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Table of Content iv
1.2 Background of the Study
1.3 Statement of Problem
1.4 Objective of the Study
1.5 Significance of the Study
1.6 Research Questions
1.7 Hypothesis Formulation
1.8 Scope and Limitation of the Study
1.9 Definition of Terms Used
2.0 Literature Review
2.1 Concept of Taxation
2.2 Principles or Attributes of a Good, Efficient Tax System
2.3 Reason for Imposition of Tax by Government
2.4 Administration of Income Tax-Return Assessment
of and Recovery of Tax
2.5.3 Time Limit For Filing Tax Returns, Audited Account
2.5.4 Penalty for Non-Compliance
2.5.5 Incentive Bonus for Aerly Filing of Tax
2.5.6 Other Returns
2.6 Assessment Procedures
2.6.2 Tax Authority and Returns Examination
2.6.3 Best- Of- Judgement Assessment
2.6.4 Back Duty Assessment
2.6.5 Additional Assessment
2.6.6 Service of Notice of Assessment
2.6.7 Objection to Assessment
2.6.8 Can A Taxpayer Appeal?
2.6.9 Final and Conclusive Assessment
2.7 Collection Procedure
2.7.1 Provisional Tax
2.7.2 Time Limit for Paying Tax
2.7.3 Currency of Payment of Tax
2.7.4 Penalty for Late Payment of Tax
2.8 Enforcement Procedure
2.9 How Database Management System Can
Help Tax Administration (Collection)
2.10 Structure of Tax Administration
2.11 Factors That Enhance Efficiency of Tax Administration
2.12 Multiple Tax
2.12.1 Nature of Multiple Tax
2.12.2 Types of Multiple Tax
2.12.3 Methods of Collection of Multiple Tax
2.12.4 Federal Government’s Solution To Problem of
Multiplicity of Tax
2.12.5 Assessment and Collection by the three tiers of Government
2.12.5 Assessment and Collection of Tax by the Federal Government
2.12.6 Taxes to be Collected by the Federal Government
2.12.7 Assessment and Collection of Tax by the State Government
2.12.8 Taxes and Levies to be Collected by the State Government
2.12.9 Assessment and Collection of Tax by the Local Government
2.12.10 Taxes and Levies to be Collected by the Local
3.0 Research Methodology and Design
3.1 Sources of Data
3.2 Research Approach
3.3 Research Design
3.4 Identification of Population and Sample Data
3.5 Instruments of the Study
3.8 Questionnaire Design And Assumption
3.9 Reasons for Using Questionnaire
4.0 Analysis Interpretation of Data
4.1 Summary of Data Collected
4.2 Testing And Interpretation of Hypothesis
5.0 Summary, Findings, Conclusion And
5.1 Findings of the Study
1.1 BACKGROUND TO THE STUDY
A society comprises of the ruling authority and the ruled subjects. As a social
contract them the ruler is expected to perform same roles, be it administrative,
social, economic, political, cultural or religious in return. The ruled subjects
that enjoy the benefits from those roles performance are to give something for
keeping working this could be in cash or kind.
In light or the above, every constituted human society. Primitive or modern,
needs fund this necessitates tax and taxation. Historical reviews of man and
society review that tax exists as major source of revenue for government.
More so all the religions in the world today encourage such payment.The
Nigerian tax system is a set of rules and regulations and the organs
of tax administration that interact with each other to generate
revenue for government. It is indisputable that in development
countries tax has not had the desired effect on various aspects of
the economy/economic level. Also, effective tax assessment and
collection have not reached an appreciable level in developing
countries. This may either be due to the inadequate methods
adopted or precisely as a result of inadequate, technical know-how
on the rent of tax boards/authority.Taxation is a dynamic subject,
which grows with the constant change in the economic
environment in which it operates, hence the need to underscore the
importance of an effective tax system in a developing economy.
Thus, it has been stated that the importance of an effective tax
system lies primarily in its ability to raise capital formation for the
public sector, for development and growth of the economy and also
in assisting in the regulation of the consumption pattern resulting
in economic stabilization and effective re-distribution of income.
Today, taxes have roles to play especially in the economic and social
policy of any government.
Indeed, tax is a major source of revenue to the government at
various levels to provide different infrastructure. Government has
so many ways of raising funds or revenue for the purpose of
meeting its expenditure; one of the direct ways is “TAXATION”. As
with most source of revenue, taxation plays an important role in
the budgetary policy of a country and government ensures the
The Nigerian tax system is a set of rules and regulations and the organs of tax
administration that interact with each other to generate revenue for
government. It is indisputable that in development countries tax has not had
the desired effect on various aspects of the economy/economic level. Also,
effective tax assessment and collection have not reached an appreciable level
in developing countries. This may either be due to the inadequate methods
adopted or precisely as a result of inadequate, technical know-how on the rent
of tax boards/authority.
