inherited from your genes. I would also like to appreciate my sisters and brother, Osho Olabc and Temitope and Ayodeji; my ever present helps (whenever I need any and every thing). Thank you for the corrections, the advice, encouragement and support. And Yes! I know now what I want to do with my life. To my baby sister Temiloluwa, I hope youd be better than I can ever get to be (mind you, Ill be exceedingly great so you have a lot of work to do). Now Id like to appreciate my supervisor, Mr. O. A. Orifowomo. Though you may not know it, we your students think you are the best not just in marking and lecturing but also in character. I am really grateful to have been thought by you and it is an overwhelming bonus to have been supervised by you. I guess God, fate and luck is on my side. Thank you for your patience and understanding while supervising me. Next, Id like to appreciate my all friends and mates; Kuye Sadiq, Mogbeyi Eyituoyo, Aderogba Quadri, Opkala Osita, Sanusi Adetunji, Asere Tomisin, Awolade Oluwaseun, Sodeinde Damola, Tunde, Odekunle Temilorun, Ekunkan

Olayinka, Popoola Kehinde, Talabi Fisayo, Owolabi Adeolu, Akinfenwa Bolanle, Yesin Elizabeth, Nene, Nwokocha Charity, Mimiko Kayode, Leke-Oyedemi Adesola, Isiaka Hammed Adigun (Kunle), Ogunromo Fuminiyi, Emmanuel Iduma, Adodo Destiny, Olumide Abiodun, and Akinshe Olayinka. I am privileged to have met you and to have made your acquaintance. Finally, I am very grateful to God Almighty for having seen me through all good and bad times. I am indeed grateful and thankful, for the past the present and the future (which seems would be astonishing and filled with overwhelming success).

TABLE OF CONTENT
Title Page Certification Dedication Acknowledgement Table of Content Table of Cases Abstract CHAPTER ONE: GENERAL INTRODUCTION 1.1 1.2 1.3 1.4 Introduction Definition of Tax Classification of Tax Historical Outline of Nigerian Tax System 1 2 3 7 i ii iii iv vi ix x

CHAPTER TWO: BASIS OF PERSONAL INCOME TAXATION IN NIGERIA 2.1 2.2 2.3 Income as a Tax Base Definition of Income Distinction between Income and Capital 14 15 17

2.4 2.5

Definition of Employment Taxable Persons

19 20

CHAPTER THREE: TAXING POWERS IN NIGERIA 3.1 3.2 3.3 Distribution of Taxing Powers in Nigeria History of Distribution of Taxing Powers Current Position of Taxing Powers 23 25 31

CHAPTER FOUR: PERSONAL INCOME TAX IN NIGERIA 4.1 4.2 4.3 4.4 4.5 4.6 4.7 Personal Income Tax in Nigeria The Legal Basis of Personal Income Tax Income Taxation Determination of Residence Chargeable Income Employment Taxation Deduction, Reliefs and Exemptions 42 45 46 48 56 56 58

CHAPTER FIVE: PROBLEMS OF PERSONAL INCOME TAX IN NIGERIA 5.1 5.2 Problems of Personal Income Taxation in Nigeria Tax Collection 68 69
7

5.3 5.4

Tax Evasion and Tax Avoidance Double Taxation

72 86

CHAPTER SIX: SUMMARY, CONCLUSION AND RECOMMENDATIONS 6.1 6.2 6.3 Summary Conclusion Recommendations 91 94 96

Bibliography

105

TABLE OF CASES
Coltaness Iron Co. v. Black (1881) 9 TC 287 London County Council v. Attorney General (1901) AC 26 Matthews v. Chicory Marketing Board (1939) 60 C.L.R. 263 at p. 276 Strick v Regent Oil Co. Ltd (1965) 3 W.L.R at p. 1571 Western Railway Co. v Baker (1922) 8 TC 231 at p.235 16

16 2 17 20

ABSTRACT
It has long been evident that personal income tax in Nigeria has remained the most unsatisfactory, disappointing and problematic of all the taxes in the tax system today. This is in spite of the fact that tax reform has of recent been a key element in economic reform which the country had undergone. Generally, personal income tax is closely related to the pace of development and growth of any economy. An effective tax system ought to satisfy the twin purpose of raising maximum revenue and at the same time encourage production. In an effectively managed tax system, the two purposes are not irreconcilable provided of course that the beneficial effects of Governmental expenditure and incentives for production exceed the unfavourable effects of taxation. This long essay attempts to analyze the present application and administration of personal income tax in Nigeria, by first examining the history of taxation and indeed the history of personal income tax in Nigeria. Also, income as the basis of personal income tax was also analyzed with the distinction between income and capital drawn out. Furthermore, the various taxing powers in the country were enumerated and their powers were discussed and delineated marking out the differences between the three taxing powers of Federal, State and Local Governments. Personal income tax in Nigeria and its problems, which this long essay majorly revolves around, were then fully focused on and well appraised, the legal

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basis of personal income tax and all the components associated with personal income tax as well as its prevailing problems are well discussed in the long essay. Conclusively, recommendations were made which would, when applied, help resolve the problems of personal income tax in Nigeria.

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CHAPTER ONE: GENERAL INTRODUCTION

1.1 INTRODUCTION Though collection of Personal Income Tax is a federal responsibility this tax is generally collected by state governments from those that are resident in their various states, regardless of whether they are federal, state, local government, or private sector workers. The Federal Inland Revenue Service, however, also collects this tax but only from residents of the Federal Capital Territory as well as what may be described as highly mobile federal workers staff of the Ministry of Foreign Affairs and other Nigerians and foreigners outside the country but earning income in Nigeria (nonresidents), expatriate workers resident in Nigeria, Police Officers, and Military Officers. Civilians working in Police and Military formations, however, pay to their respective States of residence. The current law guiding the taxation of personal incomes is the Personal Income Tax Act (Cap P8 LFN 2004). Under the law, Federal and States tax boards are empowered to identify persons living in or earning income from Nigeria who are required to pay tax, and to assess incomes and tax their incomes using specified guidelines and rules. This law also guides the tax official in identifying the residence of potential taxpayers, as well as the sources and origins of their incomes for the purpose of taxing the income.

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1.1.1 FORMS OF PERSONAL INCOME TAX Two forms of taxes are administered under Act, namely:

(a) Pay-As-You-Earn (PAYE) i.e. taxes from employment, and (b) Taxes from self employed persons. 1.2 DEFINITION OF TAX

The Blacks Law Dictionary1 defines tax as: A monetary charge imposed by the government on persons, entities, transactions, or property to yield public revenue. Most broadly, the term embraces all governmental impositions on the person, property, privileges, occupations, and enjoyment of the people, and includes duties, imposts, and excises. Although a tax is often thought of as being pecuniary in nature, it is not necessarily payable in money. The Oxford English Dictionary also, defines tax as: a compulsory contribution to the support of the government levied on persons, property, income, commodities, transactions and so on, now at a fixed rate most proportionate to the amount on which the contribution is levied Tax was also defined in the Australian case of Matthews v. Chicory Marketing Board2 as:

1 2

Black's Law Dictionary (8th ed. 2004) , p. 4561 (1939) 60 C.L.R. 263 at p. 276

13

A tax is a compulsory exaction of money by a public authority for public purposes, or taxation is raising money for the purpose of government by means of contributions from individual persons. Furthermore, tax was defined by Thomas M. Cooley, in his book The Law of Taxation3 as the enforced proportional contributions from persons and property, levied by the state by virtue of its sovereignty for the support of government and for all public needs. This definition of taxes, often referred to as Cooley's definition, has been quoted and indorsed, or approved, expressly or otherwise, by many different courts. While this definition of taxes characterizes them as contributions, other definitions refer to them as imposts, duty or impost, charges, burdens, or exactions'; but these variations in phraseology are of no practical importance. From the above definitions of tax, Personal Income Tax could therefore be said to be a tax that is imposed on individuals who are either in employment or are running their own small businesses under a business name or partnership. 1.3 CLASSIFICATION OF TAX Taxes are classified into various forms and these include the classification into proportional, progressive and regressive taxes; and direct and indirect taxes.

Cooley T. M., The Law of Taxation, Clark A. N. ed., 4th ed., 1924,.

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Proportional, Progressive and Regressive Taxation 1.3.1 Proportional Tax Also known as flat tax, proportional tax is one which when paid by the tax payer bears the same ratio to the amount to be raised as the value of his property bears to the total taxable income. In other words it takes a constant proportion of income and so it can be said to be a neutral tax. 1.3.2 Progressive Tax This is defined4 as: a tax structured so that the effective tax rate increases more than proportionately as the tax base increases, or so that an exemption remains flat or diminishes. With this type of tax, the percentage of income paid in taxes increases as the taxpayer's income increases. Most income taxes are progressive, so that higher incomes are taxed at a higher rate. But a tax can be progressive without using graduated rates. In this sense it is known as graduated tax. 1.3.3 Regressive Tax Regressive tax is defined by the Blacks Law Dictionary5 as:

4 5

Black's Law Dictionary (8th ed. 2004) , Page 4566 Black's Law Dictionary (8th ed. 2004) , Page 4567

15

A tax structured so that the effective tax rate decreases as the tax base increases. With this type of tax, the percentage of income paid in taxes decreases as the taxpayer's income increases. A flat tax (such as the typical sales tax) is usually considered regressive despite its constant rate because it is more burdensome for low-income taxpayers than high-income taxpayers. A growing tax exemption also produces a regressive tax effect. Regressive taxation is not suitable for the underdeveloped and developing countries as it would not generate the required revenue for the administration of the country, it would also fail to provide a just and egalitarian society. Direct and Indirect Taxes 1.3.4 Direct Tax In the general sense, a direct tax is one paid directly to the government by the persons (juristic or natural) on whom it is imposed (often accompanied by a tax return filed by the taxpayer). Examples include some income taxes, some corporate taxes, and transfer taxes such as estate (inheritance) tax and gift tax. In this sense, a direct tax is contrasted with an indirect tax or collected tax (such as sales tax or value added tax (VAT)); a collected tax is one which is collected by intermediaries who turn over the proceeds to the government and file the related tax return. Some

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commentators have argued that a direct tax is one that cannot be shifted by the taxpayer to someone else, whereas an indirect tax can be.6 An 18th century writing7 about the tax explained:

The power of direct taxation applies to every individual, as congress unde this government is expressly vested with the authority of laying a capitation or poll-tax upon every person to any amount. This is a tax that, howeve oppressive in its nature, and unequal in its operation, is certain as to its produce and simple in it collection; it cannot be evaded like the objects o imposts or excise, and will be paid, because all that a man hath will he give for his head.

Basically, a direct tax is one which is demanded from the very person who it is intended or desired to pay it. 1.3.5 Indirect Tax The term indirect tax in the colloquial sense, is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the customer). The intermediary later files a tax return and forwards the tax proceeds to government with the return. In this sense, the term

Britannica Online, Article on Taxation. The Address and Reasons of Dissent of the Minority of the Convention, of the State of Pennsylvania, to their constituents.

17

indirect tax is contrasted with a direct tax which is collected directly by government from the persons (legal or natural) on which it is imposed. An indirect tax may increase the price of a good so that consumers are actually paying the tax by paying more for the products. Examples would be fuel, liquor, and cigarette taxes. An excise duty on motor cars is paid in the first instance by the manufacturer of the cars; ultimately the manufacturer transfers the burden of this duty to the buyer of the car in form of a higher price. Thus, an indirect tax is such which can be shifted or passed on. Basically, indirect taxes are demanded from one person, in the expectation and intention that he shall indemnify himself at the expense of another. In other words, indirect taxes are those which are imposed on commodities before the reach the final consumer, and are paid by those upon whom they ultimately fall, not as taxes, but as part of the market price of the commodity.8 General examples of indirect taxes are Stamp Duty, Excise Duty, Customs Duty, Value Added Tax, and Sales or Purchase Tax. 1.4 HISTORICAL OUTLINE OF NIGERIAN TAX SYSTEM A system of direct taxation had been in existence in this country before the advent of colonial rule, particularly in the North where there was an efficient and stable administration based for the most part on the Islamic system. Thus in Northern Nigeria there were various forms of taxation such as the zakat a tax levied on

Mill. Principles of Political Economy, Book V, Ch. 3

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moslems for charitable, religious and educational purposes, kurdin kasa an agricultural tax; shukka another tax paid on all crops not liable to zakat. There was another called jangali a cattle tax levied on livestock.9 In Southern Nigeria there was also an indigenous system of taxation, it was not as organized and as broad-based as it was in the Northern parts of the country. During the pre-colonial period taxation functioned more or less on an ethnic basis. In societies with a centralized authority, administrative machinery and judicial institutions such as the areas of Northern Nigeria, Yoruba Land and the Benin Kingdom where you have Emirs and Obas respectively, there was a system of taxation. In the lesser organized societies like the Ibo, Tiv, Bura, Igbirra, and Bachama areas, there existed little or no form of organized taxation. Furthermore, taxes were not necessarily paid in money. There were mostly paid in kind and obligatory personal services otherwise known as tribute taxes. When money came into general use, this did not abrogate the obligatory personal services but only supplemented them. When the British came to Nigeria they were therefore naturally attracted by the organized tax system in Northern Nigeria and so they immediately consolidated all the various traditional taxes here under the Land Revenue Proclamation Law of 1904. There was no such law in Southern Nigeria until after the amalgamation of the Northern Provinces with the colony and protectorate of Nigeria in 1914 when the

Ayua, I.A. (1999) The Nigerian Tax Law, Ibadan Spectrum Law Publishing. p.22

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Native Revenue Ordinance of 1917 was enacted to cover the areas of the Western region of Nigeria. It was not until 1927 after much debate and hesitation that the first Personal Income Tax Law was introduced into the Eastern Region of the country. This sparked off disturbances culminating in the Aba Tax Riot of 1929 which resulted into loss of lives and destruction of property. The lack of adequate information on the purpose of tax and generally the tax itself was largely responsible for the disturbances. Many other direct taxation ordinances were passed such as Non-Native (protectorate) Ordinance of 1931 which was repealed by that of 1939. This two ordinances provided for the taxation of non-natives. It was only in 1939 that an income tax was specifically introduced for the first time on company profits accruing in, derived from or brought into Nigeria under the Companies Income Tax Ordinance 1939.10 In 1940, there was a major tax legislation; this was the Direct Taxation Ordinance No. 4 of 1940 and the Income Tax Ordinance No. 3 of 1940 which repealed all previous Ordinances. The Direct Taxation Ordinance provided for the taxation of Nigerians except those in the township of Lagos. Taxable persons covered by the Direct Taxation Ordinance included the community which was defined11 to comprise any town, village or settlement, or any locality therein including a band of

10 11

Ayua, I.A. (1999) The Nigerian Tax Law, Ibadan Spectrum Law Publishing. p.23 Direct Taxation Ordinance No. 4 of 1940 S. 2(1)

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nomadic herdsmen and individuals residing within the community. Incomes that were taxable under this Ordinance were: a. Income from land; b. Rents derived from land; c. Annual profits of the produce from land which were enjoyed by the community or individuals; d. Income from employment and pensions; e. Profits from trade or manufacture; f. Dividends or interest; and g. The value of all life stock owned by the individuals or the community.12 The importance of the Direct Taxation Ordinance in the history of income tax law in Nigeria lies in the fact that it was the first taxing statute that applied throughout the country, having consolidated all previous tax Ordinances from 1906 to 1940. It also provided for the appointment and control of tax collectors by the residents. One shortcoming of the Direct Ordinance was however, its failure to provide for uniform tax rates throughout the country. The Income Tax Ordinance of 1940 applied to expatriates and to Nigerians living in Lagos as well as to companies, thereby lumping together under the same law the provisions for the taxation of personal and company incomes. Up to this period, the essential features of our tax system included the narrowness of the national tax base13 and a few tax instruments, thereby lacking the

