CHAPTER ONE INTRODUCTION 1.1     BACKGROUND OF THE STUDY

Recently the revenue that accrues to state government is derived from two broad sources, viz: the external sources and the internal sources. The increasing cost of running government coupled with dwindling revenue has left various state governments in Nigeria with formulating strategies to improve the revenue base. More so, the near collapse of the national economy has created serious financial stress for all tiers of government. As a result of fall in the international price of oil and the collapse of the national economy, the direct allocation from federation account to the states has fallen. Despite the numerous sources of revenue available to the various tiers of government as specified in the Nigeria 1999 Constitution, since the 1970s till now, over 80% of the annual revenue of the 3 tiers of government come from petroleum. However, the serious decline in the price of oil in recent years has led to a decrease in the funds available for distribution to the states. The need for state and state governments to generate adequate revenue from internal sources has therefore become a matter of extreme urgency and importance (Raji, 2015). This urgent need for improvement in revenue generation has underscored the reason why revenue from tax has been the focus of state government in improving the revenue generation. The importance of taxation as a source of revenue to any government cannot be overemphasized. The study of the teachings of Christianity, Islamic and other prominent religions in the world shows that tax is a religious duty based on social and civil responsibilities (Agbetunde, 2004). The world over, taxes is one major source of government revenue, however, not every national government has been able to effectively exploit this great opportunity of revenue generation. This can be attributed to a number of reasons including thesystem of taxation; tax legislation; tax administration and policy issues; over reliance on other sources of revenue (such as foreign aid and grants); corrupt practices in the system – especially as it relates to the system of tax collection and behaviour of citizens towards tax payment; and ease of tax payment (Akintoye and Tashie, 2013). Nigeria is richly endowed with natural resources chief of which is oil and gas. This oil and gas dominate the country’s economy as it accounts for over 80% of the country’s revenue thereby making government to lose its sense of reasoning in exploring other revenue sources. The overdependence on oil and gas has led to low GDP and economic retardation. According to Okoyeuzu (2013) taxes are the major tools required to overcome such and also to control other market imperfection, and achieve social justice by wealth redistribution. Due to the over reliance on oil, little effort has been made to generate sufficient revenue from taxation. Popoola (2009 cited in James Abiola) opines that Nigeria tax administration and practice be structured towards economic goal achievement since government budget for the year centres on the oil sector while decrying the low productivity of the Nigerian tax system. According to Jhingan (2008) to meet up with their numerous commitments and live up to their responsibilities, governments thus, require a substantial amount of funds; such funds are usually raised from various sources such as issuing of public debt, creation of money or levying of various types of taxes, fees, fines and specific charge. Ariyo (1997) opines that Nigeria’s overdependence on oil revenue to the total neglect of other revenue sources was encouraged by the oil boom of 1973/1974. This was unsustainable due to frequent negative fluctuation in the price of oil in the world market; this fluctuation has led to low revenue from oil and resulting in budget deficit.

Financial resources are needed for the developmental goals of any successive and successful government to be achieved. Such goals may include provision of infrastructure, security of life and properties and maintenance of law and order. Fagbemi, Uadiale and Noah (2010) opine that government needs money to execute their social obligations which include provision of infrastructure and social services. Ogundele(1999) views taxation to be the process or machinery by which communities or groups of persons are made to contribute some agreed amount of money for the purpose of administration and development of society. Aguolu(2004) states that though taxation may not be the most important source of revenue to the government in terms of the magnitude of revenue derivable from taxation, however, taxation is the most important source of revenue to the government from the point of view of certainty and consistency of taxation.

Apart from the over reliance on oil, mismanagement of tax revenue has scared many honest payers away from performing their civic responsibility of paying tax. 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 provision of amenities for which tax is primarily collected. Evidence of wastage of public funds abound in the form of inflated contracts or in the criminal acts of using diverse methods and loopholes exhausts funds voted for ministries and government departments before the financial year runs out (Ovute and Eyisi, 2014). The cumulative effect thereby produced is the resolve of many honest tax payers never to pay their due taxes again or at most pay under compulsion (Kiabel and Nwokah, 2009 cited in Ovute and Eyisi, 2014).

If the tax administration is seen to be honest, fair, informative and helpful, acting as a service institution and thus treating tax payers as partners and not inferiors in a hierarchical relationship, tax payer have stronger incentive to pay taxes with honesty (Frey, 2003 as cited in Ovute and Eyisi, 2014).

