IMPACT OF PERSONAL INCOME TAX ON REVENUE GENERATION IN N IGERIA

THE IMPACT OF PERSONAL INCOME TAX ON REVENUE GENERATION IN NIGERIA
A CASE STUDY OF LAGOS GOVERNMENT
BY ND/14/ACCT/FT/002
SUPERVISED BY: MR. ABOLARIN .A.F
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IMPACT OF PERSONAL INCOME
TAX ON REVENUE GENERATION
IN NIGERIA
(A CASE STUDY OF LAGOS GOVERNMENT)
BY
IYANDA ABDULWASIU AHMED
ND/14/ACCT/FT/002
BEING A RESEARCH PROJECT SUBMITTED
TO THE DEPARTMENT OF ACCOUNTANCY
INSTITUTE OF FINANCE AND MANAGEMENT STUDIES (IFMS),
KWARA STATE POLYTECHNIC, ILORIN

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IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR
THE AWARD OF NATIONAL DIPLOMA (ND) IN
ACCOUNTANCY
JULY, 2016

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CERTIFICATION
This project has been read and approved by the undersigned on behalf of the
Department of Accountancy, Institute of finance and Management Studies (IFMS),
Kwara State Polytechnic, Ilorin as meeting the requirement for the Award of National
Diploma in Accountancy.
MR. ABOLARIN A.F DATE
(Project Supervisor)
MR. SA’AD TUNDE DATE
(Project Coordinator)

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MR. ABOLARIN A.F. DATE
(Head of Department)
MR. TIAMIYU FATAI A. DATE
(External Examiner)

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DEDICATION
This project is fully dedicated to Almighty Allah, the author and the
finisher of our faith for making this possible for me up to this moment.
Also my parent Mr. and Mrs. IYANDA AHMED and ALHAJA
RIHANAT OLAJIDE I really appreciate your support and Prayers throughout my
academic session and to all OLAJIDES family for their support.

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ACKNOWLEDGEMENT
The laying of an egg signifies hope. The cracking of its create an anxiety, a
long time preparation then the new chicken appear to soft, tender, delicate and
harmless yet expose to this word of sin…………….
It takes God guidance, luck and destiny to see this chicken grow up one
day to call a lien or a cock.
All praise is due to Allah, the lord of the world “is the first and the last, the
evident and hidden, he’s the beginning and the end, he has full knowledge of all
things. May the peace and blessing of Allah be upon prophet Mohammed (saw)
the faithful, the imam of pious, the leader of the righteous strivers.

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I also which to express my profound gratitude to my supervisor and at the
same my HOD Mr. Abolarin A.F and MR RAUF for his guidance and support
more than the job of supervisor that make this project to be successful, and entire
staff of accountancy department.
May I see this opportunity to tender greatest appreciation to my parents
Mr. and Mrs. Iyanda Ahmed for their Support and encouragement during the
tenure of my course and for the great influence of their struggle to my life.
May Allah bless them in all their undertaking and give them long life to
reap the good fruit of their labour(Ameen).
My deep appreciation goes to my benefactor Alhaja Rihanat OIajide for her care
and support , given to me morally spiritually and financially I pray for long life
and good health for her.
My profound also goes to the Engr. Olajide Kamaldeen, Mrs. Badmus
Bukola (FCA), Mrs. Olushekun Titilola (FCA), Engr. Suleiman Olajide,
DR.Lukman Olajide,DR. Yusuf Fatima Folarshade, Isiaka Abdulganiyu,
Mr.Olawuyi (my account and commerce teacher in senior secondary school),Mr,
Rotami (my economics teacher in senior secondary school), A J ADISCO(C E O
OF A J ADISCO MOTORS NIG.LTD), SULIU ABDULLAHI,ABDULWASIU
ADISA,ADISA KAZEEM, TAIWO OGUNTOYE SUNDAY . All the name
mention above have assisted me colossally from the inception to completion of
my programme.
A big thanks to my lovely friends and colleges Reshidat
Olayiwola,Tinuoye Fatima ,Lutoguy (gallant solider), Adeleke John, Gholahan
Ogunwuyi, Adebolwale, sodiq (aka shoki),mayowa,onifade jamiu, saka jamiu,

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fumilayo esther,mariam,Reshidat salami,segun(my 001), Abiodun
(biomight),Yusuf Ajide, Mathew Akande, and many more.
Lastly, I ‘m using this opportunity to thank all well wishers whom their
name could not appear due to lack of space and also pray to Almighty Allah
continue to assist us all (Ameen)

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TABLE OF CONTENT
Title Page i
Certification ii
Dedication iii
Acknowledgement iv
Table of Content v
CHAPTER ONE
1.0 Introduction 1
1.1 Background Of The Study 1
1.2 Statement Of Research Problem 2
1.3 Research Question 3
1.4 Objective Of The Study 3
1.5 Research Hypothesis 4
1.8 Significance Of The Study 4
1.9 Scope Of The Study 4

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1.10 Plan Of The Study 4
1.11 Definition Of Terms 5
CHAPTER TWO
2.0 Literature Review 7
2.1 Historical Background Of Taxation In Nigeria 7
2.3 Concept Of Personal Income 13
2.4 Relief Available To An Individual 16
2.5 Minimum Tax 18
2.6 Table Of Personal Income Tax Rate 18
2.7 Method Of Assessing Personal Income 19
2.8 History Of The Current Tax Reform 23
2.9 Problem Of Personal Income Tax In Nigeria 30
CHAPTER THREE
3.0 Research Methodology 40

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3.1 Introduction 40
3.2 Research Design 40
3.3 Sources Of Data/Method Of Data Collection 40
3.4 Statistical Techniques 40
3.5 Population And Sample 41
CHAPTER FOUR
4.0 Analysis Of Data Presentation Of Finding 43
4.1 Introduction 43
4.2 Analyzing Of Data Base On Research Questionnaire and Hypothesis. 43
4.3 Testing Of Hypothesis 52
4.4 Interpretation Of Result 54
CHAPTER FIVE
5.0 Summary, Conclusion and Recommendation 55
5.1 Summary 55
5.2 Conclusion 56

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5.4 Recommendation 58
References 60

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CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUD OF THE STUDY
In the conceptual framework of economics revenue is describe as the aggregate
amount of income of the government within a financial year.
Government all over the world as numerous source of revenue to meet theirs
constitutional obligation to the masses and one of the prominent source being
taxation.
According to ALATISHE 9(2008) taxation is describe as a form of compulsory
levy imposed by the government on the people ,corporate bodies, goods and
services in other to finance its (government) expenditure and create condition for
economic well being of the society.
Dalton (1997) define taxation as “a compulsory contribution imposed by a
public authority, irrespective of the exact amount of services rendered to the tax
payer in the return and not imposed as penalty for illegal offences.
However, because the complexity of tax system as to the tax policies, tax law
and ministration .the tax system was reorganized at both federal and state level
for easy collection of tax ,effective administration ,voluntary compliance by
people and to reduce tax evasion .This given raise to the establishment of federal
inland revenue service (FIRS) and state broad of internal revenue (SBIR) at
federal and state level respectively.
The personal income tax is the most prominent source of internally generated
revenue of the state which is received through PAYE system. The PAYE system
(pay as you earn) is a situation where by a legally specified fraction is deducted
from the total income of an individual by the employer at the point of preparation
of the employment and their remit to the aggregate amount to the state board of

