SELF ASSESSMENT AND VOLUNTARY TAX COMPLIANCE IN NIGERIA
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ABSTRACT
The purpose of this project is to examine the level of acceptability between the self assessment scheme and voluntary tax compliance. Samples of ninety (90) respondents were taken and a rate of return was 92.2%. Data collected was from both the primary and secondary sources as well as questionnaire were used in order to achieve the objective of this study. Two hypothesis were formulated and tested using chi-square. The statistical technique used to analysis the data were based on the analysis of data collected. The following major findings were made;
That tax payer do not generally consider self assessment as a vital assessment scheme
That tax payer prefer paying their taxes voluntarily
That tax authorities considers self assessment a vital assessment scheme because of tax evasion and tax avoidance
Arising from these findings, the following recommendations were made;
The system of payment should be simplified to minimize inconveniences
Incentive should be granted to prompt tax payers
The number of installmental payment should be increased to ten (10) to lessen the burden of payment.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
In Nigeria, as in some other developing countries, tax non-compliance is a serious challenge facing income tax administration and hindering tax revenue performance. The various tax reforms undertaken by Nigeria government to increase tax revenue over the years, such as include; Structural Adjustment Program in 1986, Shebu’s Task Force on Tax, 1978; Dr Sylvester study group on tax, 1999, Economic Empowering Development Strategies 2002, and Professor Dotun’s study Group on Tax, 2002. Prior statistical evidence has proven that the contribution of income tax to the government’s total revenue remained consistently low and is relatively shrinking, however, from all the taxes, personal income tax has remained the most disappointing, inefficient, unproductive and problematic in Nigeria tax system (Asada, 2005; Nzotta, 2007; Odusola, 2006). The statistical data indicated that contribution to non-oil income tax to total revenue of Government in Nigeria dropped from 19.8% in 1999 to 11.7% in 2008 and the tax ratio in 2009 was 11% the lowest in West Africa and below 15% recommended for low income countries (CITN, 2010; IMF, 2005). Specifically, the contribution of individual income tax remained marginal and comparatively low in Nigeria’s tax revenue. At the state and local government levels, where the major source of internal revenue is expected to be individual income tax, its contribution to the total revenue of these levels dropped from 20.18 and 7.7% in 1999 to 12.4 and 1.6% in 2008 respectively (CBN 2008). Compare to other African countries, Nigeria has been consistently recording lowest income tax ratio and personal income tax (PIT) ratio. For instance in 2006, Nigeria has 2.5% and 1% respectively as income tax and PIT ratio the second lowest in the group of fifteen countries with South Africa recording the highest with 14.4% and 7.7% (Volkerink, 2009). The phenomenon remain unexplained even though one tries to apply the basic and external model of tax compliance. Ariyo (1997) opined that a country’s tax system is a major determinant of other macroeconomic indexes. Specifically for both developed and developing economics, according to him, there exists a relationship between tax structure and the level of economic growth and development. The economic resources available to society are limited and so an increase in government expenditure normally means a reduction in private spending. Taxation is one method of transferring resources from the private to the public sector, but there are others i.e creation of more money, to charge for the goods and services it provides or to borrow. The payment of tax is obligatory duty of every citizen whether natural or corporate citizen. As a civic duty, it is expected that citizens will voluntarily comply with such obligation but is not the case with some citizens. Kirchler, Hoelz and Wahl (2008) said that government has primary interest and responsibility in ensuring that citizens follow this civic duty and behave in compliance with provision of tax laws irrespective of their social status. In order to ensure compliance with tax rules and regulations, tax system made up to tax laws, tax policy and tax administration is in place. According to Mart, (2000), the existence of tax system forces individuals and organization to give part of their income to the government as tax payment. Silvani (1992) added that the goal of tax administration is to foster voluntary tax compliance. Tax compliance can be described as the decree of which a taxpayer obliges to tax rules and regulation. James and Alley (2004) indicated that the meaning of tax compliance concept can be given from different perspectives but they define tax compliance as the willingness of individual and other taxable entities to act in accordance with the spirit as well as the letter of tax law and administration without the application of enforcement activity. Kirchler (2007) submitted that compliance is made possible by the trust and cooperation ensuring between tax authority and taxpayer and it is willingness of the taxpayer on his own to comply with tax authority directives and regulations. However, in the present distrust and lack of cooperation between authority and tax payer, which create the tax hostile climate, authorities can enforce compliance. Compliance is enforce on taxpayer who are unwilling to pay their taxes through the threat and application of audit and fine (Kirchler, 2007). The self-assessment tax regime is a system of tax administration whereby the taxpayer is granted the right, by law to compute his own tax liability, pay the tax due (at the designated bank) and produce evidence of tax paid at the time of filing his tax return at the tax office, on due date. On the other hand the tax authority has the responsibilities of enablement to and check on the taxpayer to ensure compliance with tax administration process. In other word self assessment tax regime is characterised by partnership and shared rules and responsibilities between the taxpayer and the tax authority. The paradigm shift in the regime is that having left the taxpayer with the burden of filing tax return, the tax authority ensures through enablement, compliance and compliance enforcement activities that the right amount of tax due is paid and at the right time, and if otherwise to strictly apply sanction as provided by the tax law. It is emphasised that this tax regime is complete with a continuum of activities; from tax payer enablement, filing of returns, and payments, tax return process, payment / debt management and compliance / enforcement. Self assessment applies to employees, self employed, limited liability companies including oil companies; agents / taxable persons, in the case of value added tax (VAT).
