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PROBLEMS OF PERSONAL
INCOME TAX GENERATION AND ADMINISTRATION
ABSTRACT
This project work is
carried out on problem of personal income tax generation and administration.
Taxation can be simply defined as a compulsory condition by individuals and
organizations to statutory Authority. The merits of taxations are numerous, for
instance it could be used for re-distribution of income or for stabilization of
the economy. In the recent parts and up till date, it has not been easy to
fully realized the objectives of taxation owing to the existence of
inefficiency and ineffectiveness in the system of administration and collection
of personal income tax in Enugu State. The project, “Problems of personal
income tax generated and Administration in Enugu State (A case study of
internal Revenue Enugu North) will highlight those problems militating against
the attainment of the objective of taxation. In carrying out this research work
questions had been used to collect data and simple percentage analysis was used
to research work enabled me to observe whether inhabitant of Enugu North Local
Government Area indulge so much in tax avoidance and tax evasion because they
have not been sufficiently enlightened on the importance and merit of taxation.
Finally, the research work carried out helped me to know if there is enough
personnel needed for effective to collection and administration. The limitation
of this study is monetary problem and time, there will be scarcity of accurate
national statistics.
CHAPTER ONE
1.1 BACKGROUND OF STUDY
In all generation, the
problem of personal income tax generation and administration continues to
surface in one form or another in virtually every society, especially in this
part of the world. It is important to point out that the federal government has
taken adequate steps towards effective tax administration.
The failure on the part
of the federal positions of both the state and local government. Besides the
inadequate planning and absolute laws governing taxation, evaluation and
collection is characterized by chaos.
This chastic nature of the system can be
appreciated by political influences in the process of taxation during the
civilian administration in the country which gave being entrusted with the work
of collection and administration of personal income tax.
The importance of these issues to tax
administration in the developing countries like Nigeria, can be seen from the
following extracts from tax administration in other developed countries. The
tax administration finds himself working with a staff which is inefficient, in
experienced and poorly paid.
1.2 STATEMENT OF THE PROBLEM
It is true that problem
of tax collection and administration is universal but the third world countries
of which Nigeria is one, seen to be more plagued and inflicted both in weight
and magnitude than the developed nations of the world. The research work
primary involves identifying the problem of personal income tax generation and
administration in Nigeria taking a case study of board of internal revenue,
Enugu-North local government area.
These problems include
the following:
· Improper system of keeping account and records in the
internal revenue office which was seen to be quite mechanical and out dated
· Lack of staff and adequate
training of the available tax collectors
· No enlightenment on the
part of tax payers as regards to the importance of taxation and administration
in Enugu North local government area.
· The corrupt alliance of tax
collectors with tax payers to avoid tax for them (tax collectors) to make fast
money.
· Another back bone of the
problem worth mentioning is the uniformed penalties on tax defaulters, thus
lack of enforcement power on the board make tax laws useless and not serious to
tax offenders/defaulters.
Since these problems
have been identified, the researcher considers it necessary to survey as such
as possible to find solution preferred for solving the problems which will make
for higher level of efficiency in the personal income tax generation and
administration in Enugu North in particular and Nigeria in general.
1.3 OBJECTIVES OF THE STUDY
The value of an
effective personal income tax collection and administration cannot be over emphasized.
There have been an increase in the demand for governmental service or the
masses. Government is expected to satisfy collective wants, regulate the
economic and social policies of the nations.
Against this background of continuous
increase trends in government responsibilities and expenditure are all levels
of government. Nigeria has been fast dwindling finances for the past few years.
The internal generated revenue have been inadequate to meet up the numerous
demand and obligations.
· Ascertain whether there are really
problems in personal income tax collection and administration.
· Investigate and identify the
factors that course the problems.
· Find out how these problems
have affected the work of the board of internal revenue
· Determining the effectiveness
and efficiency of personal income tax collection and administration in Nigeria
with Enugu North Board of internal revenue as a case study
· Recommend measures overcome or
minimize these problems of personal income tax generation and administration in
Nigeria.
1.4 HYPOTHESIS
Ho 1: Personal income
tax generation and administration in Enugu North Board of internal revenue is
not very effective.
Ho: Personal income tax
generation and administration in Enugu North Board of internal revenue is very
effective.
The hypothesis above
about personal income tax generation and administration in Enugu North local
government area are based on generalization of the assumed relationship between
personal income tax revenue like administrative costs population, income of tax
payers, free pay allowance etc.
