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Study Level: BTech, BSc, BEng, BA, HND, ND or NCE

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A statesman and philosopher “Benjamin Franklin” observed that “in this world nothing is certain but death and tax are certain.” Our ancestor spontaneously paid their taxes in kind for the progress of the community as a whole. Right from independent 1960, the Nigeria Government seemed to have a definite conception of direction in which economy should move. There had been some economic problems which policymakers had tried to find solution to, from independence to date. Some of these problems include a high level of un-employment, rural – to- urban drift with its attendant social amenities among others. The government, both federal and state had been looked at as the greatest employer of labour and the provider of these social amenities like electricity, pipe-borne water, good roads, hospitals and schools etc. There was also the problem of over-dependence of the Nigeria economy on foreigners and reliance on foreign resources for development financing. The much reliance on the oil revenue had earlier blocked the effective utilization of some internal source of fund, taxes of various classes which form the major bulk of revenue of the government. In an effort to combat some of these problems various government had in their annual budgets enunciated some fiscal and monetary policies.  The fiscal policies are aimed at both to control certain economic activities and to generate internal revenue which maybe channel to development programmes. Various tax laws ordinances and Act had been in operation since,1904. Inland Revenue Board (IRB) had been established to facilitate implementation of the law and effective collection of the taxes. Taxes may be categorized into income tax, property tax, community tax, capital gain tax, petroleum product tax, capital transfer tax, excise duties, etc. The most prominent tax operative in the country is the income tax than better – off-self employed persons. Income tax was introduced first in 1904 in Nigeria by Late Lord Lugard. Previously, Nigerians cheerfully paid their taxes in kind by rendering free services such as clearing the bush, digging pit toilets, wells etc. for the benefits of the community as a whole. Failure to render any services usually resulted in seizure of property, which might be reclaimed on payment of some money.


The legal history of personal income tax in Nigeria may be traced to the enactment of the Director Taxation Ordinance in 1940. Under this ordinances, administration officers administered, the director taxation ordinance unscientifically without any form of uniformity by levying tax on the income of Africans in the former regions (Northern, western and Eastern regions) while they taxed the incomes of both Africans and Europeans in the Federal Territory of Lagos. European in the forms region were not subject to tax in the region in which they were resident. Cocoa farmers were the highest tax payer. Known incomes of Africa in those days were compretively small and revenue must of necessity have been small. Taxation policy then appeared to be based on a choice between democratization of the tax system (i.e. the introduction of politicians as representatives into tax system) and the former was  proffered and practiced.

1.4  THE ACT

In most federal constitutions, fiscal powers are shared between the federal government and the state governments. The raise man fiscal commission of 1958 recommended throughout Nigeria the introduction of basic principles for taxing incomes of persons other than limited liability companies. This recommendation was embodied in the (constitution) order in consul 1960 and formed the basis of the income tax management act in 1961 hereinafter referred to as the Act, the main provisions of the Act, which is not a complete statue but which deals with fundamental income tax principle applicable to the whole country relate to:

i.             The basis of computing income of individual’s families’ estates and trusts.ii.           The determination of residents for tax purposes that is, how do you determine who has power to assess and collect taxes from Mr. x and Mr. y.

iii.          The treatment of provident and pension fund.

iv.          The treatment of capital allowance for plant and machinery including building used for generating income.

v.            The types of expenses, which are allowed or not allowed for income, tax purpose.

vi.          The treatment of losses incurred in a trade, business, profession or vacation. Profits are taxable but losses are not. The treatment of losses incurred in a trade of business   if found reasonable must be allowed but losses from gambling is not allowed.

vii.        The incomes, which are exempted from taxes, must be identified by government and under what section of the law are they exempted. Income due to charitable organization public schools is not taxable but the income generated by a Baptist church in respect of rent on buildings should be taxed.


