Tax and Revenue Generation - Pub315

Tax and Revenue Administration in Nigeria (PUB 315)
SUMMARY NOTE ON
TAX AND REVENUE GENERATION (PUB315)
COMPILED BY
COMRADE SALAMI C. OLUSHOLA
+2348139094260. [email protected]
DEPARTMENT OF PUBLIC ADMINISTRATION
UNIVERSITY OF BENIN, BENIN CITY.
200 LEVEL, FIRST SEMESTER
COURSE OUTLINES
1. Introduction
2. Principles of taxation
3. Tax system
4. Determination and computation of assessable income
5. Determination of place of residence
6. Assessment
7. Role of taxation in natural and economic development
March, 2021.
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OUTLINE ONE
INTRODUCTION/CONCEPTUALISATION
All levels of government need funds to finance their activities. Note that for
government institutions/organizations/establishments/parastatals to function or survive,
they must incur cost in one form or the other. This therefore calls for the need for the
government to look for ways to raise funds/revenues that would be required to take
care of the expenditure and financial obligations of such government
institutions/organizations or parastatals. Interestingly, various sources of finance are
available to the government and these include taxes, royalties, levies, fines, penalties,
loans, grants, and donations given to the government, proceeds from the sale of
government-owned companies, lands, buildings and other assets, profits or surpluses
made by government-owned enterprises, dividends paid to government on shares
owned in companies, interest received on loans made by the government, rent
received on government-owned properties, income from the sale of government
services, etc.
Tax refers to levies made by public authorities with a tax jurisdiction. It also
include any compulsory contributions by the citizenry targeted at defraying parts of
the costs incurred by governments in the course of providing the needs of the society.
Taxation is “the process or machinery by which communities or groups of persons are
made to contribute in some agreed quantum and method for the purpose of the
administration and development of the society”. “Taxation is the transfer of real
economic resources from the private sector to the public sector to finance public
sector activities”.
Although, as of the present day Nigeria, the major source of revenue to the
federal government is simply revenue from the sale of crude oil. Also worthy of
mentioning is the fact that the various states and local governments in Nigeria are
financed mostly through the statutory allocation from the federation account.
Nevertheless, is still a very important source of revenue to both the federal, state and
local government.
BRIEF HISTORY OF TAXATION NIGERIA
Tax as a means of generating revenue for the government started even before the
colonial era. Local chiefs were found of imposing taxes on their subjects where the
subjects paid taxes in kind for security and general running cost for the maintenance
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of the community. But when the colonial administrators came on board, the already
existing system was abolished and a new system was introduced.
For example, in 1904, personal income tax was introduced in Northern Nigeria
(before the amalgamation of the Northern and Southern protectorates in 1914 by Lord
Lugard`s administration) It was later implemented through the Native Revenue
Ordinances (NRO) to the West in 1917 and to the East in 1928 (i.e. after the
amalgamation of the Northern and Southern protectorates). It was later incorporated
into Direct Taxation Ordinances No. 4 of 1940. Value Added Tax Decree was
promulgated in 1986. The Nigerian tax system has undergone several reforms since
inception. The following reforms can be highlighted. Viz;
i. Unique Taxpayer`s Identification Number (TIN) which became effective from

February 2008.
ii. Automated Tax system
iii. E-payment system
iv. Enforcement scheme
OBJECTIVES/AIMS OF TAXATION
a. Government impose tax not just for revenue generation but to accomplish
various economic objectives. Tax is imposed in order to achieve the following
objectives by the government:
b. Taxes can be levied to cover the cost of administration, internal and external
defence, maintenance of law and order as well as social services required by the
citizens.
c. Taxes are instruments used by governments to protect companies in their infant
stages. This is done by reducing specific tariffs which will invariably reduce the
cost of production relative to imported products that may be substitutes.
d. Taxes can also be used to discourage the consumption of dangerous/harmful
products.
e. Taxes are employed to control the importation, production and consumption of
certain goods and services thereby preventing dumping. This can be achieved by
increasing tax payable on such goods and services.
f. Taxes are important instruments of government in the area of redistribution of
wealth and income among various income earners through progressive tax
system. This helps to reduce income inequality.
g. Taxes are also used to counter inflation by reducing volume of purchasing
power.
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OUTLINE TWO
RINCIPLES OF TAXATION
Principles of taxation are the basic rules that guide tax administration as well as
the implementation of the provision of relevance tax law. For a tax to achieve its
objectives, it must certain principle. This principle, according to Adam Smith, he
referred to them as “Canons of taxation”. Therefore, a good tax system must possess
the following attributes;
i. Principle of equity
ii. Principle of certainty
iii. Principle of convenience
iv. Principle of economy
PRINCIPLE OF EQUITY
This principle implies that in the administration of tax system, equity, fairness, and just
should be ensured. Every citizen should pay according to his capacity and ability.
Under this principle, tax to be paid should be proportional to income earned. By
implication, the rich class should pay higher tax while the poor or low economic class
should pay less even though they all enjoy the same benefits or protection from
government. This principle is further sub-divided into two, viz; Horizontal equity and
Vertical equity.
The advantage of the equity principle is that it is very easy to collect the amount of tax
imposed.
Calculation and computation of horizontal equity
TAX BASE (N) TAX RATE (%) AMOUNT OF TAX (N)

