18 Jan


:: Taxes are the lifeblood of a government-Shell PDCN V Gov of Lagos.

:: The government needs finance to perform its functions which includes amongst others; the provision of social security, amenities, safety and justice for all… it is only reasonable that the governed should contribute for their communal welfare.

:: The law of taxation is a branch of revenue law. Revenue law deals with the fundraising means of government which include (amongst others): printing money, raising loans, charging for services and taxation. Taxation is not revenue law in itself but a means of raising revenue… therefore, a branch under Revenue Law.

:: With the recent fall in oil prices, Nigeria is shifting its focus to taxation and other sources of revenue generation.


:: Our taxing statutes have failed to clearly define what tax is.

:: There is no all-encompassing definition.

:: According to Davies, it is surprisingly impossible to define taxation.

:: According to Oxford Advanced Learner’s Dictionary (2006) Tax is; “money that you have to pay to the government so that it can pay for public services”.

:: According to Investwords.com, tax is ‘a fee charged by a government on a product, income or activity”.

:: According to Abdulrazaq, M. T in Principles and Practice of Nigerian Tax Planning: “taxes are imposed under the authority of the legislature for public purposes”.

:: According to Akanle; Tax is a compulsory levy imposed on a subject[1] or his property[2] by the government having authority over him.

:: A broader definition is provided in Ramanatha Aiyar’s Concise Law Dictionary (2009) “a compulsory exaction of money by a public authority for public purposes enforceable by law and is not payment for services rendered” This definition is more preferred as it  highlights the essential features of taxation.

From all the definitions above, we should note that essentially tax is:

  • A compulsory imposition: once a taxpayer falls within the ambit of the taxing provisions, he must pay the tax.
  • Imposed by the government: (Federal, State or Local) through the legislature… Tax must be backed up by legislation… it must be reflected in a written law. Therefore, an imposition by an agency, public authority, group, club, body, society, etc. does not qualify as tax.
  • Imposed for the good of the general public. Depending on the existing policy of the government.
  • There is no benefit in return for the payment of tax. Meaning that the taxpayer should not expect the government to render a particular service to him in return for the payment of the tax. There is no Quid Pro Quo. No direct benefit in return for the tax paid. E.g. if a Lekki man’s tax is being used to develop Surulere, he should not complain. This principle that there is no quid pro quo in tax was restated in US V

:: Justice Nathan in Nichols V Ames recognised that tax can make or mar a nation. Benjamin Franklin has also declared that nothing is certain but death and taxes.



:: Taxation has graduated from the objective of raising revenue to becoming a tool for social and economic engineering. Some of the objectives and importance of taxation include:

  1. Revenue generation: to finance government expenditures and provide public services.
  2. Stimulation of economic growth: This can be done by manipulating the proportion of payable tax. The rate can be increased to reduce circulation of money thereby controlling inflation[3]. Also an increase in import tax can discourage import and encourage indigenous industries and institutions to grow and export. A favourable tax regime may encourage indigenous and foreign investment as can be seen in tax havens like Quatar, Bahamas, etc.
  3. Resource allocation and income distribution: To bridge the gap between the rich and the poor. For example, the equitable application of progressive taxation[4] would impose more tax on richer taxpayers. Again, The Capital Transfer Tax 1979 (now derelict) sought to tax the transfer of property[5] thereby minimising “undeserved” inter-generational advantages given to rich children. Tax also achieves this resource allocation objective through the imposition of VAT (Value Added Tax) on luxurious goods which the rich purchase. The money derived from the tax imposed on the consumption of luxurious goods and services would be used to provide goods and services for the poor.

Social function: Tax can be used as a machinery for social and moral engineering. For example, “sin taxes” can be imposed on cigarettes, alcohol, and expensive items… to minimise purchase and reduce consumption of such commodities.



:: Principles of taxation are thoughts and ideals on how a good tax law should be shaped.

:: In early times, taxation was viewed as an instrument of oppression. However, with societal evolution, taxation began to wear a “human face”.