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internal revenue services and attached it with the list indicating the employee on a
monthly, weekly basis, in a modern day economy, government constitute the
largest single business entry,so therefore
Everyone lies on the government for the provision of most of the public
amenities which bring better life with high standard of living to the masses.
However, the social facilities including the motor able road pure drinkable,
constant electricity supply, functional and educational system, ensive social goods
etc. Among other provided by the government comes from personal income tax
(mostly of people in employment which in return reduce their tax home) so
therefore ,all effort made by government to maximum generated revenue the
greatest income but pays stall of tax avoidance and tax evasion which as a result
have a negative universe on the income/ revenue to the generated by the
government which is to be redistributed Tax payment is therefore part of price to
be paid for living in an organized and orderly society, if this not done , the
miscreant produce of through inequality irritation to the well being of those who
even have.
A system of taxation carry (even slightly ) from country to other country
because it is a sociological and economic model representing society social
.Because of this Nigeria tax system is dynamic and is continually changing to
meet the needs of the constituent of the society.
1.2 STATEMENT OF RESEARCH PROBLEM
Generally, citizen find the it very difficult to give some proportion of their
earning to the government when tax mostly in a country like ours(Nigeria) when
political instability on the fact that government is an unknown abstract and such
not their business rather it is the concern of certain imaging citizen.

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In this aspect , therefore taxation become difficult to comply with since it
involve giving out a percentage of ones income to the government
consequently, upon that the problem inherent in PAYE system of taxation include
the following:-
1, Reluctant of self employed to come forward to declare their income to the
authority for assessment
2, Hostile attitude of some rural tax payer to the tax agent
3, Inability of some employer to remit deducted taxes on time to the tax authority.
1.3 RESEARCH QUESTION
i. i, How does the establishment of joint construction forum between the
representative of rural dwellers any help to the parties involved.
ii. How does personal income tax contribute to economics development in
Nigeria?
iii. Can new system (computerize tax collection system) solve the problems of
tax evasion
iv. Does PAYE system serves as the highest medium revenue generated for
the economy
1.4 OBJECTIVE OF THE STUDY
The main aim of this study is to assess the impact of personal income tax on
revenue generation in Nigeria. Other specific objectives are to:
i. I, determine whether personal income tax contribute to economic
development in Nigeria.
ii. Examine whether new computerized tax collection system has help to
solve the problem of tax evasion.
iii. assess whether PAYE system serves as the highest medium of generating
in Nigeria.

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1.5 RESEARCH HYPOTHESIS
The hypothesis of these study are:
Ho: the paye as you earn (PAYE) system of taxation does not generate the
highest percentage of revenue for the state government.
Ho: the new tax collecting system does not curb the problem of tax evasion and
tax avoidance.
1.8 SIGNIFICANCE OF THE STUDY
The significance of this research is in fact that it will reveal the highest
percentage of income generated by the government through personal income tax.
The study will also enable tax collector to know how to prevent tax avoidance,
tax evasion and the effectiveness of the new collective system (computerize tax
collecting system).
Furthermore, the study will server as a reference material for both scholar and
student who may want to research deeply in to the effectiveness of personal
income tax .
Finally, it will give the tax payer knowledge how their money (tax paid) is been
utilize by the government.
1.7 SCOPE OF THE STUDY
This research work is on the impact of personal income tax on revenue
generation in Nigeria, a case study of Lagos state board of internal revenue
(LSBIR).it is a very wide and important field of study .Therefore, scope of the
will be limited to Lagos state board of internal revenue Agege revenue office
1.8 PLAN OF THE STUDY
The study covers five chapters, where chapter one comprises of the introduction,
background to the study, statement of the problem, research question, objectives

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of the study, research hypothesis , significance of the study and scope of the
study, definition of key terms and organization/plan of the study.
Chapter two discussed the literature review, historical background of taxation ,
genesis of taxation, evolution of personal income tax legislature in Nigeria,
concept of personal income tax, sources of income generated by the state
government through personal income tax, classification of income, table of
income from investment, non taxable income from employment, unearned
income, relief available to an individual, PAYE system, history of the current tax
reform, significance of taxation and the new adopted tax clearance by Lagos state
government.
Chapter three deals with research methodology, research design, source of data,
statistical technique, research tools, sampling of population and limitation of the
study.
Chapter four is base on data presentation, analysis and interpretation, test of
hypothesis, and interpretation of result.
Chapter five comprises of summary, conclusion and recommendation and
reference to the study.
1.9 DEFIINITATION OF TERMS
i. Direct tax:- this is a tax imposed in every individual and cooperate bodies .
such tax include personal tax ,company tax ,capital gain tax, capital
transfer tax etc.
ii. Employee:- is a person in employment of another person (employer)to
either as clerical officer or as the contract may applied.
iii. Indirect tax:- the tax is imposed on goods and service produce locally or
imported such as import duties ,export duties, mineral royalty, airport tax,
value added tax(VAT).

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iv. Paye:- is system when a certain amount id deducted from employee salary
at the point of emolument .
v. Person in employment:- this is a taxable persons under personal income
tax. Is a person working or rendering service in establishment but different
from his own.
vi. Self employed:- this is regarded as a sole trader who set up his own
personal trade or business.
vii. Revenue:- this is a total amount generated by government as income .
viii. Taxation:- this is a mandatory levy imposed by the government on every
individual and corporate bodies in order to finance government
expenditure.

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CHAPTER TWO
2.0 LITERATURE REVIEW
2.1 HISTORICAL BACKGROUD OF TAXATION IN NIGERIA
At the beginning of human occupation of this planet of earth men lived in a
small roaming bands food gather and family were free from tax.
It was what men learned to plant grain that the situation of land ownership
develop. The land ownership organized themselves in to communities in self
defense predatory animals as a contribution to comfort their community. This lead
to the transfer of authority in the expected remuneration ,which was paid inform
of goods “ISAKOLE” to the chief and consequently develop to “TAX” which was
later imposed on the member of the community for the support.
With the admit of the year and subsequent growth of communities, there
emerged a class of land owner demanding their tax from the number of
communities .And as civilization became more and more complex so did the tax
changes that were paid to the chief and landlord; landlord .Subsequently as the
ruler became greedy for powers therefore they imposed so heavy tax which a
man often paid with his labour and still when currently was scare commodity.
Today, the complexity of taxation system comes in the form of licensed
,sale taxes(value added tax), withholding tax ,road tax ,and above all is the
prominent tax which cause concern to the ordinary citizen of a country which is
“INCOME TAX”.
2.2.1 GENESIS OF TAXATION
Prior to the unification of southern and northern system as it is suited the
local people was already in operation in the northern originating under the regime
of the “Fulani Emirs in the pre colonial days.

