CHAPTER ONE
1.0
INTRODUCTION
1.01 GENERAL DESCRIPTION OF STUDY
Tax
is a mandatory levy made by the government on the incomes of persons (Natural
and Artificial) living or deemed to be living in a place under the control of
the government it is a way of making persons, individuals and companies
contribute money through legalized levies, according to the levels of their
incomes to a common fund of the government in the purpose of running the
affairs of the state. Tax can also mean the transfer of resources from the
private sector to the public sector for the purpose of accomplishing some of
the nation’s economic and social goals.
The concept of taxation has been in
existence for so long in the world. For instance, Abraham paid tax (tithe)
(gen.14:20). It can also be traced that Moslems paid the: Zakat” tax which was
prescribed in the Holy Qunan and the levied for religious, education and
charity purpose. There are many forms of taxation in Nigeria dating back from
the days of our fore fathers when communities taxed the in themselves through
commercial labor to execute community project and supervision of external aggression.
However, the first tax law was
introduced in 1904, during Lord Lupard’s colonial law it was called native
revenue proclamation. The first company tax law was introduced 1936 which
imposed for the first time, a tax especially on companies income at the rate of
12.5%.
Another ordinance was introduced in
1940 this was the companies tax ordinance of 1936 to replace that of 1939. In
1943 two tax ordinances were enacted to replace the 1940 tax ordinance. They
were direct tax ordinance and income tax ordinance of 1943.
There was a major amendment to the
income tax ordinance of 1943 in 1949, which adjusted the rate of companies’
income tax upwards to 40%. The Reisman commission of 1957 gave some
recommendations which formed the basis for the income tax management Act (ITMA),
federal income tax act (FI TA) and companies income tax act (CI TA). These laws
were passed by the federal government in 1961 after independence of Nigerian in
1960. Other legislations that imposed tax on individual and corporate bodies in
the country include the industrial development Act (income tax relief) 1971,
the capital gains tax Act (CG TA) 1967, capital transfer tax Act (CTA) 1979,
the income tax management Act (ITMA) came into full force on (1st April
1981. The Act was formulated for two purposes firstly) to provide a model
income tax for ascertaining income table in Nigeria. Secondly, to give effect
to the provision of the constitution and to prevent double taxation. It was
promulgated for the same purpose as CITA except that CTA is limited to
companies with artificial personalities. The income tax is in the exclusion
power of the federal government; the federal Inland Revenue Service (FIRS)
That
is the operational arm of the federal Board of internal revenue service
(FBIRS).
Another major amendment of the tax
Act is the personal income tax
(Amendment) Act 2011, which was passed by the other National Assembly on the 5th
of December, 2011. The new Act provided more disposable income to the lower
income earners, following the amendments to the income tax table and adjustment
in the applicable income tax table and adjustment in the applicable income tax
incremental limits which brings it in line with current income levels. The Act
simplified the compliance process by consolidating the relief and allowances
stipulated in the Act and lowering the burden on low income earners as well as
widening the tax base by brings in the huge number of potential tax payers,
especially the informal sector into the tax net.
Tax
can be classified into direct and indirect taxes. The direct tax comprise of
directly imposed taxes on the income of individuals, properties, companies and
other corporate bodies. Some examples of direct taxes are personal income tax
which is on the wealth of individuals, properties, companies and other
corporate bodies. Some example of direct tax are personal income tax which is
on the wealth of individuals, company tax levied on the profit of corporate
business etc. indirect taxes are levied on goods and services and the burden or
incidence of the tax is finally borne by the consumer of such goods and
services. Example of indirect taxes includes value added tax (VAT), Excise
duties, pools betting tax etc.
In
developing countries like ours, various government rely so much on taxation as
avenue to encourage capital formation for economic development and mobilizing
adequate fund to finance investment both in manufacturing sectors of the
economy and increasing social amenities. Tax reduces the net return on investment
and decreases the balance available for private savings.
For
taxes to properly administered, tax incentive were introduce this implies that
for each individual, company and other taxable ventures, there is also a relief
which is form of tax incentives. The need for tax incentives was generally
initiated by the citizen after due consideration by the federal government. Tax
incentives are sectioned by the federal government through the administrative
machinery, that is, federal Board of inland Revenue taking in structure from
the highest tax policy making organ of government, that is, the joint Tax Board
(JTB) and goes ahead to effect it in its computations. This reduction of tax or
tax relief is known as tax incentives.
1.02. HISTORY OF CASE STUDY/ORGANIZATION
Mobil
oil Nigeria PLC was incorporated in 1951 and started operation 1955. It made
its first successful drill in 1956 at Oloibiri, Delta State, and first shipment
of oil in 1958.
Mobil
has a joint venture with the Nigeria national petroleum corporation, where it
own 40 percent operations in shallow waters of Akwa Ibom State and average
production of 632,000 bpd. It also
held a 50pecnt interest in a production sharing contract for a deep water
further offshore operation.
Mobil
Nigeria is also in the business of marketing petroleum products, lease of
buildings and manufacture of inebriants. Mobil was incorporated in 1981 but got
listed in the stock exchange marketing on 24th April, 1979. It
presently has total outstanding shares of 300,496,052. Mobil oil Nigeria (MON)
operates with more them 200 retail inflects located in all the 36 state of
Nigeria and has its head office located at Lekki express way, Victoria Island
Lagos. Mobil Oil Nigeria is presently a subsidiary of Exxon Mobil
incorporation.
The
company ends its accounting years on 31st December each year.
