This study shows the findings about the effects of personal income tax. The study population consisted of 100 randomly selected individuals. Data were collected using a self-designed questionnaire, and the results were analyzed using the simple percentage approach. The instrument’s validity and dependability were determined. The study indicated that people rarely pay income tax and that personal income tax has an impact on Nigeria’s economic growth. Results indicated that there is a favorable correlation between tax contributions and economic growth, and that tax revenue has a substantial impact on Nigeria’s GDP. However, it is advised that the Notice of tax returns distributed at the beginning of each fiscal year be accompanied with handbills and posters written in local languages such as Yoruba, Hausa, Igbo, and others, so that illiterates can remain aware of their civil responsibilities.
1.1 CONTEXT OF THE STUDY
Tax is described as money that citizens must pay to the government based on their profits from the sale of products and services. Chris and Elizabeth (2001) defined taxes as a compelled proportional payment from persons and property charged by the state by virtue of its sovereignty to sustain government and all public necessities.
In general, taxation is a form of charge levied on all inhabitants residing and non-residents conducting business inside a tax jurisdiction. Citizens have a civic and patriotic duty to pay taxes, which also serve as a source of cash or revenue for the government to support the provision of socioeconomic and infrastructural amenities and to improve industrial efficiency.
Nigeria’s history of taxation extends back to the pre-colonial era. According to Lekan and Sunday (2006), before the colonization of the different entities that were later merged under the name Nigeria, there existed various systems of taxation in the form of compulsory services, contribution of goods, money, labor, etc. amongst the various kingdoms, groups, and tribes ruled by the Obas, Emirs, Ezes, Attah of Igala, Tor of Tiv, Ohinoyi of Ebira, etc. in order to support the monarchs.
According to Ola (2004), the various taxes levied by the different ethnic groups by the kings took several forms, including ‘Zakkat’ levied on Muslims for educational, charitable, and religious purposes, ‘kudin-kasa’, a form of an agricultural tax levied on utilization of land,’shuka-shuka’ levied on the ownership of cattle based on the number of cattle, and ‘Ishakole’- contribution of farm products as a During marriage rituals in Tivland, Benue state, couples pay particular levies that are used for various community development projects.
The current form of taxes in Nigeria can be traced back to the formation of a British colony in Lagos on August 6, 1861 and the subsequent merger of Nigeria’s Southern and Northern protectorates in 1914.
According to Yerokun (1997), the colonial government promulgated legislation to impose any type of tax on citizens (individuals and corporations) during the colonial period. Native Law ordinance cap 74 of 1917, applicable to Western Nigeria, is an example of such a law. According to Ola (2004), the re-enactment of the same law in 1929, which for the first time placed taxes on women, led to the 1929 Aba women riot. The 1931 non-natives protectorates tax ordinance was another statute. Later, the regulation was repealed, integrated into taxation ordinance No. 4 of 1940, and reenacted as the Income Tax Ordinance (ITO) of 1943.
According to Yerokun (1997), the foregoing tax laws were administered on individuals and corporations by various tax and revenue authorities in the various provinces and regions. According to Lekan and Sunday (2006), the colonial government established the Raisman Commission in 1958 to ensure uniformity in the incidence of taxation throughout the geographical region known as Nigeria. At the conclusion of its study, the commission proposed the implementation of uniform basic income tax principles for all areas of Nigeria. The government adopted this recommendation and put it into the 1960 constitution of the Federal Republic of Nigeria. Consequently, the Income Tax Management Act (ITMA) 1961 and the Companies Income Tax Act (CITA) 1961 were enacted.
ITMA and CITA were repealed and reenacted as the Personal Income Tax Act (PITA) 1993 and the Companies Income Tax Act CAP 60 LFN, 1990, respectively. These laws have been reviewed and modified as a result of the work of the Tax Laws Review Commission, and they are included in the laws of the Federal Republic of Nigeria for 2004. Current legislation governing the administration of Personal Income Tax (PIT) is the Personal Income Tax Act, Cap. P8 LFN 204, which taxes the incomes of people and corporations.
According to Nightingale (2000), tax in any jurisdiction is discriminatory since it is charged on persons or property based on profits/incomes or gain, and the advantage citizens obtain from tax payment is not proportional to the contribution of individual tax payers. According to Ariwodola (2000), the fundamental objective and purpose of taxation in the majority of nations throughout the world is to generate income for government expenditures on social welfare, such as the provision of defense, law and order, health care, and education. Additionally, tax revenue can be spent on capital projects, sometimes known as consumer spending, to create social and economic infrastructure that will enhance the social lives of the populace.
Today, tax administration in Nigeria has been a challenge. Naiyeju, J.K. (2010) identifies the numerous Challenges of the Tax Collection and Administration in Nigeria as Administrative Challenge, Compliance Challenges, Lack of Equality, Challenge of Multiple Taxes, Poor Taxation Drive by Tiers of Government, Challenge of Bad Governance, Challenge of Corruption, and Challenges of Human Capacity Building and Training.
This study project’s objective is to investigate the administrative challenges of Personal Income Tax and its economic contributions to the growth of Lagos State. In addition, providing recommendations regarding the measures to be followed by revenue authorities for expanding the Nigerian tax net in order to enhance tax collecting efforts.
1.2 DESCRIPTION OF THE PROBLEM
Personal Income Tax is a global and extensive topic that unquestionably necessitates examination and the provision of potential solutions to challenges related with successful tax administration. The majority of tax authorities (particularly state and local governments) lack the necessary institutional competence to successfully administer the taxes under their purview (capacity in terms of staffing, skills, salary pay, other funding, computer and IT infrastructure etc).
Employers who fail to register their employees and remit payroll taxes to the appropriate tax authorities. In urban and rural locations, tax evasion is common. Even large corporations and small businesses engage in evasive techniques.
The majority of PIT is now paid by employees alone. Few politicians, wealthy individuals, professions, and privileged individuals are not taxed fairly. Multiple taxes continue to be a significant difficulty for our tax collection and management.
The political economy of revenue allocation discourages aggressive taxation efforts, particularly by states and local governments. They significantly rely on their oil revenue sharing.
Due to the absence of tangible proof of effective administration, there is little incentive for taxpayers to pay additional taxes.
The tax collection and administration are frequently susceptible to corruption. The corruption risk diminishes tax revenue and system confidence. Human Capacity Building and Training: Obstacles At the State and Local Government levels, there is a scarcity of competent personnel to administer taxes efficiently.
The problems highlighted can be summed up as follows:
1. Poor tax administration
2. Tax evasion
Corruption among tax collectors
4. taxpayers’ noncompliance with tax laws
1.3 OBJECTIVES OF THE STUDY
This study’s primary purpose is to assess the influence of Personal Income Tax on Lagos State’s economic development.