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As the colonial government is firmly rooted in the country the needs for
adequate financial resource for the smooth administration of the colonies become
manifested .This spread the colonial government headed by Lord Lugard in to
imposing tax on the people having discovered the natives in the north at that time
,the government merely modified the system in order to suit the colonial purpose
.According to OVE (1963) , on the other hand ,define tax system in the south
,particular the east.The government therefore had to extend the same modified
system to enactment of the native ordinance act to the give the action a legal
backing according to Ola C(1971) .The original internal revenue department
during that period and membership drawn from the following areas.
a) Head of the department known as the “resident” was appointed by the
government general to be in charge of the overall administration of the
department
b) Village head, chief alders, and other prominent and influential person in the
district from the villages such as cattle taxes from the rural tax payer and
semi-urban dwellers.
Penalty were imposed on the appoint agent for non accountability of taxes
collected ,also a time of (#400) four hundred naira or two years imprisonment or
both was imposed on tax evaders.
A lot of benefit were derived from the engagement particularly in the
appointment of indigenes to server in the actual collection of taxes within locality
could find it very convenient to perform.
This is because name of taxable adult in the area were known to them.
Secondly most importantly the incidence of murdering tax against agent by tax
payers in one way or the other may be related on the other hand, if such atrocity

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were been being committed the murder would easily be identified and appropriate
punishment would be melted out by the community.
The system however, had some draw back as prominent against the agent
and the local chiefs is using the opportunity to motivate their enemy even it
seems obvious that could not afford tax were been harassed by the agent.
Evenly, the system became achieve and had to be abolished some year
after the country attained independent in 1960.
With the increase in paid employment many taxes payer got drawn in to
the government .But the problems of late or non remittance of deducted tax by the
employers.
Any system which the government want to device should have a monitor
scheme to check the excess of some enforcement by the state administration,
COL.OGUNSOYE OYINLOLA during his tenure emphasis that carriage of tax
card by the taxable citizen of the state will soon be developed by this method , a
good member of taxable adult will be trapped in to the system ,enough control
measure to check the excess of some inscription tax agent should be put in place.
Also during one of the new employee broadcast on radio Nigeria on the
night of every February some years back, titled state government and revenue
generation efforts. The important of state creation is to bring government nearer to
the people. The multiplicity of the state government and their revenue to meet
their obligation to the people caused the ability of the federal account to satisfy all
the financial needs of the state government present the greater percentage of tax
return to government is mainly from pay as you earn (PAYE) deduction and
statutory corporation .However ,the benefited taxes from self employed taxable
citizen of the state is yet to be realized.

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2.2.2 EVOLUTION OF PERSONAL INCOME TAX LEGISLATURE IN
NIGERIA
Nigeria was under the colonial rule until 1960 when it become an
independent country.
Before independence, the colonial rulers treated Nigeria as an extension of
British territory applied the British tax legislature to Nigeria.
It was Lord Lugard ,the government general who first introduce income tax
in 1904 in the northern Nigeria when community tax became operative through
the revenue ordinance of 1904. Native revenue of 1917 reflect changes to 1904
ordinance in 1918, provision of 1917 ordinance was amended and the extended to
southern Nigeria ,first to Abeokuta in western Nigeria and to Benin city in mid-
western Nigeria and the extended to eastern Nigeria in 1928.
The provision of native revenue ordinance has accepted by the government
relating to income tax, was the basis of section 70 of the Nigeria (constitution)
order in council 1960.
After registration ,a registration is given that will be quoted correspondent and
dealing with the tax authority.
From G tax remittance card to used in card remittance issued to employer with
the registration , an employer is now authorized or empowered to deducted tax
from employee at source and to remit the tax so deduction to in kind revenue. The
organization will be required to file annual return on the prescribed form H2 and
used the tax deduction card form F3 for each employee.
All employee are expected to complete , once in a year ,the return of income
forms, this can be filed directly by the employee or through the employer .
Allowance and the chief due to the employee are computed by the form. The
lnland revenue is free to question any information supplied if not satisfied . The

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total allowance are then divided in to 12 equal part in order to determine monthly
tax –free pay, these are entered in tax deduction card, which is then send to the
employer along with the total fee pay.
Usually, at the end of each assessment year , the taxable are used to ensure that
the correct amount of tax has been deducted ,where there is over payment of tax,
the excess of refund while any short fall or under payment of tax is recovered,
through it tax was imposed upon the total income and or through assessable
income of native resident in the township of Lagos and non-native resident in
Nigeria.
A more progressive income tax ordinance NO 29 OF 1993.CAP.92 under which
Europeans all over the country and African resident in Lagos were assessed came
in to operation on 1st of April 1945.
In 1954,Nigeria became a federation of three region. North ,East, and West by
the Macpherson constitution there three regional jurisdiction of the personal
income of Africans the eastern region passed the finance law NO 1 OF 1956 by
which people above aged 16 were to be assessed to tax.
The western region followed suit passing its own “income tax law” to place the
direct tax ordinance in 1956.The northern region on its own passed northern
Nigeria personal income tax law in 1962.
The Nigeria tax ordinance of 1943 remained in force in the federation
territory of Lagos until 1961 when the personal income tax(Lagos) Act (PLTA)
was enacted by the local government.
The root of the present law of personal income tax in Nigeria can be traced to
the fiscal commission set up in 1957 which considered of SIR Jeremy lies man as
the chairman and professor L.C tress as member .The purpose of establishing the

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commission was to examine the jurisdiction and purpose of various tiers of
government in Nigeria independence.
The recommendation of the commission was discriminating in its
application. It applied to “native” in Nigeria elsewhere than in the township of
Lagos .The original Inland revenue department or those who determine the
taxable income where:-
a) The resident officer appointed by the governor general to be charger of the
administration and with any other administration officer than resident
officer .
b) Chiefs ,Elder and other persons of influence in each district.
c) Any native authority, which by native law and customers was recognized
as the tax collection authority.
d) A village council, district head and other suitable or group of persons
appointed by the governor.
The history appointed by the personal income is in complete without the
due consideration to he role played by local government or native administration
as they were then called .
Personal income tax, as now known in Nigeria, was first name of direct
tax.
Under the direct taxation ordinance 1940,the assessment on collection of
tax was the primary responsibility of the native administration throughout the
country and the tax so called was their chief course revenue.
The direct taxation on ordinance was a poll tax, the assessment and profit
of all natives residents in the protectorate and elsewhere other the township of
Lagos.

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Income tax ordinance of 1943 was an administer of poll tax and income
tax.
2.3 CONCEPT OF PERSONAL INCOME TAX
TAXABLE PERSONS
Person liable to personal income tax means any individual or body of
individual including family or any corporation sole(sole trader),trustee or executor
having which is chargeable to tax under the provision of personal income
tax(PITA).
2.3.1 SOURCES OF INCOME GENERAATED BY STATE
GOVERNMENT THROUGH PERSONAL INCOME TAX.
1. Employment: - this is an income generated by the government on an
employee through pay as you earn system.
2. Professional or vocation ;- it is an income generated by any professional
services such as (accounting services, legal services) etc, or any vocation
set up to make profit.
3. Investment :- any return generated investment is subjected to tax and
become sources of income to the state government.
4. Pension and annuities ;- since all income generated from employment is
subjected to personal income tax, then pension and annuities is subjected
to tax and become sources of income to state government.
5. Trade and business :- this is an income generated from trade and business
by the proprietor or a firm from a trade activities and which is subjected
to tax and become source of income to the state government.
6. Royalty and rents :- this is a return from the property of government (such
as oil, palm, sea, building etc) which is been used by private firm.

