PERSONAL INCOME TAX PROBLEMS, PROSPECTS AND CONTRIBUTION TO THE ECONOMIC DEVELOPMENT OF LAGOS STATE. (A Case Study of Lagos State Board of Inland Revenue Service)

ABSTRACT

 

Personal income tax is a tax level on individual income. It is a source generating fund for the execution of various projects.

 

The project therefore look at the problems, prospects and contributions of these source of fund to the economic development of Lagos State with Lagos State Board of Internal Revenue services.

 

Chapters one discuss the background of the study. In chapter two which discuss literate review talks about the administration, computation, imposition of income tax and contributions.

 

Chapter three shows the data methodology. In chapter four analysis was made to the data collected while chapter five discuss the summary, conclusion and recommendations.

 

 

 

 

 

 

 

TABLE OF CONTENTS

                                                                                                           

CHAPTER ONE – INTRODUCTION

1.1        Background of the study

1.2       Statement of the problem

1.3       Objective of the study

1.4       Significance of the study

1.5       Research question

1.6       Research hypothesis

1.7       Scope of the study

1.8       Limitations of the study

1.9       Definition of terms

 

 

CHAPTER TWO    - LITERATURE REVIEW

2.1       Historical background of PIT in Nigeria

2.2       Administration of personal income tax

2.3       Statutory bodies

2.4       Tax collectors

2.5       Computation of Personal Income Tax (PIT)

2.6       Imposition of income tax

2.7       Assessment procedure

2.8       Objection and appeal

2.9       Residence

2.10    Components of personal income tax

 

CHAPTER THREE - RESEARCH METHODOLOGY

3.1       Area of study

3.2       Study population

3.3       Sample and sampling procedure

3.4       Instrument for data collection

3.5       Method of data analysis

3.6       Justification

 

CHAPTER FOUR - PRESENTATION AND ANALYSIS OF DATA

4.1       Introduction

4.2       Presentation of data

4.3       Analysis of data

4.4       Test of hypothesis

 

CHAPTER FIVE    - INTRODUCTION

5.1       Summary of findings

5.2       Conclusions

5.3       Recommendation based on conclusion

REFERENCE

 

 

 

 

 

 

CHAPTER ONE

 

INTRODUCTION

 

1.1             BACKGROUND OF THE STUDY

Government be it in federal, state or local has ways of raising revenue for the purpose of meeting it’s financial obligations to the people it governs. One of the direct ways is personal income tax (PIT).

 

Personal income tax is an income tax levied on the wealth or income of Individuals, Corporate and Public Companies, Trustees and Partnership. This tax imposed must be backed by legislation, as nobody would agree to pay tax without being convinced that such tax is authorized by law. The law that empowers the imposition and collection of tax on Individuals, Companies and Trustees is the INCOME TAX MANAGEMENT ACT (ITMA) 1961. This act has been amended several times and the most recent amendment is act 104 of PIT 1993, which is now applicable throughout Nigeria.

 

The development of taxation in Nigeria can be traced under three distinct period before the advent of British administration (Pre colonial era), colonial era, and postcolonial era.

Ever since the nation Nigeria came into existence, the assessment and collection of personal income tax (PIT) has been an uphill task and there has been widespread avoidance of this many states.

 

Lagos state accommodates a high population whose personal income tax (PIT) are collected from source through PAYE and therefore there is an observed difference in disposable revenue of Lagos state and other states in Nigeria.

According to the Act, the following categories of people are assessable to personal income tax (PIT)

 

(1)       Individual  (2) Trustee (3) Person  (4) Executor  (5) Settlement 

(6) Community

 

(i)                Individual : - This includes a corporate sole, and body of individuals other than a company, partnership, trustee or executor.

 

(ii)              Person : -  This include an executor, trustee, company could be  used jointly,  singly or together and where this occur, the intention is to use the word together.

 

(iii)           Trustee : -  Is any person who handles the administration of a trust is a conveyance of real and or personal property(ies) to persons to be applied for the benefit of named person called beneficiary.

 

(iv)            Executor : -  This includes any person on administering the estate of a deceased person.  This person is held responsible for payment of taxes due from a deceased taxpayer and his estate where applicable.

 

(v)              Settlement : -  This is an agreement made in writing in which money is made available to another person for his/her use without any interference whatsoever.

 

(vi)            Community : -  This represent tax charged on either the estimated total income of all members or the amount of any communal income which is impracticable to apportion with certainty among its members.

