AN EXAMINATION OF TAX ADMINISTRATION AND ENFORCEMENT MECHANISMS UNDER THE FEDERAL INLAND REVENUE SERVICE ACT, 2007
From the inception of modern taxation in Nigeria in the first decade of the 20th century the problem of poor tax administration has been the cankerworms that militate against an optimum revenue generation which affect negatively the government ability to render essential services to the citizenry. With the above problems in mind, various reforms were initiated aimed at improving the standard of tax administration in order to ensure an improved revenue generation by the government. The first of such reform were the Native Revenue Proclamation of 1906 which systematized all pre-colonial taxes that existed in Northern Nigeria which was re-issued in 1914 and extended to the West and East in 1918 and 1927 respectively. Other reforms followed in 1943, 1958 (Income Tax Ordinance of 1958), 1961 (Companies Income Tax Act No 22 of 1961) and 1993 (Finance Miscellaneous Taxation Provision Act of 1993).The above reforms all aimed at improving the standard of tax administration in Nigeria. Major reform in the history of tax administration however came in 2007 with the granting of administrative and financial autonomy to the Federal Inland Revenue Service and establishment of more effective disputes settlement mechanisms within the system by the Federal Inland Revenue Service (Establishment) Act. 2007 (FIRS Act). The passage of FIRS Act, was an actualization of a longtime reform started a century and a year ago precisely in 1906. For the first time in the history of tax administration in Nigeria the FIRS by the 2007 Act were empowered with various administrative and enforcement mechanisms that allow a taxpayer to assess himself for tax and empowered the FIRS to enforce payment internally through various mechanisms such as Distrain, Surcharge, Substitution, and Surtax etc. It was in the light of these reforms that this researcher carried out a study of the new reform through the FIRS Act, and analyses the various administrative and enforcement mechanisms provided by the new Act (FIRS Act) and considered their efficiency and effectiveness in improving the standard of tax administration in Nigeria. The study however found that the Act contained an unnecessary and controversial policy of centralization of tax administration, a possible reduction of powers of various States Board of Internal Revenue and other gaps in the provisions of the Act and recommended solutions by way of amendments of some provisions of the Act. which the researcher believed if implemented will go a long way in ensuring an efficient tax administration regime of our dream.
One instrument use as a key to unlocking the resources required for public investment and infrastructural growth is tax. The process of levying and collection of tax
i.e. taxation is a very complex and highly dynamic system with constant changes in the economic environment where it operates, hence the need to review from time to time the instruments regulating the levying, collection, administration and enforcement of tax.1
In Nigeria, what added to the complexity of the system is the Federal character of the country. Under a Federal system like Nigeria, powers are shared between the central and state governments which also include power to impose or levy tax within the jurisdiction of the government concern. In Nigeria the power of levying and collection of taxes are shared between Federal and State governments2, and therefore, administration of tax is made at two tiers of governments i.e. by the Federal Inland Revenue Services at Federal level and various States Board of Internal Revenue at State level3. This division occasionally brings about disagreement between the two tiers of government as to which government should collect what tax?4This of course affected the smooth running of the system in the country.
- 1The practice in most jurisdiction is that each budget in every fiscal year brings about changes in taxation policy
- 2This is contitutionally provided under part II Second Schedule to the 1999 Consititution
- 3This is without prejudice to the power of other tax collecting authorities like Nigerian Customs Service and Excise Board, Joint Tax Board etc but they are outside the scope of this research work
- 4This conflict manifested on the constitutionality of Value Added Tax and Sales Tax see AG Ogun State V Aberuogba (1985), NWLR (PT3) AG Fedaration vs Guardian News Papers Limited (1999), a NWLRPT618)
Another glaring problem in Nigerian tax system is the neglect by the successive governments of various sources of government revenue. And with the discovery of oil in 1970s, the Nigerian revenue base became dominated by oil revenue. The system was equally characterized by unnecessarily complex, distorted and largely in-equitable tax laws that has no practical application in the informal sector that dominated the economy. The whole system in the Nigerian taxation system as represented by mechanisms for administration and enforcement of tax was to say the least, inefficient and outdated.
Since the amount accrued to the government for its support depends largely on how efficient the machineries for administration and enforcement of taxes are, it was deemed necessary that the legal framework under which tax is levied and collected (administered) needs to be re-visited and made effective so as to be able to achieve its purpose. It was in a quest for this reform that in 2007, the National Assembly enacted the Federal Inland Revenue Services Act5 as a new legal regime for administration and enforcement of tax laws in Nigeria. The Federal Inland Revenue Service Act (hereinafter referred to as FIRS Act or the Act) established the Federal Inland Revenue Services (FIRS) and its Management Board (the Board) as autonomous bodies with power to administer and enforce tax laws in Nigeria6, while the Tax Appeal Tribunal (TAT) established under the Act7, is to operate as an adjudicating body within the system.