12

Direct Taxation Ordinance No. 4 of 1940 S. 4

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revenue elasticity required to meet the usual upward trend in national spending. This had to do with the stage of economic development as at that time Nigeria was basically an underdeveloped country with few viable economic activities. In 1943 a more comprehensive income tax ordinance was passed. This repealed the 1940 Ordinance. The 1943 Ordinance imposed higher rates of taxes on certain types of income and in general it taxed income which accrued in, derived from, were received in, or brought into Nigeria. At this stage no principle of federalism was introduced in Nigeria and so the constitutional question of allocation of taxing powers between different tiers of government did not arise. Up until 1954 the country was administered as a unitary state but with the division of the country into three regions by the Richards Constitution and the establishment of the Phillipson Commission created to recommend ways and means of allocating the revenue collected by the central government, this led to the introduction of taxing powers being exercised by the regional governments, though the central government continued to levy taxes. The new regions were given control over direct taxation but there was the absence of any formal legislative which made the exercise of the power national. The Richards Constitution was replaced by the McPhersons Constitution in 1951 which was designed with the basic aim of granting greatly increased measure of responsibility to Nigerians for the conduct of their own affairs and which granted increased autonomy to the three regions with special tax powers in order to build up a strong and united Nigeria. While the 1951 Constitution did not significantly enhance
13

A. O. Phillips Nigerias Tax Effort (1970) B.T.R. 182-3

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the independent revenue capacity of the regions, it however, marked a significant milestone on the road to fiscal federalism. 1954 marked the year Nigeria was completely federalized. It was during this period that the regional governments were for the first time given the power to impose tax independent of the central government, however their powers were severely restricted owing to the existing tax source then. After independence, the parliament exercising their legislative powers conferred on them by section 60 of the 1960 constitution enacted three Acts on taxation. They include: 1. The Income Tax Management Act (ITMA) 1961 2. The Personal Income Tax (Lagos State) Act (PITA) 1961 3. The Income Tax (Armed forces and other persons) (special Provisions) Act 1972. Since then different governments have continued to try to improve on Nigerias taxation system. The general opinion among scholars is that Nigerias fiscal regime is characterized by unnecessary complex, distortionary and largely inequitable taxation laws that have limited application in the formal sector that dominates the economy. 1.4.1 HISTORY OF PERSONAL INCOME TAX LAW IN NIGERIA The Nigerian tax system is basically structured as a tool for revenue collection. This is a legacy from the pre-independence government. Based on 1948 British tax laws and have been mainly static since enactment. The history of personal income tax law in Nigeria is traceable to the Raisman Commission of 1957, the recommendations of which were incorporated in section 70
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of the 1960 constitution. The section provided that the Federal Government had exclusive powers to levy tax on the income of all limited liability companies while the Federal and State governments enjoyed concurrent powers over personal income tax. Prior to 1961, each region had its own tax law on personal income tax. However, with the enactment by the Federal Government of the Income Tax Management Act (ITMA) 1961, acting under its constitutional powers, each region amended its laws to conform to the Act. 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, and several amendments have been made to the 1961 ITMA Act. For instance, in 1985 PIT was increased from N 600 or 10 per cent of earned income to N 2,000 plus 12.5 per cent of income exceeding N 6,000. In 1989, a 15 per cent withholding tax was applied to savings deposits valued at N 50,000 or more while tax on rental income was extended to cover chartered vessels, ships or aircraft. In addition, tax on the fees of directors was fixed at 15 per cent. These policies were geared to achieving effective protection for local industries, greater use of local raw materials, generating increased government revenue among others. Since the implementation of the Structural Adjustment Programme (SAP), however, taxes have been used to enhance the productivity and competitiveness of business enterprises. Consequently, attention has been focused on promoting exports of manufactures and reducing the tax burden of individuals and companies. In line with this change in policy focus, many measures were undertaken. These involved,
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among others, reviewing custom and excise duties, continuing with the reduction of company and income taxes, expanding the range of tax exemptions and rebates, introducing capital allowance, expanding the duty drawback scheme and manufacturing-in-bond scheme, abolishing excise duty, implementing VAT, monetizing fringe benefits and increasing tax relief to low-income earners. The current legislation is the Personal Income Tax Act (PITA) 1993, which repealed the Income Tax Management Act (ITMA) 1961 and the Income Tax (Armed Forces and Other Persons) (Special Provisions) Act 1972.

CHAPTER TWO
2.1 INCOME AS A TAX BASE In countries with advanced tax system, the essence of income tax is hardly debatable, the greater percentage of taxable adults pay their taxes voluntarily. Speaking with reference to American tax system, Otto Eckstien observed in this pertinent manner: The most astonishing fact about the American tax system is the fantastic revenue it collects. Total taxes are over $536 billion, about 31 percent of gross national product. They are collected without violence or bloodshed, with only some mild griping ... This is a small miracle, it is possible because in our advanced society, business and individuals keep accounting record from which they can compute their tax bill. More importantly, it is possible because on the whole, people are willing to pay their taxes. Ours is a system of voluntary
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compliance, not assessment and enforcement by Government. People know that the common cost of national defence, of educating our children, and of necessary public services have to be met. Generally, people respect the law and pay their taxes. In Nigeria, the attitude of the citizens towards this civic responsibility (i.e. payment of tax) does not come near the Americans. Theirs is that of apathy. Taxation serves myriad functions. The revenue generated from taxation sustains the economic and social needs of the nation. Infact, taxation serves multifarious ends, some of which have political, economic or social bearings. In a nutshell, the essence of taxation is to raise revenue for government expenditure or finance government projects, control consumer demand, encourage investment and savings, fight economic depression, inflation and deflation, guarantee equitable distribution of income and wealth, control the general trend of the national economy, and ensure a proper allocation of national resources. Income serves as a basis for taxation basically because a tax payers income is used as the base for his tax liability. As In Nigeria and many other countries income is being used as the basis for taxation due to the fact that it has been considered anti social to live on ones capital and as Professor Wheatcroft pointed out in his book14: The tax collector requires his money next year as well as this one. He does not want to kill the goose that lays the golden eggs

14

G.S.A. Wheatcroft, What is Taxable Income? (1957) B.T.R. Page 310

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2.2

DEFINITION OF INCOME In the Nigerian taxing statutes, no comprehensive definition is given as to the

meaning of the word income. Under the present Personal Income Tax Act (PITA)15, income is simply or evasively defined as including any amount deemed to be income under the Act. No doubt this definition has not helped matters in trying to delimit a clear boundary around the concept of income. The reluctance to draw a precise boundary in this regard is not a recent development. In London County Council v. Attorney General16, Lord Mac Naughten famously equipped, in an attempt to define the word income that Income tax, if I may be pardoned for saying so, is a tax on income. It is not meant to be a tax on anything else. No doubt, the attitude of the courts and legislation in avoiding a comprehensive definition is to avoid the lurking trap or pitfall that might result from an imperfect definition which might give more room for tax avoidance speculators to exploit. Indeed, any definition incapable of generating revenue for Government ought to be avoided. This problem of evolving an acceptable and precise definition was to be seen in a number of bold but futile attempts by the courts. In Coltaness Iron Co. v. Black17 Lord President offered a conceptual definition of income in this manner:

15 16

Section 3(3)(b) (1901) AC 26

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The general principle of the property and income tax to which effect is given by the statutes is that everything of the nature of income shall be assessed from that source so ever it may be derived whether from invested capital, or from skill and labour or from a combination of both, and whether temporary or permanent, steady or fluctuating, precarious or secure. For practical purposes, the above definition has not been precise in untying the difficult problem of definition. Again, Lord Wrenbury18 evasively intoned: As regards the word income, it means such income as is within the Act taxable under the Act. Looking at the sum total of the judicial dicta so far examined, it is clear that the term is far from being precise. It is multidimensional, and to determine it one must rely on the particular facts of a given case. Legislative approach to the problem in Nigeria and some other jurisdictions which appears the best option has been to classify income by reference to the respective source from which such income may be derived. 2.3 DISTINCTION BETWEEN INCOME AND CAPITAL As stated above, income tax is a tax on income and not on capital. Whether a particular receipt is regarded as being of an income r capital nature has important revenue consequences as this may determine whether income tax at steeply

17 18

(1881) 9 TC 287 Whftoey v. I R C

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progressive rates is imposed or capital gains tax at a considerably lower rate is paid. The distinction is therefore important for tax purposes. Capital, just as income, is very difficult to define. As Lord Upjohn observed in Strick v Regent Oil Co. Ltd19 I suppose that no part of our law of taxation presents such almost insoluble conundrums as the decision whether a receipt or outgoing is capital or income for tax purposes. Parliament wisely has never given any general statutory guidance in this matter. It has been content to leave the determination of these difficult matters to the common sense of the tribunals and judges before whom these matters are brought. The courts have therefore, been called upon on numerous occasions to provide the much needed distinction in order to determine into which category, income or capital, a particular sum in dispute has fallen. The ancient concept of capital and

income which is usually expressed in the familiar analogy the tree is the capital from which the annual income of the fruit crops is derived.20 No doubt a distinction premised on such analogy represents a common sense approach to the problem, and can work well in some cases. Presently, it is very difficult today to say with any degree of precision whether a particular asset is a revenue receipt or a capital receipt even by examining its nature. With todays businesses becoming more and more complex with sophisticated ways
19 20

(1965) 3 W.L.R at p. 1571 Meade Report on the Structure and Reform of Direct Taxation p.30-33

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and means being devised to circumvent tax laws, the ancient concept seems inadequate to distinguish income from capital. Basically, the distinction between income and capital involves two main considerations namely: 1. The physical nature of the asset; and 2. Its function. In some cases, the physical nature of the asset may be decisive of the question whether it is a capital or trading receipt while in others, the function of the asset may be conclusive of that question. This however, does not mean that the two factors are mutually exclusive. In some cases they overlap. 2.4 DEFINITION OF EMPLOYMENT Income from an employment is liable to income tax. The Personal Income Tax Act21 charges to tax: any salary, wages, fees, allowances or other gains or profits from an employment including gratuities, compensation, bonuses, premiums, benefits, or other prerequisites allowed, given, or granted by any person to an employee. Therefore, every emolument which comes from the office or employment is taxable. The above provision however, only applies if the tax payer holds an office or employment and emoluments are derived from it.
21

Section 3(1)(b)

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2.4.1 MEANING OF EMPLOYMENT The Personal Income Tax Act22 defines employment to include: any appointment of office whether public or otherwise for which remuneration is payable The word employment has a more extensive meaning. It generally includes an engagement, occupation, profession, trade, post, or business. When employment is used in connection with a profession or vocation it means a way in which a man employs himself. When used in connection with a post or engagement, it means something like holding an office. In the words of Rowlatt J. in Great Western Railway Co. v Baker23: It means something analogous to an office and which is conveniently amenable to the scheme of taxation which is applied to offices as opposed to the earnings of a man who follows a profession or vocation. 2.5 TAXABLE PERSONS Taxable persons in Nigeria are individuals, partnerships, communities and families, trustees and executors under the personal income tax.24 According to the provisions of section 225 taxable persons include: Section 2.
22

Persons on whom tax is to be imposed.

23

Section 100 (1922) 8 TC 231 at p.235 24 Section 2 Personal Income Tax Act 1993 25 PITA

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(1) Tax of an amount to be determined from the Table set out in the Sixth Schedule (in this Act referred as "income tax") shall be payable for each year of assessment on the total income of (a) every individual other than persons covered under paragraph (b) of this subsection or corporation sole or body of individuals deemed to be resident for that year in the relevant State under the provisions of this Act ; and (b) the following other persons, that is -

(i) persons employed in the Nigerian Army, the Nigerian Navy, the Nigerian Air force, the Nigerian Police Force other than in a civilian capacity, (ii) officers of the Nigerian Foreign Service,

(iii) every resident of the Federal Capital Territory, Abuja, and (iv) a person resident outside Nigeria who derives income or profit from Nigeria. Individuals. (2) In the case of an individual, other than an itinerant worker and persons covered under paragraph (b) of subsection (1) of this section, tax for any year of assessment may be imposed only by the State in which the individual is deemed to be resident for that year under the provisions of the First Schedule to this Act and in the case of persons referred to in subsection (1) (b) of this section tax shall be imposed by the Federal Board of Inland Revenue. Itinerant workers. (3) In the case of an itinerant worker, tax may be imposed for any year by any State in which the itinerant worker is found during the year: Provided that (a) in an assessment for any year upon an itinerant worker credit shall be given against the tax payable, but not exceeding the amount thereof, for any income tax already paid by him to any other tax authority for the same year; and (b) collection of so much of any tax imposed in a territory on an itinerant worker for a year of assessment as remains unpaid on the itinerant worker leaving that territory during that year shall remain in abeyance during his absence from that territory, and if he returns to that territory having during his absence paid tax in some

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other territory for that year, credit shall be given against any unpaid tax in the first-mentioned territory, but not exceeding that unpaid amount, for the tax paid in that other territory. Communities. (4) In the case of a village or other indigenous communities, tax may be imposed for any year only by the law of the territory in which that community is to be found and the tax may be charged on (a) the estimated total income of all its members;

(b) the estimated total income of those of its members whose income it is impracticable in the opinion of the relevant tax authority to assess individually; or (c) the amount of any communal income which, in the opinion of the relevant tax authority in relation to such community, it is impracticable to apportion with certainty between its members. Families. (5) In the case of income of a family recognised under any law or custom in Nigeria as families income, in which the several interests of individual members of the family are indeterminate or uncertain, tax may be imposed only by the territory in which the member of that family who customarily receives that income in the first instance in Nigeria usually resides. Trustees (6) In the case of income arising to a trustee of any settlements or trusts, or estates or to an executor of any estate of a deceased person, tax may only be imposed by the territory of which the tax authority is the relevant tax authority in relation to such settlement, trust or estate and to the extent provided in the Second Schedule to this Act . (7) Nothing in this section shall be construed as imposing liability to tax on the personal emoluments of any person serving as other rank and accordingly any other enactment or law imposing tax on the income of individuals shall not apply: Provided that where any other income accrues to a person serving as other rank (not being income by way of personal emoluments) that income shall be liable to tax under this Act or under any relevant enactment or law.

33

(8) In this section "other rank" has the meaning assigned thereto by the Armed Forces Pensions Act: and "personal emoluments" means wages or salaries and includes allowances, gratuities, superannuation or pension schemes and any other income derived solely by reason of employment as other rank.