Income tax is one of the major sources of revenue of all governments (federal, state and local government) in Nigeria, and it is a factor    to be reckoned with in the local, state and federal government budgets. The taxes collected, come back to the taxpayers in form of social amenities. Income tax has encouraging such companies. Pioneering industries which produce goods locally are encourage and they generally enjoy tax holidays for a minimum of three years. Besides dividends received from such companies are not taxed. This package serves as a good tax incentive to encourage industrial production. Only the federal government can designate companies as pioneers, if they can satisfy certain conditions including profitability income tax reduces the net returns on investments and also decreases the balance available for private savings. It is an all-rewarding subject which affect the lives of nearly everybody and no major accounting or legal problem can be satisfactorily solved without a consideration of its tax aspects. Taxation is particularly important to businessmen, who enjoy the benefits of water supply, electricity and land allocation. Income tax has its premiums and dependent relative relief affect the social structure of the whole country. The fiscal effect is that the cost of collecting these taxes by the government is considerable. Professional fees paid by tax payers to accountants and the cost of unpaid employers in deducting tax under the Pay-As-You-Earn [PAYE] system and handling the taxes so deduced to the government is also enormous. Income tax also has some effect on population movements and the extent of business carried on. A state with a low income tax rate (since there is no uniformity in all the states) 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 tax evasion. The importance of income tax is also shown by the fact that once of the problems inherent in any federal system of government is the allocation of taxing power between the federal and state government. In 1957, in an attempt to formulate a good bases of powers, a two-member fiscal commission known as the Raisemen Commission was appointed to study and to make recommendation as to the allocation of taxing powers between the regional and the federal government. The commission rendered its principal report in June 1958, which contained suggestion (almost entirely adopted) as was found in constitution and cover the entire filed of taxation. The Nigeria constitution enacted by two-third vote in each house of the federal parliament through this provision had been silent because of military government, major reforms could be affected through decrees. The federal government has exclusive jurisdiction over import, export and excise duties, mining, royalties, purchases and sales taxes on the most commodities and taxes on the income and profit of all limited company is the state governments on the other hand have exclusives jurisdiction over purchase and sales taxes on product like; palm oil, palm kernel, rubber, cocoa etc. It is evident that the federal government has the greatest bulk of the revenue and remains independent of the state control. Since the state governments have inadequate resources to fulfill their responsibilities for agriculture, education, road, health, etc the 1960, 1963 constitutions provided formulae whereby substantial shares of the federal revenue were re-distributed to the state, the imbursements to the state government are not sufficient for the state government to fulfill their development needs, hence they depend on the federal government for most development programme. In discussing taxation as a tool that provide internal revenue, mention must be made of the effects and demerits a disincentive to work, for example, on marginal earnings. Taxation may better enterprise from increasing productivity especially if a business man feels that the more money he earns, the more tax he pays. Taxation could encourage inflation, for example if the price of the basic or essential commodities are increased, there will be demand for high wages and if granted, this could lead to higher prices and so inflation set in.  Taxation may divert economic resources depending on the elasticity of demand for the relevant product. For example, if there is a purchase tax on butter and the price of butter goes up, people may like to purchase margarine. Despite all these effects, adequate tapping of this source of finance cannot be blocked.


A good tax system must posses the following qualities

a.           It must be enforceable and acceptable.

b.           It is possible to verify returns for incomes and of claims for relief

c.            It must not invite distionesty by allowing deductions that cannot be verify

d.           It must satisfy the public as regards it fairness to make it acceptable

e.            A tax that is unacceptable to the public invites evasion and high cost of collection and enforcement.


Tax may broadly be classified as direct and indirect tax. Direct tax means a tax borne by a person on whom it is legally imposed, for example, income tax, profit tax and capital gain tax. Indirect tax is a tax, that he burden is not expected to fall upon the person who actually pays. For example, customs duty, excise duties, an entertainment tax. Incidence of tax is very important in formulating fiscal policy so as to enable the authority to know the efforts of any tax imposed. By incidence of taxation, one means the ultimate bearing of taxation and by impact one means the touch on the person  itself. For example taxes, the impact and incidence are borne by the person assessed. One cannot shift either of them but in the indirect taxes the incidence is usually upon the person assessed. In this case, the impact is on tax payer. The consumer pays for the tax in form of increased prices.


