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2.1   Concept of taxation
One of the simplest definitions of tax I have come across is one offered by the New Webster Dictionary of the English Language. It describes ‘tax’ simply as a charge imposed by governmental authority upon property, individuals or transactions to raise money for public purposes.
Tax is a compulsory extraction of money by a public authority for public purposes and Taxation is a system of raising money for the purpose of governance by the means of contributions from individual persons or corporate bodies (Sayade & Kojola 2006). According to the Oxford Advance Learners Dictionary (1995:224) tax is money that has to be paid to the government. People pay tax according to their incomes and it is often paid on goods and services, while Blacks law Dictionary (2010), defines it as “Monetary charge impose by the government on persons entities or property, levied to yield public revenue”.
Ola (2005) defined taxation as the demand made by the government of a country for a compulsory payment of money by the citizens of the country. For Thomas coolly in ICAN study pack (2006), taxes are defined as “enforced proportional contribution from person property, levied by the state by virtue of its sovereignty, for the support of government and for all public needs”. Nightingale (2007) described tax as a compulsory contribution imposed by the government and concluded that even though tax payers may received nothing identifiable in the return for their contributions, they nevertheless have the benefit of living in a relatively educated, healthy and safe society.
According to Soyede and Kojola (2006) taxation is defined as “the process of levying and collection of tax from taxable persons”.
In both both developed and developing economies, the primary purpose of taxation is mainly to generate revenue for settling government expenditure and for the provision of social amenities and the welfare of the populace. Taxation is used as instrument of economic regulation for the purpose of discouraging and encouraging certain forms of certain behaviour.
These definitions are however, imperfect. We have in Nigeria examples of tax imposed primarily on groups rather than individuals. For example, section 1 of the Personal Income Tax (PITA) contemplates the imposition of tax on communities and families, although such is rare in practice. Also, tax may have objectives other than public revenue generation. However, the company income tax is which contemplates the imposition of tax on companies is the major area of our concern. 
Company Income tax is a tool to achieve economic growth in any country.  Income tax is accepted not only as a means of raising the required public revenue, but also as an essential fiscal instrument for managing the economy (Burgess, 2003). The World Bank (1991) notes that of all  the  taxing systems,  income  tax plays a major  role  in  generation  of  revenue  and  distribution  of  income  in  any  country.  If income taxation is poorly designed, it may lead to fiscal imbalance, insufficient tax revenue and distortions in resource allocation that can reduce economic welfare and growth. Hence, an ideal tax system would achieve a balance between resource allocation, income distribution and economic stabilization (Lewis, 1984).
Patterns of income taxation (both in level and in composition) differ from country to country because of economic, cultural and historical factors. Ratios of  tax  revenue to gross domestic product  (GDP)  in developing countries are  typically  in  the  range  of  15  to  20%,  compared  with 30% in  industrialized nations (World Bank, 1991). It is also established that countries have different approaches to tax administration. Maisto  (1988)  stated  that  “contradictory approaches towards the subject matter have been shown  by  the  tax  authorities  of  different  countries  because of their diverging interests”.  An optimal tax rate has to compromise between the state’s revenue and its economic development. A  high  tax  rate  would  deter  saving  and  development, while  a  lower  tax rate  would  lead  to  less  revenue  to  the  state.  A  tax  directly  influences  the  savings  of  individuals  and  companies; it is a double edged sword used to curtail consumption activity and at  the same  time, allows  the  taxpayer  to save money  in  different  development  activities  (Swami, 1995). The  income  tax  financing  the current social security benefits such as health, security and provision of utilities  draws  heavily  upon  income  that  otherwise  would have been saved. Instead of accumulating capital, this income goes to social security transfers which are probably consumed (Boadway, 1982). 

The following are some of the major objections for designing a tax policy?

  1. To raise money for the provision of services such as defence, health services, education etc.
  2. To redistribute income and wealth that is the rich pay more tax than the poor. This is achieved by the graduation or “progressiveness” of the rate at which the taxes and levied.
  3. To discourage the consumption of harmful goods such as alcohol and cigarettes.
  4. To harmonize diverse trade or economic objectives of different countries such as to provide for the free movement of goods/ services, capital and people between member state.
  5. For management of the economy, taxation is important in the planning of savings and investment. It can be harmonized with a development strategy. Also in changing an economic structure, the government can use taxation as powerful fiscal weapon to plan and develop a country.