CHAPTER THREE: TAXING POWERS IN NIGERIA

3.1 Distribution of Taxing Powers in Nigeria

Introduction The essential feature of federalism is the formal distribution or allocation of jurisdictional powers between the Federal and State Governments. It follows therefore that the financial powers of the federation must be distributed between the Federal and the State governments under any federal Constitution. As Hamilton said:26 It is ... as necessary that the State governments should be able to command the means of supplying their wants, as that the national government should possess the like faculty in respect of the Union.
26

Hamilton, Fedralist, No XXXI, p. 149

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By this analysis it is assumed that the financial powers of the Federation can be so neatly distributed between the Federal and State governments that the taxing power of the respective governments should be independent of each other, to raise financial resources necessary to meet the needs of each government. But the matter is not as simple as this though it might appear to be desirable. Indeed the whole question of the division of financial powers of a federation constitutes an intricate and complex problem. As one source has rightly asserted27: Finance has emerged as the most critical policy issue in IGR(i.e. International Fiscal Relations) in every federal administration system since the Second World War. Almost without exception, the financial resources available to the central government have exceeded considerably those available to the other levels of government. The federal dominance of the inter-governmental fiscal relations if not properly controlled will make the state completely dependent financially and thereof generally, upon the central government, thereby denying them of their autonomy in matters that directly concern them. This is not a recipe for political unity particularly in a developing heterogeneous society like Nigeria where there is differential socioeconomic development with the Central government apparently lacking any definitive policy to bring about even development. The problem is more acute today considering the mounting cost of State and

27

Ladipo Adamolekun, Public administration, 1st ed., Longman Publishers at p. 93

35

Local services. For instance, the sharp rise in the costs of providing education to meet our societys insatiable demand for trained people, paying the salaries of civil servants, providing hospital and medicare, providing adequate water supply and other valuable services to meet the growth in population all point to the need for new sources of revenue as the pressure on State governments becomes unbearable. It is against this background that the distribution of taxing power in Nigeria should be reviewed. 3.2 History of Distribution of Taxing Powers in Nigeria When Nigeria became a federation in 1954, the question of sharing taxing powers between the Regions and the Federal government in immediately arose. This question was discussed at the Nigeria Constitutional Conference in London in 1957 where it was decided to refer to a Commission the issue of how to allocate taxing powers between the Regional and Federal governments. Consequently, the Raisman Commission was appointed to look into the matter and make recommendations that would ensure inter alia, . . . that the maximum possible proportion of the income of Regional Governments ... be within the exclusive power of those Governments to levy and collect.28 In June 1958 the Commission submitted its report which contained the following principal recommendations: a.
28

that the Federal Government should have exclusive jurisdiction on

Report of the Nigerian Constitutional Conference 1957 paragraph 57

36

corporations and companies taxes as well as on taxation of non-resident persons, and also to enter into double taxation agreements with other countries; b. that the Regions (now States) have exclusive power to impose personal income tax on individuals, sole traders, partnerships, clubs, trusts and other unincorporated associations. These recommendations were accepted and embodied in section 70 of the Nigeria (Constitution) Order in Council, 1960. In giving the regions exclusive power to impose personal income tax on individuals, the Commission identified three resultant problems. First, there was the danger that a regional personal income tax law might conflict with double taxation agreements which the Federal Government has entered into, or might do so in the future with foreign governments. Secondly, there was the danger of internal double taxation. In fact it is on record that at the time of the Commissions report, the Eastern Region taxed the individual incomes of its residents while the Western Region not only taxed those resident in the West, but also taxed any income which was derived from the Western Region irrespective of the residence of the recipient. The result of this was that a resident of Eastern Nigeria working in Western Nigeria would be taxed twice on the same income by both governments. Thirdly, the Commission felt that it would be desirable to define carefully what income would be subject to the Federal Governments companies tax and which

37

would be subject to regional income tax. In the light of the above problems, the Raisman Commission whist stating that each regional government should have the exclusive right to fix rates of tax and personal allowances, and to decide upon its own method of assessment and administration, went on to say that some specific issues among others required some arrangement to ensure uniformity in tax treatment. These issues were as follows: a. The definition of taxable income and the basis of charge; b. The period of assessment; b. The taxation of income remitted to Nigeria from overseas sources; c. The taxation of income accruing in Nigeria to residents overseas; d. The approval of pensions and provident funds for tax purposes; tile treatment of dividends; e. The taxation of partnership; f. The type of information to be exchanged between one tax authority and another.29 Thus the Commission recommended the introduction of general principles for taxing individual incomes to be applicable to the whole country. It was also in acceptance of these recommendations that Section 70 (ii) and (iii) of the 1960 Constitution conferred concurrent powers upon Parliament to make laws for Nigeria or any part thereof with respect to certain enumerated uniform principles in relation to personal income tax. In consequence, the Income Tax Management Act (ITMA) of 1961 was enacted
29

Report of the Fiscal Commission, 1958 paragraph 88, 91.

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and was based essentially on the recommendations of the Raisman Commission. The Act provided for the definition of taxable income and the basis of charge, the period of assessment, the list of allowable deductions, the treatment of dividends and so on. Its principal purpose is to assist in the administration of tax laws in the country so as to avoid internal double taxation of incomes. It governs only the taxation of individuals. It can thus be seen that the Raisman Commission enlarged tile fiscal autonomy of the Regions (now States) by giving them exclusive power to tax individual incomes and also brought into existence the Income Tax Management Act, 1961. It must be mentioned that an important innovation introduced in 1956 was the Pay-As- You-earn system of taxation. This is not a separate tax but a system whereby income on wages and salaries are collected by dedication at source by directed employers. The directed employers are required to hand over the tax so withheld to the tax authorities. It should also be mentioned that the then Western Region was the first to enact a model income tax law in 1957 which was known as the Western Region Income Tax Law No. 16 of 1957. This was in existence four years before the enactment of the Income Tax Management Act 1961. The Western Region Income Tax Law was therefore amended in 1961 by the Income Tax (Amendment) Law 1961 otherwise known as Income Tax Development Contribution Law (ITDCL) to bring it into conformity with I.T.M.A., 1961. The Eastern and the Northern regions also enacted their own separate income

39

tax laws known as the Eastern Region Finance Law, 1962 and the Northern Nigeria Personal Tax Law, 1962 respectively. Nigeria became a Republic in 1963 and so all the provisions of Section70 of the 1960 Constitution were re-enacted under Section 76 of the 1963 Republic Constitution. The Mid-Western Region which was created in 1963 adopted the tax law of the Western Region. There were thus four income tax laws applying in the country with different rates of tax, reliefs and personal allowances. The tax situation was worsened in 1967 when on the 27th of May of that year the Federal Military Government decided to divide the country into 12 states. The Northern Region was divided into 6 States, the Eastern Region into 3 States, the Western and Mid-Western Regions were also constituted into States. Lagos State was created. All the States created out of the Northern Region applied the Personal Tax Law, those of the East, the Eastern Region Finance Law, Lagos State applied the Federal Personal Income Tax Law and the Western and Mid-Western States applied the Income Tax Development Contribution Law. One can therefore imagine the effect of this diversity on rates of tax reliefs and personal allowances on mobility of labour. Commenting on this situation, A.O. Phillips had this to say30: Personal income tax has all the time been the problem item of Nigerias revenue structure particularly since its regionalization in the late 1950s. Nigeria is the

30

A. O. Phillips Nigerias Tax Effort (1970) B.T.R. Publishers 180 at p. 186

40

only Federation in the World in which a significant tax such as this is vested in other than the central authorities. Thus Nigeria has as many tax systems as there are governments in Nigeria, resulting in differential income tax burdens throughout the country, and hampering its use as a significant source of revenue and as an instrument of economic control. The administration is generally thought to be inefficientthe opinion has gained ground that unless and until a uniform personal income tax system is established in Nigeria, the tax cannot play the significant role it should play in Nigerias revenue structure and economic development. It was, perhaps, against this background that it was considered necessary to promulgate the Income Tax Management (Uniform Taxation Provisions, etc.) Act 1975. 3.2.1 Income Tax M anagement (Uniform Taxation, Provisions, etc.) Act 1975 This Act which was enacted to amend the Income Tax Management Act 1961 (as amended) and the Income Tax (Armed Forces and other persons) (Special Provisions) Act No. 51 of 1972, provides for uniform rates of tax, reliefs and allowances throughout the country thereby putting an end to varying rates of tax, reliefs and allowances. It covers only the taxation of individuals. Thus all individual taxpayers regardless of their State of residence are entitled to the same system of allowances and reliefs and are liable to pay income tax at the

41

same rates. When therefore, in 1976 the number of States was increased from 12 to 19 and later 21 they applied the same rates of tax reliefs and allowances, thereby posing no problem in respect of the tax burden to be borne by Nigerians. Thus apart from the amendment of the Income Tax Management Act, 1961 in 1975, as shown above, the position of the division of taxing powers under the 1963 Constitution as amended remained as follows: 1. The Federal Government enjoyed exclusive jurisdiction over the taxation of the income and profits of companies, petroleum profits tax, import, export and excise duties, purchase and sales taxes on some commodities and mining royalties. 2. The Regional (now State) governments had jurisdiction over personal income taxes, community tax, purchase and sales taxes on produce, hides, skins, and motor fuel, licence fees, wealth and property taxes, estate duties, casino and pools betting taxes and motor registration and driver's licence fees. The division of taxing powers under the 1963 constitution of course favoured the Federal Government more as they had more important sources of revenue than the Regions whose tax base was quite narrow. When the Military took over the government, rather than narrow the gap they widened it by increasing the Federal Government's share of the national revenue particularly between 1970 and 1979. The State governments became financially dependent on the Federal Government and the Federal Government unilaterally passed any lax laws it wanted such as the Capital

42

Gains Tax in 1967 and the Capital Transfer Tax in 1979.31 3.3 Current Position of Taxing Powers The 1979 Constitution has not done much to improve on the lot of the States in terms of allocation of financial sovereignty, with the consequence that the Federal Government maintains its strong position. Thus under the Exclusive Legislative list set out in Part 1 of the Second Schedule to the 1979 Constitution the Federal Government has exclusive jurisdiction on the following taxes: 1. 2. 3. 4. 5. Item 15: Custom and Excise duties Item 22: Export duties Item 37: Mining rents and royalties Item: 57: Stamp duties Item 58: Taxation of incomes, profits and Capital gains, except as

otherwise prescribed by the 1979 Constitution. Under this item the Federal Government has exclusive power to legislate on the taxation of individuals and Companies throughout the whole Federation. From the above list it will be seen that the 1979 Constitution has enhanced the Federal Government's taxing power by explicitly placing within its exclusive competence the more important forms of taxation while leaving the residuary matters at the disposal of the States. If one takes into account the unlimited legislative
31

Ladipo Adamolekun, Public Administration, 1st ed., Longman Publishers p. 94

43

competence of the Federal Military Government provided by Section 2 subsection 1 of Decree No. 1 of 1984 one can then appreciate the immense taxing power that has been allocated to the central government. It should not, however, be supposed that the States lack taxing power. Indeed under the 1979 Constitution the residuary tax matters lie at the disposal of the States. Thus it is the States and not the Federal Government that have inherent power of taxation. This is confined by Section 2 subsections (2) and (3) of Decree No. l of 1984 which permits the State Military Governor to make laws for the peace, order and good government of the state, only forbidding him to legislate on matters within the exclusive legislative list and matters on the concurrent legislative list relating to federal legislative powers except with prior consent of the Federal Government thus under the present framework the States have the taxing power to legislate on any taxing matter which has not been specifically allocated to the Federal Military Government which is the same arrangement as in the 1979 Constitution. Thus the States enjoy taxing power in respect of the following items: taxes on lands and buildings, taxes on the entry of goods into the State for consumption, use or sale; taxes on the sale or purchase of goods; taxes on goods and passengers carried by road or inland waterways, road tax-vehicle licences and Registration feeds, tools, Entertainment Tax on cinemas houses, betting and gambling, Pay-Roll Tax etc. The local governments enjoy taxing power mostly in property tax, rates and market rates. The system of distribution of taxing power as embodied in the 1979

44

Constitution look fairly straightforward, simple as shown above. However, in practice, this is hardly the case. For instance, once the subject matter of taxation has been allocated to one tier of government, the proceeds of the tax usually belong exclusively to the authority levying the tax. But this is not the case under the 1979 Constitution with the taxation of individuals which has exclusively been vested in the Federal Government. This therefore needs examination. The other matter concerns Sales Tax which under the analysis above is within the legislative competence of the States. Because of the great importance of the Sales Tax and also of the fact it has given rise to litigation up to the Supreme Court, its Constitutional status is worth considering further. These two issues will now be examined. 3.3.1 Personal Income Tax As shown above, the Federal Government has the exclusive power under paragraph 58 of the Second Schedule to the 1979 Constitution to legislate on personal income tax which under the 1963 Constitution was a matter for the States. Thus exclusive power of the Federal Government to tax individuals can however, be traced to Section 76 (1) and (2) of the 1963 Constitution as amended by the Constitution (Suspension and Modification) Decree, 1967 which gave power to the then Supreme Military Council to make Laws for Nigeria or any part thereof with respect to taxes on companies for certain purposes. This was the genesis of paragraph 59 of the second schedule to the Constitution

45

which vests in the Federal Government the exclusive power to legislate on income tax. This is desirable for the purposes of bringing about uniform principles for the taxation of income and profits accruing to the taxpayers. Thus under the 1979 Nigerian Constitution the Federal Government now has the power to enact a uniform tax code throughout the country which can harmonize the rates of taxes, reliefs and allowances thereby possessing a powerful fiscal weapon with which to manage the economy of the country. Although the Federal Government has the exclusive power to legislate on the taxation of individuals, the proceeds from personal taxation go to the States. The probable reason for this may be simply to achieve uniformity in personal income tax liability and make personal income tax an economic tool for the Federal Government for the purpose of influencing economic development in the country. The Federal Government has however not used its taxing power to enact a comprehensive personal income tax law for the whole country. The present tax law is the Personal Income Tax Decree of 1993 which repealed Income Tax Management Act 1961 and the Income Tax (Armed Forces and other Persons) (Special Provisions) Act 1972. 3.3.3 The Scope of the States Taxing Power As has already been stated, the Federal Government has enumerated powers of taxation. The 1999 Constitution has defined the cases in which the tax power of the Federal Government is to be exclusive (that is, Customs and Excise, Export duties,

46

Stamp duties, matters of taxation of incomes, profits and Capital gains). Outside of this list, the States are constitutionally competent to legislate on tax subjects as residual matters. Thus the powers of the States in respect of taxation are plenary except in so far as the contrary are expressly provided in the Constitution which in this case, are the enumerated taxing powers of the Federal Government. It is therefore the States that have an inherent taxing power and not the Federal Government. Now there is no specific mention of Sales tax as an item either in the Exclusive Legislative list or in the Concurrent list of the 1999 Constitution in contradistinction to its specific stipulation in the Exclusive lists of the 1960 and 1963 Constitution. The omission or exclusion of the Sales tax from any of the legislative lists in the 1999 Constitution therefore makes it a residual subject on which only the States can legislate. Furthermore, constitutionally there is no bar against multiple taxation. Thus where more than one legislative authority such as the Federal legislature and a State legislature have the power to levy a tax, there is nothing in the Constitution that prevents the same person or article being taxed by both the Federal and State Governments. What appears from the above constitutional analysis is that the States have the power to levy Sales Tax on commercial transactions of sales and purchase of commodities and services. The power of the States to do so does not therefore conflict with lie power of the Federal Government to exercise its general taxing power as expressly spelt out in the Constitution.