:: Adam Smith in the Wealth of Nations outlined four principles (canons of taxation) which a good taxation system must have. They include:

  1. Equity: this means that the proportion demanded should be proportionate to the taxpayer’s ability to pay. Otherwise, tax evasion or even rebellion may occur. Adam Smith Prefers proportional tax[6] as it prevents distinction and inequality of citizens.

:: The notions of equity and justice may change overtime. E.g. initially, progressive taxes[7] were distasteful and frowned upon. Gladstone was of the view that it tended to communism, distinction and discrimination… but with constant evolution of the states and the growing complexity in capitalism, states are beginning to adopt the progressive system of taxation as a system of social engineering. Note that a tax is progressive where the percentage proportion of tax levied increases with the taxpayer’s income (vertical equity)[8]. A tax is proportional where an equal proportion of tax is paid irrespective of income (for example VAT, PPT CIT). In the UK, 50% tax is charged where a person’s personal income reaches a particular threshold.

:: Again, “equity” demands that penalties for non-compliance should be reasonable.

:: “equity” may also require certain incentives and motivation for the taxpayers. There are various tax allowances, incentives, holidays, etc. under the PITA. For example those that earn less than 300000 shall be charged only 1 percent tax. Also, there is 1percent bonus deducted for taxpayers who remit timeously.

  1. Certainty: Tax laws should be comprehensive and clear in order to avoid undue exploitation of the taxpayers by the tax administrators. The proportion, time and mode of payment must be precise and clear so as to encourage tax compliance.

:: The general rule has been that ambiguous tax provisions are construed in favour of the taxpayer-Brandy Syndicate V IRC.

  1. Convenience: Tax ought to be levied and collected in an expedient manner (and time) in order to reduce the burden of compliance.

:: Section 80 PITAct introduces a convenient “Pay as You Earn” system which deducts tax from a person’s income at source.

:: Companies Income Tax is payable annually after the company has prepared and concluded its books of account.

:: FIRS and LIRS now have tax calculators which automatically helps taxpayers compute income based on the data they impute.

:: There is now an online platform for remitting and calculating tax liability. These and many others are needed to encourage tax compliance.

  1. Administrative efficiency: a good tax law must be complemented by a good administration to enforce its provisions and objectives. The agency responsible for collection and enforcement should be well staffed, equipped and cost effective in carrying out its functions.

Kath Nightingal, in Theory and Practice of Taxation noted that a good tax system must also possess the following:

  1. Simplicity: tax laws should be straightforward and simple for the ordinary citizen to understand.
  2. Flexibility and stability: to meet the demands of the dynamic society.
  3. Neutrality: tax laws should not seek to favour some people at the expense of others… it should not be used as an instrument for political vendetta or oppression.

In conclusion, these principles are neither absolute nor compulsory. However, stakeholders of taxation are to have these at the back of their minds in drafting tax legislations, understanding tax policies and enforcing compliance.

[1] The problem with this definition is that, a foreigner can still be liable to tax… not just a subject as Akanle posits.

[2] Another problem here is that tax is not imposed only on property… tax can be imposed on things other than property like, capital gains, VAT and so on

[3] Inflation occurs where too much money chases few goods thereby leading to a hike in price.

[4] Here the rate of tax increases as the taxpayer’s income increases. E.g. Mr A who earns #100,000 is to pay 20% tax while Mr B who earns 500,000 is to pay 35% tax. This extracts more finance from the rich to provide essential service (hitherto inaccessible) for the poor. In fact, under Schedule 3 of the PITA, taxpayers who earn less than 300,000 shall pay only 1 percent.

[5] E.g. if Mr Kunle transfers a Porsche to his son Tayo a proportion of tax may be imposed on the value of the property.

[6] Where the same proportion or percentage of tax is imposed on every taxpayer’s income.

[7] Where the percentage imposed increases with income.

[8] For example under Personal Income Tax, higher income earners are charged more.


Quite eccentric really

Comment (1)
Fayokemi Owolabi

Good morning, what taxation textbook do you recommend?


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