Taxation is a dynamic subject, which grows with the constant change in the
economic environment in which it operates, hence the need to underscore the
importance of an effective tax system in a developing economy. Thus, it has
been stated that the importance of an effective tax system lies primarily in its
ability to raise capital formation for the public sector, for development and
growth of the economy and also in assisting in the regulation of the
consumption pattern resulting in economic stabilization and effective redistribution
of income. Today, taxes have roles to play especially in the
economic and social policy of any government.
Indeed, tax is a major source of revenue to the government at various levels to
provide different infrastructure. Government has so many ways of raising
funds or revenue for the purpose of meeting its expenditure; one of the direct
ways is “TAXATION”. As with most source of revenue, taxation plays an
important role in the budgetary policy of a country and government ensures
the workability of reliable tax collection and assessment machinery at its
disposal. However, the problem of tax assessment and collection is universal
but developing countries are more plagued than their developed counterparts
as a result of non-compliance, ignorance, illiteracy, poverty and inefficient
collection machinery. The problem of tax assessment and collection is grossly
affected and undermined by high rate of tax avoidance and evasion.
I will therefore want to use this research work to highlight the importance of
an effective and well-structured tax system in enhancing economic growth and
development in the Nigerian economic sectors as a whole. Invariably,
adequate funding and provision of basic infrastructures are necessary tools for
a developing economy and this is directly related to adequate sources of
revenue for Nigerian economy, if the dream is to be achieved.
1.2 BACKGROUND OF THE STUDY
Taxation has been with us from time immemorial when organized living
started. Prior to the advent of Colonial rule, there has been a particular system
of direct taxation except for the fact that the system varied from one part of
what is presently called Nigeria to the other.
According to Lawal (2004), the payment of tax either was in kind or cash,
first to the local head and later on to a form of an organized government. This
has been known as a direct tax and it has been with us and developed over the
years. The development of tax is in three (3) stages namely.
The pre-Colonial period
The Colonial period
Past – Colonial period
At these stages, various tax acts were promulgated which includes:
Personal Income Tax Act
Capital Transfer Income Tax Act
Capital Gain Tax Act
Company Income Tax Act.
In Nigeria, a number of principles have been developed on taxation over the
years. Some of the principles are:
Principle of Certainty
Principle of Neutrality
Principle of Equity
Principle of Administrative Efficiency
Principle of Flexibility
Principle of Convenience.
1.3. STATEMENT OF PROBLEMS
In the course of carrying out this research project, the problem of the study
“An Appraisal of an Effective Tax system in a Growing Economy” is
(i) That there is no effective tax assessment and collection system
(ii) What are the effects of composition of these taxes and their
contribution to the total revenue of Nigeria?
(iii) That the procedures or processes adopted in assessing and
administering taxes are weak, obsolete and outdated.
(iv) What are the requirements in sustaining a good tax system?
1.4. OBJECTIVES OF THE STUDY
The main purposes of this research study are:
(i) To find out the effectiveness and efficiency of a tax system in a
(ii) To analyze the effects of an effective Tax assessment and collection
system/procedures on the economy,
(iii) To access the composition of these taxes and their contribution to the
total revenue of Nigeria.
(iv) The study will also lend to review the contents of professional
pronouncements as contained in various accounting standards and legal
requirements for taxation in Nigeria and assessing the extent to which
these are applied by the tax authority in terms of default.
(v) To identify the basic requirement in sustaining an effective tax system.
(vi) To ascertain the fundamental causes of inefficient tax system.
(vii) Attempt will be made to highlight the problems in a developing
(viii) To contribute an unbiased opinion which can benefit the government in
their policy making?
1.5. SIGNIFICANCE OF THE STUDY
In the course of carrying out this study, the followings were critically
evaluated as the significance of the study;
(i) It will help to establish the importance of an
effective tax system in a growing economy
(ii) It will assist to buttress an effective tax system.
It will help to explain the concept of effective tax system. It will be useful in
the understanding of various problems inherent in the assessment and
(iii) It will ensure that information provided from an
effective tax system will be beneficial to the growth and development of the
(iv) It will give analytical features and attributes of
an effective or a reliable tax system.
1.6. RESEARCH QUESTIONS
The followingare the questions pose in the course of this study.
(a) Why is there laxity in tax collection and assessment in Nigeria?
(b) What are the effects of non-efficient or ineffective tax assessment and
collection in Nigeria?
(c) Which areas need improvement to enhance efficiency and effectiveness in tax
(d) Will an efficient or reliable tax collection system enhance economic growth?
(e) Which areas are yet untaxed?
(f) How can the new policy or suggested development be introduced to
(g) How can a reliable or effective tax system affect developing economy?