47

3.3.4 Tax Clearance Certificate It became compulsory as from 1st April 1978 for a taxpayer to produce a Tax Clearance Certificate for the preceding three years for some business transactions he wants to undertake with the Government. Some of the transactions and circumstances for which the production of a Tax Clearance Certificate is required are: 1. 2. 3. 4. 5. 6. 7. 8. 9. application for a government loan for industry or business; application for registration and licensing of vehicles; approval of building plans; application for Import Export licences; application for firearms licence; pools betting licences; issue and renewal of liquor licences; application for Government loans; application for foreign exchange or exchange control and permission to remit funds outside Nigeria;

10. application for Certificates of Occupancy; 11. application for transfer of real property; 12. issue and renewal of market stalls; 13. application for award of contracts by Government and its agencies and registered companies; 14. application for registration of a limited liability company or of a business name; 15. stamping of a guarantor's form for a Nigerian Passport; 16. application for a buying agent's licence;

48

17. application for registration as contractors by Government; 18. application for distributorship of commodities in Government owned Companies/Parastatals; 19. application for an Approved Users Certificate. Several Tax Acts have been promulgated in the past years in order to enhance the revenue accruing to Government from taxation. These tax decrees however do not amount to a comprehensive overhauling of the Nigerian tax system. They are only geared towards patching or reshaping the existing structure which complicates its conceptions. Finally, there is a complete dearth of Nigerian tax cases and so Nigerian courts and Tax Authorities refer frequently to English Tax cases which are of course necessary for the understanding of Nigerian Tax Laws. This is so because Nigerian Tax Law bears much similarity to English Revenue Law, at least as regards general principles of taxation. English precedents, though not legally binding here, and English methods for computing profits and income for tax purposes are therefore followed in Nigeria. 3.3.4 LIST OF APPROVED T32AXES AND LEVIES FOR THE THREE TIERS OF GOVERNMENT The following forms the list of taxes and levies for collection by the three tiers of government which has been approved by government and published by the Joint Tax Board (J.T.B.) as follows:

32

Online website of the Nigeria High Commission, Canberra, Australia

49

(A) Taxes collectible by the Federal Government i. Companies income tax; ii. Withholding tax on companies; iii. Petroleum Profit Tax; iv. Value-added tax (VAT); v. Education tax; vi. Capital gains tax - Abuja residents and corporate bodies; vii. Stamp duties involving a corporate entity; viii. Personal income tax in respect of: y Armed forces personnel; y Police personnel; y Residents of Abuja FCT; y External Affairs officers; and y Non-residents. (B) Taxes/Levies Collectible by State Governments i. Personal income tax: Pay-As-You-Earn (PAYE); Direct (self and government) assessment; Withholding tax (individuals only);
50

y y y

ii. Capital gains tax; iii. Stamp duties (instruments executed by individuals); iv. Pools betting, lotteries, gaming and casino taxes; v. Road taxes; vi. Business premises registration and renewal levy; urban areas (as defined by each state): maximum of N 10,000 for registration and N5 ,000 for the renewal per annum rural areas registration N2,000 per annum renewal N 1,000 per annum

y y y

vii. Development levy (individuals only) not more than N100 per annum on all taxable individuals; viii. Naming of street registration fee in state capitals ix. Right of occupancy fees in state capitals; x. Rates in markets where state finances are involved. (C) Taxes/Levies Collectible by Local Governments i. Shops and kiosks rates; ii. Tenement rates;

51

iii. On and off liquor licence; iv. Slaughter slab fees; v. Marriage, birth and death registration fees; vi. Naming of street registration fee (excluding state capitals): vii. Right of occupancy fees (excluding state capitals); viii. Market/motor park fees (excluding market where state finance are involved); ix. Domestic animal licence; x. Bicycle, truck, canoe, wheelbarrow and cart fees; xi. Cattle tax; xii. Merriment and road closure fees; xiii. Radio/television (other than radio/tv transmitter) licences and vehicle radio licence (to be imposed by the local government in which the car is registered); xiv. Wrong parking charges; xv. Public convenience, sewage and refuse disposal fees; xvi. Customary, burial ground and religious places permits; and

52

xvii.

Signboard/advertisement permit.

CHAPTER FOUR: PERSONAL INCOME TAX IN NIGERIA

4.1 Personal Income Tax in Nigeria Personal Income Tax is the oldest form of tax in the country. It was first introduced as a community tax in northern Nigeria in 1904, before the unification of the country in 1914, and was later implemented through the Native Revenue Ordinances to the western and eastern regions in 1917 and 1928, respectively. Among other amendments in the 1930s, it was later incorporated into Direct Taxation

53

Ordinance No. 4 of 1940. The need to tax personal incomes throughout the country prompted the Income Tax Management Act (ITMA) of 1961. In Nigeria, personal income tax for salaried employment is based on a pay as you earn (PAYE) system, and several amendments have been made to the 1961 Income Tax Management Act. For instance, in 1985 Personal Income Tax was increased from N 600 or 10 per cent of earned income to N 2,000 plus 12.5 per cent of income exceeding N 6,000. In 1989, a 15 per cent withholding tax was applied to savings deposits valued at N 50,000 or more while tax on rental income was extended to cover chartered vessels, ships or aircraft. In addition, tax on the fees of directors was fixed at 15 per cent. In 1990 further amendments were made to Personal Income Tax: apart from providing additional individual tax allowances, minimum taxation was reduced from 1 per cent to 0.5 per cent, so that individuals with incomes of N 3,000 or less were exempt from submitting tax returns. Non-residents were exempt from withholding tax on interest accruing in deposit accounts. Personal allowances were further extended in 1992 to reduce the tax burden of individuals while the monetization and taxation of fringe benefits were introduced. The application of Income Tax Management Act varied across regions/states, causing the burden of multiple taxes on individuals. Two study groups were subsequently set up in 1991 to review the situation and improve tax collection. The 1961 ITMA was replaced with an amended act, which was superseded in 1993 by Personal Income Tax Act (PITA) No. 104. It was applicable with nationwide coverage. Its administration, however, was assigned to the states, which were
54

empowered to tax individuals, or corporate or bodies of individuals residing in its territory in a particular year. Rates were also increased. The PITA coordinated the subsidiary legislations for the PAYE system, withholding taxes, among others, as stipulated by the Ministry of Finance. The PITA empowered the Joint Tax Board to administer the tax throughout the country and to coordinate its administration, while the State Board of Internal Revenue (SBIR) became responsible for the administration of the revenue. There have been some amendments since its implementation. For instance in 1994, to achieve progressive taxation, the withholding tax was increased from 5 to 10 per cent. Directors fees payable by property and investment companies were raised from N 3,000 to N 10,000 when a 30 per cent ceiling was set for PIT. Child allowance was first increased to N 1,000 and then, in 1996, to N 1,500 per child payable up to four children. In 1998 this became N 2,500 per child. In addition, tax relief to low-income earners was increased to N 2,500, and individual marginal taxes were decreased from 30 per cent in 1995 to 25 per cent in 1996. A recurring problem with Personal Income Tax is the non-compliance of employers to register their employees and to remit such taxes to relevant authorities. To address this, in 2002 the government amended the 1993 Personal Income Tax Act to make non-compliant employers liable to penalties up to N 25,000, as well as liable for the payment of all tax arrears. Employers failing to keep proper records would also face a penalty of N 5,000. A fine this small tends to encourage tax evasion since the penalty for being caught is lower than the cost for non-compliance. The issues of unremitted funds from the PAYE system and withholding taxes particularly among

55

government ministries and agencies as well as lax adherence by all three levels of government to the approved list for (tax) collection, as stipulated by the 1998 Taxes and Levies Act 21, have over the past five years attracted the attention of Joint Tax Board. Personal income tax failed in Nigeria for lack of equitability. In spite of the fact that the self-employed outnumber paid workers and that they earn as much as four times that of the formal sector employees, the bulk of Personal Income Tax is paid by employees whose salaries are deducted at source. Inadequate monitoring by tax authorities, the dominance of informal sector activities and the fact that many Nigerians live in rural areas make the coverage of self-employed workers difficult. Although regulations were enforced in Personal Income Tax Act No. 104 of 1993, amendments are still made on a yearly basis. In addition to the fact that amendments are not adequately informed to the public nor incorporated in the relevant legislation, the legal language is also ambiguous, confusing and unprofessional. There is very little tax education in Nigeria; taxpayers are ignorant of the laws regulating their taxation, and this makes disclosure difficult. Due to the absence of communication between the government and the people, most citizens view taxes as a mere legal hindrance rather than their civic responsibility. The CITN summarizes the problem confronting the Personal Income Tax administration as follows:

56

We must admit that tax administration is particularly hard here because literacy level is low and record keeping is not yet a popular culture. There are not enough tax officials to cover the field. Most of the officials are little trained, ill equipped, badly remunerated and corrupt Governments in Nigeria are perceived as a corrupt and selfish lot, to whom money should not ever be voluntarily given. Taxes paid are expected to end up in private pockets, not in public utilities. The foregoing not only makes compliance difficult, but also enforcement problematic. 4.2 The Legal Basis of Personal Income Tax In the taxation of persons in Nigeria the Federal Government has been progressively empowered by successive constitution since 1960 to provide uniform principles to be applied by all the States in the identification of taxable persons and income and the computation of taxable income, hence the enactment by the Federal Government of first the Income Tax Management Act, 1961 as severally amended and consolidated into ITMA cap 173 LFN 1990, and secondly the PITA 1993 which repealed ITMA. The Personal Income Tax Act 1993 identifies taxable persons and determines their assessable income. This is achieved by determining the residence of the taxpayer and the source of origin of his income. It further determines how the income so determined is to be taxed. Basically, by the provision of the Personal Income Tax Act every individual is liable to personal income tax in the State where he is resident or

57

deemed to be resident if on the first day of January in a year of assessment, he has a place or principal place of residence in that State. 4.3 Income Taxation Income serves as a basis for taxation basically because a tax payers income is used as the base for his tax liability. As In Nigeria and many other countries income is being used as the basis for taxation due to the fact that it has been considered anti social to live on ones capital and as Professor Wheatcroft pointed out in his book33: The tax collector requires his money next year as well as this one. He does not want to kill the goose that lays the golden eggs In the Nigerian taxing statutes, no comprehensive definition is given as to the meaning of the word income. Under the present Personal Income Tax Act (PITA)34, income is simply or evasively defined as including any amount deemed to be income under the Act. No doubt this definition has not helped matters in trying to delimit a clear boundary around the concept of income. The reluctance to draw a precise boundary in this regard is not a recent development. In London County Council v. Attorney General35, Lord Mac Naughten famously equipped, in an attempt to define the word income that Income tax, if I may be pardoned for saying so, is a tax on income. It is not meant to be a tax on anything else.
33

G.S.A. Wheatcroft, What is Taxable Income? (1957) B.T.R. Page 310 Section 3(3)(b) 35 (1901) AC 26
34

58

In countries with advanced tax system, the essence of income tax is hardly debatable, the greater percentage of taxable adults pay their taxes voluntarily. Speaking with reference to American tax system, Otto Eckstien observed in this pertinent manner: The most astonishing fact about the American tax system is the fantastic revenue it collects. Total taxes are over $536 billion, about 31 percent of gross national product. They are collected without violence or bloodshed, with only some mild griping ... This is a small miracle, it is possible because in our advanced society, business and individuals keep accounting record from which they can compute their tax bill. More importantly, it is possible because on the whole, people are willing to pay their taxes. Ours is a system of voluntary compliance, not assessment and enforcement by Government. People know that the common cost of national defence, of educating our children, and of necessary public services have to be met. Generally, people respect the law and pay their taxes. In Nigeria, the attitude of the citizens towards this civic responsibility (i.e. payment of tax) does not come near the Americans. Theirs is that of apathy. Taxation serves myriad functions. The revenue generated from taxation sustains the economic and social needs of the nation. Infact, taxation serves multifarious ends, some of which have political, economic or social bearings. In a nutshell, the essence of taxation is to raise revenue for government expenditure or finance government projects, control consumer demand, encourage investment and savings, fight
59

economic depression, inflation and deflation, guarantee equitable distribution of income and wealth, control the general trend of the national economy, and ensure a proper allocation of national resources. 4.4 Determination of Residence A UN manual explains the significance of residence for tax purposes: The jurisdiction to impose income tax is based either on the relationship of the income (tax object) to the taxing state (commonly known as the source or situs principle) or the relationship of the taxpayer (tax subject) to the taxing state based on residence or nationality.... Under the residence principle, a States claim to tax income is based on its relationship to the person deriving that income. For example, a State would invoke the residence principle to tax wages earned by a resident of that State without reference to the place where the wages were earned. In general, a State invokes the residence principle to impose tax on the worldwide income of its residents.36 Definitions of residence for tax purposes vary considerably from state to state. For individuals, physical presence in a State is an important factor. Some States also determine residency of an individual by reference to a variety of other factors, such as the ownership of a home or availability of accommodation, family, and financial interests. For companies, some States determine the residence of a corporation based on its place of incorporation. Other States determine the residence of a corporation by
United Nations Manual for the Negotiation of Bilateral Tax Treaties between developed and Developing Countries 2003.
36

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reference to its place of management. Some States use both a place-of-incorporation test and a place-of-management test. Domicile is, in common law jurisdictions, a different legal concept to residence. Residence as defined in double taxation treaties is different from residence as defined for domestic tax purposes. Tax treaties generally follow the OECD Model Convention which provides: 1. For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature, and also includes that State and any political subdivision or local authority thereof. This term, however, does not include any person who is liable to tax in that State in respect only of income from sources in that State or capital situated therein. 2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows: a) He shall be deemed to be a resident only of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident only of the State with which his personal and economic relations are closer (centre of vital interests); b) If the State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in
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either State, he shall be deemed to be a resident only of the State in which he has an habitual abode; c) If he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident only of the State of which he is a national; d) If he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement. 3. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident only of the State in which its place of effective management is situated.37 The concept of residence determines the extent to which the income of a taxpayer is liable to tax under a tax jurisdiction. In Nigeria, a resident person (individual or corporate) is assessable on the global income. This means that the taxpayer is liable to tax on the income or profits accruing, derived from, brought into, or received in Nigeria. It also determines the scope of deductions that may be allowed for the purpose of computing an individual's chargeable income. For instance, only residents may claim childrens allowance, dependants allowance and life assurance allowance.

37

http://www.oecd.org/dataoecd/50/49/35363840.

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For income tax purposes, a person may be resident, non-resident or possess dual residence. 4.4.1Residential Individual An individual is regarded as resident in Nigeria throughout an assessment year if he: (i) (ii) Is domiciled in Nigeria; Sojourns in Nigeria for a period or periods in all amounting to 183 days or more in a 12-month period; or (iii) Serves as a diplomat or diplomatic agent of Nigeria in a country other than Nigeria. 4.4.2 Resident Individual And Liability To Tax (i) The Profit of a trade, profession or vocation is liable to tax in Nigeria regardless of the period for which such a trade, profession or vocation has been carried on. (ii) Analysis Mr. John James entered Nigeria on 20th July, 1991 and remained in an employment in the country till May 31st, 1992. Employment income is liable to tax on the basis of residence.

