Electronic Tax System, Tax Compliance and Revenue Collection Efficiency
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Chapter one on Electronic Tax System, Tax Compliance and Revenue Collection Efficiency
BACKGROUND TO THE STUDY
Taxation is an important source of revenue to the government. Tax can be variously defined; Anyanwu (1997) defined taxation as the compulsory transfer of payment (or occasionally of goods and services) from private individuals, institutions or groups to the government. According to Ogbonna and Appah (2012), tax is “a major source of government revenue all over the world”. According to Chris and Elizabeth (2001) tax has three basic features namely, a compulsory levy imposed by government, or local authority, for public purposes and to encourage social justice. Taxation is machinery or process in which society and communities or group of individuals are contributing into an agreed sum which is important for the resolution, development and administration of the public (Ogundele, 1999). Taxes are essential contribution levied by the government on citizens and corporate institutions for the provision of public expenditure (Nightingale, 1997).
Taxation as a fiscal tool could be used to enhance a nation’s development process and its economic activities, thereby improving the overall level of prosperity and economic well-being of the entire citizenry (Anyaduba, 1999). Taxation is a tool for societal development and also a means by which the rewards of development are redistributed (Oladiran, 2009). When the taxpayers pay their taxes, the government is accountable to the citizens and are accountable to make budget decisions accessible and transparent. In developing countries like Nigeria, the Government faces challenges and issues when it comes to revenue collection (i.e. tax collection) which ends up leaving the government collecting a lesser amount. According to a world bank economic report on Nigeria published on the 1st of May 2013, it was stated that 95% of the government’s budgeted expenditure depended on its projected oil revenue based on current world oil prices. It was also recommended in the report that the Federal Government, through the improvement of the domestic tax system it can increase its internal revenue and provide in the event of a fall in oil prices a financial backup plan for the economy (The World Bank, 2013).
Globally, Electronic Tax System has been given attention through the increase in the use of information technology and this affects the tax administration. Nisar (2013) argued that current problems in public taxation stress the need of developing a system of tax assessment and collection that involves internet services. Therefore, Electronic Tax System is an online platform whereby the taxpayer is able to access through internet all the services offered by a financial authority such as the registration for personal identification number, filing of returns, payment of taxes and application for compliance certificate. E-Filing is a process where tax documents or tax returns are submitted through the internet, usually without the need to submit any paper return.
In United States of America, the introduction of electronic tax administration including electronic tax filing (e-filing) has been the largest in terms of citizens affected. Starting in the 1980s as a partnership between the Internal Revenue Service (IRS) and the tax preparer H&R Block, the program has developed to a successful public-private partnership. In fact, the IRS has been described as one of the most efficient tax collection agencies in the world (Fletcher 2003). Recent announcements by the IRS indicate that e-filing has increased at an impressive rate since its introduction in the late 1990s. Statistical analysis shows that e-filing for individual taxpayers increased from an average of about 23% in 1999 and approximately 60% in 2007. More recent IRS information indicates an individual e-filing rate of 61% in 2008 and 69% in 2009 (Pippin S and Tosun M,2014).
In South Africa, SARS e-filing is the official online tax returns submission portal for South African Revenue Service launched originally in 2001 through third-party companies, then expanded and taken in-house by SARS in 2006. In the 2015/2016 tax year SARS e-filing processed 36.80 million electronic submissions and payments which is equivalent to 98.7% of all submissions and payments to SARS in South Africa (SAnews,2016). SARS e-filing is a free, online process for the submission of returns and declarations and offer other related services.
The Nigerian Tax system is surrounded by numerous problems; therefore, the aim of E-Tax system is to provide the tax authority a database with details of taxpayers and their transactions. An example of E-Tax System in Nigeria is Integrated Tax Administration System (ITAS) introduced in 2013 by the Federal Inland Revenue Service to improve tax administration in Nigeria and improve the tax compliance process from the manual system which is monotonous and bureaucratic. IATS has the following features; Online Submission of tax returns; Taxpayers can submit their tax returns for different taxes such as Petroleum Profit Tax (PPT), Companies Income Tax (CIT), Value Added Tax (VAT) and Capital Gains Tax(CGT) through the portal. When the taxpayer is registered, a taxpayer’s e-filing account is created based on the taxes the individual or company is liable to pay.