{Taxable income} {Tax payable}
N3,000 10 300
N3,000 10 300
N3,000 10 300
N3,000 10 300
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VERTICAL EQUITY
Vertical equity implies that individuals within different levels of income should pay
different amount of tax. The major advantage of this principle is that it yields more
revenue to the government. However some of it limitation is the fact that it is more
difficult to calculate, administer, and collect especially where the tax payers are many.
Example of vertical equity
Tax base (N) Tax rate (%) Amount of Tax (N)

3,000 10 300
4,000 15 600
5,000 20 1000
6,000 25 1,500
From the above, we can see that as the tax base (income) increases, the amount of tax
also increases as opposed to horizontal equity where same rate is applied irrespective
of the tax base. In essence, under this system, the higher you earn, the higher you pay.
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PRINCIPLE OF CERTAINTY
This principle demands that the amount of tax a citizen is expected to pay, the time,
and manner in which it should be paid should be made known to him at the appropriate
time. This means that the amount, the time, the date and place of payment should be
made known to the tax payer by the tax authority. It should be void of ambiguity. Also
the government or tax authority should be able to determine the amount due to every
tax payer.
PRINCIPLE OF CONVENIENCE
This means that the mode of payment, the time and procedures for payment of tax
should be as much as possible convenient to the tax payer. Tax payment procedures
should not be cumbersome, rigid or complicated. Otherwise, tax payers would be
discouraged to pay their tax.
PRINCIPLE OF ECONOMY
This principle implies that the cost of collecting tax should not be higher than the
revenue collected. There should be proper cost – benefit analysis. This means that the
cost should be analysed in relation to the benefits to be obtained.
Other principles of taxation include;
PRINCIPLE OF PRODUCTIVITY
This is also known as the principle of adequacy. It is akin to the principle of economy.
This principle states that the tax system should be able to generate more revenue for
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the government. When more money is generated, the issue of deficit financing will be
automatically minimized or eliminated
PRINCIPLE OF FLEXIBILITY.
This is also known as the principle of elasticity. This implies that the tax system should
be flexible enough to give room for change/adjustment (i.e. to increase or decrease tax
rate) when necessary. For example, in time of emergency or crisis, the government
would need more fund to execute some task or meet some needs, it is expected that at
such period, the government increases tax but if the system is not elastic as to allow for
change, such increase may not be possible. Also the tax system should not be difficult
to understand and administer to avoid problem of interpretation and unnecessary
disputes. The tax system should not only be understood by the tax payer but should
also be trusted.
PRINCIPLE OF DIVERSITY
This means that the government or the tax authority should not depend on only one
particular source for revenue generation. This means that the government/tax authority
should diversify. Attention should not be focused only on one particular source for
collecting tax. It should however be clear that tax diversity is not the same as tax
multiplicity or double taxation. For example, state and local government collecting tax
from same firm or establishment. Tax diversity should not be mistaken for tax
multiplicity. Tax multiplicity refers to the unlawful compulsory taxes imposition by the
local and state government without proper legal support. While tax diversification is a
legal way of generating revenue by the government, tax multiplication on the other
hand is illegal.
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OUTLINE THREE
TAX SYSTEM
Tax system is the mechanism or process involved in ensuring the effectives and
efficiency of tax. Ekpu (2012) rightly stated that a tax “is a compulsory levy, payment
or financial charges imposed by the government or tax authority upon a tax pay”. It
may also be defined as a compulsory contribution imposed by a public authority or
government on the people residing in the geographical location/territory.
To avoid cohesion or tension among the government or tax authority and tax
payer, a well-structured system has to be instituted to ensure tax management and tax
payer’s compliance to tax law.
WAYS OF MAKING THE TAX SYSTEM CLEAR TO THE TAX PAYERS
Tax system can be made clear to the tax payers through the following ways
i. The public should be educated on the application of relevant tax laws

ii. All relevant tax laws and administrations must be consistent
iii. The tax payers and other relevant stake holders should be made to understand
the basis of which taxes are being imposed.
How to minimize the cost of collection of tax and to ensure that the revenue
collected is not used for social economic activities
i. Too much fund should not be committed to policy making aimed at

preventing tax evasion or avoidance.
ii. Higher level officials whose salaries and benefits may gulp (swallow) a great
portion of what is collected should not be retained. Instead fresh hands
should be employed for proper administration of tax.
DEFINING SOME BASIC CONCEPT OF TAX
Having defining and looking at the principles of tax, there are needs to look at some
terms of this course work.
Tax Revenue: refers to revenue (money) derived from tax over a given period of time.
Tariffs: A tariff is a tax on foreign goods upon importation.
Toll: a toll is a tax or fee charged to travel via a road, bridge, tunnel or other route.
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Windfall: this is an unexpected income like money received as appreciation for