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2.3.2 CLASSIFICATION OF INCOME
Income may be classified under two (2) groups which is follows:-
1. EARN INCOME:- these are income derived from a trade, business,
profession, vocation or employment carried on or exercise by the
individual and a pension derived from previous employment.
2. UNEARN INCOME:- these is derived from other source not include in
earn income sources .They are mainly income from investment e. g
dividends, investment, royalties, partnership income of a sleeping partner
2.3.3 TAXABLE INCOME FROM INVESTMENT
i. Salaries and wages
ii. fees and allowance
iii. gratitude paid from employee who are server less than 10 years (prior to
1986 gratuities in private sector who subject to tax )
iv. Gratuities in access of #100,000 300%of employee terminal annual salary
v. Bonus, commission, premium
vi. Benefit in kind (BIK)
vii. Income from employment who duties is perform outside Nigeria and is
exempted from tax in the country where the duties were performed.
viii. Remuneration from duties wholly or mainly exercise in Nigeria (even if the
money is paid abroad)
2.3.4 NON TAXABLE INCOME FROM EMPOLYMENT
i. Medical or detailed expenses
ii. Re-imbursement to the employee of expenses.
iii. Incurred by him in the performance of his duties
iv. Leave traveling allowance.
v. Entertainment allowance maximum of #6000

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vi. Utility allowance maximum of #10,000.If the amount is received exceed
#10,000 per annum the difference is subjected to tax.
vii. Meal allowance maximum of #5000 per month, where the amount received
is in excess of #5000, the difference is subjected to tax.
viii. Touring allowance
ix. Gratuity payable to a public officer (with effect from 1996 all gratitude are
not taxable )
x. Wound and disability granted to member of armed forces.
xi. A sum received by way of death gratuities .
xii. The income of any local government or government institution
2.3.5 UNEARN INCOME
Dividends, interest, royalties and rent are subjected to withholding tax at
source. However such income must be brought in to the assessment of the
individual beneficiary at gross through the liabilities of the tax payer.
However, with effect from January 1996, withholding tax became a final tax,
hence income tax at source will be excluded from the general tax computation.
Generally income taxable in Nigeria are those derived accrued or brought to
Nigeria.
The position has further been changes as withholding tax and is now
regarded as an advance payment with effect of 2001 .Interest is deemed to be
derived from Nigeria where:-
a) There is liability to payment in the Nigeria of the interest, regardless of what
form the payment takes and whatever the payment is.
b) The interest accrued in Nigeria to foreign company or person regardless of
which ever way the interest may have accrued.

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2.3.6 DIVIDENDS EXEMPTED FROM TAX
a) Dividends paid out of pioneer profit
b) Dividends paid by the issues of bond share
c) dividends from small company (turnover less than #2 millions)
d) dividends paid by company assessed under petroleum tax
e) dividends from company in petroleum and liquefied nautral gas.
2.3.7 CHARGEABLE OR TAXABLE INCOME
This is the amount available in the hand of tax payer to be subjected to tax. Its is
the net difference between the total income and the relief available to such an
individual.
2.3.8 FAMILY INCOME
The income accruing to a family may be subjected to tax by the territory in
which the member of the family receiving the income are resident where the
several interest of the individual member are indeterminable or uncertain.
VILLAGE OR COMMUNITY INCOME
The basis of subjecting a village or community to tax is to established the
total income of all the member, estimate the total income of member whose
income is impracticable to assess and the amount of communal income that can
not be specifically apportioned to individuals.
2.4.0 RELIEF AVAILABLE TO AN INDIVIDUAL
The following relief may be claimed by an individual under the personal
income tax decree 1995 as amended to date.
2.4.1 PERSONAL ALLOWANCE
This is limited to #5000 plus 20% of earn income, this is be claimed by all
tax payer .

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2.4.2 CHLIDREN ALLOWANCE
This can be claimed at #2500 per annum per child up to maximum of four
children .For the claimed to be successful the following condition must be met:-
i. I, the child must not exceed the age of sixteen (16)
ii. the child must be unemployed
iii. Where the child exceed the age of sixteen he must either be apprentice to a
trader or he must be attending a full time education.
iv. The child needs not belong to the tax payer.
2.4.3 DEPENDENT RELATIVE ALLOWANCE
This is to be claimed at #2000 per annum per dependant for a maximum of
two dependant .For the claimed to be successful, the dependant annum income
should not exceed #600 per annum must either be windowed or infirm.
2.4.4 LIFE ASSURANCE
This is claimed on a life policy take on tax payers life or the life of his
spouse. The release to be granted shall be the lowest of;
i. the actual premium plus any pension fund contribution
ii. 10% of capital sum assured
iii. 20% of statutory total income
2.4.5 DISABLED PERSON ALLOWANCE
This is available to a disable person who uses special equipment or engage the
services of an attendant in the course of employment .The rate allow is the higher
of 20% of earn income or #3000 per annum. Note that it is not an alternative to
the personal allowance he is entitled to but an addition.

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2.4.6 INVESTMENT IN RESEARCH AND DEVELOPMENT COMPANY
ALLOWANCE
When can individual invest in the equity of a research and development
company, he is entitled to allowance which shall be the lower of;
i. the actual value investment, or
ii. 25% of the total income .
Where the allowance claimed in any year is less than the actual
investment, the balance shall be carried forward indefinitely until the investment
is recouped against income.
2.4.7 DONATION IN RESESARCH &DEVELOPMENT COMPANY
ALLOWANCE
Where an individual makes a donation to a research and development company,
he will be entitled to allowance which shall be the lower of;
i. The actual donation made, or
ii. 10% of the chargeable income
Where the allowance is lower than the actual donation, then balance is lost
as it cannot be carried forward.
2.5 MINIMUM TAX
Where the total relief granted are more than the total income, the tax payer is
chargeable to minimum tax usually called “guarantee minimum tax” at the rate of
0.05% (1/2) of total income.
2.6 TABLE OF PERSONAL INCOME TAX RATE
FROM 2001
FRIST #30,000 at 5%
NEXT #30,000 at 10%
NEXT #50,000 at 15%