(h) Who bears the final burden of tax imposed by government?
1.7. HYPOTHESIS FORMULATION
Hypothesis can simply be defined as a basis for drawing conclusion. It is equally
meant for determining whether a process is working properly or not. It ensures that
the researcher is certain that the correct conclusion is reached based on the research
Hypothesis will therefore be formulated based on the findings in the course of this
research and when tested, it will confirm the extent at which an effective tax system
has had an impact on the growing economy.
Null Hypothesis (Ho)
Alternative Hypothesis (H1)
NULL HYPOTHESIS (Ho)
This is the hypothesis that represents the conclusion we draw, if the processes were
operating properly and it is questionable. It is against this backdrop that hypotheses
are tested. The hypotheses to be tested are as follows:
H0: There is a significant relationship between an effective tax system and growth
in a developing economy like that of Nigeria.
H1: There is no significant relationship between an effective tax system and
growth in a developing economy like that of Nigeria’s.
H0: There is an effective and reliable tax system in Nigeria.
H1: There is no effective and reliable tax system in Nigeria.
H0: Returns on/from tax are used to develop Nigerian economy.
H1: Returns on/from tax are not used to develop Nigerian economy.
1.8 SCOPE AND LIMITATION OF THE STUDY
The areas that fall within the sample frame are the Federal Board of Inland Revenue
(FBIR), the Joint Tax Board (JTB) and the office of the Minister of Finance. Tax
payers also fall within the sample frame. However, since the above office covers all
the tax officers in Nigeria, then it means that all taxpayers are also involved for
effective control, reliability and consistency.
(i) Old Methods of recording data that affect assessment and collection
(ii) Inability to have access to some records in the tax office of the Federal
Inland Revenue Services.
(iii) Lack of qualified personnel in the various tax offices.
(iv) Lack of up-to-date information in revenue mobilization derived and
1.9. DEFINITION OF TERMS USED
– Taxation: A compulsory payment/levy made by each eligible citizen
towards the expenditures of the State.
– COMPULSORY LEVY: This means that all the citizens of the country
are legally bound to pay the taxes imposed on them by the State.
– REVENUE: The amount of money raised by the government from
– DIRECT TAXES: These are taxes levied
– On the income of individuals and business firm and which is actually
paid by the person on whom/which it is legally imposed.
– EXCISE DUTY: Tax levied on locally manufactured goods/products.
– PROGRESSIVE TAX: This form of tax is graduated as it applies
higher rate of tax as the income increases.
– REGRESSIVE TAX: This is a form of tax under which the tax payable
decreases as the tax payer’s income increases.
– PROPORTIONAL TAX: This form of tax assesses a tax payer to tax
at a flat rate on his total assessable income.
– WITHOLDING TAX: This is the deduction of tax at source from
payment made to a taxable person for the supply of goods and services.
– TAX AVOIDANCE: This is an endeavor on the part of the tax payment
to reduce his tax liabilities by taking advantages of the specific provisions of
– TAX EVASION: This arises when a taxpayer willfully fails to report a
source of income or seek to reduce his tax liability by understanding a source
of income to the tax authority.
– INFANT INDUSTRIES: These are the newly formed or established
– CAPITAL ALLOWANCE: It is an allowance or amount granted to a
business which has incurred qualifying capital expenditure during the year of
assessment for the purpose of the business.
– TRANSITIONAL PROVISION: As a result of the change in mode of
computation of capita allowance from reducing balance to straight line method,
a transitional provision was in place.
– VALUE ADDED TAX (VAT): This can be described as tax on
spending. It is borne by the final consumer.
– EXPORT DUTY: These are taxes imposed on goods exported into the
– IMPORT DUTY: These are taxes imposed or levied on goods
imported into the Country.
– CAPITAL GAIN TAX: This can be described as tax on gain accruing
on disposal of assets situated within or outside Nigeria.
– TRANSFER OF VALUE: This represents any disposition by which the value
of person’s estate is reduced.
1.10 Historical Background Of The Case Study
Ogun state internal revenue service is a state revenue agency that derives its
from personal existence from Personal Income Tax Act of the federation 2004,
which stipulates the establishment of the board of internal revenue by all the
states of the federation.
The Ogun state Edict of 1996 established the board to carry out the functions
of assessing, collecting and accounting for taxes, levies and fees with the
additional responsibility to tax policy formation for the state.
In April2004, the governor of the state (Ogun) gave the Board the authority to
implement the said edict of 1996 in its term of organizational structure and
improve revenue generation.
Its aims are:
Efficient service delivery
Good public image
Accountability and transparency
Best tax practice
Effective tax payer education/public enlightenment
Friendly tax environment for voluntary tax compliance
Adequate checks and balance to block all revenue leakages