In any case, the rejection of the null
hypothesis Ho is sub-hypothesis which are reduced to testable firms.
1. Ho: The system of keeping account and records
in the Board of internal revenue office in Enugu North local government area is
rudimentary.
Hi: The system of
keeping account and records in the Board of internal revenue office in Enugu
North local government area is not rudimentary.
2. Ho: The internal Revenue office in Enugu
North Local Government area is under staffed and ill-equipped.
Hi: The internal
Revenue office in Enugu North Local Government area is not under staffed and
ill-equipped.
3. Ho: The tax payers in Enugu North Board of
internal revenue are not enlightened enough to know the importance of taxation.
Hi: The tax payers in
Enugu North Board of internal revenue are enlightened enough to know the
importance of taxation.
Owing to flexibility of
tax laws in Nigeria and attitude of government toward the local government
level in the area of the administration and collection of personal income tax.
It is pertinent to make some assumption that will guide the work for an opinion
to be expressed.
1. The local government shall remain one
throughout the research period
2. The problems identified and solutions
preferred shall apply to all local government area in Nigeria.
3. The revenue board are those who encounter
these problems
1.5 RESEARCH QUESTION
To overcome the
difficulties involved in closing public or group behavior systematically in
non-experimental situations as it is the case study, they are really no other
alternative than to rely on the following questions.
1. When taxes are collected, do you record them
on your books?
2. If your answer to question 1 above is yes,
where is the evidence of record?
3. Do you think the work you are doing is more
than enough for one person?
4. What factors prevent the board from its duty
of income tax generation and administration
5. What are the problems experienced by the
board in collecting and administering tax?
6. What do you think hinders staff in carrying
out their job effectively? Poor salary, stationeries and Non-incentives
7. Do you say that any person assessed to tax,
pays what he or she is asked to pay?
8. Would you say that tax collectors pay over to
the board all that they collected each day?
9. Do you think the field workers have enough
mobility which enable them to collected and administer tax in remote areas
within the jurisdiction of the board? Following to the answer provided to the
question above, it was discovered that the board operation is below average,
therefore external supervision need to be develop or employed for effective and
efficient tax administration
1.6 SIGNIFICANCE OF THE STUDY
Income tax is very
important, because it is a sources to that link both the state and federal
government budgets. The taxes collected come to the tax payers in the form of
social amenities provided by the government.
Income tax was encouraged or discouraged
some activities in private sectors, depending upon whether the policy of the
government is towards discouraging or encouraging such companies. It reduces
that net return on investment and also decreases the balance available for
private savings. It is an all pervading subject which affects the live of
nearly everybody and no major accountant or legal problem can be satisfactory
solved without a consideration of its tax aspect.
Benjamin Franklin, a
statement and philosopher, observed that in this world nothing is certain but
death and taxes. The taxation is particularly important, water supply,
electricity and land allocation. As well, income tax has social effects,
personal reliefs, relief in respect to children and tuition, relief on
insurance policy premiums and dependent relatives, relief effect the social
structure of the whole countries. Its fiscal effect lies on the cost. The cost
of collecting taxes by the government is considerable. Profession fees paid by
tax payer to accountants and the cost to unpaid employers in deducting tax
under the pay-as-you-earn system and handling the taxes so deducted to the
government is also vast.
Income tax also has some effect on
population movement and the extent of business carried on. A state with low
income tax rate will find that more people are moving into that state, while
traders will leave states with high income tax rate or engage in various
schemes of tax avoidance and evasion. The significance of tax is also show by
the fact that one of the problem inherent in any federal system of government
is the allocation of taxing powers between the federal and state government.
In May and June 1957, the Nigeria
leaders were planning the form of federalism they wanted, a two-member fiscal
commission know as the Raiseman commission was appointed to study and to make
recommendations as to the allocation of taxing power between the Regional
Government and the federal government. In June 1958, the commission tendered
its principal report, section 4(1) of the Nigeria constitution enacted that the
provision relating to fiscal arrangement can only be amended by a two thirds
vote in each house of the parliament, consented to be each legislative chamber
of at least three of the former regions.
1.7 SCOPE OF THE STUDY
Board of internal
revenue Enugu was established to administer income tax in Enugu State just as
there are in other state of the federation.
