Personal Income Tax in Nigeria – The economics and dynamics of running a country has a lot to do with taxation. Tax is a levy imposed on every individual worthy of it so as to realize funds meant for providing social amenities as well as funding critical government infrastructure, projects and maintaining assets belonging to the state.
Every country, state, local government or even organization has its way of taxing its members or citizens for realization of such funds.
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What is Tax?
The Business Dictionary refers to tax as a sum of money demanded by a government for its support or for specific facilities or services, levied upon incomes, property ,sales, etc.
The concept and principle of taxation is as old as man himself. As long as man graduated from the era of trade by barter whereby goods were exchanged according to need, and there became the need to have a legal tender that was needed to pay for goods and services, and governments and styles of ruler-ship became rampant, there immediately surfaced the need for taxing and taxation to meet sate needs and possibly cater for the royal paraphernalia.
In Bible days, the people paid tributes of both cash and kind to the government. Several ancient civilizations like the Greeks and Romans also imposed taxes on their citizens to fund military expeditions and other public needs like building amphitheaters and other social structures. Taxation began to evolve significantly as civilizations expanded and empire became more structured and ordered.
Taxation in Nigeria can be traced to the Northern part of Nigeria where there was a comparably structured 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 stood for stringent adherence to payment of taxes as one of the principles of uprightness in the religion and this birthed a more stringent enforcement of payment of taxes and levies in that part of the country, more so that the organized structure assisted in no small means to effect and enforce tax administration in the region.
It was called Zakat as a levy 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 kind of tax levied on cattle rearers in those 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. Quick on its heels was the Native Revenue Proclamation in 1906.
The thrust 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 made taxation much more effective than the traditional way, and gave rise to the more modern methods of taxation in Nigeria. The modern methods of taxation revolved around the following principles:
. What to pay (how much to pay)
. Where to pay
. When to pay
. Whom to pay to
Types of taxation in Nigeria
Tax is a charge imposed by governmental authority upon property, individuals, or transactions to raise money for public purpose. Tax in Nigeria is measured in accordance with the reasonable rule of apportionment on persons or property within the tax administration and it is purely statutory.
The 1999 Nigerian Constitution puts the collection of taxes in the 2nd schedule item 7-10 under the concurrent list thereby giving the 3 tiers of government the authority and ability to receive tax. This means the three tiers of government i.e. the Federal Government, State Government and Local Government have the power to make provisions for the collection of tax. The various types of tax operational e in Nigeria are :
Value Added Tax came about through Decree 2 of 1993 to replace the sales tax. The Value Added Tax is considered five percent of monies that people spend, not earn.It is a consumption tax that has been embraced by many countries and it has proven very easy to administer and difficult to evade as it is been added from source and paid to the Federal Board of Internal Revenue periodically by the supplies of goods and services . In the case of Imported goods, this tax is paid directly to the Federal Board of Internal Revenue at the same time as import duties. The Value Added Tax is governed by the Value Added Tax Act of 2004.
This is tax charged on the money realized from selling of a property by a taxpayer. The tax is ten percent of chargeable gain proprietary right, or sale or lease of property.
Capital gains tax is tailored for increasing governmental revenue by deducting certain specified amount from gains accruing to any person on disposal of assets. The definition of disposal covers lease, transfer, sales , assignment, and compulsory acquisition. The tax is not easy to access like the value added tax because the person usually ends up evading it because in most cases, the person who has bought the asset willing to perfect his title will be made to pay instead of the recipient.
Also, the process of determining chargeable gain as proper records are not kept or records are falsified to reduce the tax burden. This tax is regulated by the capital Gains Tax Act 2004.
This evolved from the idea of private sector participation in the finding of education in Nigeria. The tax is two percent of the rehabilitation, restoration and consolidation of higher education. The tax is payable to the Federal Board of Inland Revenue. The problem encountered is that how accessible profit determined and that companies are in opposition to the tax.
Personal Income Tax
The tax is on the Pay As You Earn (PAYE) basis, that is the tax payable depends on how much is earned by the tax payer. The tax is easy to collect among civil servants as it is deducted from source by the appropriate authorities unlike the private sector who will have to file returns of each tax payer which in most cases is not done. The tax payer is payable to both the Federal Board of Inland Revenue and the state Board of Internal Revenue depending on the sector in which the tax payer is employed. The tax is regulated by the Personal Income Tax Act 2004.
Company Income Tax
This is thirty percent of the profit of a company accruing in, derived from, brought into or received in Nigeria. This tax is payable to the Federal Tax of Inland Revenue. The rational behind the tax is to levy tax on the company which is juristic person as different from its shareholders as the company becomes a distinct legal entity at incorporation. The tax is regulated by the Companies Income tax Act 2004.