CHAPTER
ONE
INTRODUCTION
1.1
BACKGROUND OF THE STUDY
The purpose of this work is a modest
attempt to evaluate the effect and challenges of the personal income tax
administration in Nigeria with a view to ascertaining the extent to which the
administration satisfies the optimal criteria of revenue yield, economy,
equity, convenience and income redistribution with particular emphasis on Enugu
State of Nigeria.
Personal income tax is a compulsory
contribution exerted from employees, employers and the self employed persons
for the purpose of financing some governmental established function. It also a
tax imposed on the incomes of individuals, communities and families. It is also
charged on the incomes due to a trustee or an estate.
The personal Income Tax Act, 2004 is
now amended by the personal income Tax (Amendment) Act, 2011. This follows many
years of agitation for the personal income Tax law in Nigeria to be brought in
line with present-day economic realities; and also to assist to increase the
compliance levels and the amount of tax voluntarily paid and or collected by
the Nigeria government. Some of the highpoints of this new personal income Tax
legislation are highlighted in this Tax Alert for your enlightenment and
necessary action. The established
functions include: The duty of protecting the society from violence and
invasion by other independent states; the duty of protecting every member of the society from the injustice
or operations of other members of the society, the duty of establishing highly
beneficial public utility institutions and work which are of such nature that
the profit they could earn can make repay the expenses to any individual or to
a small number of individuals that may provide them; and the duty of meeting
expenses necessary for the support for the sovereignty of the state. The
personal income tax in Nigeria is being regulated by the income tax management
act of 1961 with series of amendments and personal income decree of 1998.
Personal income tax revenue
constitutes one of the major sources of internal revenue to state governments
in Nigeria while the statutory allocations from the federal government occupy
the premier position. Revenue from the premier sources have remained stagnant
due to the oil glut in the international oil market in 1978 followed by the
protracted collapse in the crude oil prices in 1982. The inability of the state
government to meet the drop in statutory allocation through personal income tax
administration and other internal revenue sources compelled them to depend more
on foreign assistance.
Taxation is an aspect of public
finance in revenue improvement. The sale objective of public finance is to
satisfy both merit and social wants. This establishes the rational for
progressive taxation. Government subsidization in the form of relief to
low-income earners is necessary under progressive personal income tax. The
emphasis is one satisfying merit want or necessaries where the actual income is
greater than the expected expenses, this forms the basis of tax cut by
government to those savings. People falling into the category where marginal
propensity to save is dissevers.
The creation of 36 states and full
granting of autonomy to local governments in Nigeria has helped to bring
administration nearer to the governed. Consequently, the demand for the
government services and the need for rapid economic development have increased
the need for revenue generation. As government attempts to meet the growing
demand for its services it’s recurrent expenditure rises steeply every year.
Apart from meeting the rising recurrent, revenue, it has to generate savings
(or budget surplus) on the recurrent account for financing the capital
expenditure. The state government seems to recognize, that it is by overhauling
the tax administration and laws that their meager revenue from personal income
tax would greatly increased. Personal income tax administration can be said to
have performed creditably, where it achieved adequate revenue and meet the
established criteria of equity, economy, certainty, convenience, and income
re-distribution.
1.2 STATEMENT OF PROBLEM
Total tax revenue from sources
absolutely controlled by the government and the administration of tax laws in
the economy has been facing a lot of challenges over the years.
The persistent decline in the revenue
were mainly due to less emphasis on the importance of personal income tax as a
source of internal revenue generation while the measures introduced under
various administrations have not helped in achieving the desired objective.
THE COMPLETE PROJECT IS CHAPTER 1-5
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