1.03 STATEMENT OF THE PROBLEM
The
economic recession which crippled most world economies resulted to a search by
many countries and economists for ways of revitalizing economic and social
activities and making lives of citizens worth living. This research is therefore
stimulated by the need to improve the Nigerian economy through supports and
incentives to individuals and companies. With acknowledgement to the fact that
there is an economic down-turn which has led to business failures inflation and
a resultant decline in government revenue generation. The researcher also holds
to the fact that excessive or under tax on the income of individuals and
companies will lead to persistent tax avoidance and consequently, a decline in
government revenue. The research therefore, evaluates tax incentives as a
fiscal policy for revitalizing the economy.
1.04 OBJECTIVE THE STUDY
The
aim of this study is to determine the extent to which tax incentives as a
fiscal measure has contributed in redirecting investment of individuals and
corporate bodies and in revitalizing the economy as a whole. Some of the major objectives
of this study are:
i.
To find out the various forms of tax
incentives in Nigeria.
ii.
To ascertain the effect of these
incentives on the total revenue of the federal government.
iii.
To find out the group of individuals,
companies and other enterprises to whom tax incentives are meant for.
iv.
To find out the effect of these tax
incentives on the income of individuals and profit of companies
v.
To determine the overall effect of these
incentives on the economic development of Nigeria.
1.05 RELEVANT
RESEARCH QUESTIONS
i. Is
your company aware of the existence of tax incentives and do they claim these
existing tax incentives applicable to them?
ii.
Do the tax incentive guarantee prompt payment of taxes?
iii.
Is there any maladministration in government granting of tax incentives?
Iv.
Do tax incentives stimulate individuals and companies to new investments?.
v.
Are the existing tax incents incentives for investment?
vi.
Have the tax incentives created significant impact on company’s consumer and
other investors.
1.06 STATEMENT OF RESEARCH HYPOTHESIS
Ho: Tax incentives are not
effective devices for economic development.
Hi: Tax incentives are effective devices
for economic development.
Ho: Tax incentives do hoi reduce government revenue in
Nigeria.
Hi: Tax incentives reduce government revenue
in Nigeria
Ho: Tax incentives are not effectively
carried out by the government.
Hi: Tax incentives are effectively
carried out by the government.
1.07 DEFINITION (SCOPE) OF THE STUDY
It
could have been ideal to consider the various forms of tax incentives and
administration in many countries in the course of this study, but due to some
constraints like time, limited resources (financial) and hash weather in some
countries, the researcher focuses attention on the impact of tax incentive on
Nigeria economy with Mobil Oil Nigeria plc (MON) as a case study. Again, the
uncompromised attitude of the staff of the firm especially for the fear of
disclosing the potential weakness that clouds their firm was another constraint
to the research. However, the scope of the research would be limited to:
a. Mobil
Oil Nigeria PLC, Port-Harcourt
b. Board
of internal revenue zonal office, Aba (Ariaria tax office)
1.08 ASSUMPTIONS
For
the purpose of this study, the researcher has made some assumptions which
include:
Ø That
the nature of business done by Mobil Oil Nigeria Plc is such that attracts tax
and tax incentives.
Ø That
Mobil oil Nigeria Plc is aware of the various tax incentives in its industry
Ø That
Mobil oil claim the tax incentives granted to it
Ø That
tax incentives has measurable impact on the activities of the company.
1.09 SIGNIFICANT OF THE STUDY
The
significance of this study include the following
i.
It will help investors to recognize the
various forms of tax incentives that accrues to their various investments.
ii.
Investors will also know when and how to
claim tax incentives accruing to them.
iii.
Government will also benefit this study
by knowing the extent to which its tax incentives measures impact on the
activities of individuals, business and the economy at large.
iv.
This research will also help individuals
to know the tax incentive they can benefit from and the criteria for claiming
such tax incentives
v.
This study will also aid students
indicators and researcher in any study relating to tax incentives and tax
itself
Therefore,
the beneficiaries of this study include individuals investors, companies
researchers and the government among others.
1.10 DEFINITION OF THE TERMS
Company:
This means a legal entity or corporate organization establishment in
Nigeria.
Tax:
This is a compulsory levy on the income of person and companies living or
demands to be living or operating in a particular place under the control of
the government of the place. Tax year is a period of twelve months commencing
from first January to 31st December of the same year.
Tax year: This
is a period of twelve months commencing from first January to 31st
December of the same year.
Accounting year:
This is a period of twelve months starting on the first day of a month and
ending in the last day of the month proceeding the month of starting business.
It must start in any period but must be a period of twelve month.
Tax collectors:
These are dully authorized officials of the federal board of inland revenue
service (FBIRS).
Tax avoidance:
This occurs when tax payer takes advantages of the weakness of loopholes or
options in the tax system in order to pay less tax than he/she ought to have
paid.
Tax Evasion:
This is where a tax payer willfully fails to report a source taxable income or
seeks to reduce his/her tax liability by understanding a source of income of
the tax authority.
Tax relief:
These are allowances to a tax payer on his circumstance prevailing in
proceeding year of assessment such as personal relief children relief etc.
Tax incentive:
These are relieves granted to tax payers or industries in form of set-off from
total income or gains before tax holiday.
Pioneer company relief:
This refers to a kind of tax incentives to stimulate economic development.
Capital allowance:
this is an allowance given to a tax payer who qualified or has incurred and put
to use, any qualifying capital expenditure in a year of assessment.
Disposable income:
This means person income available to consumption and investment to consisting
of all income minus taxes and other payments to government.
Unearned income:
Any income derived by a tax payer in a year assessment which does not require
the tax payers personal effort e.g. rent receivable, dividend and interest
receivable etc. Example Income: Any income derived by a tax payer in a year
assessment through his personal efforts (mental or physical) e.g. salaries,
trade profits etc.
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