An effective tax structure ensures proper harnessing of the internal sources of finance. But it is found that tax had not crated enough revenue to the federal, state and local government. And also, some the need for foreign exchange was provided by oil sales, the various government had neglected or not full tapped the revenue from taxes. Following the depletion of foreign exchange and this “oil glut”, a turn in the direction would be to see ways to effectively tap military administration had done in intensifying its effort in revenue generation through taxes and development levies. Almost all the state government and the federal government have strived to come up with balanced budget in their annual budgets. Since taxes comprise the major bulk of the government revenue, this mean an increase in various classes of tax. In doing this various tax laws and enabling decrees have been into operation to give legal backing to the collection of taxes. This study thereof attempts to appraise the Nigerian tax structure with a view of seeing how effective is generating the required finance for development. There may be required reforms to be made on the various tax an the overhauling of the whole machinery. Effective tax structure would not only depend upon the promulgation of tax law/decrees and enactment of acts but would depend among other things, on the honesty and integrity for evasion and the adequate and training of the personnel entrusted with such function. Various campaigns have been maintained by both federal and state governments to the general public in an effort to enlighten them on the need for tax payment. This is a step in the right direction as it would reduce tax evasion and default and increase revenue. The low level of education and poor relationship between tax payers and tax authorities has been suggested as accounting for poor revenue generation. Mass literacy campaign would help to enlighten the populace among the rural dwellers is that the government is not doing anything in form of development with tax they pay. This may be little true since development with taxes they pay. This may be little true since development cannot be concentrated in the urban areas. A good development programme would embrace the rural areas. Federal Board of inland revenue has been establish by the federal government as an organ charged the full responsibilities of tax assessment and collection. Tax laws has been enacted and had been in operation so may years back to data, still there are cases of default or evasion. Full implementation of these laws would deter people from evasion. It should be emphasised that if income tax contribution to recurrent revenue and capital budget is to be increased, and if the growth is the Gross National Product (GNP) of the country, and the Gross Domestic Product (GDP) of each state is to reflect in tax yield, tax payers must be educated to develop a fear of tax evasion.


Income tax is one of the major source of revenue of all governments in Nigeria. The problem however are:

How effective the tax structure is in he harnessing the internal sources of finance?

The social effect of reliefs to the whole economy and the effect of taxation to the economy. One may ask, does the problem of tax evasion depend on inefficient tax structure and to what extent the government finds it possible to execute it’s programmes due to short-fall in income tax.


The objectives of the study focus on the country’s tax structure and laws/acts to date and it’s effectiveness in revenue generation. Since the country is facing foreign exchange depletion, the need arises, for an accounting student to appraise the tax system as a tool for the provision of the much needed internal fund for development. The country depend solely on the external sources of finance. It will offer an opportunities to recommend some of the findings from the study of policy-makers in economic development planning and findings. It will also suggest more effective machinery in developing a good tax structure and necessary reforms to the existing tax laws. For the student, it will be academic exercise to discuss at length when tax issues are brought up for public opinion which will be helpful to economic development. For the Nigerians the study will help to educate them on the need for tax payment and reduction of the rare of tax evasion. This revenue generated from tax will increase.


The objective of the study is on the effective tax structure in revenue generation, the following constitute the hypothesis for the study:

i.             The tax laws and decrees have been helpful in deriving the required funds.

ii.           Decrees/laws accounted for law revenue from tax.

iii.          Tax structure is progressive in nature

iv.           Tax structure is considered the major principle of good tax

v.            Tax structure makes tax payment convenient

vi.          Tax evasion and avoidance are responsible for law revenue from tax.

vii.        Unqualified and untrained tax officials under the tax administration.


a. Research Population

The research population consist the officials in some States Internal Revenue Department Lagos, and Federal Inland Revenue Department (FIRO) Lagos, and many Nigerians who are tax payers.

b.  Data Collection

Data are collected from two sources namely:

Primary and Secondary Sources. The data from primary source were accumulated from extensive use of questionnaires. Oral interview was also conducted for additional information. The secondary sources is mainly on published data and pass research project on the topic.


This involves simple statistical analysis of data collected, like chi-square distribution. Theoretical explanation will also be adopted in the research work. The result obtained from the analysis is expected to have serious policy implications to both the public and government.


The study has limitation in the area of gathering reliable data. There is limitation of getting reliable data for the research. The study is limited by the refusal of the public and tax official to supply the researcher all required data and information. Surprisingly enough, most tax officials refuse to fill the questionnaires because they want their directive from the top (i.e. the top officials) to do so.




Account Number: 0709546102

Access Bank: Savings                
Account Name: Emmanuel Idorenyin Samuel.



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