There will always be need to identify what applies to tax and taxation in Nigeria but first what will be key is to understand the history of taxation in Nigeria.
This will take you through all the processes of the enactment of the various tax laws and legislation which will guide your knowledge of the history of taxation in Nigeria.
History of taxation in Nigeria – As it were
Prior to the early 1930s, the formalization of taxation in Nigeria was practically non-existent. We were only exposed to variety of levies as dictated by paramount rulers at that time. The Various traditional rulers all created their various forms of taxes and levies which was used in boosting the various economies of the region.
The history of taxation in Nigeria can be traced to the Northern part of Nigeria where there was a reasonably systematic form of taxation during the early years and this was due to the fact that the Emirs had a more organized system of administration unlike in the other parts of the country. The Islamic religion also preached stringent adherence to payment of taxes as one of the principles of forthrightness in the religion and this brought about a more stringent enforcement of payment of taxes and levies in the part of the country, more so that the organized structure assisted in no small means to effective tax administration in the region.
What happened to South on the history of taxation in Nigeria?
It is simple, the south was just not as organized as the northern part of the Country.
A brief but more detailed analysis of the history of taxation in Nigeria
Zakat was levied on Muslims for spiritual, religious and educational purposes; Kudin-kasa was levied as a form of tax on land utilization, while Shuka-Shuka was a tax levied on cattle rearers back in the days.
In the south western part of the Country, there was Isha-Kole which is also a form of agricultural/ land tax payable to Obas, Chiefs, Heads of Community. There was also Owo-Ori back in the days which is the tax paid by individuals in return for services rendered. There was also war tax which was a tax paid by a defeated town after a war to the victorious town. There were also community tax that was payable by all adults in a community to carry out projects in same.
Lord Lugard in his attempt to harmonize all existing tax systems, brought on the Stamp Duties Proclamation in 1903 which was quickly followed by the Native Revenue Proclamation in 1906.
The essence of the Native Revenue Proclamation was to harmonize all pre-colonial tax rates by defining which rates should apply to what, the various methods for collection and what penalties should accrue to defaulters.
This move by Lord Lugard brought about a more effective system of taxation and what could be said to lead to the drivers of modern tenets of taxation in Nigeria; the 4 core principles of:
. What to pay
. Where to pay
. When to pay
. Whom to pay to
Although the new framework introduced by Lord Lugard was all in an attempt to further simplify and merge all forms of existing taxation in Nigeria, there were however some issues relating to practical interpretation of these laws.
Interesting is the history of taxation in Nigeria, isn’t it?
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The present form of Nigerian taxation can also be traced back to the amalgamation of the Northern and Southern Directorate in 1914, where the government deemed it important to extend direct taxation in the Northern parts of the country to the Southern part.
There was promulgation of certain tax laws by the colonial power. Such laws include:
Proclamation law of 1914
Native Ordinance Cap 74 of 1917 which was re-enacted in 1929 in Eastern Nigeria. Recall the Aba Women Riot of 1929, was caused by the features of this law which imposed tax on women.
The Non-natives Protectorates Tax ordinance of 1931 which was later repealed and merged into tax Ordinance, No 4 of 1940 and subsequently re-enacted as income Tax ordinace 1943.
Nigerian tax history has really come a long way!
To achieve conformity and uniformity in taxation, Raisman Commission was set up in 1958 by the colonial government, which advised that basic income tax principles should be introduced and standardized across the country.
A recommendation which was accepted by the Government, and thus, direct taxation was incorporated into the constitution of the Federal Republic of Nigeria, after which the Companies Income tax Act and income Management Act of 1961 was birthed!
These formed the foundation of Nigeria’s modern tax laws.
As a result of the increasing complexities in transactions, consistent changes in the way we trade and glaring issues relating to practical interpretations of the laws, the Acts were repealed and re-enacted as the Companies Income tax Act CAP C21 LFN 2004and the Personal Income tax Act CAP P8 LFN 2004.
History of taxation in Nigeria: What does tax mean to you?
It is the duty of the Federal, State and Local government to impose any form of tax on its citizens at the various rates due and applicable.
Tax can be defined as a form of levy which is imposed on all taxable persons within tax jurisdiction. This is further explained as that monetary charge on residents living in, and non-residents that are doing business in Nigeria.
The core importance and objectives of taxation is to ensure that revenue is generated for all tiers of government for its various expenditure.
Not only is this the importance of taxation, taxation is also important in order to avoid various forms of anti-social activities, which will lead to stabilization of the economy and effective allocation of income.
Nigerian taxes and the history of taxation in Nigeria can be traced to the following sources from the pre-colonial era:
Based on Customs and traditions:
As mentioned earlier, certain taxes were imposed on incomes, sales of goods and services, agricultural produce within a community. For the Northern part of Nigeria, there was the Zakkat which was based on Islamic laws, by the Islamic worshippers based on their acknowledgement of what is applicable in their laws. This form of tax was levied on the wealth of all Islamic faithful in the Northern part of Nigeria.
The Osus-Nkwu was also a tax paid by dwellers in the Eastern part of the Country while Isha-kole was a tax paid to the Obas based on the agricultural produce in a farmland of specified geographical zone.
You would agree that the modern form of Nigerian taxation can be traced to customs and customary laws.
Remember the Companies Income Tax Act that was enacted in 1961, to be repealed later into the Companies Income tax Act CAP C21 LFN 2004. This is a typical example of Statute laws.
They are legislations by Government which confers the necessary powers to tax authorities to impose taxes on individuals and businesses in a particular jurisdiction.
