Improving Tax Audit and Investigation in Nigeria
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Chapter One of Improving Tax Audit and Investigation in Nigeria
INTRODUCTION
BACKGROUND OF THE STUDY
Taxation worldwide constitutes a major source of revenue to the government for the funding of their capital and recurrent expenditures.
Taxation is defined as compulsory levy imposed directly or indirectly by the government of a state against the income, profit and wealth of the individual partnership and corporate entities for the purpose of providing social amenities to the people. For example, reduction in taxable person (or household) income by the amount paid as interest on home mortgage loans result in greater construction activity and generate more jobs. Udokang (2011 p. 5).
Taxation in Nigeria was consistently operated from the date of independence in 1960. Before 1940 Ordinance Lord Luggard has introduced income tax in Nigeria in 1914 which was known as community tax. Since then, the development of income tax has been greatly influenced by the provision of the 1954 constitution, which relates to the sharing of income tax revenue among tiers of government in Nigeria. Udokang (2011 P.1).
In recent times, there has been the urge for tax authorities in Nigeria to carry out spontaneous and sporadic tax audit and investigation on taxpayers especially corporate bodies suspected of tax evasion or tax delinquency. In doing so, the tax authorities in discharge of their duties as contained in the enabling tax laws, adopt various methods in tackling taxpayers. The taxpayers on the other hand, are quick to resist any additional tax burden that might drain their pockets. While tax authorities do have powers to conduct tax audit and investigation on taxpayers to ensure that the revenue due to government are not lost by way of false returns, these powers are however, not without legal Limit-Tax Audits and investigations are very complex and tasking processes and as such Tax Managers and their consultants must understand the rules of the game.
The Federal Inland Revenue Service (FIRS) is made up of six directorates which are: directorate of value added tax, directorate general of training and research, directorate of income tax, directorate of tax payers service, directorate of tax accounting unit and directorate of tax clearance certificate. The Federal Inland Revenue Service is a body charged with the responsibility of administering federal government taxes in Nigeria. The body has power of administration and collection over the following taxes, company income tax, petroleum profit tax, education tax and capital gained tax, personal income tax of residents of federal capital territory and account for amount so collected. The need to train and re-train officers on the technical aspect of these duties to enable them to be effective and efficient in the discharge of their responsibility is very necessary. Federal Inland Revenue Service has a lot of practical problems in the process of carrying out their duties of an assessment and collection of taxes.
STATEMENT OF THE PROBLEM
Government introduces taxation primarily to raise revenue to facilitate the adequate provision of basic amenities, security and favourable investment environment. However, these objectives called for a desperate need for identifying the problems/challenges associated with tax audit and investigation in Nigeria. In Nigeria the incident of tax evasion is very high. It is apparent that one major problem of tax audit in Nigeria is the weak administrative machinery, which makes it easy for tax defaulters to go unpunished or with minimal punishment. The problem of tax audit is how to simplify and enforce the provisions of tax laws and evolve an optimum tax structure that will aim at achieving desirable social goals and generally enhance voluntary tax compliance. Income tax administration has a complex operation, this is the reason the introduction of the self assessment system and the establishment of administrative machinery of tax audit and investigation are welcome development. No tax can conform to expected standard of equity, if it cannot be administered with a high degree of effectiveness.
Therefore, this research aims at improving tax, audit and investigation in Nigeria in terms of tax revenue and gross domestic product from 2005-2014.
OBJECTIVES OF THE STUDY
Based on the research work, the objectives of the study are geared towards achieving the following:
- To identify the possible relationship between tax audit and investigation in Nigeria.
- To identify the process which self assessment system help to reduce the problems of income tax administration in Nigeria.
- To identify empirically the weaknesses of tax audit and investigation in Nigeria.
- To examine whether tax audit and investigation helps in the reduction of tax evasion in the Nigerian tax system.
- To examine the extent to which tax audit and investigation assist voluntary compliance by the tax payers.
STATEMENT OF HYPOTHESIS
The following hypothesis was drawn up to enable the researcher formulate variable for the study:
H0: There is no significant relationship between tax audit and investigation in Nigeria in terms of tax revenue and Gross Domestic Product (GDP) (from 2005-2014).
H1: There is significant relationship between tax audit and investigation in Nigeria in terms of t
ax revenue and Gross Domestic Product (GDP) (2005-2014).
RESEARCH QUESTIONS
The following research questions were formulated:
- What is the possible relationship between tax audit and investigation in Nigeria?
- Does self assessment system help to reduce the problems of tax administration in Nigeria?
- Does tax audit and investigation reveal weaknesses in the Nigerian tax system?
- Does tax audit and investigation help in the reduction of tax evasion in the Nigerian tax system?
- Does tax audit and investigation assist voluntary compliance by tax payers?
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