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NEXT #50,000 at 20%
ABOVE #160,000 at 25%
Between 1995 to 1997
FIRST #10,000 at 5%
NEXT #10,000 at 10%
NEXT #20,000 at 15%
NEXT #20,000 at 20%
ABOVE #60,000 at 25%
Between 1998 to 2000
FIRST #20,000 at 5%
NEXT #20,000 at 10%
NEXT #40,000 at 15%
NEXT #40,000 at 20%
ABOVE #60,000 at 25%
The new rate based on personal income tax amendment Act, 2011.
First #300,000 at 7%
Next #300,000 at 11%
Next #500,000 at 15%
Next #500,000 at 19%
Next #1,600,000 at 21%
Next #3,200,000 at 24%
2.7.0 METHOD OF ASSESSING PERSONAL INCOME
2.7.1 PAY- AS –YOU- EARN (PAYE) SYSTEM
Taxation of employee is carried out under the pay as you earn system .The
basis period of assessment is not actual year basis but operated on monthly basis
throughout the year. PAYE is a scheme whereby employee income are deducted

32
in source by the employer and remitted to relevant tax authority within 14 days
after the end of the month.
All employers with 5 employees and above are expected to register with
relevant tax authority. Incident of tax evasion is not only reduce under the PAYE
scheme, a scheme constitute a very efficient method of colleting tax without
unnecessary administration burden for the tax authority.
The following have been identified as problem associate with the PAYE scheme:-
i. Employers go through many difficulties in implementing the scheme
without compensation from the government.
ii. Incompetence of some employer in handling of the scheme
iii. Fraudulent handling of the PAYE scheme by some employers
HOW PAYE SCHEME OPERATES
Employer either applies in writing to the authority of the intention to
operate the scheme or the local tax officer in the course of existence of the
business in the area bring the issue to it s attention. The relevant tax authority will
then issue a notice authorizing the employer to deduct the tax at source
information normally demanded from the employee before registering the
company as an operator of PAYE scheme includes:-
i. Name of the employer and the certificate of incorporation
ii. Name and other relevant information about the employees.
DEVELOPMENT OF PAY –AS-YOU-EARN IN Nigeria
During the period of three regional government with the company was
segmented in to northern, eastern, western regions and the federal government
bring the income tax administration to four different fields.
The federal board of inland revenue department is charger taxation of all
incorporation companies while the regional government are responsible for the

33
taxation of individual tax resident but the responsibilities for the formula general
guidelines of tax structure throughout the federation lies with the federal board of
inland revenue department, hence, the services is responsible for the design and
printing of tax forms among government enacted the income tax management.
The first region to commence the pay as you earn system of taxation was
the eastern Nigeria during the earlier stage of the system only a small percentage
of employee were involved .The reason were because the number of people in
where offer government was Nigeria negligible.
The administration of system went thus the employer would go to tax card
of this employee with amount duly deducted from the their emolument as the
employer pay the employees the election machine would print the record of
payment on to the card, when can employee changes his/her place of work, the
card move along with him, this system work perfectly because the number involve
was small.
Following the eastern region in order to introduce the system at April
1901-1962, the western region two rated was applied to the income less than or
equal to three point. Similarly some earning below four hundred pounds in the
north uses the PAYE system, comparing to the rate of taxable employee to taxable
self employed one would expect that a large proportion of government revenue
would come from the self employed people but on the country the revenue from
the direct assessed personal tax is disappointingly low.
MERIT AND DEMERIT OF PAYE SYSTEM TAXATION
As the name implies, pay as you earn is based on earning, merit and
demerit must be examined for the point of view of both individual and
government, for the individual the system enable him to perform his/her

34
responsibilities , in a system where all most every transmission require evidence
of tax payment there by making responsible citizen.
TO TAX PAYER
Although, the money realized from taxation is used to provide social
facilities to the public (including the tax evaders). However, the tax payer has no
control over how much is to be deducted over tax that is because as an employee,
there are four items expecting to be qualified as an expense but are disallowed,
also working taxpayer borne the tax that is supposed to be paid by self employed,
taxable adult, who are tax evaders as the income of the self employed is subjected
to heavily taxation.
TO THE GOVERNMENT
The government whose major source of fund for financing its social
obligation is income tax, see the system as an easy way of collecting tax, also it is
economic, as the cost of collection is reduced.
While the government hails itself for generating more revenue through the
method of tax collection it has to content its critism. From working populace who
pay rates of tax to their employer, who will slow the exact amount of tax
deduction by the employed as a tax collection.
However, shortly after independence on October 1st 1960, the rate of paid
employment increase automatically thus making the old system of administration,
PAYE system by various system should be cumbersome and arctic, then the need
for uniform structure to be applied throughout the country aroused. Hence, the
federal government provide the income tax management, act (ITMA) in 1961 and
signed the PAYE system for administering personal income tax for individual
member of public which include the organized private sector employee and public
servant and civil servant .

35
According to Adam Smith “wealth of nation” it says the key stone of the
system of income tax collection is deducting at the source (PAYE system).
The systems make it possible for installment payment of tax and also indicate
a tax payer collection on monthly.
2.7.2 DIRECT ASSESSMENT OF TAX
The other method collecting personal income tax is through direct
assessment by tax officials. Under this method, the tax payer deals directly to the
tax authority in a assessing the personal income by filling the necessary form
required to obtain.
2.8 HISTORY OF THE CURRENT TAX REFORM
The current tax reform process commence on August 6, 2002, after series of
proposal forwarded by an institute to the federal ministry of finance. Study group
was eventually inaugurated to examine the tax system and make appropriate
recommendation to the government, on way to entrenched a better tax policy and
improve tax administration in the country.
It is instructive to note that the study group on the review of the Nigeria tax
system was inaugurated with the following terms of reference:-
i. To reposition the FRIS for greater effective and efficiency in meeting
the demand revenue of government
ii. The administration objective:- All aspect of capacity building at all
level of tax administration, such as managerial and technical skill
development, career path that are intended to attract and retain high
quality of staff. Modern organization structure that is tax payer focused
on and IT driven.
iii. Improved integrity and ethical standard
iv. Reasonable financial and administrative autonomy.

36
v. Protection of the tax payer right through professionalism payer
education
vi. Fear hearing and adjudication of cases and prompt refund mechanism
other reason include
vii. In most economics, tax is major source of income for national
development while the contribution to total revenue in Nigeria is still
lower than the desired especially with regard to non-oil taxes.
viii. To achieve other fiscal objectives and improve services delivery to tax
payer.
ix. Expand the tax net
x. More service –education, consulting, counseling etc .
xi. Linkage to (CAC) other stakeholders.
xii. Improve policy regime
xiii. Scope of tax exemption/wavers
xiv. Build the FIRS institution
xv. Right selection / posting of staff
xvi. Right system
xvii. Right controls
xviii. Formulate a national tax policy.
A comparative analysis show that of references of the 2002 study group
was broader in scope than that of 1992 set up by the government, in that while, the
letter exercise covered the review of direct tax and jurisdiction of federal and state
revenue service, the 2002 exercise was more comprehensive as it cover the entire
garment of taxes at federal, state, and local government level. In all about 39 taxes
as fees including 8 federal, 11 state, and 20 local government taxes and capture in
the taxes were thoroughly appraised by the group consequent upon which study