Electronic Tax Clearance Certificate (E-TCC) processing: Taxpayers can apply for a TCC online which will be generated by the system. Although hard copies will still be available for collection, a system generated TCC will be just as useful as the hardcopy. E-TCC is therefore a platform that issues the TCC of a taxpayer. Validation of Tax Identification Number (TIN): The external parties can validate the TIN of a taxpayer on the Integrated Tax Administration System (ITAS). Automatic Imposition of Late Filing Penalties and Interests: The system has been designed to automatically compute and impose interest and penalty for late submission of tax returns or late payment of taxes. Electronic Tax Payment: Effective on March 2015, taxpayers can pay their taxes online from their corporate bank accounts. This application which was developed in conjunction with the Nigeria Inter-Bank Settlement System (NIBBS) is hosted on the respective commercial bank’s internet-banking platform. The process requires the TIN, unique document number generated on the E-filing platform and the necessary internet banking authentication. (PWC Nigeria, 2015)
Tax compliance is the degree to which a taxpayer complies with the tax rules of his country. This also means making tax payments and producing and submitting tax returns to the tax authorities on time and in the required formats. The issue of tax compliance has been a vibrant issue in the tax world in Nigeria. Most citizens have the view that since the government doesn’t provide us with the basic amenities needed, why pay taxes? This is commonest reaction you get from citizens who evade taxes. Tax evasion cannot be totally eliminated but can be controlled by the tax authority. A more appropriate definition of compliance could include the degree of willingness to complying with tax laws and administration that can be achieved without immediate threat or actual application of enforcement activity. Tax compliance can be viewed in terms of tax avoidance and evasion. These two are distinguished in terms of legality, tax avoidance is legal while tax evasion is illegal. Compliance might therefore be better defined in terms of compliance with the tax laws of the nation (James, Murphy and Reinhart 2005).
STATEMENT OF THE PROBLEM
Electronic Taxation System remains a great concern worldwide especially in developing countries like Nigeria. Electronic Tax System was introduced by the Federal Inland Revenue Service in 2013 to increase revenue collection, effective tax administration, curb tax evasion, avail services to the tax payers all the time from anywhere, improve tax compliance and reduce the costs of compliance process. The first need of any modern government is to generate enough revenue which the backbone of the state is. Thus, taxation is one of the most significant source of revenue for the government (Ogbonna and Appah,2012).
The E-filing offers many benefits to the tax authorities. To the tax authorities, e-filing minimizes their workload and operational cost due to the submission of tax returns online. It also reduces the cost of processing, storing and handling of tax returns. Despite these benefits associated with e-filing, tax authorities face some major challenges towards the implementation of the e-filing system. One of the challenges is the public perception of the e-filing system. After using an e-service over the Internet, the public may find the e-service system easy and useful or otherwise. Since the public cannot directly communicate with tax personnel, see or touch the tax forms as the service is provided online, the e-filing service system delivered to them may not perform as expected because even though there are online support centres, computer illiteracy is a factor amongst some taxpayers and these support centres cannot provide all the relevant details at all times. The public may be burdened by the time and effort spent learning the new system and accommodating any services failure.
Sani and Umar (2014), Tax evasion has been an issue of concern in the Nigerian tax system for years. Tax evading attitude can have an adverse effect on government funds, government’s socio-economic and political programs. This situation is being blamed on the tax administrators by many analysts and commentators, for not living up to expectation with regards to tax administration; others attribute the case to the unpatriotic attitude and willingness of the taxpayers. When the issue of tax non-compliance arises, it is expected that since electronic tax system has been introduced, tax compliance should have increased overtime leading to an increase in the tax revenue. Therefore, the gap between the tax revenues to be collected and the tax revenues collected then becomes a problem. Most taxable persons evade tax due to tax justice not achieved, intentionally and for some other reasons leading to shortage in revenue generation. Hence, the e-Tax system is necessary in order to capture more taxpayers to increase the revenue of the State because the government needs revenue in providing the basic amenities and also keeping track on these taxpayers.
OBJECTIVES OF THE STUDY
The general objective of this study is to examine the effect of the use and introduction of the e-tax system on the tax compliance among self-employed taxpayers and SME owners.
The study was guided by the following specific objectives;
1. Examine the effect of the e-tax system on the tax compliance among self-employed individuals.
2. Examine the effect of the e-tax system on the tax compliance among SME employees.
3. Examine the relationship between the perceived ease of use and the electronic tax system.
4. To establish the effect of the electronic tax system on revenue collection efficiency of the tax authority.
In order to achieve the objectives highlighted above, the following research questions were formulated as follows:
1. To what extent does e-tax system have an effect on the tax compliance of self-employed individuals?
2. To what extent does e-tax system have an effect on the tax compliance of SME employees?
3. What is the relationship between e-tax system and the perceived ease of use?
4. To what extent does the electronic tax system have an effect on the tax revenue collection efficiency of the tax authority?
HO1: There is no effect of e-tax system on the tax compliance of self-employed individuals.
H02: There is no effect of e-tax system on the tax compliance of SME employees.
HO3: There exists no relationship between perceived ease of use and e-tax system.
HO4: There is no effect of electronic tax system on the revenue collection efficiency of the tax authority.
SIGNIFICANCE OF THE STUDY
The Lagos State government relies heavily on taxes to fund its infrastructural and recurrent development expenditure. An increase or decrease in the tax compliance of taxpayers has a direct bearing on the economy of Nigeria as a country. Tax Authority and Other Government Institutions: The study is likely to reveal the strengths or weaknesses associated with implementation of new technology and its benefits on tax compliance among small taxpayers, enriching knowledge to other state government institutions planning to introduce electronic tax system. This study will also enlighten the tax authority on how the e-tax system has significantly increased tax compliance among SMEs and Self-employed taxpayers, using the platform or otherwise.