service rendered in the past or unexpected gift from a friend
Tax Authorities in Nigeria: the tax authorities in Nigeria are the federal Inland
Revenue Service and the various state Boards of Internal Revenue. The National
Assembly may through legislations, designate any other body as a tax authority.
SOURCES OF GOVERNMENT REVENUE
i. Taxation
ii. Rent
iii. Royalties
iv. Investments
v. Fees
vi. Fines
FEATURES OR CHARACTERISTICS OF A TAX
The following are features/characteristics of a good tax system
i. Its payment is compulsory and not voluntary

ii. It is not subject to the recipient, or given special benefit to the tax payer. By
implication, the government does not give a particular tax payer any special
benefit for paying tax. Thus, tax benefit is bestowed on the generality of the public.
Nobody can lay special hold to such benefit as personal.
iii. It must be impose by government though appropriate legislation and not by an
individual.
iv. It is paid by those that fall within a particular jurisdiction or location
v. Violation of tax law is subject to litigation and sanction
CATEGORIES OF TAXES
Taxes as sources of revenue to the government fall into two categories. Simply put,
There are basically two categories of taxes, these include; direct and indirect taxes.
DIRECT TAXES: These are taxes imposed directly on income earned by individuals
or company. They are taxes levied on income capital generated by factors of
production (labour, capital, and entrepreneur).
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TYPES OF DIRECT TAXES
The following are types of direct taxes current in force in Nigeria; we shall also try to
give a brief explanation on each.
a. Personal Income Tax: tax imposed on all forms of personal income whether
earned or unearned that is liable to tax for a given period of time. It is a tax levied
on the financial income of persons, corporations, family, community, or other legal
entities.
b. Company Income Tax: tax imposed on the net profits of companies incorporated
under the Company and Allied Matters Decree of 1990 or nay other acts or
enactment for the time being.
c. Capital Gain Tax: this is a tax charged on the profits from the sales of capital
assets. It is the profit realized on the sale of an asset that was purchased at a lower
price. The most common capital gains are realized from the sale of stocks, bonds,
precious metals and property.
d. Petroleum Profit Tax: tax levied on the profits made by company engages in
petroleum operation in Nigeria (oil firms). It is apposite to state that Petroleum
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Profit tax provide for about three quarter ( 4 ) of the nation`s tax revenue
e. Education Tax: tax imposed on the assessable profits of companies registered in
Nigeria to develop the educational sector.
ADVANTAGES OF DIRECT TAXES
a. It is easy to assess or collect

b. It provides huge revenue base to the government
c. It engenders national development if judiciously managed.
TYPES OF INDIRECT TAXES
The following types of indirect taxes are currently in force in Nigeria
a. Stamp Duties
b. Excise Duties - these are taxes paid when purchases are made on a specific good,
such as gasoline
c. Customs Duties
Value Added Tax– this is tax on exchanges. It is levied on the value added that results
from each exchange
(a). Mineral Royalties (b). Casino Tax.
ADVANTAGES OF INDIRECT TAX

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a. They are easier to collect from non-wage earners.

b. It generates more income for the government compare to direct taxes. Hence,
even those that do not earn taxable income/wage must buy good thereby indirectly
paying the tax imposed on such goods obliviously.
c. It helps government to influence the rate of consumption of certain goods
consider to be injurious to health. For example, cigarettes, alcohol, etc
CLASSIFICATION OF TAXES
Taxes are classified according to their conditions of payment. These include;
PROGRESSIVE TAXES
A progressive tax is a tax imposed so that the tax rate increases as the amount
subject to taxation increases. In simple terms, the rate of tax applicable increases as
income increase, that is, graduated rate apply. This means the higher the tax payer`s
income, the higher tax he/she pays. Progressive taxes attempt to reduce the tax
incidence of people with a lower ability-to-pay, as they shift the incidence
disproportionately to those with a higher ability-to-pay. The result is that people with
more disposable income pay a higher percentage of their income as tax than those with
less income.
ADVANTAGES
1. It is equitable
2. It ensures social justice
3. It is economical
4. It is elastic or flexible
5. It is productive
6. It is better use of resources and economic stability
Calculation of tax payable
Income (N) Tax rate (%) Amount of tax (N)

20,000 10 2,000
30,000 20 6,000
40,000 37 14,800
60,000 50 30,000
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PROPORTIONAL TAX
A proportional tax is one that imposes the same relative burden on all taxpayers—i.e.,
where tax liability and income grow in equal proportion. In simple terms, the same tax
rate is applied irrespective of the income (i.e. flat rate). Irrespective of the size of
income, the same rate is applied. Proportional taxes maintain equal tax incidence
regardless of the ability-to-pay and do not shift the incidence disproportionately to
those with a higher or lower economic well-being.
Calculation of tax payable

20,000 15 3,000
30,000 15 4,500
40,000 15 6,000
60,000 15 9,000
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REGRESSIVE TAX
The opposite of a progressive tax is a regressive tax, where the tax rate decreases as
the amount subject to taxation increases. Regressive taxes are usually in the form of
indirect taxes, such as sales tax. Regressive taxes attempt to reduce the tax incidence
of people with higher ability-to-pay, as they shift the incidence disproportionately to
those with lower ability-to-pay. As income increases, the rate of tax payable decreases.
Example of regressive tax and calculation of tax payable