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Treatment Under the old law, Mr. John James would not be regarded as resident in Nigeria since he stayed for less than 183 days in 1991 assessment year (July 20 to Dec. 31) and less than 183 days in 1992 Assessment Year (Jan. 1 to May 31). However, under the new law, he becomes resident and therefore liable to Nigerian tax as from January 19, 1992 (July 20, 1991 to Jan. 19, 1992 = 183 days). 4.4.3 Resident Corporation A company is resident in Nigeria if it is registered or incorporated in Nigeria. Under the old law, the determining factor was the "place of management". 4.4.4 Non Resident A non-resident corporation or individual is liable to tax only on the profit or income deemed to be derived from Nigeria. 4.4.5 Non-resident Individual A non- resident individual is a person who is not domiciled in Nigeria or who stays in Nigeria for less than 183 days but derives income or profits from Nigeria. A non-resident individual becomes liable to tax from the day he commences to carry on a trade, business, vocation, or profession in Nigeria. However, he is liable to tax in respect of employment income when he becomes resident. 4.4.6 Non-Resident Corporation

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This is a company or corporation that is not registered or incorporated in Nigeria but which derives income or profits from Nigeria. It is to be mentioned here, for the sake of emphasis, that exemption from incorporation does not confer exemption from payment of tax on any company. Every company, resident and nonresident, is liable to tax in Nigeria if its income is liable to tax under the provisions of the Companies Incomes Tax Act. It is also to be pointed out that the Nigerian tax laws do not exempt the income of a branch from tax. An individual or corporation may have dual or multiple residence status. 4.4.7 Dual Residence of Individuals (Local) Ordinarily, a resident individual is subject to tax in Nigeria in the State where the individual normally resides. In the case where such an individual has two or more places of residence in Nigeria for income tax purposes, he is subject to tax in the State where he has the principal place of residence. The term principal place of residence means, for an individual with: (i) Pension as the only source of-earned income, his usual residence constitutes the principal place of residence. (ii) Source of earned income other than pension, and the place nearest to his usual place of work; and (iii) Sources of unearned income, his usual residence. Where the determination of the principal place of residence leads to dispute

65

between two or more tax authorities, the Joint Tax Board determines the tax jurisdiction. In practice, the determining factor is the source of earned income. 4.4.8 Local Dual Residence of a Corporation The constitutional arrangement in Nigeria vested the taxation of all companies in the Federal tax authority. This does not allow for the dual residence of corporations locally. All corporations wherever located in Nigeria are under Federal tax jurisdiction. Therefore, the problem of local dual residence of corporations does not arise. 4.4.9 International Dual Residence The definition of the term residence differs from one country to the other. For instance, in Nigeria, the length of stay to qualify a taxpayer as a resident is reckoned within a 12-month period. In some countries, this is reckoned within an assessment year - allowing for the qualifying period of stay to split over two years of assessment. In some other countries (e.g. the USA), the citizen is regarded as resident in the home country whatever the length of stay abroad. This creates the problem of dual residence for the individual who is regarded as resident in more than one country. For example, he is regarded as resident at the same time in country A where nationality is the basis of residence, in country B where he has stayed for more than 183 days in a 12-month period and, maybe, in his home country where he is away for the less than 183 days in that assessment year.

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A corporation may also have the problem of dual residence. For instance, the definition of the residence of a corporation in Nigeria is the place of incorporation. In some other countries, the relevant criterion may be the "place of management" or the "place of residence of the directors". In this instance, the Nigerian tax authority would treat the corporation as resident in Nigeria on the basis of the place of incorporation while the tax authority of the other country would regard the same corporation as resident in that other country on the basis of place of management. The Nigerian tax treaties govern the treatment of such cases and affected companies can claim tax credit for the Nigerian tax in their home countries to avoid double taxation. 4.5 Chargeable Income According to Section 3238 chargeable income is the total income of an individual as ascertained under the Act, after excluding any income exempted or expenses made deductible by the Act. It provides as follows: Section 32. Ascertainment of chargeable income.

Where income tax is payable for any year of assessment on the chargeable income of an individual, other than a corporation sole or body of individuals, the amount of that chargeable income shall, notwithstanding anything to the contrary in any other enactment or law relating to the ascertainment of chargeable income, be the amount of the total income of that individual for that year, ascertained under the provisions of this Act , after any income exempted has been excluded therefrom and the deductions allowed by this Part of this Act have been made. 4.6 Employment Taxation

38

PITA

67

According to Section 3(1)(b)39 any salary, wage, fee, allowance or other gain or profit from employment including compensations, bonuses, premiums, benefits or other perquisites allowed, given or granted by any person to an employee is liable to income tax. Section 10840 states that "employment" includes any appointment or office whether public or otherwise for which remuneration is payable, and "employee" and "employer" shall be construed accordingly. Section 3(2)(d) further states that "employment" includes any service rendered by any person in return for any gains or profits. Thus remuneration arising from employment, which includes office, is chargeable to income tax. Also, any gains or profit which arises from the rendering of any service is taxable, except it is exempted under the Act. With the combined effect of sections 3(1)(b), 3(2)(d) and 108,41 remuneration from employment or office is taxable in the hands of the employee. 4.6.1 Employment Income Exempt From Tax Section 3 (1)(b) makes provisions for the employment income exempted for tax as follows: (b) any salary, wage, fee, allowance or other gain or profit from employment including compensations, bonuses, premiums, benefits or other perquisites allowed, given or granted by any person to an employee other than 39

PITA PITA 41 PITA

40

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(i) so much of any such sums as may be admitted by the relevant tax authority to represent reimbursement to the employee or expenses incurred by him in the performance of his duties, and from which it is not intended that the employee should make any profit or gain, (ii) medical or dental expenses incurred by the employee,

(iii) the cost of any passage to or from Nigeria incurred by the employee, (iv) any sum paid in respect of the maintenance or education of a child if any provision of this Act provides that any sum received by the employee during a year of assessment shall be deducted from the personal reliefs to be granted to him for the next following year, (v) so much of any amount of rent the employee is treated as being in receipt equal to the annual amount deemed to be incurred by the employer under section 4 of this Act , (vi) so much of any amount of rent the employee is treated as having received under the provisions of section 5 of this Act, (vii) so much of the amount of rent subsidy or rent allowance paid by the employer, to or on account, for the employee not exceeding N100,000 per annum, (viii) the amount not exceeding N15,000 per annum paid to an employee as transport allowance, (ix) meal subsidy or mean allowance, subject to a maximum of N5,000 per annum, (x) utility allowance of N10,000 per annum, (xi) entertainment allowance of N6,000 per annum, (xii) leave grant, subject to a maximum of 10 per cent of annual basic salary; (c) gain or profit including any premiums arising from a right granted to any other person for the use or occupation of any property; (d) (e) dividend, interest or discount; any pension, charge or annuity;

(f) any profit, gain or other payment not falling within paragraphs (a) to (e) inclusive of this subsection.

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4.7

Deduction, Reliefs and Exemptions Not all expenditure deductible under accounting principles are equally

deductible for income tax purposes, and in such cases, provisions of the tax statute prevail. Generally for an income to be deductible, it must satisfy the following provisions of the Personal Income Tax42: Section 20. Deduction allowed.

(1) For the purpose of ascertaining the income or loss of an individual for any period from any source chargeable with tax under this Act there shall be deducted all out going and expenses, or any part thereof, wholly, exclusively, necessarily and reasonably incurred during that period and ultimately borne by that individual in the production of the income, including a sum payable by way of interest on money borrowed and employed as capital in acquiring the income; interest on loans for developing an owner-occupied residential house; rent for that period, and premiums the liability for which was incurred during that period, payable in respect of land or buildings occupied for the purpose of acquiring the income; and any expense incurred for repair of premises, plant, machinery or fixtures employed in acquiring the income, or for the renewal, repair or alteration of any implement, utensil or article so employed: Provided that if the premises, plant, machinery, fixtures, implement, utensil or article are used in part for domestic or private purposes, so much of the expense as relates to such use shall not be so deducted; bad debts incurred in any trade, business, profession or vocation, proved to have become bad during the period for which the income is being ascertained, and doubtful debts to the extent that they are respectively estimated to have become bad during the said period and notwithstanding that such bad or doubtful debts were due and payable prior to the commencement of the said period:
42

Section 20 PITA

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Provided that (i) where in any period a deduction under this paragraph is to be made as respect any particular debt, and a deduction has in any previous period been allowed in respect of the same debt, the appropriate reduction shall be made in the deduction to be made in the period in question, (ii) all sums recovered during the said period on account of amounts previously written off or allowed in respect of bad or doubtful debts shall for the purposes of this Act be deemed to be income of the trade, business, profession or vocation of that period, (iii) it is proved that the debts in respect of which a deduction is claimed either were included as a receipt of the trade, business, profession or vocation in the income of the year within which they were incurred, or were advances not falling within the provisions of subsection (b) of section 21 of this Act made in the course of normal trading, business, professional or vocational operations; a contribution or an abatement deducted from the salary or pension of a public officer under the Pensions Act or under any approved scheme within the meaning of that Act, and any contribution, other than a penalty, made under the provisions of any Act establishing the Nigeria Social Insurance Trust Fund or other retirement benefits scheme for employees throughout Nigeria; a contribution to a pension, provident or other retirement benefits fund, society or scheme approved by the Board subject to the provisions of the Fourth Schedule to this Act and such conditions as the Board in its absolute discretion may prescribe: Provided that where the instruments establishing in Nigeria any such fund, society or scheme contain inter alia a general power or duty of the trustees or managers thereof to invest the moneys of the fund, society or scheme, and on the first day of any year of assessment commencing after the thirty-first day of March, 1962 (i) in the case of a fund, society or scheme deemed to have been approved under the provisions of this Act , less than thirty- three and one third per centum of all moneys which are so invested is invested in securities issued by or under the authority of any Government in Nigeria, or (ii) in the case of a fund, society or scheme approved under the provisions of this section, less than fifty per centum of all moneys which are so invested is invested in securities issued by or under the authority of any Government in Nigeria,

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the deemed approval or approval of such fund, society or scheme shall have no effect for any purpose of this Act for that year of assessment; in the case of income from a trade, business, profession or vocation, any expenses or part thereof incurred for that period (whether the liability was met during that or any previous period) wholly and exclusively for the purpose of the trade, business, profession or vocation unless those expenses or the same part thereof is deductible for that or any other period under the foregoing provisions of this section, and for the purpose of this paragraph an expense incurred during a period shall be treated as having been incurred for that period to the extent that it is not specifically referable to the income of any other period; any expenses which is proved to the satisfaction of the relevant tax authority to have been incurred by the individual on research for the period including the amount of levy paid by him under the National Agency for Science and Engineering Infrastructure. (2) Where the income is chargeable solely by reason of it being brought into or received in Nigeria, nothing in this section shall confer a right to any deduction from the amount of that income so brought into or received in Nigeria. 4.7.1 Deductions Not Allowed The Personal Income Tax Act also disallows deductions under the Act.43 The disallowed deductions include: Section 21. Deductions not allowed.

Subject to the express provisions of this Act, no deduction shall be allowed for the purpose of ascertaining the income of any individual in respect of (a) domestic or private expense;

(b) capital withdrawn from a trade, business, profession or vocation and any expenditure of a capital nature; (c) any loss or expense recoverable under an insurance or contract of indemnity;

43

Setion 21 PITA

72

(d) rent of or cost of repairs to any premises or part of premises not incurred for the purpose of producing the income; (e) taxes on income or profits levied in Nigeria or elsewhere except as provided in section 13 of this Act ; (f) any payment to a pension, provident, savings or widows' and orphans' society, fund or scheme, except as permitted by paragraphs (f) and (g) of subsection (1) of section 20 of this Act ; (g) the depreciation of any asset;

(h) any sum reserved out of profits, except as permitted by paragraph (e) of subsection (1) of section 20 of this Act or as may be estimated by the relevant tax authority , pending determination of the amount, to represent the amount of any expense deductible under the provisions of that section the liability for which was irrevocably incurred during the period for which the income is being ascertained; (i) any expenses of any description incurred within or outside Nigeria for the purpose of earning management fees unless prior approval of an agreement giving rise to such management fees has been obtained from the Minister; (j) any expense whatsoever incurred within or outside Nigeria as management fees under any agreement entered into after the commencement of this paragraph except to the extent as the Minister may allow. A deduction already made under section 20 but which was subsequently refunded be it wholly or partly, shall to such an extent be deemed income, on the day the refund was made.44 4.7.2 Personal Income Tax Reliefs The following reliefs are available to a taxpayer under the PAYE system and are deducted from his emoluments before arriving at the taxable income: 1. Personal Allowance N5,000 plus 20% of earned income45
44

Section 22 PITA

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2. Child Allowance A relief of N2, 500 is granted for each child up to a maximum of four children, provided that none is above 16 yrs or married. However, a relief can be granted for a child over 16 yrs if he is in a recognised school, under articleship or learning a trade. 3. Dependent relative, a relief of N2, 000 is granted for each dependent relative up to a maximum of two relatives who are widowed or infirm. 4. Housing Maximum of N150, 000 per annum 5. Transport Maximum of N20, 000 per annum 6. Meal Maximum of N5, 000 per annum 7. Utility Maximum of N10, 000 per annum 8. Entertainment Maximum of N6, 000 per annum 9. Leave allowance 10% of annual basic salary 10. Reimbursable such as Medical, Car Maintenance and Cost of passage to the extent that expenses have been incurred and it is not intended that employee should make any gain. 11. Pension Any amount contributed by the employee to the pension scheme. The above is basically provided for in the Act46 as follows: Section 33. Personal relief and relief for children, dependants.

(1) There shall be allowed as personal relief in the case of every individual, a deduction of five thousand naira plus 20 per cent of earned income.

45 46

Earned income has been defined as the employees gross emoluments Section 33 PITA

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(2) In the case of an individual (other than a person to whom paragraph (b) (iv) of section 2 (1) of this Act relates) who ordinarily resides in Nigeria, or who at any time during the year of assessment (a) becomes ordinarily resident in Nigeria in connection with any trade, business, profession or vocation carried on by him; or (b) exercises any employment, the whole gains or profits of which are deemed under the provisions of section 12 of this Act to be derived from Nigeria, there shall also be allowed the deduction specified in subsection (3) of this section. (3) The deduction allowed under subsection (2) of this section shall be(a) a deduction of the amount of any alimony not exceeding three hundred naira paid to a former spouse under an order of a court of competent jurisdiction in the case of an individual whose marriage has been dissolved; (b) a deduction of two thousand five hundred naira in respect of each unmarried child who was maintained by the individual during the year preceding the year of assessment and who, on the first day of that preceding year, had either not attained sixteen years of age, or was receiving full time instruction in a recognised educational establishment, or was under articles or indentures in a trade or profession: Provided that (i) no deduction under this paragraph shall be allowed to any individual in respect of more than four children and for the purpose of applying this restriction, a husband and his wife or wives not separated from him by deed or an order of any court shall be treated as one and the same individual, (ii) no additional deduction shall be allowed in respect of the costs incurred in connection with the education of any child in respect of whom he is entitled to a deduction under this paragraph, (iii) where the cost of maintaining a child is shared between two or more persons, the relevant tax authority may apportion the sum of five hundred naira as may seem to it to be equitable between those persons, and the deduction to be allowed under this paragraph to any individual in respect of that child shall be his apportioned share of that sum,

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(iv) a widow who remarries shall be allowed a deduction of five hundred naira for every child (up to a maximum of four children) in respect of the children born by her to her deceased husband; (c) a deduction of the costs incurred by the individual during the year preceding the year of assessment in maintaining or assisting to maintain a close relative of the individual or of the individual's spouse who was either incapacitated by old age or infirmity from maintaining himself or is the widowed mother (whether so incapacitated or not) of the individual's spouse: Provided that (i) no deduction shall be allowed in respect of any relative whose income of the year preceding the year of assessment exceeded one thousand naira, (ii) the aggregate of all deductions to be allowed to two or more individuals for any year in respect of any one relative subject to a maximum of two relatives, shall not exceed two thousand naira and, if the total of the costs incurred by them in respect of the same relative exceed that sum, then the amount of the deduction to be allowed to any such individual shall be that same proportion of that sum and the cost so incurred, (iii) the aggregate of all deductions to be made under this paragraph in ascertaining the chargeable income of any one individual for any year, shall not exceed four thousand naira. (d) a deduction of the annual amount of any premium paid by the individual during the year preceding the year of assessment to an insurance company in respect of insurance on his life or the life of his spouse, or of a contract for a deferred annuity on his own life or the life of his spouse; (e) deduction of additional three thousand naira or 20 per cent of the earned income whichever is higher, in the case of a disabled person who uses special equipment or the services of an attendant in the course of a paid employment. Provided that the amount of deduction under this paragraph shall not exceed 10 per centum of the earned income of the person for that year. (4) A deduction to be allowed to an individual for a year of assessment under the provisions of this section, other than paragraph (a) of subsection (3) of this section, may -

