Title: Importance of Company Income Tax in Nigeria
The importance of corporate income tax as a primary and a major source generating revenues for government funds cannot be overemphasized. Okezie (2003) agrees that company income taxes are necessary to raise federal revenues. In the 2006 US federal economy, for instance, company income tax accounted for 14.6 percent of all its revenues and 2.7 percent of GDP. Likewise, Buettness and Fuest (2010) believe that corporate income taxes could also be used for as automatic stabilizer for economic demand and capital market restrictions. Taxes have been classified into direct and indirect taxes. Direct taxes are those which both the impact and the final burden is borne by the payer while the indirect taxes, on the other hand, are those which burden are expected to be shifted further down to third parties.
Nigerian tax policy for companies is regulated by the Companies Income Tax Act of 1979. The Act is contained in “Chapter 60, of the Federation of Nigeria (LFN) 1990 and is amended by subsequent Decrees (ACTS) including the Finance (Miscellaneous Provisions) of 1993 and other subsequent amendments thereto. The administration of CITA rests on the shoulders of the Federal Board of Inland Revenue which has the following powers and duties:
I. It is responsible for the administration of the Companies Income Tax Act and Decree. It assesses and collects the necessary company taxes.
2. It can sue and be sued in its official name
3. It can acquire, hold or dispose any property held as security and account for the proceeds to the Minister of Finance.
4. It may authorize any person within or outside Nigeria to perform or exercise any of its powers except those stated under the first schedule to the Act.
5. It may (with consent from Finance Minister) appoint the Joint Tax Board to perform or exercise any of its duties or powers. (An Evaluation Of The Relevance Of Pioneer Income Tax Relief As An Alternative Investment To Companies In Nigeria, The Nigerian Observer, http://www.nigerianobservernews.com/3122008/features/features3.html, retrieved 24 April, 2011.)” Company Income tax rate is 30 percent which was effected since January 1, 1996. (Taxes in Nigeria, Nigeria Exchange Business, http://www.ngex.com/business/public/newsinfo.php?nid=2, retrieved 24 April 2011).” Nigeria has a population of over a hundred and forty (140) million where half are assumed to be in the working bracket; few are engaged in salaried employment and; the majority does businesses ranging from small scale trading, farming and other crafts, partnership business and even small and large scale companies. This said, the federal government’s potential in income generation deserves emphasis.
Although Nigeria has a promising feat of revenue income from corporate taxes, company income tax seems to be insignificant as a source of government fund. An article of Hadaycolar1 (2008) asserts that taxation in Nigeria had a lot of drawbacks especially in the areas of management imposition and efficiency administration. Area problems presented were based on the position of Lawal (1982) in Haydaycolar (2008) which ascertains that tax collection in Nigeria is promoted by the lack of adequate staff to carry tax collection, government mismanagement of tax collection which leads to reluctance of business taxpayers to comply with the tax policies, apparent bribery and corruption in the government offices, poor accounting record, substandard facilities in tax systems, and tax evasion and delinquency from taxpayers.
Business entities in Nigeria are very successful in tax evasion. In fact, company income tax is often avoided and even evaded through variety of means. Normally, businesses avoid taxes in the area of the form of business ownership wherein an investor establishes a business such that tax liability is reduced to the minimum. This problem is identifiable with the companies assessed to tax on profit at a rate (currently 30%) before dividends are distributed to owners. For instance, two businesses with similar investment, sales and profit potentials may pay widely different income taxes because they have different ownership forms. This gives advantage to the bigger and strong business to pay lower income taxes because it is not incorporated. Because of this advantage also, investors often choose to establish either a partnership or sole proprietorship although the nature of their business indicates that it should be a corporation, all due to tax advantage. Thus, most of Nigerian companies, either in small-scale or medium-scale areas register their businesses in partnership and proprietorship to evade the higher company income tax rate for corporations. After these problems are realized, the federal government of Nigeria would eventually hold on to its main objective of setting up income taxes to help finance government projects and infrastructures.
References: 1. An Evaluation Of The Relevance Of Pioneer Income Tax Relief As An Alternative Investment To Companies In Nigeria, The Nigerian Observer, http://www.nigerianobservernews.com/3122008/features/features3.html, retrieved 24 April, 2011.
2. Buettner, Thiess and Clemens Fuest. (2010). The role of the corporate income tax as an automatic stabilizer. International tax and Public Finance, Volume 17, Number 6, 686-69. Retrieved from http://www.springerlink.com/content/k7043w4045733347/.
3. Hadaycolar1, 2008. The Problems and Prospects of Tax Collection, Discovering, http://bizcovering.com/accounting/the-problems-and-prospects-of-tax-collection, retrieved 24 April 2011.
4. Taxes in Nigeria, Nigeria Exchange Business, http://www.ngex.com/business/public/newsinfo.php?nid=2, retrieved 24 April 2011.
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