20,000 50 10,000
30,000 40 12,000
40,000 25 10,000
60,000 15 9,000
Regressive tax
This means that if for instance, Comrade Wisdom has N60, 000 taxable income and
Mary-Jane has 30,000 taxable income, Comrade would be made to pay 15% as tax
payable while Mary-Jane would be made to pay 40% as tax payable. By implication,
the higher Comrade Wisdom earns the lower tax he pays, conversely, the lower Mary-
Jane earns, the higher tax she pays.
CHALLENGES OF TAX
The twin-problem (tax evasion and avoidance) is one of the most challenging issues of
business taxation in Nigeria. This twin problem (tax evasion and tax avoidance) has
led to loss of revenue for the Nigerian government in recent times.
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1. TAX EVATION
Tax evasion is a deliberate and willful practice of not disclosing full taxable income so
as to pay less tax. In other words, it is a contravention of tax laws whereby a taxable
individual or entity neglects to pay the tax due or reduces tax liability by making
fraudulent or untrue claims on the income tax form. Tax evasion can manifest in
different measures such as:
i. Refusing to register with the relevant tax authority;

ii. Failure to furnish a return, statement or information or keep records
required;
iii. Making an incorrect return by omitting or understanding any income
liable to tax or refusing or neglecting to pay tax;
iv. Overstating of expenses so as to reduce taxable profit or income, which
will also lead to payment of less tax than otherwise have been paid;
v. A taxpayer hides away totally without making any tax returns at all; and
vi. The use of artificial transactions to increase expenses and reduce taxable
income or to attract reliefs. It is worthy to note that tax evasion is illegal
and when caught, it is punishable under the law of the Federal Republic of
Nigeria.
Ways or Mechanisms for Tax Evasion
Some of the ways or mechanisms by which tax evasions are perpetuated include the
following:
i. Touting: employing middle men or fraudulent tax consultants to assist in filling

of returns and in the procurement of clearance certificates
ii. Time factor: too busy to process tax related matters
iii. Non-criminal prosecution and conviction of tax offenders by tax authority and law
enforcement agencies
Possible ways of addressing the issue of tax evasion:
1. The system should be fully modernized and automated

2. Taxpayer`s convenience in assessment and payment of tax should be improved
3. Tax authorities should work in collaboration with law enforcement agencies to
ensure that tax offenders are punished in accordance with the provisions of the law.
(appropriate sanction)
4. The government and all tax authorities should work together to ensure that
leakages in the system are covered.
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5. Modern and effective human resource management practice should be

entrenched
6. There is the need for continuous enlightenment and education by tax authorities
on unlawful nature and consequence of tax evasion
7. There is need to inculcate the consciousness in the mind of Nigerians so that
they can see the tax system as belonging to all Nigerians
8. Government must also avoid wasteful and extravagant spending so as not
discourage the tax payers. In other words, taxpayers should see their money being
judiciously utilize rather than one man sweeping it to his personal purse.
2. TAX AVOIDANCE
Tax avoidance has been defined as the arrangement of taxpayers’ affairs using the tax
shelters in the tax laws, and avoiding tax traps in the tax laws, so as to pay les tax than
he or she would otherwise pay. That is, a person pays less than he ought to pay by
taking advantage of loopholes in a tax system. Tax can be avoided in various
dimensions:
i. Incorporating the taxpayers’ sole proprietor or partnership into a limited

liability company;
ii. The ability to claim allowances and relief’s that are available in tax laws in
order to reduce the amount of income or profit to be charged to tax;
iii. Minimizing the incidence of high taxation by the acquisition of a business
concern which has sustained heavy loss so as to set off the loss against future
profits;
iv. Minimizing tax liability by investing in capital asset (e.g. corporate financing
such as equipment leasing), and thus sheltering some of the taxpayers income
from taxation through capital allowance claims;
v. Sheltering part of the company’s taxable income from income tax by
capitalizing profit through the issue of bonus shares to the existing members at
the (deductible) expenses to the company;
(vi) Creation of a trust settlement for the benefit of children or other relation in
order to manipulate the tyrant tax rate such that a high income bracket taxpayer
reduces his tax liability;
vi. Converting what would ordinarily accrue to the taxpayer as income into capital
gain (i.e. compensation for loss of office) to the advantage of the employer and
employee;
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(viii) Manipulation of charitable organizations whose affairs are controlled and

