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AN APPROVAL OF PAY-ASYOU EARN SYTEM OF TAXATION IN NIGERIA
AN APPROVAL OF PAY-ASYOU EARN SYTEM OF TAXATION IN NIGERIA (A
CASE STUDY OF SUKKA LOCAL GOVERNMENT AREA)
1.0 INTRODUCTION
The global economic recession, which started in 1980’s as a
result of decline in the economic growth of industries nation, high rate of
inflation, dramatics rise in price of crude oil, increase cost of important a
massive building-up of liquidity in the international capital market and
unusual fluctuation in commodity prices was not fully felt in Nigeria until
1982, when the developed countries
applied a series of restructure monetary and fiscal policies to curtail the a
fore-stated problems.
Seventeen years ago, precisely in 1983, the worldbank report
that the continuing recession in the industrial world several constrained
developed countries growth in 1982. Weakness in the price of oil created
difficulties for oil exporting developing countries’’.
Reporting specifically on Nigeria, the bank stated that``
foreign exchange resource declined in 1982 from a level equivalent to three
month worth. Investment, equal to about a third of gross domestics product
(GDP) in 1980 –1981, has been radically reduced as both foreign exchange and
government resource contract (85% of government revenue, both federal and states
are direct generated from oil export).
An attempt to wriggle the country out of its financial
predicament led to the initially of series of belt-tighten measure since 1982
to date.
These measure include:
Ban on import of a large number of goods, specially taxes on
luxury goods, enforcement of trick exchanges control reputation liberalized
during the earlier boom, wages and ban on employment in the public sector,
increased external borrowing in anticipation of oil income and of late the
introduction of value added tax (v.a.t). The impact of the dwindling revenues
to the federal government and this ever decreasing portion of statutory allocation to states, has
aroused tremendous interest in other source of revenue. Therefore, the hitherto
relaxed tax laws are vigorously being enforced while levies of various
descriptions are also being in various state of the federation.
Nsukka local government area of Enugu state is not exempted
from this nation economic recession. One of the major sources of revenue to the
local government, second to statutory allocation from the state and
federal government, is the personal
income tax (PIT) impose on all taxable persons in the local government. The personal income tax is
allocated either through the Pay-As-You-Earn (PAYE) system in which employers
of labour deduct tax due from the income of their employees and remit it to the
division
In this study, my interest lies in appraising the effective
and efficiency of Pay-As-You-Earn (PAYE) as a system of tax collection. The
examination of the weakness interest in the system will be carried out and
based on empincal observation, make suitable recommendation as to how loopholes
in the system could be plugged especially at this time of wide spread awareness
of the great potentials of internally generally revenues.
1.1 STATEMENT OF
PROBLEM
The expectation of the
public from governments (local, state and federal) in the developing countries
are such that the later are saddle with responsibilities for the provision of
various services. The 1979 nigeria constitution sec.16 (a) state. Quite clearly
that ``the state shall control the national economy in such manner as to secure
the maximum welfare, freedom and happiness of every citizen as the basic of
social justice and equality of status and opportunities’’.
It is in an
attempt to fulfill these expectation and sometimes constitutionals requirement
that government rely on, among either source, the imposition of various taxes, weather
direct or indirect on the defined taxable persons in their territory. Such tax
and poll tax
These taxes
are collected at source at source include taxes on dividend interest and rates.
Also induction is tax on personal income tax through the Pay-As-You-Earn (PAYE)
system has been effective in achieving its objectives of minimizing collection
costs and reduction tax evasion while
increasing revenue to the local government. We will all look into the problem
of the pay-As-You-Earn system and suggest measures to solve such problems that
might be identified.
1.2 PURPOSE OF THE
STUDY
The purpose of the study can be broken down vas follows:
(a) to ascertain the
impact of Pay-As-You-Earn system
effectiveness on personal income tax revenue over a period of ten years.
(b) To educate the
truthfulness of the data provided by tax – payers in their tax return and
ascertain the percentage of those who do not provide the information there in.
(c) To find out
weather there is any relationship between the truthfulness of information
provided by tax payers in their tax returns and their age.
(d) To identify the
problem (if any) encountered by the internal revenue division and the employers
of labour in the application of the PAYE system.
(e) To find out how
the employers perceive the PAYE system and the likely improvement that they
would recommend.
On
the basis of my findings, suggestion and recommendation will be made which I
hope would be benefit to the local government it is also hope that future
researcher in the area of the public finance would find the work a valuable
source of literature.
1.3 SIGNIFICANT
The significance of adequate revenue for a developing economy
such as that of Nigeria cannot be over emphasized. This study is being
conducted with a view to exposing the inherent weakness on the Pay-As-You-Earn
system of taxation.
The suggestion and recommendation made on how loopholes in
the system could be plugged. Especially at this time of widespread weakness of
the great potential of internally generated revenue would be very beneficial to
the governments.
The local government will find it very useful in drawing up
revenue and other methods of taxation which will in turn check the ever
dividing revenue to the government.
1.4 STATEMENT OF THE
HYPOTHENSIS
A hypothesis is a rational assumption, which subject to fast
could be true or false
The following hypothesis were made as a guide for this
research ho (i) The effectiveness of the Pay-As-You-Earn system has not
affected personal income tax revenue.
Hi (ii) the effectiveness of the Pay-As-You-Earn system has
affected personal income tax revenue
1.5 SCOPE OF STUDY
The study shall be confined to an examination of the
Pay-As-You-Earn system as in weather it is an efficient and effective method of
personal income tax (PIT) collection in NSUKKA local government. It thus
excludes any other system of tax revenue through Pay-As-You-Earn system with
other tax revenue shall be evaluated only for the purpose of comparison.
1.6 LIMITATION OF THE
STUDY
The study was limited
by the following constraints:
(a) there was
shortage of relevant texts journal and documentaries on the subject of Pay-As-You-Earn system.
(b) Some of the
answer givens an opinions expressed in response to question were subjectively
based due to different personal experience.
(c) A study of this
nature require longer period of time than was actually available to me.
(d) There is this
general problem that many Nigeria do not like to disclose their earnings.
(e) Finance available
for this study was inadequate considering its scope and my financial standing
as a student.
1.7 DEFINITION OF
TERMS
(I)
BASIS PERIOD: the period in which the income of a taxpayer is assessed
for the purposes.
(II)
ASSESSABLE INCOME: income of a taxpayer from all sources in a given
basis period less all allowable deductions and nontaxable income.
(III)
PRECEEDING YEAR BASIS: A basis period by which income of a tax payer in
the year proceeding the year of assessment is assessed.
(IV) ACTUAL
YEAR BASIS: a basis period by which income of a tax payer in the proceeding the
year of assessment is assead in that year.
(V) YEAR
OF ASSESSMENT: the government financial year in which the income of a taxpayer
is assessed for tax purpose.
(VI)
CHARGEABLE INCOME: assessable income less all reliefs.
(VII) RELIEFS:
deductible allowance granted to a taxpayer by the law in a relevant year of
assessment.
(VIII) TAX
EVASION: an illegal act of paying less tax than ought to pay.
(IX) TAX
AVOIDANCE: a legal act by a tax payers to pay less than he ought to pay.
(X) TAAX
SRETURNS: relevant data supplies by a tax payer for the purpose of assessing
income.
(XI) TAX
DEDUCTION CARD : a document used in the Pay-As-You-Earn scheme in which total
allowed relief’s are stated.
(XII) TAX
EMERGENCY CARD: the card temporarily used before the tax deduction card are
made available to the employer by internal revenue division.
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