CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY 

According to Black Law Dictionary, tax is a rateable portion of the produce of the property and labor of the individual citizens, taken by the nation, in the exercise of its sovereign rights, for the support of government, for the administration of the laws, and as the means for continuing in operation the various legitimate functions of the state.The Institute of Chartered Accountants of Nigeria (2006) and the Chartered Institute of Taxation of Nigeria (2002) view tax as an enforced contribution of money enacted pursuant to legislative authority. If there is no valid statute by which it is imposed; a charge is not tax. Tax is assessed in accordance with some reasonable rule of apportionment on persons or property within tax jurisdiction.Sanni (2007) advocated tax an instrument of social engineering which can be used to stimulate general or special economic growth. Company income tax is a structure among the various tax structures in Nigerian economy.By virtue of section 8 (1) of the Companies Income Tax Act (CITA) 1990, taxes are payable as specified upon profits of any company accruing in, derived from, brought into, or received in Nigeria in respect of amongst others, any trade or business for whatever period of time the trade or business may have been carried out. The current rate of companies’ income tax is 30% of assessable income.According to Akpotoboro (2009) deemed tax is primarily payable on profits at the companies income tax rate of 30%. However, as foreign companies liable to such tax do not ordinarily operate in Nigeria, and thus account to the Federal Board of Inland Revenue (FBIR) with full accounts, the law permits FBIR to deem a position of the foreign company’s turnover or gross income as profit. Therefore the deemed income of the company will be 20% of the turnover. Such deemed income so assessed will itself be liable to tax at the current companies tax rate of 30%, which final assessment will amount to 6% of total income. Effectively, the company will be assessed for income tax at 1% of its turnover, as 5% would have been withheld. Section 57 CITA 1990 mandates companies operating in the Nigerian Stock Exchange to file monthly returns with the Federal Board of Inland Revenue not later than 7 days after the end of each calendar month.Tax revenue mobilization as a source for financing development activities in Nigeria has been a difficult issue primarily because of various forms of resistance, such as evasion, avoidance corrupt practices attending to it. These activities are considered as sabotaging the economy and are readily presented as reasons for the underdevelopment of the country. Government exists in order to effectively collect taxes from available economic resources and make use of same to create economic prosperity such that available and willing human and other resources are gainfully employed, infrastructures provided, essential public services (such as the maintenance of law and order) put in place etc, tax resistance only makes these goods unattainable. Following some reasoning, changing or fine-tuning tax rates is used to influence or achieve macroeconomic stability. Some of the most recently cited examples are the governments of Canada, United States, Netherland, United Kingdom, who derive substantial revenue from Company Income tax, Value Added Tax, Import Duties and have used same to create prosperity (Oluba 2008).In Nigeria the contribution of tax revenue especially company income tax has not met the expectations of government. Government has equally expressed this disappointment and has accordingly vowed to expand the non-oil tax revenue.According to Amadasu (2001), most taxes serves for more than one purpose but a single dominant of tax to regulate in a macro sense.          Tax on consumption of liquor/tobacco and tax to regulate flow of resources from one sector to another respectively.  In the actual sense, the system helps to stabilize the economy. A good tax system should have a desirable effect on the economy, on the same vein it is believed that tax system in Nigeria have equity, as value judgment in this orientation and it was further interpreted equal should be treated equally Amadasu (2001).          Further explanation shows that the progressive and the proportional or regressive rate aspect of taxation.          It shows that if the base increase and the rate increase. It is progressive. If it is the other way around, is regressive (the rate increase and the base decrease) and when the base in crease and the rate is constant it is proportional.

 STATEMENT OF THE PROBLEM

In view of the criticism of taxation in the recent years and with increasing exposure to professional negligence in a climate of improving standards tax assessment in Nigeria has become problem because of:Insincerity of the collectors– majority of them are after their personal gain and are ready to receive bribe no matter how small from tax payers in place of actual amount they are supposed to pay.False declaration of income - many workers especially those in private firms do not declare their real incomes.Improper book of account – majority of the traders keep improper or no book of account at all.Tax evasion – many people do not fulfill their civic responsibilities by paying tax as when due.Ignorance of importance of taxation – many people as a result of ignorance think that the money is for the tax collectors and therefore, refused to pay tax.Mismanagement of government fund – embezzlement and misappropriation of government fund by those at the corridors of powers may kill people’s enthusiasm to fulfill their civic obligation of paying tax.Lack of provision of Amenities – many people with the belief that the money they pay as tax is used only for provision of social amenities will resist payment of tax if these anticipated amenities are not provided.