37
recommendation were made to the federal government, some of its
recommendation includes:-
i. Nigeria to have a 24 clause of national policy
ii. Complication of register of individual and corporate tax payer and also
issuance of smart tax identity card for all tax payers.
iii. Raising of the threshold of personal income tax free allowance for a
single bulk of 40% of assessable income and the highest and the highest
income rate should be 20%.
iv. Limitation of special tax incentive such as tax holidays and import
duties waiver to only industries located in rural area, fully export
oriented industries solid mineral production companies and oil and gas
operation.
v. Reduction of company income tax rate to 20% from the rent rate of
30%
vi. A company should make profit before exposed to company income tax
in any year of assessment.
vii. Speedy constitutional amendment to confirm the legality of value added
which should be share among states after 30% had been deducted as
part of its administration cost nationwide.
viii. Local government should permanent rate and capitation rate and other
clear cut charge for services directly beneficial to the citizen only.
As noted above, Nigeria tax law is purely statutory, thus the need for the
amendment. The benefit of the new tax authority of government recently
pass by national assesmbly of federal republic of Nigeria and sign by
President Goodluck Ebele Jonathan, under the current amendment to the

38
provision of personal income tax acts, cap p8.LFN 2004, the following
section were amended as follows:-
1. Section 2 ”collect” in the marginal note since state of the federation do
not have power to imposed income tax but only collect.
2. Section (2)c the phase ‘’or any other act’’ is deleted because an
amendment to a section cannot override another exiting Act.
3. Section 2(8): amendment of section 2(8) is to include ‘’ benefit in kind”
as part of emolument .
4. Section 3: amendment of section 3 is to make temporary causal worker
pay tax on their endowment.
5. Section 10: amendment to entire section 10 is a new insertion of a
loophole exploited especially be expatriates.
6. Section 33: amendment to section 33 is to increase the threshold and to
consolidate all the relief.
7. Section 33: amendment to section 33 is a new insertion to introduce a
presumptive tax regime to bring in those in the formal sector to the tax net.
8. Section 37: amendment to section 37 is a new insertion to increase the
minimum tax rate from 0.05% to 1% since the threshold has increase from
#30,000 to #300,000 conformity with the tax table in the schedule to the
bill.
9. Section 38: amendment to section 38 by substituting the double taxation
agreement with avoidance of double taxation agreement and to provide for
ratification by the national assembly before any treaty can come in to
effect.

39
10. Section 44: amendment of section 44 is the strength of self assessment
procedure empower the ministry to come up with regulation giving self
assessment.
11. Section 47: the new insertion in the section is to enable labour to
provide information about their members.
12. Section 52: amendment to section 57 is to introduce spate and stiffer
penalty for corporation body.
13. Section 57: amendment to section 57 is to make carrier services and
electronic made valid means of delivering assessment notice.
14. Section 60: amendment to section 60-67 is to repeal body of appeal
commissioner consider not active and allow appeal to go to tax appeal
tribunals established under section 59 of federal inland revenue service
(establishment).Act 2007.
15. Section 73: amendment to section 73 is create a refund mechanism.
16. Section 74: amendment to section 74 is to make penalty for non-
remittance stiffer and to given the accountant general power to deduct if
un-remittance taxes at sauce.
17. Section 85: amendment to section 85 is to strength TCC and provide
for time for failure to demand TCC.
18. Section 86: amendment to section 86 is to strength joint tax board, by
making the chairman of state board of internal (SSIR), member of joint tax
board.
19. Section 87: amendment to section 87 is to make a position of chairman
of SBIR more professional.

40
20. Section 88: amendment of section 88 is to provide for cost of collection
and administration to SBIR at 5% have been recommend since some get
10% presently.
AMENDMENT OF THE SIXTH SCHEDULE
The principle act is amended in the sixth schedule by substituting the existing
sixth schedule for the following new sixth schedule as follow “SIXTH
SCHEDULE’’.
Income taxable
A consolidated relief allowance shall be granted on income at a flat rate of
#200,000 plus 20% of gross emolument ( total amount of earn income of that
individual).
TAX EXEMPT
The following deduction are tax exempt
i. National housing fund contribution
ii. National health insurance scheme
iii. National pension scheme
iv. Life assurance premium
v. Gratuities
After the relief allowance and exemption has been granted in accordance with
paragraph 1 and 2 of this schedule, the balance of income shall be taxed as
specified in the following tax table.
TAX INCOME RATE
Graduated tax rate with consolidated allowance of #200,000 of gross
emolument, subject to a minimum tax of 1% of gross income whichever is higher,
as follows:
i) First N 300,000 @ 7 % ( Seven per cent)

41
ii) Next N 300,000 @ 11% ( Eleven per cent )
iii) Next N 500,000 @ 15% ( Fifteen per cent )
iv) Next N 500,000 @ 19% ( Nineteen per cent )
v) Next N 1,600,000 @ 21% ( Twenty one per cent )
vi) Above N 3,200,000 @ 24% ( Twenty four per cent )
SUMMARY OF THE AMENDMENT
i. Removal of pension from chargeable income
ii. Replacement of relief and allowance with consolidate ones.
iii. Deletion of various obsolete provision
iv. Replacement of federal civil service with joint tax board as appointing
authority for secretary to joint tax board (JIB).
v. Inclusion of courier service as well as electronic mall as means of
serving assessment.
vi. Amendment to interpretation and other relevant selection of the law
relating to income tax table.
vii. Increase in penalty rates for violation of Laws.
viii. Provision of power to the minister in making regulation for the
administration of the act.
ix. Provision relating to person eligible for appointment for chairman of
SBIRS.
x. Provision relating to obtaining and verification of tax clearance
certificate (TCC).
xi. Provision make the president, vice president, general and deputy
governor to pay tax on their official emoluments.

42
xii. Accountant – general of the federation now have power to deduct at
source unremitted tax and remit to SBIR.
2.9.0 PROBLEM OF PERSONAL INCOME TAX IN NIGERIA
It has long evident that personal income tax in Nigeria has remained the
most unsatisfactory, disappointing and problematic of all taxes in the Nigeria tax
system today. This is in spite of the fact that the tax reform has a recent been a
key element in economic reform which the country had undergone. It is therefore
felt that personal income taxation in Nigeria today require radical handling tom
ensure that a large chunk of taxable population in Nigeria does not escape tax.
Personal income tax in Nigeria is closely to what the government to the
peace of development and growth of the economy. AN effective tax system ought
to satisfy the twin purpose of raising maximum revenue and at the same time
encourage production. In an effectively managed tax system, the two purpose are
not irreconcilable provided of course that the beneficial effects of government
expenditure and incentives for production exceed the unFavourable effect of
taxation. An effective tax system, aside from maximizing revenue for
development, ought to, if well structured and managed elicit a feeling of common
purpose joint responsibility or obligation amongst the taxable persons in a
country.
TAX COLLECTION
THE PROBLEM OF TAX COLLECTION
The assessment and collection of personal income tax from taxable
individual shave been difficult in this country. There is apathy not only on the part
of the educated but also the uneducated. While the illiterates refuse to pay because
they are unaware of the purpose of taxation and therefore regard a tax collector or
rather a tax officer as an instrument of oppression, the rich ones refuse because