Additionally, taxation can be used to achieve specific economic objectives of Nations. In Nigeria, governments often times introduce tax incentives and attractive tax exemptions as an instrument to attract and retain local and foreign investors. It is also a devise to improve gross domestic product induce economic development and influence favourable balance of payment with other countries.

This is tax payable for each year of assessment on the profit of any company a rate of 30%, these include profit accruing in, derived from or brought into or received from a trade, business or investment. Also companies paying dividend to its holders are first obliged to pay tax on its profit at the company’s tax rate. Generally, in Nigeria company dividend or other company distribution whether or not of a capital nature made by a Nigerian is liable to tax at source of 10% however, dividend paid in the form of bonus share or scrip share to individual shareholders are not subject to tax. Also where a company is a shareholder in another company, then such dividend are excluded from the profits of the company for the purpose of computation of the tax.
The company income tax Act in the law that regulates the taxation of all limited liability company doing business in Nigeria (private and pubic limited companies alike), other than those engaged petroleum operations, the Federal Board of Inland Revenue is the sole authority for the administration of this tax.
Policy maker frequently use tax policy to spur economic activities and to compete with other state to attract new capital. Although researchers have examined the effectiveness of state and local tax policies as an economic stimulus no consensus exists regarding whether and how state company income tax policies affect economies. It is clear that all else equal lower company income tax rates would be expected to increase economic activity because of the reduce cost of such activity to install firms as the potential to attract new activity from out of state firms. However, there is much more to the story than company income tax rates. For example, most state requires multi-state firms to allocate income based on the firms in state percentage of its total sales, payroll and property.

Taxation in Nigeria started with personal income tax in 1904, when Lord Lugard introduces income tax in northern part of Nigeria. Community tax becomes operative through the revenue ordinance of 1904.
In 1917, after the amalgamation of the northern and southern protectorates, the 1904 Revenue Ordinance was replaced by the native Revenue Ordinance of 1917. Furthermore, the provision of the 1917 ordinance were amended in 1918 and extended to southern Nigeria particularly, the West and the Mid-West and subsequently to Eastern Nigeria in 1928. Under the Direct Taxation Ordinance of 1940, the assessment and collection of taxes were the primary responsibilities of the native administration / authorities throughout the country and taxes so collected were their main sources of revenue.
Companies Income Tax was introduce in 1939 as a source of revenue for the Federal Government of Nigeria. First tax on companies was imposed under the companies Income Tax of 1939. This was to cover the aspect of income tax that was all covered by the Native Revenue Ordinance of 1917 with all its subsequent amendments.
In 1940 the income tax ordinance 1940 was promulgated to consolidate the Companies Income Tax ordinance of 1939. Tax under the 1940 was imposed upon any “person” and this expression was defined to include a company.
By 1943, the income Tax Ordinance was enacted for Lagos resident and foreigners including private organizations which took care of some major changes such as the introduction of penalties and failure to file in a return to keep the required accounting records or to furnish any false return which offences are punishable with fine or imprisonment or both.
Chick Fiscal commission preceded the 1954 constitution, which was the first federal constitution In Nigeria recommended that the two taxes imposed under the income Tax Ordinance of 1943 is within the exclusive jurisdiction of the Federal Government. The present tax system in Nigeria has its roots in the Raisman Fiscal Commission recommendation that jurisdiction our companies income tax be exclusive to the Federal Government and that the states except for certain uniform principles should have jurisdiction over personal income Tax. It was in the light of this that the 1960 constitution conferred an exclusive fiscal power upon the Federal Government to impose taxes on the incomes and profit of companies consequently the company’s income tax Act (CITA) 1981 was enacted to repeal the income Tax Ordinance, cap 85 which it self repealed the income Tax Ordinance of 1943 CITA, 1961 has undergone several amendments.

The administration of the companies’ income tax vested in the Federal Board of Inland Revenue (FBIR) it is thus responsible for its care and management. Federal Board of Inland Revenue also referred to as board the “Board” has an operational arm known as the Federal Inland Revenue Service (FIRS), which came into effect in 1993. The Federal Inland Revenue Service (FIRS) also known as the “Service” is saddled with the responsibility of income tax assignment, collecting accounting and administration.

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