BusinessDay 24 May 2017

Wednesday 24 May 2017
Tax Digest
C002D5556
BUSINESS DAY
17
Nigeria’s economy seen hindering
level of tax compliance
IHEANYI NWACHUKWU
The dwindling
state of Nigerian
economy and
the present economic
recession
have hindered the level of
tax compliance by individuals
and organizations, said
Ntiedo Umoren, immediate
past dean of the Faculty of
Business Administration,
University of Uyo.
The expert believes that
when tax is managed properly,
the economy grows at
an acceptable pace, while
social programmes that
benefit the poor receive
boosts to enhance quality
living conditions for all.
Umoren disclosed this
in a paper titled “alignment
of appropriate tax policy
options with economic realities:
the essence of business
oriented and timely
intervention”, he presented
at the just concluded 19th
annual tax conference of the
Chartered Institute of Taxation
of Nigeria (CITN) held
in Abeokuta, Ogun State
with the theme “Taxation
and Governance: The Social
Contract Imperatives”.
According to him,
“Where the income of individuals
and organisations
are negatively affected by
external factors, tax evasion
becomes a normal practice.”
In the paper he presented,
Umoren attempted to
examine how a business oriented
approach to taxation
via qualitative tax policies
can enhance an improved
socio-economic environment
for the benefit of the
people. He discussed current
tax policy options in
Nigeria.
“This practice affects
government revenue and
the provision of infrastructures.
This also impairs
government from the fulfil-
ment of social contract to
its citizens. Therefore, to establish
the link between tax
policies, socio-economic
realities, there is the need
to revisit the fundamental
principles of taxation as
advanced by Adam Smith,”
Umoren noted.
The professor opined
that there can be no meaningful
tax policy if the four
doctrines (Canon of Equality,
Canon of Certainty,
Canon of Economy, and
Canon of Convenience) are
not satisfied.
“Where taxes are assessed
without any input
from the taxpayer, it negates
the provisions of the
basic cannon of equality”,
he added.
He had noted that as a
critical component of the
global governance structure,
taxes provide governments
with a manipulative
tool for national development.
“It does not matter
whether the government
in power is conservative
or liberal, it surely must
tinker with taxes in order
to develop a budget that
matches that government’s
developmental agenda”.
“We have argued elsewhere
(Umoren, 2015) that
taxes drive economic progress,
and provide social
stability.
There are ample theoretical
and empirical evidence
in the literature indicating
that a strong historical,
causal, and symptomatic
relationship exists between
the sustainability of effective
taxation, good governance
and social contract.
However, in spite of the
huge benefits derivable
from taxation which is indeed
a social contract with
the people, the scarcity of
money in the economy usually
necessitates tax evasion
among individuals
and organizations”, Umoren
stated.
Psychology of taxpayers and voluntary tax compliance (1)
FRANK UDEMBA JACOBS,
MAN PRESIDENT
Traditional economics
postulated that
voluntary tax compliance
is determined by
punitive measures in Tax laws
aimed at deterring defaults.
However, even as there have
been many cases where tax
defaulters have been severely
punished by way of frozen
accounts, seized landed property
and at the extreme jail
terms sentences; non-taxcompliance
persists. It therefore
follows that by implication
punitive measures have
failed to completely entrench
voluntary compliance among
taxpayers.
To reiterate, the focus of
this paper is to examine the
influence of psychological
factors on behaviour of taxpayers
for compliance. Modern
explanation of factors
influencing tax compliance is
predicated on the psychological
perception of the taxpayers.
This perception borders more
on Political Government Accountability.
Damayanthi in
his study on “Psychological
Factors that affect Tax Compliance”
published in 2015 noted
that the perception of political
government accountability is
categorized into social norms,
public spending, perceived
fairness on tax system and
moral tax.
Social Norms
Sigala et al. in their study
on “Tax Communication and
Social Influence: Evidence
from a British sample” published
in 1999 noted that social
norms are one of the most
important predictors of Tax
compliance. According to the
study, by approval or disapproval,
norm-following and
norm-breaking are accepted
in a society and individual
behaviour is adjusted by the
norms. There are two major
levels at which social norms
are built and they include Personal
and Society levels. These
norms are important determinants
of tax compliance and
are behavioral standards.
Personal Norm presupposes
that moral reasoning,
values, religious beliefs, good
upbringing as well as community
values ensure voluntary
tax compliance. Standards
of behaviours such as honest
personality, norm-dependency,
or religious beliefs usually
correlate with high Tax ethics
and willingness to comply.
Society norms also determine
the level of voluntary
tax compliance. Relationship
between Tax payer and
authorities as well as the Tax
legislation represent the integrated
cultural standards of
societal norms. When a mutually
beneficial understanding
exists between the Tax payers
and the authorities, compliance
is achieved effortlessly.
This can be related to the
impasse currently brewing
the Federal Inland Revenue
Service and manufacturers
who woke up to receive notices
of Property Valuation and Assessment
without any prior
discussion and explanation.
Of course manufacturers necessarily
and justifiably kicked
against it
Fairness and Equity
Fairness and equity of a
tax system also impacts upon
compliance levels. Perceived
fairness of taxation has been
found to strongly co-vary with
compliance. Unfairness serves
as rationalization and justification
for tax non-compliance.
A good tax system must be
designed on the basis of an
appropriate set of principles,
such as equity or fairness and
certainty. The most explicable
requirement of equity or fairness
is to treat equal people
in equal circumstances in an
equal way.
Fair treatment of taxpayers
and a culture of mutual
understanding between tax
authorities and taxpayers improve
trust in authorities and
enhance compliance.
Tax Morale
Tax morale is defined as the
collective attitudes of a group
or population to comply with
tax law. Tax morale is linked
to the motivational concept
of civic duty. Tax morale and
compliance is higher in countries
characterized by high
control of corruption, low size
of bureaucracy and political
stability. Richardson in his
“Preliminary study of the impact
of tax fairness perception
dimensions on tax compliance
behaviour in Australia”
published in 2008 noted that
low trust in tax authorities are
correlated with high levels
of tax evasion. Damayanthi
also noted that ‘tax morale’
has higher legitimacy for political
institutions that has led
to higher tax morale values.
Compliance is therefore highest
in countries characterized
by high control of corruption
and low size of bureaucracy.
Generally, the tax attitude
of taxpayers depends to a great
extent on the ways tax revenue
are collected and expended.
It is found that if taxpayers
perceive that the government
is expending on something
considered unnecessary or
unbeneficial to the development
of the country, taxpayers
tend to avoid and attempt to
evade tax. Taxpayer’s perceptions
are potentially important
in determining their compliance
behaviours. In summary,
the government should
prudently spend taxpayers’
money because the way in
which the government spends
the money influences levels of
compliance.
Overview of Tax Performance
in Nigeria
Tax plays a crucial role
in the development of any
economy in the context of
revenue generation and tools
for economic stabilization. As
a revenue generator, it provides
the Government with the
needed funds to offer welfare
services to the citizenry. Taxes
and tax systems are, therefore,
central to any effort to build a
nation especially in the developing
world.
The key components of any
tax system are tax policies and
tax administration.
This is an extract from
the paper he presented at the
just concluded 19th annual
tax conference of the Chartered
Institute of Taxation of
Nigeria (CITN)