Taxes are established by law in Nigeria. Such tax must have been passed into law through enactment of relevant statute (Act, By-law, decree among others). The tax law establishes the administrative body and specify its tax jurisdiction. Tax structure in Nigeria is tailored towards Nigerian governance hierarchy (Federal, State and Local Government).
Nigerian Tax Laws
Taxes are established by law in Nigeria. By implication, such tax must have been passed into law through enactment of relevant statute (Act, By-law, decree among others). The tax law establishes the administrative body and specify its tax jurisdiction. Tax laws impose tax at a predetermined rate on specified income, profit, gain, and value of transactions of taxable persons. These laws are amended from time to time in view of meeting present economic situation, complexity of financial transaction, welfare, and social needs.
Structure of Nigerian Tax System
Tax structure in Nigeria is tailored towards Nigerian governance hierarchy (Federal, State and Local Government). Nigeria operates a decentralized tax system where each level of government is independently responsible for the administration of taxes within its jurisdiction. Nigeria generate revenue to fund government expenditure through a pool of taxes from each tier of government. A body is established for taxes due to each tier of government.
Federal Inland Revenue Service (FIRS) is the body that is responsible for the administration of taxes that are due to the federal government. The various state boards of internal revenue administer taxes that are due to state governments while the local government revenue committees administer taxes that are due to local governments. However, joint tax board advise, harmonize double taxation, and propose amendment.
Companies Income Tax, Education Tax, Stamp Duties, Custom Duties, Excise Duties, Withholding Tax and Value Added Tax are the major taxes administered by Federal Inland Revenue Service, the State Board of Internal Revenue majorly administer Personal Income Tax and Withholding Tax, while Local Government majorly administer levies.
Basis of Tax Administration
Taxes are established by tax statutes which form the basis of tax administration. These tax statutes usually specify the tax rate, due date, basis of assessment, offences, and penalties of the identified taxes.
Tax administration involves the registration, assessment, returns, collection, compliance monitoring, compliance enforcement, sanction, taxpayer’s education and awareness and any other activity that can improve the efficiency and effectiveness of taxation.
- Registration of Taxpayer: Taxpayer registration is done by submitting relevant information as required by relevant tax authority. Taxpayer registration usually precede tax assessment, collection, compliance monitoring and enforcement. Federal Inland Revenue Service (FIRS) and State Board of Internal Revenue register taxpayer for taxes within their jurisdiction.
- Assessment of Taxpayers: Tax authorities assess taxpayers to taxes administered by them and they can also reassess tax return rendered by taxpayers. The basis of assessing tax (tax rate, basis period, and tax deduction) are stipulated in tax statute.
- Returns: Tax authorities usually require taxpayer to file information as required by relevant tax statute and as further required with them. This is usually on a periodic basis (annually, monthly) or as the need arises.
- Tax Collection: Tax collection is the next step after assessment either the taxpayer self-assess himself or is assessed/reassessed by tax authority. Mode of tax remittance is usually determined by relevant tax authority.
- Compliance Monitoring: Tax authorities usually monitor tax compliance of taxpayers by assessing their adherence to the provisions of relevant tax statute. This is usually done by tax authorities at their respective offices by checking taxpayer’s file and/or visit taxpayer to obtain further relevant information to complement information at their disposal to assess taxpayer’s compliance with the provision of relevant tax statute.
- Compliance Enforcement: Tax authorities compliance can be enforced on taxpayer.
Sanction: Contravention with provision of relevant tax statute may lead to penalty or conviction. Contravention include failure to furnish required information or failure to keep required record, or any other non-compliance with relevant provision of required tax statute.
- Tax education and awareness: This is usually done through issuance of tax circulars and other publications to aid taxpayer’s understanding of tax statutes.