dominated by its founders thus taking advantage of income tax exemption;
vii. Buying an article manufactured in Nigeria thereby avoiding import duty on
imported articles; and
viii. Avoiding the consumption of the articles with indirect taxes incorporated in
their prices.
DIFFERENCES BETWEEN TAX EVASION AND TAX AVOIDANCE
Tax evasion is the failure to disclose the correct income that should be assessed either
by misstatement of facts, falsification of figures, filing of incorrect returns or by
misinterpretation of tax liabilities. Thus, through the employment of criminal or
fraudulent means the taxpayer pay nothing or less than he ought to pay. Tax evasion
involves wilful default and is therefore a criminal offence.
Tax avoidance on the other hand occurs when the taxpayer is exercising his legal right
under the tax law; make the best use of available reliefs, allowances, exemptions etc. to
pay the least tax possible. Tax avoidance is not a criminal offence since the taxpayer
employs lawful means to reduce his tax burden.
3. Tax Deferral
This is simply the postponement of tax payment from the current year to a later year.
For instance, an Individual Retirement Account (IRA) defers taxes until the money is
withdrawn. It is not an offence under tax law or any other law applicable in Nigeria.
Possible Ways of Addressing the Issue of Tax Avoidance
1. The loopholes in the law should be identified and addressed by the relevant tax
authorities
2. Faithful tax payers should be encouraged and rewarded for compliance while
those who avoid tax should be sanction to serve as deterrent to others would-be
perpetrators
3. Court action should be taken against defaulters and if possible, freeze their bank
accounts, seal up their premises, or withdrawal of their operation license.
Other Problems Militating against Business Taxation in Nigeria are:
a. Problem of Assessment: Where the taxable individual is not in employment, the

identification of the persons to be assessed, their address and place of residence
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so that notices can be served on them possess a major challenge to assessment of

taxpayers in Nigeria.
b. Personnel Problem and Low Image of Tax Officials: This situation arises due to
lack of experienced tax personnel to man the various activities of collecting tax in
Nigeria and it thus hinders effective tax administration in Nigeria.
c. Inadequate Penalties for Tax Defaulters: There is low penalty for tax defaulters in
Nigeria and as such, tax defaulters do not serve as deterrent to others. There is
also the problem of enforceable tax compliance measures by the relevant tax
authorities in Nigeria
d. Attitudinal Problem: Most taxpayers do not know that it is part of their civic
duties to pay tax, except a few enlightened individuals, salaried employees whose
incomes are subjected to tax at source.
e. Cumbersome Process of Payment: The procedures for paying certain taxes are
too cumbersome and do not encourage prompt payment of tax by payers. In some
instances, they go scot free by bribing tax officials.
OUTLINE THREE
DETERMINATION AND COMPUTATION OF ASSESSABLE INCOME
Government usually impose tax on the citizens in order to meet some basic needs and
to provide social and welfare services to the people. The government or tax authority
may impose income tax on the income of the individual for any particular year of
assessment. Such individual is expected to pay his/her tax in the place where he/she
resides for that year in question.
WHO RECEIVES TAX FROM THOSE IN PAID EMPLOYMENT OR THE

SELF EMPLOYED?
Every individual in paid employment or self-employed are expected to pay their tax to
the state Board of Internal Revenue in the state where such individual is resident for
that particular year. Those resident in the FCT are expected to pay their tax the Federal
Board of Inland Revenue. However, there are categories of worker who are not
expected to pay tax to the State Board of Internal Revenue instead they are required to
pay to the Federal Board of Inland Revenue irrespective of where they reside in a given
year of assessment. These categories of workers include;
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i. Those in the Nigerian armed forces like the Navy, Air force, Army, Police,
FRSC, Immigration, etc.
ii. Officers of the Nigerian Foreign service
iii. Those resident in the Federal Capital Territory (Abuja)
iv. Those who are not resident in Nigeria but derive income from Nigeria are also
expected to pay their tax to the Federal Board of Inland Revenue
TAX PAYERS
Tax payers are the individuals who pay their tax to the government. These individual
can be in paid employment or self-employed depending on the category such
individuals belong.
INDIVIDUAL TAX PAYER
These are the individuals who are either in paid employment or those who are self-
employed. Those in paid employment include all workers who are employed by
government or are in government establishment, and those in private
establishment/company. While the self-employed on the other hand include the traders
or businessmen/entrepreneur, Doctors, Lawyers, Engineers who are in private practice
PERSONAL INCOME TAX RATES
Over the year, the government has introduced and applied the graduated income tax
rate to the taxable/chargeable income of the individual tax payer to determine his/her
tax payable.
Below are highlights of the different tax rates:
COMPUTATION OF TAXABLE INCOME AND TAX PAYABLE
EXAMPLE ONE
From 1st January 1987 – 31st December 1991
Taxable income Rate tax payable
(N) (%) (N)
First 2,000 10 200
Next 2,000 15 300
Next 2,000 20 400
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Next 2,000 25 500
Next 2,000 30 600
Next 5,000 35 1,750
Next 5,000 40 2,000
Next 10,000 45 4,500
Next 10,000 50 5,000
Taxable income = N40, 000 and tax payable = N15, 250
For every Naira above N40, 000 at 55%
From the above example, the taxable income of the individual from 1st January 1987 –
31st December 1991 is = N40, 000 while his tax payable is = N15, 250.
You may want to ask such questions as;
i. How is taxable income determined?