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(a) be claimed by and allowed to that individual or the spouse of that individual not separated from him by deed or an order of a court on the first day of such year; or (b) be partly claimed by and allowed to each spouse,

but in no case shall the aggregate of the deduction allowed to any husband and his wife or wives exceed the amount which would be allowed if such individuals were treated as one and the same individual. (5) Where a deduction is claimed in respect of any one child under paragraph (b), or any one dependant under paragraph (c) or any one annual premium under paragraph (d) of subsection (3) of this section, for the same year of assessment, by both husband and wife and the aggregate amount of the deductions so claimed exceeds the amount to be allowed, then in that case the relevant tax authority shall apportion the amount to be allowed as it sees fit for deduction in ascertaining the separate chargeable income of each such husband or wife. (6) Where pursuant to a direction of the relevant tax authority a deduction is allowed under this section to a husband or wife and the deduction has not been claimed, it shall be allowed to the husband or wife, or to be apportioned between them as the relevant tax authority in its absolute discretion may decide. The reliefs are claimable only upon application to the relevant Revenue authority by completing the required forms; in this case, the Self Assessment Forms.47 4.7.3 Benefits-in-Kind (BIK) BIK provided to the employee by the employer are deemed to be part of such employees gross emoluments and include: 1. Where the employee uses an asset, such as an official car, owned by the employer, the employee is treated as being in receipt of a taxable emolument of 5% of the original cost of the asset;

47

Section 34 PITA

77

2. Where the asset is hired or rented for the employee by the employer, the employee is treated as being in receipt of the amount paid to the landlord or the hirer; and in the case of provision of accommodation for an employee, the annual rate or rate-able value of the accommodation is taken as part of the employee's emoluments. Penalties for Non-Compliance 1. Failure by the employer to deduct tax from the employee attracts penalty of 10% and Interest at commercial rate (currently 21%) along with the principal amount payable. 2. Rendering of incorrect/false returns attracts, on conviction, a fine of N200 and double the amount of tax undercharged.

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CHAPTER FIVE: PROBLEMS OF PERSONAL INCOME TAX IN NIGERIA

5.1 Problems of Personal Income Taxation in Nigeria It has long been evident that personal income tax in Nigeria has remained the most unsatisfactory, disappointing and problematic of all the taxes in the tax system today. This is in spite of the fact that tax reform has of recent been a key element in economic reform which the country had undergone. It is therefore felt that personal income taxation in Nigeria requires radical handling to ensure that a large chunk of the taxable population does not escape tax. Personal income tax is closely related to the pace of development and growth of the economy. An effective tax system ought to satisfy the twin purpose of raising maximum revenue and at the same time encourage production. In an effectively managed tax system, the two purposes are not irreconcilable provided of course that the beneficial effects of Governmental expenditure and incentives for production exceed the unfavourable effects of taxation. An effective tax system, aside from maximizing revenue for development, ought to, if well structured and managed elicit a

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feeling of common purpose joint responsibility or obligation amongst the taxable persons in a country.

5.2

Tax Collection

5.2.1 The Problem of Tax Collection The assessment and collection of personal income tax from taxable individuals have been difficult in this country. There is apathy not only on the part of the educated but also the uneducated. While the illiterates refuse to pay because they are unaware of the purpose of taxation and therefore regard a tax collector or rather a tax officer as an instrument of oppression, the rich ones refuse because they are not encouraged not only by the Government which wastes taxpayer's money on white elephant projects but also by the tax official who lives above his means. Having suggested that tax collection is one of the fundamental problems in income tax administration, the question then is how can this problem be surmounted? While some have advocated a more positive role for the Joint Tax Board to tackle the problem emanating from tax collection, others have suggested an enlargement of the tax base to include other sources. In the rural areas for instance, it has been recommended that an innovation where the Obas, Obis, Emirs, Chiefs and heads of

80

the various communities and towns would act as official tax collectors on behalf of the Government should be adopted. The call for the hitherto forgotten traditional methods of tax collection may have some merit especially with regard to rural peasants who are self employed. If adopted, a lot of revenue from rural areas will accrue to the government. That apart, such an innovation would go a long way in solving the problem of absence of adequate structure and organization of the body charged with the responsibility for assessment and collection of income tax. But before venturing further, it is important to again clarify the fact that personal income tax deals with direct taxation, and as such the citizens who fall under the direct assessment are the self-employed and workers who come under the PAYE (pay as you earn) system of tax. It is thus important to note that the problem of tax collection lies more with the self employed rather than those under (PAYE). Thus, the self employed is difficult to pin down. Where he is skillful and manipulative or has the services of a knowledgeable tax lawyer, he may devise or arrange his financial affairs so as to avoid or reduce the appropriate tax payable under the circumstances". Thus the problems of tax avoidance and evasion are more common with the self employed such as, distributors of manufactured goods, petrol dealers, contractors, doctors, and lawyers and other professionals in private practice, rather than those that derive their income from rents, dividends, interests, and properties.

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Generally, these are obvious and perplexing difficulties inherent in the assessment of the self-employed to tax. The reason is not far-fetched. The direct method of assessment requires the self employed to collected return of income form, fill and submit to the relevant tax office. This method, it is submitted is subject to abuse, for, it provides the tax payer the opportunity to under-assess his income due either to the inherent loopholes in our system or the manifest dishonesty and disloyalty of most self-employed tax payers. Moreover, the level of voluntary compliance amongst the category of tax payers is abysmally low. Infact, as data or statistics has shown consistently over the years, while the self-employed paid less than 9.9% of the personal income tax, employees under the (PAYE) scheme paid well over 90 percent.48 Apart from problems of willful default, tax avoidance and evasion, delayed payment of tax, there is also the problem of lack of co-ordination between the various government departments. Sometimes when information is demanded of other government departments about certain tax payers, this is often refused. There is also the problem of wrong information about tax payers' residential addresses. The most serious omission however is the lack of provision in our tax law empowering tax officials to arrest and detain tax officials. Other problems which hinder the administration of personal income tax are mainly internal. And these include for instance, fraudulent practices of tax officials,

48

Board of Inland Revenue

82

high handedness on the part of tax officials in the process of dealing with tax payers and undue delay in remitting approved benefits to legitimately entitled tax payers. The above scenario, no doubt weakens the effective administration of personal income tax and any tax system. It is concluded here that to ensure that the tax system will not continue to be plagued by both external and internal administrative factors, it is imperative to strengthen tax administration so that the primary purpose of taxation, that is, the raising of maximum revenue for Government expenditure would be achieved.

5.3

Tax Evasion and Tax Avoidance

5.3.1 Introduction Tax evasion and avoidance, a problem which seemed to have defied solution, had bedeviled the Nigerian tax system right from the colonial times. While some have blamed the situation on the tax authorities for not living up to expectation with regards to tax administration, others attribute it to the unpatriotic attitude of the taxpayers. It was evident, among others, that loopholes in the tax laws, poverty and lack of adequate public enlightenment are responsible for the problem. The taxpayer perpetrates this unpatriotic act through such means as concealment of profit and interference with the Revenue agents through bribery and corruption. The situation results in the inability of government to render essential

83

services adequately, creation of resentment among honest taxpayers, and inequality in the society. It was recommended that tax officials should be constantly trained and retrained on the job, a deliberate and more aggressive public enlightenment campaign be embarked upon by government and the establishment of Revenue Courts by state governments having powers to impose heavy monetary penalties and criminal sanctions. The desire to uplift ones society is the first desire of every patriotic citizen. Tax payment is a demonstration of such a desire. The payment of tax is a civic duty and an imposed contribution by government on her subjects and companies to enable her finance or run public utilities and perform other social responsibilities. Taxes, thus, constitutes the principal source of government revenue. However, one of the greatest problems facing the Nigerian Tax System is the problem of tax evasion and tax avoidance. While tax evasion is the willful and deliberate violation of the law in order to escape payment of tax which is unquestionably imposed by law of the tax jurisdiction, tax avoidance is the active means by which the taxpayer seeks to reduce or remove altogether his liability to tax without actually breaking the law. These Twin devils have created a great gulf between actual and potential revenue. The government has for the umpteenth time complained of the widespread incidence of tax avoidance and evasion in the country as companies and other taxable persons employ various tax avoidance devices to escape or minimize their taxes or deliberately employ fraudulent ways and means of evading tax altogether sometimes with the active connivance of the tax officials.
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As pointed out by Reynolds (1963)49, since tax is a principal source of government revenue, if persons are able to escape by legal or illegal means the tax to which they should logically be subject under the general scope of the tax, the theoretical equity of the tax to a large measure is lost. Tax evasion and avoidance no doubt deny any government the tax revenue due to her, which results in a gap between the potential and actual tax collections. 5.3.2 The Problem of Tax Evasion and Tax Avoidance Although tax evasion and avoidance are problems that face every tax system, the Nigerian situation seems unique when viewed against the scale of corrupt practices prevalent in Nigeria. Under direct personal taxation as practiced in Nigeria, the major problem lies in the collection of the taxes especially from the self-employed such as the businessmen, contractors, professional practitioners like lawyers, doctors, accountants, architects and traders in shops among others. As observed by Ayua (1999)50 these persons blatantly refuse to pay tax by reporting losses every year. According to him, many of these professionals live a lifestyle inconsistent with reported income, which is usually unrealistically low for the nature of their businesses. Civil Servants and other salaried workers are the only class of people that actually pay tax in Nigeria. However, even among the salaried workers, he added, many have turned the statutory personal allowances and relief into a fertile ground for tax evasion. Almost all Nigerian taxpayer is married with four children!

49 50

Reynolds, L.G. (1963) Government Finance and Economic Analysis Heineman Publications. Ayua, I.A. (1999) The Nigerian Tax Law, Ibadan Spectrum Law Publishing.

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Similarly, despite the tax provision meant to plug loopholes through which taxable persons can minimize tax liability the self-employed persons employ all kinds of avoidance schemes to minimize or escape tax liability and makes one wonder whether there are still any tax officials working in that capacity. Such scenarios, no doubt, say a lot about tax administration system in Nigeria both in its design and in the disposition of some taxpayers towards taxation. While it immediately presupposes that there are legal framework put in place to punish tax evaders it perhaps raises a poser on the efficiency and effectiveness of tax laws and tax administration in Nigeria. Some state governments in an effort towards solving this problem had even gone to the extent of engaging the services of tax consultants. This government effort, notwithstanding, the problem of tax evasion and avoidance still persists (Alabi, 2001)51. There is no doubt that revenue due any government will be reduced by the unpatriotic act of tax evaders. 5.3.3 Personal Income Tax and Tax Evasion and Avoidance Personal Income Tax As discussed in the aforementioned chapters of this long essay, personal income tax is a tax levied on employment income and any other income received by individuals. Individuals here being those in paid employment and those in selfemployment, i.e. those engaged in a trade, business, profession or vocation such as lawyers, accountants, doctors, traders in shops etc.
51

Alabi Soji (2001) Tax Planning A Paper delivered at the Workshop on Nigerian corporate and Personal Income Tax Management, Yaba, Lagos, August 15th.

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The assessment and collection of this tax in Nigeria is regulated by the Personal Income Tax Act LFN52 1993. It is this law that gives the necessary procedures and administrative powers to impose and collect taxes from persons, individuals, partnerships, executors, trustees Family or Communities Corporation sole or body of individuals. Personal Income Tax is collected by the various state governments through the State Board of Internal Revenue (SBIR) from individuals resident in the tax territory. However, taxes from certain categories of individual - members of the Armed Forces, the Nigeria Police, FCT residents, External Affairs Officials and non-resident individuals- are collected by the Federal Government via the Federal Board of Inland Revenue (FBIR). By the provisions of the Approved list for Collection Decree (Decree No. 21 of 1998), the following taxes/levies are collectible by State Governments in Nigeria: 1. Personal Income Tax: a) Pay-as-you-earn (PAYE), b) Direct (Self and government) Assessment; c) Withholding Tax (individuals only). 2. Capital Gains Tax (Individuals only) 3. Stamp Duties (instruments executed by individuals);
52

Laws of the Federation of Nigeria

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4. Pools Betting and Lotteries, Gaming, and casino Taxes; 5. Road Taxes; 6. Business premises registration and renewal levy: i) Urban areas as defined by each state: maximum of N10,000.00 for registration and N5,000.00 for renewal per annum, ii. Rural areas: -Registration: N2000.00; -Renewal: N1000.00 per annum. 7. Development Levy (individuals only) not more than N100.00 per annum on each taxable individual; 8. Naming of street registration fee in state capitals; 9. Right of occupancy fees on land owned by the state government in urban areas of the state. 10. Market taxes where state finance is involved. 5.3.4The Meaning of Tax Evasion and Tax Avoidance Tax avoidance arises in a situation where the taxpayer arranges his financial affairs in a way that would make him pay the least possible amount of tax without infringing the legal rules. In short it is a term used to denote those various devices which have been adopted with the aim of saving tax and thus sheltering the tax payers

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income from greater liability which would have been otherwise incurred (Kiabel, 2001)53. Ani et al (1978) had described tax avoidance as follows: The taxpayers knowing what the law is decides not to be caught by it, arranges his business in such a manner as to escape tax liability partially or entirely. It is a lawful trick or manipulation to evade the payment of tax. The meaning of tax avoidance is vividly captured in the case involving Ayrshire Pullman Motor Services & David M. Ritchie Vs Commissioner of Inland Revenue when the Lord President, Lord Clyde held that: No man in this country is under the smallest obligation moral or otherwise so to arrange his legal relations to his business or to his property as to enable the Inland Revenue to put the largest possible shovel into his stores. The Inland Revenue is not slow and quite rightly to take every advantage, which is open to it under the taxing statutes for the purpose of depleting the taxpayers pocket. And the taxpayer is in like manner entitled to be astute to prevent so far as he honestly can the depletion of his means by the Revenue. Thus, it is clear that tax avoidance is legal or at least not illegal since one is mostly probably using the tax laws to limit his tax liability under the same laws. Examples of tax avoidance include:

53

Kiabel, B.D. (2001) Personal Income Tax in Nigeria Owerri, Springfield Publishers.

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(i) Seeking professional advice; (ii) Reducing ones income by submitting claims for expenses in earning the income; (iii) Increasing the number of ones children (in Nigeria the maximum allowable is four); (iv) Taking additional life assurance policies. Tax avoidance is thus considered to be a matter of being sensible. While the law regards tax avoidance as a legitimate game, tax evasion is seen as immoral and illegal. Tax evasion is an outright, dishonest action whereby the taxpayer endeavours to reduce his tax liability through the use of illegal means. According to Farayola (1987)54: Tax evasion is the fraudulent, dishonest, intentional distortion or concealment of facts and figures with the intention of avoiding the payment of or reducing the amount of tax otherwise payable. Tax evasion is accomplished by deliberate act of omission or commission which in themselves constitute criminal acts under the tax laws. These acts of omission or commission might include: a) Failure to pay tax e.g. withholding tax;

54

Farayole, G.O (1987) Guide to Nigerian Taxes Lagos All Crowns Nig. Ltd.