1.2     STATEMENT OF THE PROBLEM

State governments in Nigeria are no doubt, confrontedwith series of challenges ranging from human capital development to infrastructural development. To meet these challenges, adequate funding is necessary but the allocation they get from the federal government is not enough to keep them going. It is in a bid to complement this effort that the state governments resorted to internally generated revenue sources. This again, has its attendant challenges, one of which is the use of tax consultants. The engagement of tax consultants by government to enhance tax collection and boost revenue has elicited reactions from far and near. Some renowned members of the accountancy profession have on several occasions opposed the use of tax consultants. According to KayodeNaiyeju, the former chairman at the 2011 Revenue Mobilization, Allocation and Fiscal Commission (RMAFC) members’ Retreat held in AkwaIbom State, the preference for tax consultants in the act of collecting revenue negates the reform process presently going on in the country. He argued that the practice was also detrimental to the effort to modernize the tax administration system at the grassroots.

Among the many problems confronting tax administration in Rivers State, is how to ensure voluntary compliance on the part of the tax payers. Tax being a commodity nobody wants to buy; the tax man is hardly liked by tax payers who perceive him as government toll collector. The problem of the tax man is worsened by poor performance of most state governments in terms of provision of amenities for the tax paying public. Lack of confidence and mutual distrust in government represented here by the tax man, gave rise to voluntary compliance difficulties.

Tax laws in Nigeria are complex and difficult for the common taxpayer to understand, and some cases are problematic even for literate official. In addition to lack of understanding, many taxpayers are unaware of the existence of certain tax. This couple with the lack of information, laziness of the tax official, uncooperative taxpayers and the habit of ‘quick –fix’ solutions-encourages the use of the best judgement approach. This may be a manifestation of the poor tax education and weak fulfillment by tax authorities of their responsibilities with regard to public awareness.

1.3     OBJECTIVES OF THE STUDY

The main objective of the study is to investigate the implications of the new tax regime in Rivers State on life assurance business in the state. Other specific objectives are:

1. To identify the issues that bedevils Rivers State tax system.
2. To identify the various reforms put in place to address the issue.
3. To examine their effects and those of the current reforms on life assurance business in the state.

1.4     RESEARCH QUESTIONS

The following research questions will guide the researcher in his research.

1. What are the issues that bedevil Rivers State tax system?
2. What are the various reforms put in place to address the issues that bedevils Rivers State tax system?
3. What are their effects and those of the current reforms on life assurance business in the state?

1.5     RESEARCH HYPOTHESIS

Based on the research questions, the following null hypotheses are formulated.

H01: There are no significant issues bedeviling Rivers State tax system.

H02: There is no significant relationship between the new tax regime in Rivers State and life assurance business.

1.6     SIGNIFICANCE OF THE STUDY

This study is significant for insurance industries management as it will expose them to the new tax regime in Rivers State and its implication on their business.

This study is important to the Insurance Regulatory Authority as it shows the benefit of risk management in underwriting risk as compared to the rate method. The study attempts to curb the challenge of under-reserving that has been experienced in the recent past in the insurance industry. It enhances adequate reserving measures such that the claims can be paid whilst insurance companies adhere to the solvency requirements.

Adequately priced insurance products will also benefit the insurance industry in terms of unwarranted and unhealthy competition. The insurance companies will also be able to cover risks of which they can be able to afford and pay in case of a claim. This should be done without the company going under.

Finally, it will serve as a reference point to scholars, and students who want to conduct research in future in the field.

1.7     SCOPE AND LIMITATIONS OF THE STUDY

This study builds up the small body of research findings available on New Tax Regime in Rivers State and its implication on Life Assurance Business using insurancefirms in Port Harcourt as a survey study. The selected insurance firms areAnchor Insurance Company Ltd, Ark Insurance Brokers and Fin Insurance Company Ltd.

Every research work has some limitations that can affect the overall research activities and research report. Throughout the research work these are the following constraints experienced by the researcher;

1. Time Factor: The researcher had limited time to complete the research project. Combining lectures hours with the research work is indeed time demanding.
2. Financial Constraints: The researcher had limited resources that in some cases affected the overall completion of the research work.
3. Unavailability of some of the research materials and unfriendly attitude of some of the respondents.

1.8     DEFINITION OF TERMS

Tax:A compulsory levy which government imposeson the properties, profit, or income of corporate bodies or individuals within its jurisdiction, to raise fund for its activities and programs, and there is no guaranteed benefit therefrom.

Tax Reforms:The process, procedure and meansby which structural and administrative changes in the tax system are effected.

Implication:A possible effect or result of an action or a decision.

Insurance:A means of protection from financial loss.It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss.

Life Assurance:An insurance cover that is designed to provide security for a widerange of financial commitments by paying a lump sum on the insured’s death.

Policy Holder:A person or entity who buys insurance is known as an Insured or Policy Holder.

Insurance Company:An entity which provides insurance is known as the Insurer, Insurance Company or Insurance Carrier

Business:The activity of making, buying, selling or supplying goods or services for money.