ii. How do we also determine the tax payable?
To determine the taxable income, is simply to sum the total income earned during the
year of assessment. To determine the tax payable, you simply calculate the amount on
every Naira earned in relation to the percentage at which such income is taxed.
Exercise one
From the following taxable income, determine the tax payable
N (%)
First 10,000 10
Next 10,000 15
Next 10,000 20
Next 10,000 25
Next 20,000 30
Next 20,000 35
Next 30,000 40
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Next 30,000 45
Solution Taxable income Rate tax payable
N (%) N
First 10,000 10 1,000
Next 10,000 15 1,500
Next 10,000 20 2,000
Next 10,000 25 2,500
Next 10,000 30 3,000
Next 20,000 35 7,000
Next 20,000 40 8,000
Next 30,000 45 13,500
Next 30,000 50 15,000
Tax payable = N53, 500
(i.e. (N) 1000 + 1,500 + 2,000 + 2,500 + 3,000 + 7,000 + 8,000 + 13,500 + 15,000)
To determine the tax payable in relation to the percentage: for example, 10% of N10,
000
10,000 x 10 100,000
= 100
= 100
= 1,000. Apply this method on the rest taxable income to
determine the tax payable. This is what exactly we did to get the figures above
Exercise two
From the following taxable income, determine the tax payable
N (%) N
First 20,000 10 2,000
Next 20,000 15 3,000
Next 20,000 20 4,000
Next 30,000 25 7,500
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Next 50,000 30 15,000
Next 50,000 35 17,500
Exercise three
Assuming comrd. Shola is a successful businessman in Edo Sate. His taxable income is
N100, 000 annually. However, he has persistently evaded the payment of tax from 1st
January, 1987 when he started his business activities to date. Now he is in need of
critical service from the Edo state government for which a tax clearance certificate is
required. Using the computation below, you are required to determine;
i. His annual tax payable

ii. His total tax payable for the five years
iii. Comment briefly on the effects of your computation on the social and economic
development of Edo State
(N) (%) (N)
First 2,000 10 200
Next 2,000 15 300
Next 2,000 20 400
Next 2,000 25 500
Next 2,000 30 600
Next 5,000 35 1,750
Next 5,000 40 2,000
Next 10,000 45 4,500
Next 10,000 50 5,000
Note:
a. for every Naira above N100, 000 at 55%
Solution (i)
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Comrd. Shola +2348139094260
Comrd. Shola`s tax payable
Taxable income Rate Tax payable
N (%) N
First 2,000 10 200
Next 2,000 15 300
Next 2,000 20 400
Next 2,000 25 500
Next 2,000 30 600
Next 5,000 35 1,750
Next 5,000 40 2,000
Next 10,000 45 4,500
Next 10,000 50 5,000
Next 60,000 50 30,000
Comrd. Shola tax payable = N48, 250
(Just for the purpose of learning: The explanation below is not necessary during an
examination). The above computation is taken from page 40 of the textbook. The
taxable income as seen from the computation is N40, 000 while the tax payable on the
N40, 000. Income is N15, 250. But since Comrd. shola`s annual income is N100, 000,
it therefore implies that there is a balance of N60, 000 which was not captured in the
first computation. Therefore, the remaining N60, 000 should be added to the
computation and should be charged at 50% tax rate (according to the instruction; every
Naira above N100, 0000 at 55%) since Comrd. Shola total tax payable does not exceed
N100,000. This is why you have N60, 000 next to your last figure (N10, 000).
(60,000 = N30, 000)

x 50
When calculated, 50% of N60, 000 =
100
Then sum up the total tax payable. (i.e. N200 + N300 + N400 + N500 + N600 + N1750
+ 2,000 + N4, 500 + N5, 000 + N30, 000 = N45, 250 (this is Comrd. Shola`s annual
tax payable)
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Comrd. Shola +2348139094260
Solution (ii)
Since Comrd. Shola annual tax payable = N45, 250
Therefore, his tax payable for five years = N45, 250 x 5 = N226, 250
Solution (iii)
The effects of my computation on the social and economic development of Edo state
include;
i. it will help to stabilize the economy

ii. it will generate more revenue for the state
iii. it will engender more social infrastructure in the state
iv. social amenities would be made available to the poor
v. it will also aid the government in offsetting budget deficit
vi. it will foster development in the state
EARNED INCOME
Earned income means income derived from rendering a particular service. Examples
include; income derived from trade, business, profession, pension derived from
previous employment, etc.
UNEARNED INCOME
This is the opposite of earned income. They are income received without exerting any
effort or rendering any service. For example, rents, dividends, bonuses, royalties,
interests, etc.
Exercise four
Comrd. Shola is a Chief Executive of a fast growing enterprise. He provided the

following details to the tax authority which represent his income as agreed from all
sources for 2011 assessment.
Assessment year: 2011 N
Interest on Bank deposit in 2010 12,000
Salary from his current employment 120,000
Commission on sale 40,000
Income from part-time business 120,000

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Comrd. Shola +2348139094260
Dividends (net) for 1994 20,000
Pension from previous employment 25,000
Rent received from property in 2010 40,000
End of year bonus 25,000
Required: Determine the following;
i. Comrd. Shola`s Earned income

ii. His unearned income, and
iii. His statutory total income
SOLUTION
COMPUTATION OF TOTAL INCOME FOR 2011 ASSESSMENT YEAR
i. Comrd. Shola`s earned income N
Salary from his current employment 120,000
Commission on sale 40,000
Income from part-time business 120,000
Pension from previous employment 25,000
Rent received from property in 2010 40,000
Earned income = 345, 000
ii. Comrd. Shola unearned income N
Interest on Bank deposit in 2010 12,000
Dividends (net) for 1994 20,000
End of year bonus 25,000
Unearned income = 57,000
iii. Comrd. Shola statutory total income