 

 

In accordance with section 3 of the PITA of 1993, income chargeable or assessable to tax for a relevant year of assessment are  income accrued in, brought into, derived from or received in Nigeria irrespective of any salary, wages, fee, allowance, divided interest or discount, pension charged or annuity and

 

  1. Gains or profit from trade, business, profession or vocation
  2. Gains or profit including any premium arising from a right granted to any person for the use or occupation of any property.
  3. Gains or profit  from employment including gratuities, compensation, bonuses, premiums, benefit or other than

 

(a)       Any sum reimbursement to the employee on expenses incurred by him in the performance  of his duties and from which the employee is not expected to make any gain or profit.

(b)       Medical or dental expenses incurred by the employee

(c)       Compensation for loss of employment

(d)       Cost of any postage to or from Nigeria incurred by the employee.

 

1.2             STATEMENT OF THE PROBLEM

Personal Income Tax is a global and wide topic that undisputedly requires investigation and provision of possible solution to the problems associated with effective administration of the tax some of these are:

(1)       Development of unskilled tax management personal in administration.

(2)       Ineffective tax system which makes government unable to implement its tax policies.

(3)       Unreliable tax monitoring system of tax payers and evaders

(4)       Acute shortage of man power and working equipment

(5)       Improper and insufficient enlightenment of tax payers

(6)       Misunderstanding of tax legislation and purpose

(7)       Non availability of complete and accurate data to the tax administrations

(8)       Incomplete and inaccurate returns made by tax payers

(9)       Misinterpretation of vital aspects of the decree by tax authorities in the effect that expected benefit to the tax payers or giants to government are not realized

(10)     Multiplicity of tax system

(11)     Penalties attached to non-companies with PIT regulation are too soft and

(12)     Recovery procedure is cumbersome and counter productive

 

1.3             OBJECTIVES OF THE STUDY

The general objective of this study is to appraise the problems, prospect, and contribution to the economic development of Lagos State.

 

The specific objectives are to:

(i)        Analyse the PIT assessment and collection (PIT AC) machinery for the state based on perceived and verified economic predominance in each area of the state.

(ii)       Examine the machinery designed to enhance revenue planning and control in the system.

(iii)     Identify a system, which will ensure equity and fair play so that the citizens will respond to it positively.

(iv)      Recommend how tax legislation could be administered efficiently.

 

1.4             SIGNIFICANCE OF THE STUDY

This research work will be relevant because of the need to alleviate the pressure on the resources of the Lagos State which account for the shortage in the provision of services and the present stagnation in the overall development of the assessment and collection which will lay a solid foundation for the generation of income for the government.

 

 

1.5.1   RESEARCH QUESTIONS

            The important parts that will be examined in the research question are:

(i)                What is Personal Income Tax?

(ii)              Are there any relationship between Personal Income Tax and the Total Revenue of Lagos State?

(iii)           What are the composition of the Total Revenue of Lagos State

(iv)            What proportion of the Total Revenue of Lagos State is the Personal Income Tax?

(v)              What is Economic development and how is it measured?

(vi)            Is there any direct relationship between Personal Income Tax and Total Revenue.

(vii)         Is PIT a reliable source of revenue to the government?

(viii)       Is PIT an equitable system?

(ix)            Can PIT be considered as a key factor for promoting government overall economic and social objective?

 

1.5.2       RESEARCH HYPOTESIS

The hypothesis to be tested is as follows

(i)                Null Hypothesis (Ho) : PIT is not a major source of the total revenue of  Lagos State.

(ii)              Null Hypothesis : There is no significant relationship between Personal Income Tax and Total Revenue of Lagos State. Hence it does not contribute to the economic development.

 

1.6       SCOPE OF THE STUDY

The personal income tax (PIT) is applicable to a very range of people in Lagos State and hence cannot be researched into within the conferment of a single sector of Lagos State. The scope of this study is based on the Personal Income Tax and Total Revenue of Lagos State.

Thus, the scope of this study covers basically two sectors of employees in Lagos State.

 

1.7       LIMITATIONS OF THE STUDY

The major limitations however  envisaged in the course of research work is the inavailability of absolute correct appropriate and needed information to be provided by the respondent, time to cover a large and cost to run them. An appreciable amount of co-operation on their part will be paramount importance to the success of this project.

            The major limitations are:

(i)                Inadequate  relevant literature on the topic i.e. past research works carried out on the topic.

(ii)              Conferred access to required and relevant information.

(iii)           Inadequate time to cover a large area.

(iv)            High cost of running a large area.

 

1.8       DEFINITION OF TERMS

PIT     -           Personal Income Tax

PIT     -           Personal Income Tax Act

YOA   -           Year Of Assessment

PAYE -           Pay As You Earn

ITMA -           Income Tax Management Act

BIR     -           Board of Internal Revenue

IRS     -           Internal Revenue Services.

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