Income tax was first introduced in
Nigeria in 1904 by Late Lord Lugard. The introduction of Native revenue
ordinance of 1927 was most difficult in the Eastern areas of the country, due
to mainly to abserice or recognized central Authority resistance to this form
of direct taxation in such that it leaf to riot notably in Calabar, Owerri and
the famous Aba women riot of 1929 which was so severe that it attracted a
probe. Besides, the Native revenue ordinances were also Native direct taxation
ordinance for the colony and the Native income tax ordinance.
These ordinance were later modified and
incorporated into the direct taxation ordinance No 29 of 1940, cap 54 and the
income tax ordinance No 29 of 1940 respectively. The direct taxation ordinance
if 1940 empowered native authorities to tax African in their areas of
justification while the income tax ordinance 1943 was for the taxation of
non-Africans in companies. The two ordinance where the foundation of our modern
taxation which necessitated establishment of board of internal revenue in each
of the state of the federation which Enugu Board of internal revenue is one of
them.
The Zonal Tax Authority
which Enugu North Board of internal revenue belongs to the Enugu Zonal
Authority.
The Assessment
Authority:
The assessment officer is the head of
the board of internal revenue in the area. He is pointed by the Board of
internal revenue, Enugu State. He is responsible for the assessment of tax and
its collection and as well as accounting for it. He carries out duty with the
help of collectors, assessment and administrative officers. He is directly in
charge of assessment and administration, he has the power to issue notice to
tax payers further returns. Where there are suspected doubts as to genuiness of
returns, he might ask the tax payer to produce before assessment authority
books and documents of tax payer covered by pay as you ear (PAYEE).
The assessment Authority could ask an
employer to prepared and deliver a return on his employee after assessment and
responsibility of collection of this assessed income rest on the tax collector.
He makes use of tax agents, tax drivers or which may be applied from time to
time to generate tax in the area.
Administrative
Framework
The structural
administration of personal income tax is rested in the Joint Tax Board (JTB)
under the income tax management Act 1961.
The board is made up of
the chairman who is appointed by Federal Board of Internal Revenue (FBIR) which
is the federal body. The personal must be experienced in tax matters also a
secretary and a legal practitioner or adviser are appointed, some of their
functions are:
a. To exercise the power or duties
conferred upon them day any express provision of the Act which be agreed by the
board.
b. To execute the power and duties
conferred on them by any enactment of the federal Government imposing tax on
the income of properties of companies or which may be agreed by the federal
Board of internal revenue.
State Internal Revenue
Board
The administration of
the income tax in each states, its collection and administration is vested on
the state board of internal revenue. It is headed by a chairman with director
of revenue as his Deputy Chairman and Chief executive of the board. Other
members of the board include representative of specified ministries and from
field economics, accountants and legal professions. Their major function
includes;
· To see the retrieval of the
revenue collected by various tax officers in all local government head quarters
and forward it to state government for disbursement.
Inspector of Taxes
The inspector of taxes are controlled by
the board, they have variety of duties covering all aspects of taxation, some
of their duties are
a. Receipt and examination of tax returns
and other information from tax payer
b. Preparing and issuance of assessment
based on the returns on which tax is payable. They also employ the best of
judgment guesses, if returns were not received or there is evidence of false
information.
Tax Collectors
They are entrusted with
revenue receipts and are concerned with the service of:
i. Returns of income forms
ii. Notice of assessments
iii. Summons affidavits and other sources
of information.
1.8 LIMITATION OF THE STUDY
For many years, the
generation and administration of personal income tax has been causing some
problems especially on money generated from it.
However, in a way to keep the work
within manageable proportion and with the limited time and resources available,
the researcher has confined the study to problem of personal income tax
generation and administration in Nigeria using Enugu North local government
areas a case study and is of the view that this will bear good result that will
be proper for generalization.
1.9 DEFINITION OF TERMS
The following terms are
defined in respect to the study for quick understanding:
a. Fairness: This means a good tax
system should be one that allows citizens to pay according to their ability.
Taxes paid by the rich and the poor must have a clear difference, the rich
should pay more than the poor.
b. Neutrality: This means a tax system that is
good must be minimal in its effect on the optimum allocation of resources. It
should not alter the market mechanism, that is, its effect may fall on demand
and supply. It should not as well lead to loss in total output by adversely
affecting.
c. Convenience: This means the tax
payment is a burden at the point of payment, although the payer may accept the
fairness of the tax he is paying. To collect tax at the most convenient point
and time, reduces losses that may be encountered as a result of evasion and
make the whole system simple.
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