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b) Failure to submit returns; c) Omission or misstatement of items from returns; d) Claiming relief (in Personal Income Tax), for example, of children that do not exist; e) Understating income; f) Documenting fictitious transactions; g) Overstating expenses; h) Failure to answer queries. The most common form of tax evasion in Nigeria is through failure to render tax returns to the Relevant Tax Authority. A tax evader may be charged to court for criminal offences with the consequent fines, penalties and at times imprisonment being levied on him for evading tax (Faseun 2001)55. And as observed by Sosanya (1981): Tax evading has become the favourite crime of the Nigerian, so popular that it makes armed robbery seem like minority interest. It has become so widespread that there now exists a cash economy of vast proportions over which the taxman has no control and which is growing at several times the rate of the national economy.

55

Faseun L. A.(2001) Tax Planning Lagos Tax the Newsletter of CITN-Lagos District Society Vol. No.1

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No doubt, tax evasion and avoidance had robbed the Nigerian government of substantial tax revenue. According to the Nigerian Stock Exchange, 85 percent of corporate tax revenue in the country accrues from the 196 companies listed on the exchange compared to the 30,000 companies registered with the Corporate Affairs Commission. This is a serious indictment of the administrative machinery and capacity of the tax authorities in Nigeria.

5.3.5 Causes of Tax Evasion and Tax Avoidance in Nigeria The causes of tax evasion and avoidance are universal, as they are applicable in any country that tax is imposed. Some are peculiar to different areas, however. In Nigeria some of these causes as identified by Onuigbo (1986)56 include: 1. The Absence of a Quid Pro Quo The average human being abhors the payment of tax. He sees taxation as a discredited imposition and evidently obnoxious. This stems mainly from the absence of a quid pro quo i.e. something of value given in return (by the Government) for the taxes paid. Taxes, it is commonly argued, should not be paid as the authorities do not provide amenities which are in any way commensurate with the taxes paid. There is no guaranteed compensatory benefit. 2. Inequitable Distribution of Amenities
56

Onuigbo, O. (1986) Banking and Finance for Professional Examinations Aba Yonkee Standard Press Ltd

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In many parts of Nigeria citizens are opposed to the payment of any form of taxes and rates on the ground that government had been unfair in the distribution of amenities and other good things of life. This thinking is often a root cause of most civil disturbances in parts of the country.

3. Misuse or Mismanagement of Collections Made More often than not there are reports in the news media of how government functionaries misuse taxpayers money. Evidence of wastage of public funds abound in the form of inflated contract prices, in unexecuted but paid contracts, or in the criminal acts of using diverse methods and loopholes to exhaust funds voted for ministries and governmental departments before the financial year runs out. The cumulative effect thereby produced is the resolve of many honest taxpayers never to pay their due taxes again, or at most pay under compulsion. 4. Remoteness of Taxpayers from the Government There is this common belief which most taxpayers have about the nature of government. The average Nigerian has an inborn bias or hatred against most government functionaries who in most cases live apart from the taxpayers. It hurts, most taxpayers would reason, for one to part with his hard earned resources for the upkeep of these (imagined) enemies.

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The creation of local government councils, which is supposed to bring government closer to the people had not helped matters. As argued by Kiabel (2001)57, a solution to the problem probably lies in the proper education and orientation of the taxpayers towards government and its functionaries.

5. Absence of Spirit of Civic Responsibility Most Nigerians probably due to illiteracy and ignorance fail to understand that they owe certain responsibilities to government, one of which is the payment of tax. Even when the government says it is poor they would rather argue that the government should print more money to solve her problems. This lack of spirit of civic responsibility amongst the majority of Nigerians is a major cause of tax evasion in Nigeria. Some other authors have at one time or the other attributed the causes of tax evasion and avoidance to various reasons. For example Orewa (1957)58 had earlier investigated the characteristics of evasion and found that complete evasion results from high degree of inter-district mobility on the part of the taxpayers. According to him, due to mobility, evasion is more pronounced on the part of self employed taxpayers who move from compound to compound at frequent intervals than it is with salary and wage earners with known and permanent address. He contended also that partial evasion may be due to inadequate accounting records maintained by traders,
57 58

Kiabel, B.D. (2001) Personal Income Tax in Nigeria Owerri, Springfield Publishers. Orewa, G.O. (1957) Taxation in Western Nigeria London Oxford University Press.

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mistaken belief on the part of some illiterate taxpayers that only wages and salaries represent taxable income. Kiabel (2001)59 has argued that some businessmen do not see any reason why they should pay tax irrespective of the fabulous profits made. This is the direct display of the spirit of unpatriotism. Such people take the stand that no matter the income or revenue that was acquired during the year nothing will be paid as tax or they may prepare their accounts in such a way that a loss will be reflected. Generally tax evasion which is illegal achieves the same goal as tax avoidance. 5.3.6 Ways by Which Tax Evasion and Avoidance are Perpetrated Taxpayers indulge in evasion by resorting to various abnormal practices. Some of these are acts of omission and others are acts of commission. There are various refinements to the blatant act of tax evasion which render detection difficult. Examples include: y Secreted wealth may be siphoned off to foreign countries through smuggling activities, refuge may be sought in foreign bank accounts or in investment abroad to escape the reach of the local laws; y Claiming of fictitious deductions; y Improper utilization may be made of temporary taxpayers status; y Fleeing the country to avoid payment of tax;
59

Supra

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y Failure to pay or keep records or adequate records; y Failure to pay over to the revenue the estimated tax; y Interference with the tax administration through bribery and corruption; and y All other unlawful means employed which seeks to with hold tax which is otherwise payable. According to Toby (1983)60 tax avoidance consists of manipulations of transactions by resorting to various strategies. These include setting up subsidiaries or associated companies while maintaining financial interests in the outcome of both with a view of facilitating transactions as may be advantageous from the tax point of view, arranging the transfer of losses of defunct business for the purpose of obtaining a set-off against profits of the other and establishing tax haven entities in foreign countries. 5.3.7 Effects of Tax Evasion and Avoidance Tax evasion and avoidance have adverse effect on government revenue. Tax avoidance generates investment distortion in the form of the purchase of assets exempted from tax or under-valued for tax purposes. Avoidance takes the form of investment in arts collection, emigration of persons and capital.

60

Toby, R. (1983) The Theory and Practice of Income Tax Macmillan Press Ltd.

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And as observed by Toby (1983)61 the taxpayer indulges in evasion by resorting to various practices. These practices erode moral values and build up inflationary pressures. This point can be buttressed with the fact that because of the evasion of tax, individuals and companies have a lot of money at their disposal. Companies declare higher dividends and individuals have a high take home profit. This increases the quantity of money in circulation but without a corresponding increase in the goods and services. This then build up what is known as inflationary trends where large money chase few goods. 5.4 Double Taxation Double taxation is the imposition of two or more taxes on the same income (in the case of income taxes), asset (in the case of capital taxes), or financial transaction (in the case of sales taxes). It refers to two distinct situations: Taxation by two or more countries of the same income, asset or transaction, for example income paid by an entity of one country to a resident of a different country. The double liability is often mitigated by tax treaties between countries. In the United States, the term is used by tax abolitionists as an assertion that taxes have already been paid, such as for dividend income, inheritance, and gifts.

61

Supra

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A taxation principle referring to income taxes that are paid twice on the same source of earned income. Double taxation occurs because corporations are considered separate legal entities from their shareholders. As such, corporations pay taxes on their annual earnings, just as individuals do. When corporations pay out dividends to shareholders, those dividend payments incur income-tax liabilities for the shareholders that receive them, even though the earnings that provided the cash to pay the dividends had already been taxed at the corporate level. The concept of double taxation on dividends paid to shareholders has prompted significant debate in the past. While some argue that taxing dividends received by shareholders is an unfair double taxation of income (because it was already taxed at the corporate level), others contend that this tax structure is fair. Proponents of keeping the "double taxation" on dividends point out that without taxes on dividends, wealthy individuals could enjoy a good living off the dividends they received from owning large amounts of common stock, yet pay essentially zero taxes on their personal income. As well, supporters of dividend taxation point out that dividend payments are voluntary actions by companies and, as such, they are not required to have their income "double taxed" unless they choose to make dividend payments to shareholders. Double taxation is a situation that affects corporations when business profits are taxed at both the corporate and personal levels. The corporation must pay income tax

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at the corporate rate before any profits can be paid to shareholders. Then any profits that are distributed to shareholders through dividends are subject to income tax again at the individual rate. In this way, the corporate profits are subject to income taxes twice. Double taxation however, does not affect corporations which are able to pass through earnings directly to shareholders without the intermediate step of paying dividends. In addition, many smaller corporations are able to avoid double taxation by distributing earnings to employee/shareholders as wages. Still, double taxation has long been subject to criticism from accountants, lawyers, and economists. Critics of double taxation would prefer to integrate the corporate and personal tax systems, arguing that taxes should not affect business and investment decisions. They claim that double taxation places corporations at a disadvantage in comparison with unincorporated businesses, influences corporations to use debt financing rather than equity financing (because interest payments can be deducted and dividend payments cannot), and provides incentives for corporations to retain earnings rather than distributing them to shareholders. Furthermore, critics of the current corporate taxation system argue that integration would simplify the tax code significantly. There are many ways for corporations to avoid double taxation. For many smaller corporations, all of the major shareholders are also employees of the firm. These corporations are able to avoid double taxation by distributing earnings to

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employees as wages and fringe benefits. Although the individual employees must pay taxes on their income, the corporation is able to deduct the wages and benefits paid to employees as a business expense thus, is not required to pay corporate taxes on that amount. For many small businesses, distributions to employee/owners account for all of the corporation's income, and there is nothing left over that is subject to corporate taxes. In cases where income is left in the business, it is usually retained in order to finance future growth. Although this amount is subject to corporate taxes, these tax rates are usually lower than those paid by individuals. Larger corporations which are more likely to have shareholders who are not employed by the business and who thus cannot have corporate profits distributed to them in the form of salaries and fringe benefits are often able to avoid double taxation as well. For example, a non-active shareholder may be called a "consultant," since payments to consultants are considered tax-deductible business expenses rather than dividends. Of course, the shareholder/consultant must pay taxes on his or her compensation. It is also possible to add shareholders to the payroll as members of the board of directors. Finally, tax-exempt investors such as pension funds and charities are often significant shareholders in large corporations. The tax-exempt status of these groups enables them to avoid paying taxes on corporate dividends received. It is not unusual for a business or individual who is resident in one country to make a taxable gain (earnings, profits) in another. This person may find that he is obliged by domestic laws to pay tax on that gain locally and pay again in the country in which the gain was
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made. Since this is inequitable, many nations make bilateral double taxation agreements with each other. In some cases, this requires that tax be paid in the country of residence and be exempt in the country in which it arises. In the remaining cases, the country where the gain arises deducts taxation at source (withholding tax) and the taxpayer receives a compensating foreign tax credit in the country of residence to reflect the fact that tax has already been paid. To do this, the taxpayer must declare himself (in the foreign country) to be non-resident there. So the second aspect of the agreement is that the two taxation authorities exchange information about such declarations, and so may investigate any anomalies that might indicate tax evasion.

5.4.1 Nigerias Double Taxation Agreements/Treaties Nigeria has a number of tax treaties referred to as Double Taxation Agreements with a number of countries. This is to ensure that the tax payable in Nigeria on the profits of a Nigerian company being remitted into the country are reduced by the amount of foreign Tax paid abroad and vice versa. In the last few years, Nigeria has entered into double taxation agreements with a number of countries. These agreements are entered into with a view to affording relief from double taxation in relation to taxes imposed on profit taxable in Nigeria and any taxes of similar character imposed by the laws of the country concerned. Where an overseas company receives profits from Nigeria that have already been taxed in Nigeria. Some
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of these countries include the UK, France, The Netherlands, Belgium, Canada and Pakistan.

CHAPTER

SIX:

SUMMARY,

CONCLUSION

AND

RECOMMENDATIONS
6.1 Summary Personal Income Tax is the oldest form of tax in the country. It was first introduced as a community tax in northern Nigeria in 1904, before the unification of the country in 1914, and was later implemented through the Native Revenue Ordinances to the western and eastern regions in 1917 and 1928, respectively. Among other amendments in the 1930s, it was later incorporated into Direct Taxation Ordinance No. 4 of 1940. The need to tax personal incomes throughout the country

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prompted the Income Tax Management Act (ITMA) of 1961. In Nigeria, personal income tax for salaried employment is based on a pay as you earn (PAYE) system, and several amendments have been made to the 1961 ITMA Act. For instance, in 1985 PIT was increased from N 600 or 10 per cent of earned income to N 2,000 plus 12.5 per cent of income exceeding N 6,000. In 1989, a 15 per cent withholding tax was applied to savings deposits valued at N 50,000 or more while tax on rental income was extended to cover chartered vessels, ships or aircraft. In addition, tax on the fees of directors was fixed at 15 per cent. In 1990 further amendments were made to PIT: apart from providing additional individual tax allowances, minimum taxation was reduced from 1 per cent to 0.5 per cent, so that individuals with incomes of N 3,000 or less were exempt from submitting tax returns. Non-residents were exempt from withholding tax on interest accruing in deposit accounts. Personal allowances were further extended in 1992 to reduce the tax burden of individuals while the monetization and taxation of fringe benefits were introduced. The application of Income Tax Management Act varied across regions/states, causing the burden of multiple taxes on individuals. Two study groups were subsequently set up in 1991 to review the situation and improve tax collection. The 1961 ITMA was replaced with an amended act, which was superseded in 1993 by Personal Income Tax Act (PITA) No. 104. It was applicable with nationwide coverage. Its administration, however, was assigned to the states, which were empowered to tax individuals, or corporate or bodies of individuals residing in its
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territory in a particular year. Rates were also increased. The PITA coordinated the subsidiary legislations for the PAYE system, withholding taxes, among others, as stipulated by the Ministry of Finance. The PITA empowered the Joint Tax Board to administer the tax throughout the country and to coordinate its administration, while the State Board of Internal Revenue (SBIR) became responsible for the administration of the revenue. There have been some amendments since its implementation. For instance in 1994, to achieve progressive taxation, the withholding tax was increased from 5 to 10 per cent. Directors fees payable by property and investment companies were raised from N 3,000 to N 10,000 when a 30 per cent ceiling was set for PIT. Child allowance was first increased to N 1,000 and then, in 1996, to N 1,500 per child payable up to four children. In 1998 this became N 2,500 per child. In addition, tax relief to low-income earners was increased to N 2,500, and individual marginal taxes were decreased from 30 per cent in 1995 to 25 per cent in 1996. A recurring problem with Personal Income Tax is the non-compliance of employers to register their employees and to remit such taxes to relevant authorities. To address this, in 2002 the government amended the 1993 Personal Income Tax Act to make non-compliant employers liable to penalties up to N 25,000, as well as liable for the payment of all tax arrears. Employers failing to keep proper records would also face a penalty of N 5,000. A fine this small tends to encourage tax evasion since the penalty for being caught is lower than the cost for non-compliance. The issues of unremitted funds from the PAYE system and withholding taxes particularly among government ministries and agencies as well as lax adherence by all three levels of

