TAX 1.2A HISTORY AND FEATURES/DRAWBACKS OF NIGERIAN TAX SYSTEM
EVOLUTION OF THE NIGERIAN TAX SYSTEM AND ITS PECULIAR FEATURES.
:: Taxation has always existed in one form or the other in ancient societies.
:: Poll taxes were a major source of tax in ancient Egypt under the Ptolemaic Dynasty from 300 BC.
:: Before the advent of colonialism, the various independent entities which now constitute Nigeria had their own unique system(s) of taxation.
:: Pre-colonial North: had a well organised tax system. Zakat, Jizyah, Shukka-Shukka, Jangali amongst others were some of the taxes imposed. The system was somewhat centralized in the Emir thereby facilitating enforcement.
:: In the West, taxes were collected from families. Traders paid taxes. Death duty was collected… tax was also paid in “kind” by clearing bushes, building bridges and so on…
:: In the stateless society of the Igbos, Tivs, Igbiras: there existed little or no formalised system of taxation.
:: UPON COLONISATION, the Western System of taxation was introduced. This was in a bid to finance the colonial administration. Although the indigenes resisted taxation because it supported an alien authority.
:: The Land Revenue Proclamation Law Of 1904 was the first comprehensive attempt at direct taxation. Later, (following the amalgamation of Nigeria in 1914) the Native Revenue Ordinance 1917 was enacted to cover the Western Region.
:: In 1927, the first personal income tax was introduced to Eastern Nigeria. This was a precursor to the Aba Riot of 1929. The Okigbo Commission of Enquiry investigated the cause of the riot and noted that it erupted due to the misinformation that the head count of men and women meant that women would also be taxed. A series of Ordinances were enacted subsequently.
:: In 1940, the Income Tax Ordinance and the Direct Taxation Ordinance were enacted. These two legislations formed the base of subsequent tax legislations in Nigeria.
:: Then came the 1954 Constitution which vested jurisdiction over personal income tax and companies income tax on the regional and Federal government respectively. In furtherance to this, the Eastern government enacted the Finance Law 1956 which introduced the PAYE system. The Western Nigeria decided to tow the same line by enacting the Income Tax Law in 1957, the North followed suit in 1962 by enacting their own law.
:: A series of other tax statutes, laws and regulations were enacted some of which include; the Petroleum Profits Tax Act 1959, Companies Income Tax Act 1961, the Capital Gains Act, the Supertax of 1967 and a host of others tax laws.
:: In 1961, the Income Tax Management Act was enacted to solve the problem of double taxation. It formed a model of basic principles of taxation. The ITMA did not impose tax stricto sensu but enjoined the drafters of tax legislation to use its model when drafting tax laws.
:: Then came the 1979 constitution which placed income tax on the Exclusive Legislative List. The Federal Government could delegate the administration (of income tax) to the states.
:: In 1993, two major tax legislations were introduced viz: the Personal Income Tax Decree and the Value Added Tax Decree. These statutes have been amended and consolidated into the Laws of The Federation 2004.
A host of other laws and issues have arisen in modern times. These shall be discussed later.
FEATURES/DRAWBACKS OF THE NIGERIAN TAX LAW/SYSTEM
:: By Section 2(2) of the 1999 Constitution, Nigeria operates a Federal system of government.
- Dominance of the Federal government: A study reveals that the Federal government collects over 90 percent of the total tax revenue in Nigeria. Therefore, states have little or no power to utilise the social engineering power of taxation. This also leads to overdependence on the FG which in result hampers the independence of the States.
- Dominance of Petroleum Profits Tax: over 70 percent of the government revenue comes from the oil and gas sector. This shows undesirable overdependence on the oil and gas sector. :: With the fall in the price of oil, the government is faced with the challenge of diversifying the economy.
- Pervasiveness of WHT: “Withholding tax” is a convenient way of collecting tax whereby a party to a transaction holds back the required tax proportion which shall be remitted to the tax authority. Withholding tax is not a separate tax but in practice, it has been pervasively treated as such.
- Weak and inefficient administration
- Tax laws have a military flavour.
- The FIRS and the Customs are at the forefront.
- Dearth of regulation and poor judicial enforcement of tax laws.
 Payment in food and other agricultural produce.
 Includes charitable, religious and educational tax.
 Levied on non-Muslims.
 Paid on crops and other agricultural produce.
 Cattle tax.
 The tax collected from traders was referred to as Owo Onibode
 The Riot led to the loss of lives and property
 The women thought that they were going to be taxed because they were counted along with the men. So they rioted.
 This applied to individuals.
 This applied to Companies. The first to apply throughout the country.
 The States agitated for a revision of the tax laws which unduly favoured the Federal Government by granting them jurisdiction over the taxation of companies.
 Here the tax of employees are deducted at source from their income
 which sought to rejuvenate the country from the spoils of war.
 For the Federal government alone.
 For example; Kunle supplies Tayo with a truck of Cement and Tayo is to pay Kunle N3 million Naira. If the tax to be charged on the transaction is 100 thousand Naira, Tayo can pay Kunle N 2.9 million and pay the balance of N100,000 to the tax authority. In such a case, Tayo is said to have “withheld” the tax of 100,000 which must be remitted to the relevant tax authority.
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