Students: It will also be of use to the student and researchers for further research study who wish to understand the practical aspect of taxation. It will assist students in their knowledge and appreciation of the practical E-tax system of the government. The research will also contribute to the existing body of literature knowledge and may form the basis for further research in the area of E-tax system and tax compliance in Nigeria. International Analysts: This study will be significant to international analysts that are interested in the electronic tax system in Lagos State and how it has impacted the tax compliance and the effectiveness of this system in its ability of capturing more taxpayers by comparing the system to that of developed countries.
SCOPE AND LIMITATION OF THE STUDY
E-tax system is referred to as the transmission of tax information directly to the tax administration using the Internet (Edwards-dowe, we, 2008). The E-tax system makes an effective impact on the economy toward improving the level of tax compliance by the taxpayers and income generation. This is because of its convenient, time saving, cost effectiveness for both the tax administrators and the taxpayers. The reason for using Lagos State as the case study for this research is because Lagos State is highly populated with a population of over 21 million persons (world population review 2016), famously known as the city that never sleeps and this indicates the large number of taxable persons that can be captured using the e-tax system. FIRS introduced integrated tax administration system in Nigeria in 2013 offering services like E-TCC, e-Filing, e-Payment and e-Registration to the taxpayers. The internally generated revenue of Lagos State moved from a monthly average of about 600 million Naira in 1999 to approximately 20.5 billion Naira in 2013, making Lagos State one of the states in Nigeria with the highest IGR (internally generated revenue) and less dependent on proceeds the Federation Account (LIRS, 2016).
There were difficulties and limitations in getting sufficient secondary data because little research has been done on Electronic Tax System. The tax officials, self-employed individuals and SME employees filled the questionnaires in a hurry, because they had to get back to their work activities, reducing the quality of their answers. Time was essential in this research and this also affecting the researcher. The tax offices were also particular about the amount of questionnaires brought to their work stations.
OPERATIONALIZATION OF VARIABLES
This research is based on two variables, Independent Variable (E-Tax System) and Dependent Variable (Tax Revenue). The dependent variable is tax revenue which is measured using the following parameters:
Y1= Tax Compliance (TC)
Y2= Revenue Collection Efficiency (RCE)
X= E-Tax System (ETS)
Y1= y1 y2 y3
Y1= Tax Compliance among Self-employed Individuals (TCSE)
Y2= Tax Compliance among SME Employees (TCSME)
Y3 = Perceived Ease of Use (PEOU)
Y4= Tax Revenue Collection Efficiency (TRCE)
X= Electronic Tax Payment (ETP)
TCSE= f (ETS) —————————————————————–EQUATION 1
TCSME= f (ETS) —————————————————————EQUATION 2
PEOU= f (ETS) —————————————————————–EQUATION 3
TRCE= f (ETS) ——————————————————————EQUATION 4
The relationship between E-Tax System, Tax compliance and Revenue Collection Efficiency is expressed by the following equations:
TC, RCE= f (ETS)
DEFINITION OF TERMS
1. TAX: This is a compulsory contribution to state revenue, levied by the government on workers’ income and business profits or added to the cost of some goods, services and transaction.
2. E-TAX SYSTEM: This is an online platform whereby the taxpayer is able to access through internet all the services offered by a financial authority such as the registration for personal identification number, filing of returns and application for compliance certificate.
3. TAX COMPLIANCE: This is the degree to which a taxpayer complies with the tax rules of his country. This also means making tax payments and producing and submitting tax returns to the tax authorities on time and in the required formats.
4. SME: The full meaning of SME is small and medium-sized enterprises. These are non-subsidiary, independent firms which employ fewer than a given number of employees. The medium-sized has less than 250 staffs, small-sized has less than 50 staffs and micro-sized has less than 10 staffs.
5. SELF-EMPLOYED: An individual is self employed when he or she works for him/herself instead of working for an employer that pays a salary or wage.
6. ELECTRONIC TAX FILING: This is a process where tax documents or tax returns are submitted through the internet, usually without the need to submit any paper return.
7. TAX ADMINISTRATION: This is the administration, management, conduct, direction, and supervision of the execution and application of a government, country or state’s taxation laws and related statutes. E.g. LIRS.
8. TAX REVENUE: Tax revenue is defined as the revenues collected from taxes on income and profits, taxes levied on goods and services, payroll taxes, taxes on the ownership and transfer of property, and other taxes.
9.TAXPAYERS: This includes all taxable persons be it individuals, partnerships and corporate bodies.
10. TAX SYSTEM: A legal system for assessing and collecting taxes.
11. ELECTRONIC PAYMENT: An electronic payment (e-payment), in short, can be simply defined as paying for goods or services on the internet. It includes all financial operations using electronic devices, such as computers, smartphones or tablets. (Securionpay)
12. REVENUE COLLECTION EFFICIENCY: Revenue collection efficiency is the comparison of what is actually performed by the tax officials with what can be achieved with the same consumption of resources (money, time, labour, and so on).
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