Recall the Companies Income tax Act CAP C21 LFN 2004 and the Personal Income tax Act CAP P8 LFN 2004? These are typical examples of Statute.
The case laws states that judgments pronounced by superior courts of laws on issues relating to tax in Nigeria remains binding on the lower courts.
This is a typical case of Stare decisis: Judicial precedents.
Nigerian tax system and its structure
Nigerian tax system is structured under the methods and incidence.
Under methods, we have the
Progressive tax which is the form of tax that progresses as the income that is to be taxed increases. A typical example is the structure of the National Income tax in Nigeria. The higher the income of the taxable person, the higher the tax that would be levied.
This is not a common type of taxation in Nigeria. It is that form of tax that regresses and the tax payer’s taxes increases.
This form of tax is the type that assesses the tax payer’s income on a flat rate. The issue of increase or decrease in this situation is not of concern as there is a flat rate already.
Under Incidence, we have the
Direct taxation which is assessed directly on the income of the tax payer. In this case, that tax payer is assessed directly on his income, property, rent and so on. Typical types of taxes under the direct form of taxation are the Companies income tax, Capital Gains tax, Education tax, Petroleum Profit tax, Personal Income tax.
These are the types of taxes that are imposed on commodities at flat rates before they get to the owner of these commodities. In this case, the burden of payment is on the final user of the commodity, because they are merged into the total sales price for that commodity. Typical examples of taxes that fall under this prerogative are Excise and Customs Duties, Value Added tax, Stamp duties.
How is tax administered in Nigeria?
There are three tax authorities conferred with the power to levy taxes in Nigeria. These are namely:
Federal Internal Revenue Service who are responsible for evaluating and collecting taxes due Federal Government. The FIRS charge taxes such as :
Companies income tax
Value added tax
Capital gain tax on companies, non-resident individuals and residents of FCT
Stamp duties tax on residents of FCT and Personal Income tax on Residents of the FCT, non resident individuals, members of the Nigerian Police Force and Armed forces of the Federal Republic of Nigeria
The Various State Boards of Internal Revenue are responsible for evaluating and collecting taxes for States. They charge taxes such as:
Withholding tax on Individuals
Capital Gains tax on Individual
Pay as you earn (PAYE)
Stamp duties on Investments by individual
Road taxes and
Business premises registration fees
Development levy and so on
The Various Local Government Revenue Service are responsible for evaluating and collecting taxes due to various Local government. They charge taxes and levies such as
Tenement rates, motor park fees, Signage and advertisement fees, Illegal parking fees, marriages, birth and death registration fees and so on.
The various enabling laws that support the various tax administrations are as follows:
Companies income tax Act which imposes taxes at 30% on companies apart from corporation soles and companies involved in upstream petroleum operations. The tax is usually on the company’s profit which is in the progressive form i.e the higher the bottomline of a company, the higher the tax that would be paid to the tax authorities.
Education tax Act imposes tax on the assessable profits on companies in Nigeria
Value added tax is a type of consumption tax that imposes tax on the supply of goods and services ( except for those that are exempt or zero rated)
Petroleum profit tax charges tax on the profits of companies that engage in petroleum operations
Personal income tax are tax charged on the income of individuals and corporation soles. It is usually charged on salaries, wages, rent, interest etc. There are certain tax reliefs on Personal income which is deducted from the income, thereafter the remainder is chargeable as it becomes taxable.
Capital gains tax is tax charged on gains or profit accumulated to companies from the disposal of properties like buildings and land.
Stamp duties are taxes and duties on particular instruments in the Stamp duties Act of the tax laws.
Importance of taxation based on the history of taxation in Nigeria
I am sure you are aware that the importance of taxation in Nigeria cannot be over emphazised. It is a strong driver for economic development in the country right from the pre-colonial era to the post colonial era. Apart from oil, tax is the second most important revenue source for the government. More notable is the fact that there is dwindling revenue from oil and core focus has been on how to drive revenue through tax, so you can see Tax remains food for the economy.
Tax is the income of the Government:
The Government needs revenue to manage its affairs don’t they? They plan expenditures for all sorts, from general administration to infrastructure, they need the cash for all these activities.
In order to be effective in carrying out these expenses, revenue will be required. Hence, the reason for yearly budgets in order to limit the expenses over the revenue generated where tax plays a very prominent role.
In effect tax is a major source of revenue to the government as profit is to companies.
There is impartial wealth distribution
One of the aims of tax is to assist with the distribution of wealth and income. Take for example, the progressive tax attempts to take more from higher incomes in order limit the level of inequality among the populace. The government has the duty to spread the tax paid among infrastructures that benefit the low income earning populace.
As you can see, tax is a very effective tool for making sure there is an even distribution of income which further assist to maintain a certain level of economic stability since the concentration on high income earners is reduced and redistributed.
It helps to discourage certain activities in the country
There are certain goods that government discouraged the populace from consuming. A very strict way of discouragement is to enforce high taxes on these specified goods.This will reduce the access of the populace to such goods since it will be difficult to afford the selling price of such goods.
Tax serves as instrument of fiscal policy
If consumer spending power is higher than the supply of goods and services, then there is the possibility for inflation. Yes! Therefore, one of the ways to reduce the spending of consumers is to force up the tax. The government usually finds it easy to increase tax rather than reduce expenditure.
Same applies when there is low demand for goods and services, government may decide to reduce taxes in order to force up spending.
So you see? Tax is a very good instrument of fiscal policy by the government.
Tax serves as a major stimulant for growth and development
Favorable tax policies like holidays, concessions help to stimulate growth and development across all sectors of the economy. When there is friendly tax policy, then, there is more investment opportunities which creates more influx of foreign direct investment into the country.
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