43
they are not encouraged not only by the Government which wastes taxpayer's
money on white elephant projects but also by the tax official who lives above his
means.
Having suggested that tax collection is one of the fundamental problems in
income tax administration, the question then is how can this problem be
surmounted ? While some have advocated a more positive role for the Joint Tax
Board to tackle the problem emanating from tax collection, others have suggested
an enlargement of the tax base to include other sources. In the rural areas for
instance, it has been recommended that an innovation where the Obas, Obis,
Emirs, Chiefs and heads of the various communities and towns would act as
official tax collectors on behalf of the Government should be adopted.
The call for the hitherto forgotten traditional methods of tax collection may
have some merit especially with regard to rural peasants who are self employed.
If adopted, a lot of revenue from rural areas will accrue to the government. That
apart ,such an innovation would go a long way in solving the problem of absence
of adequate structure and organization of the body charged with the responsibility
for assessment and collection of income tax. But before venturing further, it is
important to again clarify the fact that personal income tax deals with direct
taxation, and as such the citizens who fall under the direct assessment are the self-
employed and workers who come under the PAYE (pay as you earn) system of
tax. It is thus important to note that the problem of tax collection lies more with
the self employed rather than those under (PAYE).
Thus, the self employed is difficult to pin down. Where he is skillful and
manipulative or has the services of a knowledgeable tax lawyer, he may devise
or arrange his financial affairs so as to avoid or reduce the appropriate tax payable
under the circumstances". Thus the problems of tax avoidance and evasion are

44
more common with the self employed such as, distributors of manufactured
goods, petrol dealers, contractors, doctors, and lawyers and other professionals in
private practice ,rather than those that derive their income from rents, dividends,
interests, and properties.
Generally, these are obvious and perplexing difficulties inherent in the
assessment of the self-employed to tax. The reason is not far-fetched. The direct
method of assessment requires the self employed to collected return of income
form ,fill and submit to the relevant tax office. This method, it is submitted is
subject to abuse, for, it provides the tax payer the opportunity to under-assess his
income due either to the inherent loopholes in our system or the manifest
dishonesty and disloyalty of most self-employed tax payers. Moreover, the level
of voluntary compliance amongst the category of tax payers is abysmally low.
2.9.1 NEED FOR EFFICIENT TAX ADMINISTRATION
A tax administration is the whole organizational set-up for the
management of the tax system.
The tax administrative set-up is a department of government and of course works
under regulations prescribed by tax legislation. Tax administration is the process
of assessing and collecting taxes from individual and companies by authorities in
such a way that correct amount is collected efficiently and effectively with
minimum tax avoidance or tax evasion.
The broad objectives of a tax system is to guarantee the long-run fiscal
soundness of the policies and programmes of government while the purpose of tax
administration is to fully implement the tax system, that is, to ensure that tax
payers comply with the provisions of tax laws and that the funds derived from tax
source are paid into the government purse.

45
The most important need for any government that intends to realize the
minimum revenue from taxation is to established an efficiency means of
collecting tax as the government as a whole depend solely on the availability of
adequate financial resources to provide all the public goods.
It became comparative that the government that expand all effort
instituting efficient tax collection. This lead us to review of RABIU S.A (1981)
page 27 that “every national government at one time or the other is concern about
it revenue stricture and the efficient of its tax administration. The important
drawback to establishment of efficient tax administration is that good number of
large uniform citizen do believe that the government has enough money to
provide these amenities after all, Nigeria is rich in petroleum, therefore there is
need for tax authority to educate the masses about the fact that the greatest
revenue of government come from personal income tax.
The attitude of some officials help to increase the evasion tax by people,
how can one explain a situation where by the internal revenue officials would
invade the rural communities that have not get any visible government presence.
It becomes very difficult to convince such people to pay tax that will be embezzle
by government officials. Approach of many taxable adult particular in the rural
area to tax is all over his face, his who later divert it in to their private purse.
The board of internal revenue performs the following basis function:-
A, Undertaking the proper assessment of the total taxable population .
B, Ensuring effective and optimum collection of taxes assessed.
C, Carrying out proper accounting for the taxes collected in the manner to be
prescribed by the commissioner of finance.
Analysis the function of the board, it became clear that the primary aim of
any revenue department is assessment which start from estimating the total

46
number of taxable population from time to time, means that an annual
determination of total number of persons liable to assessment during a financial
year is largely link to a regular review of a taxable population.
According to Professor R. H WRITTAM in Rabin S . A (1981) page
27.The accounting function has two prospective .The first types of accounting
function as a situation where tax is paid to agent who in turn pay collection to
revenue officials, the later then pay to the government treasury and therefore
reconcile, the account with reassure officials. Here the problems of prompt and
correct accounting to the treasury became obvious. The second type arise from
situation where the tax payer pay directly to the treasury. In this case, the
reconciliation account is done with the treasury .
Lack of proper and accurate assessment makes it difficult for the
government to estimate the assessment. Government should establish a policy
where by tax assessment from a given out to usual and prospective tax payer on
annual basis.
The effort of government to achieve a reliable assessment as some problem
militating against it. Such problem include general apathy of most self employed
effective and the low degree of awareness of civic duty by employed taxable
adults, while the people allow the government officials of fraudulent practice, in
the other hand contributed to the problem working against the system. Some tax
payer after paying taxes and issue with tax clearance certificate give the certificate
to friends and relative for their presentation of demand to the tax agent.
The practice debus government the fund which could have been realized
from the these people, consequently upon the fraudulent practice, the tax drive
cooperation show your tax clearance system was established .

47
2.9.2 SIGNIFICANCE OF TAXATION AS A MAJOR SOURCE OF
REVENUE TO THE STATE GOVERNMENT.
Tax as a major source of revenue in Nigeria content calls for greater
attention in both state and federal government budget. The tax collected from all
source comes back to tax payers in form of social amennties provide for them.
Income tax has definitely private sector depending upon weather the policy of the
government is gingered towards discouraging or encouraging such companies. It
reduce the net return on investment and also decreased balance available for
unnecessary private saving.
Taxation is an all-pervading subject which affects the lives of nearly
everybody and no major accountancy or legal problem can be satisfactory sowed
without consideration of it tax aspect.
The state government in addition to its federal allocation (Federation
account) from the federal government has many independent source of internally
generated revenue. The viable sources here is the personal income tax; previous
study has confirm the fact the largest percentage of the state government revenue
comes from the personal income tax via the pay as you earn sources.
The source of internal revenue has therefore become the most reliable
revenue of the government. Hence the state annual budget rules to very large
extent of revenue from the personal income tax re-organize the important position
of this source of revenue. OLA.C.S declare that; Income tax is ones of the major
source of revenue of all government in Nigeria and its is factor to be reckoned
with both state and the federal government budget.
The national revenue collected taxes from the citizen on behalf of the
government are used to provide public amenities characterized by their
indivisibility and application of exclusive principal.