= N345, 000 + N57, 000
= N402, 000 (i.e. sum up both earned and unearned income)
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Comrd. Shola +2348139094260
Exercise five
Calculate the tax payable from the taxable income presented below assuming the tax
rate is proportional to income
N (%) N
First 20,000 10
Next 20,000 xx
Next 30,000 20
Next 30,000 xx
Next 10,000 xx
SOLUTION
N (%) N
First 20,000 10 2,000
Next 20,000 10 2,000
Next 30,000 20 6,000
Next 30,000 20 6,000
Next 20,000 10 2,000
Total 18,000
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CHAPTER FOUR
DETERMINATION OF PLACE OF RESIDENCE IN NIGERIA
Under the enabling law, an individual who resides in a particular territory on the
first day of January in a particular year of assessment, or who becomes liable to tax in
a particular territory on the first day of January in a particular year of assessment, shall
be deemed to reside in such territory for that particular year. This means that an
individual who resides in Edo State on the first day of January of a particular year of
assessment is expected to pay his tax for such year to Edo state government except for
those employed by the Federal government under the Armed forces, paramilitary
forces, and employees of the Nigerian foreign office. Such persons are expected to pay
their tax to the federal government irrespective of their place of resident for any
particular year.
CHAPTER SIX
ASSESSMENT
An assessment is the process of determining or ascertaining the taxable income of a

taxpayer. It is usually carried out by the State Board of Internal Revenue where the
taxpayer resides. However, those in the Nigerian arm forces, police force and the
employees of the Nigerian foreign office, residents of Abuja and non-residents are the
responsibility of the Federal Board of Inland Revenue.
CATEGORIES OF ASSESSMENT
There are primarily two categories of assessment, these include
1. Government Assessment: This is a system of assessment whereby the tax payer

provides the relevant information concerning his income on a prescribed tax format
to the tax authority through which such authority determines his tax payable.
2. Self-Assessment: This is a system whereby the tax payer carries out his own
personal assessment and computes the amount of tax due on his income and
proceeds to pay same to the State Board of Internal Revenue. This type of
assessment scheme is based on trust and the honesty of the tax payer. Self-
assessment scheme was introduced in 1991 and presently runs concurrently
(together) with the existing government assessment scheme.
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CHAPTER SEVEN
ROLES AND PURPOSE OF TAXATION IN NATIONAL AND ECONOMIC

DEVELOPMENT
The main purpose of taxation is for the generation of revenue to meet government
expenditure.
1. It affect the level of spending in an economy

2. It influences the economic behaviour of people both at the micro and macro
level (small and large)
3. It determines the level of physical investment
4. Taxation promotes equity
5. Taxation can be used to correct market failure
6. Taxation is a veritable source of government revenue
7. It acts as economic stabilization
8. Taxation helps in the provision of social amenities
The Roles and Responsibilities of the Different Arms of Government, Individuals,

and Corporate Bodies in Tax Administration
There are three arms of government in Nigeria. These include the Executive,
Legislative, and the Judiciary arm of government. Each of these arms of government
plays a unique role in the administration of tax in the country. Now let us take an in-
depth examination of the roles of each of these arms
The Legislative Arm of Government
This is the body vested with the power to make laws for the country (Federal Republic
of Nigeria). This body is referred to as the National Assembly. Their power to make
laws for the country is explicitly spelt out in section 4 of the 1999 constitution (as
amended). Policy recommendations are translated into law by the National assembly.
In relation to tax policy, the National Assembly works closely with the Federal
Executive Council on tax and revenue matter which enforce tax policy in the country.
Similarly, the State House of Assembly is granted the power to make tax policy for the
state.
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The Roles and Responsibilities of the Judiciary Arm of Government In Tax

Administration
The judiciary is the body vested with the power to interpret laws for the federal
republic of Nigeria and adjudicate on tax matters. It is therefore expected that all tax
disputes which cannot be resolved in any other manner, shall be referred to the
judiciary for adjudication. The power of the judiciary in interpretation of laws and
adjudication of dispute is clearly spelt out in section 6 (6) of the constitution of the
federal republic of Nigeria.
The Roles and Responsibilities of the Executive Arm of Government in Tax

Administration
The executive arm of government is body vested with the power to implement laws
made by the legislature in the country. The executive comprises of the bodies and
agencies of government at all levels that are involve in the implementation of tax laws.
Section 5 (1) of the 1999 constitution (as amended) vests the executive power of the
federation in the president
The Roles and Responsibilities of the National Council of State in Tax

Administration
The national council of state is created by the Nigerian constitution and assigned the
responsibility of advising the president on the exercise of his executive powers with
respect to certain matters specified in the constitution.
The Roles and Responsibilities of Ministries of Finance in Tax Administration
The ministries of finance at state and federal level are responsible for all policy matters
on tax and fiscal issues
The Roles and Responsibilities of Revenue Tax Authorities in Tax Administration
The revenue tax authorities are responsible for interacting with tax payers and act as a
bridge between the government and the tax payers. They also have the responsibility to
educate and enlighten tax payers in order to create a tax friendly and tax conscious
environment.
FUNCTIONS OF TAX AUTYHORITIES
1. Administration of existing and new tax laws

