CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
The responsibilities of a government in any country are greatly impacted by the revenue it generates from diverse sources, such as taxes (Adefolake and Omodero, 2022). Ogbonna and Appah (2012) assert that a well-designed tax system is the foremost method to generate revenue to support crucial infrastructure. The most significant source of revenue for the government, according to Aguolu (2004), is taxation.
Taxation can be defined as the process by which the government imposes a mandatory levy on all income, products, services, and properties of people, partnerships, trustees, executorships, and corporations (Samuel and Simon, 2011; Yunusa, 2003). In nearly every nation, it is acknowledged as a crucial tool for fostering national development and expansion as well as a significant means of advancing governmental infrastructure over the long term.
The authority of the government to levy taxes ensures that it will always get revenue, regardless of the circumstances. According to Azubike (2009), taxation is an essential component of all societies worldwide. The government can raise the money necessary to take care of its urgent obligations by putting in place a tax structure.
The Nigerian government substantially relies on taxes to carry out its duties because they are a significant and required source of revenue and income (Ilallah, 2023). Taxes are often levied by the government on citizens and businesses in order to generate revenue. Taxes are an important source of revenue for the government because they are mandatory charges, in contrast to other forms of income (Adefolake and Omodero, 2022).
In recent years, there have been substantial modifications to the Nigerian tax system. The goal of continuous tax law reviews is to eliminate outmoded provisions and streamline the key ones. As per Nigerian law, the federal, state, and local governments are responsible for enforcing tax laws. The Taxes and Levies (Approved List for Collection) Decree of 1998 precisely delineates the jurisdiction of each level of government. The Nigerian government generates revenue to finance its expenditure by consolidating taxes collected from all levels of government, each of which has a designated tax collection body.
The management of tax payments due to the federal government is the responsibility of the Federal Inland Revenue Service (FIRS). Local government revenue committees are in charge of taxes owed to local governments, whereas various state boards of internal revenue manage taxes owed to state governments. The joint tax board, however, offers advice, works to end double taxation, and makes suggestions for changes to tax rules (PML, 2023).
In terms of tax administration in Nigeria, the Federal Inland Revenue Service oversees the administration of several major taxes such as Companies Income Tax, Education Tax, Stamp Duties, Custom Duties, Excise Duties, Withholding Tax, and Value Added Tax. The State Board of Internal Revenue, on the other hand, is primarily responsible for administering Personal Income Tax and Withholding Tax, while levies are mainly administered by Local Governments (PML, 2023).
Taxation in Nigeria is strictly regulated by formal legislation. This means that for any tax to be legally binding and enforceable, it must be authorized by recognized legislation that imposes clear and unambiguous tax obligations. In accordance with the constitution, no tax can be imposed without the authority of formal legislation. Therefore, every tax in Nigeria is supported by its corresponding law, which is passed by either the National House of Assembly or State House of Assemblies. The taxes in Nigeria are classified as Direct Taxes and Indirect Taxes (Ashibogwu and Bankole, 2018).
Despite the continuous review of tax laws to eliminate outdated provisions and simplify existing ones, as well as the importance of taxation, tax evasion and avoidance persist in Nigeria. Some individuals and businesses are not fulfilling their tax obligations. To tackle this issue, the Nigerian government has instituted a variety of penalties and offenses under the Nigerian tax laws. Tax offenses encompass any violation of tax laws, regulations, or legislation, including both civil and criminal misconduct, according to Nigerian tax laws. According to Selkur (2019), severe punishments are meted out for serious offences while monetary fines are levied for lesser offences.
Therefore, this study aims to examine the Nigerian tax system, offenses, and penalties under Nigerian tax laws.
1.2 Statement of the Problem
Taxation is essential in Nigeria, yet tax evasion and avoidance continue to be significant issues. Direct personal taxation in Nigeria faces a major challenge in collecting taxes from self-employed individuals, including business owners, contractors, lawyers, doctors, accountants, architects, and shop traders. As noted by Ayua (1999), many self-employed individuals blatantly evade paying taxes by declaring losses each year, and their reported income is often unreasonably low for the nature of their businesses. Despite this, they still maintain a lifestyle that is inconsistent with their reported income.
In Nigeria, only civil servants and other employees receiving a salary are known to pay taxes. However, within this group, it has been noted that many use their personal allowances and relief to evade taxes. Interestingly, most taxpayers in Nigeria happen to be married with four children. Despite the government's efforts to prevent tax evasion, self-employed individuals continue to utilize various avoidance methods to minimize or completely evade their tax obligations (Nnenna and Carol, 2016).
Many, if not all, violations of the Nigerian tax law can be categorized as some type of tax evasion. The tax law in Nigeria grants the tax authority the authority to impose both civil and criminal penalties in order to ensure and enforce tax compliance (Selkur, 2019). Despite this, the government has not achieved complete success in its efforts to encourage compliance with tax laws, as certain people and companies continue to evade taxes.
The issue is made worse by the limited understanding of tax laws and the intricate nature of the tax system. The tax laws in Nigeria are challenging for the average taxpayer to comprehend, and they can pose problems even for lawyers. This is because lawyers may not have a solid grasp of taxation regulations, as they might still approach tax cases the same way they approach regular court cases. Additionally, the tax laws are not presented in a simplified manner that can be easily understood by the common person (Selkur, 2019).
Therefore, this study seeks to examine the Nigerian tax system, offenses, and penalties under Nigerian tax laws to provide a better understanding of the issues and identify possible solutions.
1.3 Aim of the Study
The aim of this study is to examine the Nigerian tax system, offenses, and penalties under Nigerian tax laws.
1.4 Objectives of the Study
The specific objectives of this study are:
- To examine the Nigerian tax system and the laws governing taxation in Nigeria.
- To identify the penalties for tax offenses in promoting compliance with tax laws.
- To determine the effectiveness of the penalties for tax offenses in promoting compliance with tax laws.
- To identify the challenges faced in enforcing the penalties for tax offenses.
1.5 Research Questions
The research questions for this study are:
- What is the Nigerian tax system, and what are the laws governing taxation in Nigeria?
- What are the penalties for tax offenses in promoting compliance with tax laws?
- How effective are the penalties for tax offenses in promoting compliance with tax laws?
- What challenges are faced in enforcing the penalties for tax offenses?
1.6 Justification of the Study
The study's justification is to contribute to the existing body of knowledge on the Nigerian tax system, offenses, and penalties under Nigerian tax laws. The study will provide law students and legal practitioners with a better understanding of the Nigerian tax laws, offenses, and penalties. Additionally, the study's findings and recommendations will be useful to the Nigerian government in improving the tax system and promoting compliance with tax laws.
1.7 Scope of the Study
This study will focus on the Nigerian tax system, offenses, and penalties under Nigerian tax laws. The study will cover the different taxes in Nigeria, the laws governing taxation and the penalties for tax offenses. The study will also explore the challenges faced in enforcing the penalties for tax offenses and provide recommendations for improving the Nigerian tax system.