The self assessment tax regime is based on key assumption as stated:
The taxpayer is stake holder and a partner and should treated courteously
The tax payer is honest and indeed demonstrates this by signing a declaration as to the correctness of the tax returns
The taxpayer runs the business and knows the right amount of profit and tax payable
As a consequence of (i) and (iii) above should be allowed to self assess;
On the part of the Revenue Authority, it should accept returns field and later subject to risk assessment
The benefit of self assessment is to help tax payer to embrace voluntary tax compliance so as to acquire incentive of the scheme .
1% of the payable is allowed as a bonus
Return can be filled within eight months of the company year end
Non-payment of provisional taxes
Tax relieve can be paid by instalment
It is important to note that this tax regime is a respond to a challenge in the application of a tax rule, under government assessment tax regime, that “no tax line should arise until the revenue mate a demand for it”. The application of this rule brought about delays in the payment of tax consequence on time lag between the time of assurance of notices of assessment and effective service of the notice of the tax payer. In between, disputes were common with the attendance increase in the cost of tax administration and compliance. In addition, the regime was introduced to elicit voluntary tax compliance. Voluntary compliance, as we know, engender more efficient and cost effective tax administration. Therefore, it can be said that self assessment tax regime is a vehicle for voluntary tax compliance. From the forgoing, Nigeria respond to the “wind of change” in the method of assessment in tax administration. It introduced self-assessment method of payment of taxes in 1992 following the enactment of the appropriate law in 1991). Initially, self assessment was not mandatory for every tax payer until 1998. Even now self assessment filling has continued incentivised, albeit inadvertently, considering, that it was mandatory.
1.2 THE STATEMENT OF THE RESEARCH PROBLEM
The assessment of the tax liability under self assessment scheme and voluntary tax compliance is base on honesty and trust of the payer. When most tax payer fail to comply, the burden of the funding the nation commitment fail heavily on the few compliant taxpayer. Compliance enforcement in this study are viewed as a compliance strategies by the government to boost voluntary tax compliance. It is made up of the following activities among others: Imposition of penalties for late filing (without fail);
Charging of interest for late payment (without fail);
Prompt distrait action;
Up to date debt management portfolio (by amount, age, type, office e.t.c).
Prompt prosecution of tax defaulters
Administrative assessment that is based on third party information / audit.
In lieu of the above , the following research question are raised which this study intend to find answer to :
What is the level of acceptance of the self assessment scheme to the taxpayer?
What is the level of acceptance of the voluntary tax compliance by the taxpayers ?
Do self assessment promote voluntary tax compliance
1.3 OBJECTIVE OF THE STUDY
The summary of the study is to critically assess self assessment scheme and voluntary tax compliance in Nigeria as the main objective but hence the other specific objectives include:
To ascertain the acceptability of self assessment scheme by taxpayers
To ascertain the acceptability of voluntary tax compliance by tax payers
To examine the relationship between self assessment and voluntary tax compliance
1.4 RESEARCH HYPOTHESIS
A research work cannot be without hypothesis therefore, the project on the self assessment and voluntary tax compliance in Nigeria, will endeavour to statistically appraise these hypothesis;
Ho: The self assessment scheme is not a vital assessment scheme.
H1: The self assessment scheme is vital assessment scheme.
H0: Self assessment by taxpayers does not positively affect voluntary tax compliance.
H1: Self assessment by taxpayers positively affects voluntary tax compliance.
1.5 SCOPE OF THE STUDY
The scope of the study covers the self assessment scheme and voluntary tax compliance, to know which the taxpayer will appreciate. This study focuses on the benefit of self assessment scheme and voluntary tax compliance to small business tax payer. This will be achieved through the administration of questionnaires to randomly selected tax payers and tax authorities in Benin City.
1.6 SIGNIFICANCE OF STUDY
Tax plays a pivoted role within the concept of generating revenue for the government while enable it (government) to provide the citizens with such welfare good and services. It is important to examine the country’s revenue drive and particularly its tax law and policies in order to assess their adequacy for the constitutional responsibilities of enhancement of general welfare. Besides the above, this is relevant in several other ways. It afford the government through the relevant tax authorities to fully recover all tax revenue due to the government through relevant tax authorities to fully recover all tax revenue due to the government thereby reducing the tax gap. The various deterrence tax policies when properly enforced, would help in checking liabilities on tax return; under payment of tax due from filled return and non filling which refer to the failure to file a required tax return
The study which also acquaint all potential investors with the existing tax policies in the country. This will form a focal point in this investment decisions.
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