2. Obtain necessary tax approvals from the Ministries of Finance
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3. Advising government on all tax related matters

4. Ensuring that tax administration is carried out transparently and in accordance
with the provisions of the law so as to safeguard the integrity of the tax system.
5. Creating a sustainable tax culture in Nigeria
6. Ensuring a conducive tax atmosphere so as to encourage payment
7. Ensuring an efficient and effective discharge of their functions in relation to tax
assessment and collection
8. In conjunction with the Ministry of Finance and other relevant government
organs, provides information to tax payers on the allocation, disbursement, expenditure
and utilization of tax revenue
9. Maintaining a cordial relation with all other stakeholders in the tax system
10. Education and enlightenment of tax payers on tax compliance.
The Roles and Responsibilities of Joint Tax Board in Tax Administration
The Joint Tax Board (JTB) is the body created under the Personal Income Tax to
regulate the relationship between tax authorities between the state and federal level and
is expected to act as an effective supervisory and advisory body on shared activities of
State and Federal tax authorities
The Roles and Responsibilities of Professional Bodies, Tax Consultants, and

Practitioners in Tax Administration
Nigerian law provides a statutory role for professional bodies in the tax system. In this
regard, the Chartered Institute of Taxation Act provides powers to the Chartered
Institute of Taxation (CITN) to determine standards of knowledge and skill to be
attained by tax practitioners, the establishment and maintenance of a register of its
members and the regulation and control of tax practice tax consultants and
practitioners are also key stakeholders in the tax system that are expected to use their
skill and expertise to simplify the tax compliance process, properly advise tax payers
on compliance requirements and also provide necessary insight and assistance to tax
authorities.
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Comrd. Shola +2348139094260

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Tax and Revenue Administration in Nigeria (PUB 315)

TAX AND REVENUE GENERATION (PUB315)

COMRADE SALAMI C. OLUSHOLA

DEPARTMENT OF PUBLIC ADMINISTRATION

UNIVERSITY OF BENIN, BENIN CITY.

200 LEVEL, FIRST SEMESTER

BRIEF HISTORY OF TAXATION NIGERIA

i. Unique Taxpayer`s Identification Number (TIN) which became effective from

Calculation and computation of horizontal equity

TAX BASE (N) TAX RATE (%) AMOUNT OF TAX (N)

Example of vertical equity

Tax base (N) Tax rate (%) Amount of Tax (N)

Other principles of taxation include;

WAYS OF MAKING THE TAX SYSTEM CLEAR TO THE TAX PAYERS

i. The public should be educated on the application of relevant tax laws

i. Too much fund should not be committed to policy making aimed at

DEFINING SOME BASIC CONCEPT OF TAX

Tariffs: A tariff is a tax on foreign goods upon importation.

Windfall: this is an unexpected income like money received as appreciation for

SOURCES OF GOVERNMENT REVENUE

FEATURES OR CHARACTERISTICS OF A TAX

The following are features/characteristics of a good tax system

i. Its payment is compulsory and not voluntary

TYPES OF DIRECT TAXES

ADVANTAGES OF DIRECT TAXES

a. It is easy to assess or collect

TYPES OF INDIRECT TAXES

The following types of indirect taxes are currently in force in Nigeria

ADVANTAGES OF INDIRECT TAX

a. They are easier to collect from non-wage earners.

Taxes are classified according to their conditions of payment. These include;

Calculation of tax payable

Income (N) Tax rate (%) Amount of tax (N)

Calculation of tax payable

Income (N) Tax rate (%) Amount of tax (N)

Example of regressive tax and calculation of tax payable

Income (N) Tax rate (%) Amount of tax (N)

i. Refusing to register with the relevant tax authority;

Ways or Mechanisms for Tax Evasion

i. Touting: employing middle men or fraudulent tax consultants to assist in filling

Possible ways of addressing the issue of tax evasion:

1. The system should be fully modernized and automated

5. Modern and effective human resource management practice should be

i. Incorporating the taxpayers’ sole proprietor or partnership into a limited

(viii) Manipulation of charitable organizations whose affairs are controlled and

DIFFERENCES BETWEEN TAX EVASION AND TAX AVOIDANCE

Possible Ways of Addressing the Issue of Tax Avoidance

Other Problems Militating against Business Taxation in Nigeria are:

a. Problem of Assessment: Where the taxable individual is not in employment, the

so that notices can be served on them possess a major challenge to assessment of

DETERMINATION AND COMPUTATION OF ASSESSABLE INCOME

WHO RECEIVES TAX FROM THOSE IN PAID EMPLOYMENT OR THE

INDIVIDUAL TAX PAYER

PERSONAL INCOME TAX RATES

Below are highlights of the different tax rates:

COMPUTATION OF TAXABLE INCOME AND TAX PAYABLE

From 1st January 1987 – 31st December 1991

Taxable income Rate tax payable

(N) (%) (N)

First 2,000 10 200

Next 2,000 15 300

Next 2,000 20 400