A Critical Appraisal Of The Components Of Taxation In Nigeria And Proposals For Law Reforms

INTRODUCTION

Tax has been variously defined over the years. These definitions, when looked at as a whole gives a more comprehensive picture of the phenomenon as opposed to a single definition. According to the Oxford English Dictionary the word 'tax' refers to a compulsory contribution to the support of government levied on persons, property, income, commodities, transactions, etc, now at a fixed rate mostly proportionate to the amount on which the contribution is levied. While this serves in crude terms to tell us what a tax is, it is however deficient in the sense that it does not reveal the purpose of taxation. We however find more scholarly definitions in decided cases. For instance, in MATTHEWS v. CHICORY MARKETING BOARD it was held that a tax is:

"A compulsory exertion of money by a public authority for public purposes, or taxation is raising money for the purpose of government by means of contribution of individual persons."

In US v. BUTLER it was opined per Justice Roberts that:

"A tax in the general understanding of the term and as used in the Constitution signifies an exertion for the support of government. The word has never been thought to connote the expropriation of money from one group for the benefit of another."

Again in R v. BARGER the court held as follows:

"The primary meaning of taxation is raising money for the purposes of government by means of contributions from individual persons."

From these definitions, it is clear that a tax basically is a fund pooled from the members of a society for the public or governmental use.

Tax administration refers to the care and management of the phenomenon of taxation. It is the enforcement of the provisions of the relevant tax statutes in relation to taxpayers. In Nigeria, the administration of income tax, company tax including capital gains tax and petroleum profits tax is vested in the Federal Board of Inland Revenue. This body is empowered by the COMPANIES INCOME TAX ACT (CITA)1990, which provides in S 2(1) that:

"The due administration of this Act and the tax shall be under the care and management of the Board who may do all such things as may be deemed necessary for the assessment and collection of the tax and shall account for the amounts so collected in a manner to be prescribed by the Minister."

Earlier, the Act had established and guaranteed the continued existence of the Board (from the previous 1961 Act) by providing in S 1(1) that:

"There shall continue to be a board of which the official name shall be the Federal Board of Inland Revenue..."

In addition to the Board, the CITA 1961 made provision for Scrutineer Committees to assist the Board in the discharge of its duties. The function of these Scrutineer Committees was to make recommendations in respect of assessment of profits of both individuals and limited companies to the Board. However, in practice the Committees were never used and so were abolished in the CITA 1990. But the PERSONAL INCOME TAX (PITA) makes provision in S 85 for a Joint Tax Board, whose function it was to advice the Federal Government in matters relating to tax. The Chairman of the Joint Tax Board was to also be the head of the Federal Board of Inland Revenue.

Essentially, there are three components or elements of taxation. These are levying, assessment and collection of taxes. Where these three are in operation, tax administration is effective and taxation fulfils its purposes. Our aim in this paper is to proceed with an analysis of all three components and then conclude by making proposals for the plugging of the loopholes in the administration of tax in the Nigerian context. It is our belief that these recommendations will also make for increased effectiveness in the tax system in Nigeria.

LEVYING

This is the first step in the taxation process. A tax statute must have a levying or charging clause on a taxable person. This is a provision in the statute that actually requires a person to pay tax. In other words, for a tax to become payable at all, the imposition of it must be found in the statute itself and clear words must be used to create the liability.

Various tax statutes all contain charging clauses. Under the PITA, this is found in S 1 which provides thus:

"There is hereby imposed a tax on the income of individuals, communities and families, and arising to any trustee or executor under any settlement, trust or estate..."

In respect of the CITA, S 8 provides the charging clause thus:

"Subject to the provisions of this Act, the tax shall, for each year of assessment , be payable at the rate specified in subsection (1) of section 29 of this Act upon the profits of any company accruing in, derived from, or brought into, or received in Nigeria..."

In the case of the VAT ACT, the charging clause is contained in S 1(1) where it is provided that:

There is hereby imposed and charged a tax to be known as the Value Added Tax... which shall be administered according to the provisions of this Act."

The effect of these provisions is to make a taxpayer liable to taxation. In reality, tax is a creation of statute and there is no of common law or equity that makes a man liable to tax. Therefore, from time to time whenever a dispute arises between the relevant tax authority and the taxpayer, there is a need to establish a judicial construction of any particular provision of a tax statute. In construing the words of a statute, the onus is on the tax authority to prove the intention of the legislature from the wordings of the statute. Where the intention has been shown to bring the taxpayer within the purview of a particular tax, it is then for the taxpayer to establish that he is entitled to a deduction or an exemption or otherwise be liable.

ASSESSMENT

Assessment refers to an evaluation of the amount a taxpayer is liable to pay for. Since the tax authority has made a calculation in relation to the tax, it must be paid. This calculation or evaluation must be based on all the relevant facts. Statutorily, assessment is not initially carried out by the Board or other relevant tax authority. According to S 41(1) of the PITA"

"For each