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government to the approved list for (tax) collection, as stipulated by the 1998 Taxes and Levies Act 21, have over the past five years attracted the attention of Joint Tax Board. Personal income tax failed in Nigeria for lack of equitability. In spite of the fact that the self-employed outnumber paid workers and that they earn as much as four times that of the formal sector employees, the bulk of Personal Income Tax is paid by employees whose salaries are deducted at source. Inadequate monitoring by tax authorities, the dominance of informal sector activities and the fact that many Nigerians live in rural areas make the coverage of self-employed workers difficult. Although regulations were enforced in PIT Act No. 104 of 1993, amendments are still made on a yearly basis. In addition to the fact that amendments are not adequately informed to the public nor incorporated in the relevant legislation, the legal language is also ambiguous, confusing and unprofessional. There is very little tax education in Nigeria; taxpayers are ignorant of the laws regulating their taxation, and this makes disclosure difficult. Due to the absence of communication between the government and the people, most citizens view taxes as a mere legal hindrance rather than their civic responsibility. The CITN summarizes the problem confronting the PIT administration as follows: We must admit that tax administration is particularly hard here because literacy level is low and record keeping is not yet a popular culture. There are not enough tax

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officials to cover the field. Most of the officials are little trained, ill equipped, badly remunerated and corrupt Governments in Nigeria are perceived as a corrupt and selfish lot, to whom money should not ever be voluntarily given. Taxes paid are expected to end up in private pockets, not in public utilities. The foregoing not only makes compliance difficult, but also enforcement problematic. 6.2 Conclusion Tax evasion and avoidance is a very serious societal problem that is causing much concern and major setback on revenue collection in Nigeria. From all indications it is now clear that if government engages in a complete re-organization of the tax administrative machineries, the twin problems of tax evasion and avoidance will be reduced to a tolerable limit. It is equally important for the various state governments to make frantic efforts aimed at educating the tax illiterates of their civic responsibilities. Such enlightenment on tax evasion and avoidance will go a long way to reduce the states over dependence on federal allocation. It is hoped that if the measures prescribed in this study are implemented, it will go some way in reducing the problem of tax evasion and avoidance to reasonable dimensions. This long essay has clearly highlighted the various problems bedeviling the effective administration of personal income tax in Nigeria. It is noted that these problems persist in spite of the federal government's bold efforts in implementing

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radical changes both in the tax system and administration. The consequence is that the Nigerian tax system has remained cumbersome. Therefore, it is submitted that for our tax system to be able to contribute its own quota to addressing the long term national objective of revenue maximization and financing of good quality education, technological based industries and political and economic stability, considerable attention should continue to be focused on the problem areas in our tax system especially as it affects personal income tax. Our tax policy makers and reformers therefore have the onerous responsibility of ensuring that the tempo of the reform endeavour is maintained. On the part of the government, it is its responsibility to evolve a solid mechanism for monitoring the reform. Nigerias tax system is characterized by unnecessarily complex, distortionary and largely inequitable taxation laws that have limited application in the informal sector that dominates the economy. Among the other problems relating to taxation can be added the low yield of revenue, disregard for the true principle of federalism, endemic institutional and management concerns at sub-national levels, weak tax assessment, corrupt processes, and the prevalence of multiplicity of taxes. The major challenges facing tax authorities include the need not only to build, but also to utilize institutional and human capacity, funding and logistics as well as finding solutions for tax evasion, fraud and mismanagement of collected revenue, improving voluntary compliance, and quick adjudication on legal matters. For the tax system to be efficient and effective, it must produce officials that are well-paid, well-motivated, properly organized, adequately equipped, well-disciplined and professionally inclined. The
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system needs to adhere to simple, clear and unambiguous tax laws; assessment and collection procedures must be straightforward, transparent and client-friendly. Nigeria must train special tax judges and establish special tax tribunals; ensure that tax compliance costs are minimal; and to adopt the attitude of the taxpayer being the king. 6.3 Recommendations Taxation is crucial to Nigeria to ensure sustainable fiscal policy. This is even more important in view of the fact that the country presently operates under a cash budget approach. The need to avoid revenue volatility, and the inability of the lower levels of government to meet their ever-increasing fiscal responsibilities make the expansion of non-oil revenue vital. Increasing non-oil revenue requires the various government tiers to seek improvements in (i) (ii) (iii) The treatment of both the taxpayer and tax administrator, Adequate investment for the tax system and Judicious spending of taxpayers money. Furthermore, the various government levels need to focus on the following: 1. Nigerias economic history of volatile revenue flows has shown that it is time for the country to undertake serious efforts to diversify its revenue structure. The diversification experience of Indonesia to safeguard its economy against oil-related volatility could be relevant for Nigeria, and calls for exploiting the potential of such broad-based revenue sources as income tax and VAT. For stability and sustainability, the revenue structure should be

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largely domestically driven and should principally be derived from valueadded production activities rather than from the current service-oriented operations. 2. Withholding tax on dividends: in line with the current globalization trend, many countries now provide various tax incentives to attract investors. In Nigeria, operators in the Securities and Exchange Commission have made spirited efforts to persuade the government to abolish taxes on dividends. This is all the more expedient, given the governments commitment to attract foreign investors as well as to increase saving and investment. 3. Tax administration can achieve good results only if the following conditions are met: simple tax rules and procedures, low tax burden, convenience to taxpayers, minimal compliance costs, easy access to information, and mutual thrust and fairness. Reforms that ignore these issues may not achieve much. 4. A corrupt-free and efficient administrative machinery with personnel who are adequately trained, well-equipped and motivated would enable Nigeria to make appreciable progress in revenue diversification. Tax administration machinery should have an effective redress and refund system so that disputes can be settled easily and corruption checked. 5. Contrary to the erstwhile practice of obsolete tax laws and rates, there should be a continuing review of tax-related issues to align these with the macroeconomic targets for promoting efficient fiscal policy. 6. To avoid the present situation where states impose illegal taxes and levies, there should be a unified, effective and unbiased tax administration with full
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representation from the three tiers of government. This should not, however, compromise the diversified revenue efforts and the uniqueness at each level of government. To complement this effort, specialized tax judges are needed in the courts to adjudicate on tax matters promptly and efficiently and to foster tax compliance and respect. 7. Funding for tax authorities and custom services should be increased to 3-5 per cent of the targeted revenue to ensure efficient administration. Officials employed within these services must adopt a client-friendly attitude for assisting taxpayers/importers as the need arises. 8. Nigeria has numerous tax incentive structures, but these need to be made internationally competitive. While acknowledging the efforts of the present democratic regime to put the countrys ports into shape, they are still below international standards, and should be improved to ensure competitiveness. 9. The current situation in which the buoyant tax handles are controlled by the federal government is an issue for concern. Thus, there is need to align tax responsibilities with tax power. The authority to issue taxes should be devolved to lower tiers of government: this could have positive implications for the fiscal coordination and macroeconomic management of the country. 10. Joint Tax Boards new stance that tax consultants should not be involved in primary taxation functions is a step in the right direction because it upholds the tenets of the Taxes and Levies Act of 1998. Consultants contravening the law should be prosecuted by the Attorney General, and relevant professional associations should take disciplinary steps against erring tax consultants.
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11.

To tap income from the self-employed or informal sector activities, a broadbased comprehensive scheme should be designed so as to fully harness the potential from this revenue source.

12.

Tax incentives have not had much impact in Nigeria. Total rejection of the present approach is not warranted, but its use should be restricted to such important sectors as oil and gas, export-oriented industries, industries located in rural areas and solid minerals development, etc.

13.

In addition to addressing the problem of corruption and entrenching real value-for-money in public service delivery, there is need for continuous dialogue between the government and citizens on taxation matters. This does not, however, replace the need for tax education and information campaigns on critical issues relating to tax administration. The government must be honest and more transparent with regard to the way public funds are dispensed. Defaulters must be prosecuted for tax evasion, or the general public will not take taxation seriously.

14.

Nigerian tax laws are noted for their complex structure. Tax laws must be made understandable to all: they should be expressed simply, clearly and intelligibly. The annual amendments that are incorporated into the yearly budgets should be aligned with the principal legislation to avoid confusion.

15.

Upstream oil companies need to report annual expenditures on the purchase of assets, services and financial charges with the view to broaden the scope for withholding tax and VAT payments. Computerization of these items could provide important input for improving tax assessment and collection.
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The FIRS will have to work closely with the oil companies, the Nigerian National Petroleum Company, in particular with the Department of Petroleum Resources, Crude Oil 16. Marketing Department and the National Petroleum Investment Management Services as well as the Central Bank of Nigeria. 17. Government should embark upon other means of publicity such as radio messages, television advertisement, post bills as well as the use of town criers to inform taxpayers of changes in tax legislation and need for compliance. 18. The tax authorities should properly review and evaluate the assessment and collection procedures so as to encourage compliance by the taxpayers. The usual practice of reprinting parts of the tax laws and sending same to the taxpayers expecting that they would understand is not encouraging since these laws are written in legal jargons or terms that are not easily understood. Moreover, tax forms should be made less complex. Vast improvement can be made by improving the design of the forms. 19. The setting up of Revenue Courts should be embraced by the various state governments. These Courts should be made to impose heavy monetary penalties and criminal sanctions. 20. The handling of tax clearance certificates should be well decentralized such that neither the assessor nor the collector can issue tax clearance certificates. The Audit Unit of the Authority should be strengthened to always audit tax

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remittance by collectors at all levels. This measure will go a long way to curb corrupt practices among tax officials. 21. A legislation compelling banks to inform the tax authorities, on request, of any income standing in the account of any taxable person (especially the self-employed taxpayers) should be put in place by the various state governments. 22. Government should endeavour to provide social amenities to all nooks and crannies of the State (not just the state capitals alone), provide employment opportunities to all by the judicious use of tax proceeds. In this way all will feel belong thereby encouraging voluntary compliance. 23. A census of the taxable population should be conducted throughout the various states. This will now update the tax register so that at any given point in time the tax office can give details of taxable adults and businesses thus reducing the incidence of tax evasion. 24. Since majority of the people are poor tax evasion becomes inevitable. Government should therefore aggressively tackle the inflationary trend and also ensure that the poor pay very minimal tax. 25. Personal reform in our tax administrative machinery is imperative rather than engaging the services of contractors to collect taxes under the umbrella of the Accelerated Revenue Generation Task Force. Qualified officials should be co-opted into the Tax Service to strengthen tax administration.

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26.

Again, an honest corps of tax inspectors conversant with the provisions of tax laws should be appointed and made to pursue the most serious cases of tax evasions. But they should be made to realize that it is a legal taboo to close. Also it is against macroeconomic thinking to use extra-ordinary methods to enforce the payment of tax.

27.

The problem of multiple taxes also needs to be urgently addressed. This can be done by precluding states and local governments from imposing more levies on companies and individual earnings outside those prescribed in the statute books.

28.

On a general note, our tax system requires patriotism on the part of the Government, tax officials and the tax payers. But there is the need to convince tax payers that their money will be judiciously expended on viable projects and on their own welfare, for as observed by a notable social commentator. There is no amount of legal reforms that will make people pay tax voluntarily, so long as they know that such money will not be judiciously spent for their own welfare, but rather go into their people's pockets illegally or frittered away on useless projects' The efficiency of a countrys institutions has significant bearing on its

operations. Between 1999 and 2002, FIRS accounted for 74.5 per cent of federal revenue while the NCS collected the balance. For efficient operations, the federal tax organizations should comprise the following (Study Group on Tax Reform 2003):

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i)

FIRS (Federal Inland Revenue Services) with responsibility for income and other Inland taxes, VAT excluded;

ii) iii) iv)

Value-added tax services, responsible for VAT; NCS (Nigeria Custom Services) for custom and excise duties; and JTB (Joint Tax Board) for harmonizing income tax at the three tiers of government; managing the national database, and serving as a clearinghouse for inter-state tax flows. At the state level, the State Board of Internal Revenue with an operational

technical arm called the State Internal Revenue Service will, among others, ensure effective and optimum tax collection, facilitate effective tax assessment and collection, and make recommendation to JTB on tax policy, etc. The Joint State Revenue Commission is the second institution. Tax institutions at the local government level are characterized by irresponsible, deliberately questionable action and inhuman exploitation of citizens. Improvement in this regard calls for institutional rehabilitation. First, the role of the Ministry of Local Government in terms of proper coordination, control and regulation of activities should be enforced. Second, the practice of using political associates to collect taxes should be avoided, as this may not be within the strict rule of law. Creating jobs for the boys has worked against the state and local governments in efforts to form a constitutionally recognized body to undertake this responsibility. Thus, a local government revenue committee to be recognized by law should be established. Currently, most committee members are politicians, and employees are hired at
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federal and state levels with limited or no technical qualifications. Third, the Joint State Revenue Committee, which was intended to coordinate issues and problems relating to the implementation of legal provisions of the laws, but which is still absent in almost all states, should be set up.

BIBLOGRAPHY
1. 2. O. Phillips Nigerias Tax Effort (1970) B.T.R. 182-3 Alabi Soji (2001) Tax Planning A Paper delivered at the Workshop on Nigerian corporate and Personal Income Tax Management, Yaba, Lagos, August 15th. 3. Adekanola, O. Efficient Tax Collection and Effective Tax Administration in Nigeria. (A Paper presented at a seminar organized by the University of Lagos Consultancy Services Otta, 15 May 1997).

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4. 5. 6. 7. 8. 9.

Ayua, I.A. (1999) The Nigerian Tax Law, Ibadan Spectrum Law Publishing. Black's Law Dictionary (8th ed. 2004) Page 4561 Britannica Online, Article on Taxation Direct Taxation Ordinance No. 4 of 1940 Dominic Asada Esq The Administration of Personal Income Tax in Nigeria F. R Davies, Introduction to Revenue Law (London) Sweet & Maxwell (1980) p.3

10. 11.

Farayole, G.O (1987) Guide to Nigerian Taxes Lagos All Crowns Nig. Ltd. Faseun L. A.(2001) Tax Planning Lagos Tax the Newsletter of CITN-Lagos District Society Vol. No.1

12. 13. 14. 15. 16.

G.S.A. Wheatcroft, What is Taxable Income? (1957) B.T.R. Page 310 Hamilton, Fedralist, No XXXI, p. 149 http://www.oecd.org/dataoecd/50/49/35363840 http://www.wikiepdia.org Kiabel, B.D. (2001) Personal Income Tax in Nigeria Owerri, Springfield Publishers.

17. 18. 19. 20. 21.

Ladipo Ademolekun, Public administration (Longman) at p. 93 Meade Report on the Structure and Reform of Direct Taxation p.30-33 Mill. Principles of Political Economy, Book V, Ch. 3 O. A. Orifowomo Class Materials on Personal Income Tax2010 Odusola, A. F. Internally Generated Revenue at the Local Government: Issues and Challenges. (A Paper presented at the Workshop on Revenue Generation at the State Government Level, Ibadan: University of Ibadan, October 2003).
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22.

Onuigbo, O. (1986) Banking and Finance for Professional Examinations Aba Yonkee Standard Press Ltd

23.

Orewa, G.O. (1957) Taxation in Western Nigeria London Oxford University Press.

24. 25.

Report of the Nigerian Constitutional Conference 1957 Reynolds, L.G. (1963) Government Finance and Economic Analysis Heineman Publications.

26.

Thomas M. Cooley, The Law of Taxation 1, at 6163 (Clark A. Nichols ed., 4th ed. 1924).

27. 28.

Toby, R. (1983) The Theory and Practice of Income Tax Macmillan Press Ltd. United Nations Manual for the Negotiation of Bilateral Tax Treaties between developed and Developing Countries 2003

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