48
Therefore, all the tax collected if judiciously and prudently utilized come
back to tax payer and non-tax payer alike inform of all these seasons motor able
road, drinkable water , constant electricity supply, efficient education system,
decent and safe foot bridge (pedestrian bridge) across all multiple carriage
motorways etc, boast their activities of the cooperate bodies that is liable to pay
tax , the federal government uses tax income management act to discourage or
boost their activities, if the tax rate are increased , the net return on investment
and balances available for private saving will go down. Simon .H.C. (1993) page
41 quoted. Taxation is a proper means of monitoring inequality and instrument of
economic control”. The government with the society native of infrastructure and
development with his lack of fund and regular basis to satisfy the appreciation of
the people sees tax and other fees collected from the people by various level of
government as the inevitable sacrifice of the people to the development of the
nation.
However, the success of the system (PAYE) largely depend on efficiency
assessment which can only be achieve through correct evaluation to declare
income.
However, if taxable individual declare false income to tax authority, it will
reduce the rate of source provide by the government even though these under
PAYE system when given the opportunity to choose either to pay tax or not will
avoid tax as even the public service employee and organized private sector
company find one way or the other to evade tax.
One of the strategy tax evasion arise as a result of one provision of civil
service rules which require the civil servant to engage in private business and
therefore refuse to declare the acquire income because of fear of contradictory
government order.

49
Despite the increase in the number of employee under the PAYE system
who boene the body over tax , naturally see the system as not only inequality by
highly discriminating.
The PAYE system also encourage tax evasion through compulsory
information that are spread thus leading to efficiency implementation and
consequently shortfall in revenue generated. Some employer of labour through
PAYE system whom the tax of remittent rest upon also constitute to the problem
by not remitting the deducted tax in time and other to increase their cash at hand
at that point in time and consequently denying the government the needed fund
for their services.
2.9.3 NEW ADOPTED TAX CLEARANCE BY LAGOS STATE
GOVERNMENT
The coming together of the world as global village which as a result of
technology advancement had also promoted the Lagos state government .The
computerized of income tax was adopted in order to reduce the stress of tax
officers in the state and to capture as many as possible tax payer in to the tax
paying circle.
To achieve this the government has dividend the income tax in to three group
below:-
I. Electronic tax clearance certificate in circulation (ETCC)
II. Notified tax clearance certificate (N-TCC)
III. Company tax clearance certificate (C-TCC)
ELECTRONIC TAX CLEARANCE
The E-TCC is a new smart card based way of using tax clearance
certificate in Lagos state .The reason for the introduction of this include the
following

50
i. There are lot of tax clearance certificate
ii. Delay in obtaining tax certificate .
iii. Poor identification of the real tax payer.
OBJECTIVES OF ELECTRONIC TAX CLEARANCE CERTIFICATE (E-
TCC)
i. Increase the internal generated revenue of the state through PAYE
system
ii. Serve and encourage direct assessment of individuals.
iii. To capture more tax payer in the net of the state tax payer.
BENEFITS OF ELECTRONICS TAX PAYER
1. Tax payer can now be identify, this is because the tax clearance
certificate will show the recent passport photograph of the tax payer,
thereby making it not useful to any whose identify is not recognize
through the certificate.
2. Medium of advertising or creating awareness and to capture more people
in to the state tax net.
3. For easy reconciliation of tax return since this is now computerize, it
will be easy to get reconciliation rather going through the formal manual
method.(files and paper)
4. Elimination of fake tax clearance in circulation .This is because the E-
TCC will carry a code and security information and identification which
will make it difficult to duplicate.
5. Increase in revenue generated through PAYE system as the E-TCC
system will ensure total return of all remittance of all taxes collected.

51
BENEFIT TO THE TAX PAYER
i. It server as personal identity card as it can be carried without fear
or easy destructing.
ii. It gives the tax payer the assurance that all tax deducted are
remitted in government pocket.
iii. It provide easy trace to the history of the tax payer
iv. Tax payer will no longer experience delay in tax clearance
certificate collection.
v. Information provided on electronic tax clearance certificate (E-
TCC) is secure with cold hence ensure integrity and privacy.
vi. The card can be verify online.
vii. It allow direct assessment.
MODIFICATION TAX CLEARANCE CERTIFICATE (M-TCC)
This is vibrant of E-TCC and is made through completion of form for self
employed obtain from designated place in state or at the tax revenue center office
known ‘’ board of internal revenue” (BIR) rather than website ( www.lasg.org)
photocopy of assessment notice receipt of part remitted and passport photography
are also need and card are issue to applicant after seven days.
COMPANY TAX CLEARANCE CERTIFICATE
This is a variance of E-TCC which is issue to company who are satisfy their
PAYE system and withholding tax obligation for the year of assessment.

52
CHAPTER THREE
3.0 RESEARCH METHODOLOGY
3.1 INTRODUCTION
This project is an organization of personal income tax in Nigeria. The
objectives of this chapter basically to present a comprehensive presentation of the
means by which necessary data are drive and subsequent analysis of the project
data.
Also explain here are the research instrument. Which are questionnaire,
oral interview, and visual observation.
3.2 RESEARCH DESIGN
This chapter discussed the method use in the collection of data
administration of questionnaire and interview where use to obtain data as a guard
to identification of the problem militating against tax assessment and collection,
and also the way forward of personal income tax in revenue generation in Nigeria
which Lagos internal revenue service of the chosen as the case study.
3.3 SOURCES OF DATA/MATHOD OF DATA COLLECTION
The method used in the collection of data was through questionnaire, verbal
interview and visual observation. A copy of questionnaire will be attached to this
project.
3.4 STATISTICAL TECHNIQES
In order to achieve the aim of the project, it is necessary to analyes the
various data and information collected from the field survey to carried out, which
is responsible in order to replicate and come and reconfirm earlier and way toward
of personal income tax on potential individual and companies in Nigeria in which
the Lagos state internal revenue service has been chosen as a case study.

53
The type of statistical representation that was employed to analyse this data
and information gathered are the use of table and other statistical tool as may be
deemed fit or necessary during analysis. The statistical method that was employed
in testing the hypothesis is chi-square.
3.5 POPULATION AND SAMPLE
Sampling is a technique of a scientific process used in selecting a sample from
the entire population to draw a relatively valid conclusion about its attribute .This
will enable the researcher to reduce the population to management size of the
purpose of the study random sampling as been persistently used in this study that
deserver some justification.
According Taylor (1988), random sampling is that portion of drawing a portion
(or sample) of a population or a universal so that each member of the population
or universe have an equal chance of been selected.
In other words, in a random sampling, all possible sample of fixed size has the
probability of being selected. A sample drawn at random is un biased in the sense
that no member of population has any chance of been selected than any other
member.
Random sampling techniques like any other viz stratified sampling
,systematic sampling , quota sampling, as its own weakness, greatest of this
random error, which by itself reduce by increasing the sample size.
DECISION UNDER METHOD OF DATA ANALYSIS
These hypotheses are formulated under “null and alternative” hypothesis so that
“alternatives will be accepted if the null is rejected. The researcher will however
be very objective to commit type one error or type two error in the process of
testing the hypothesis ( I e I will reject when I supposed to accept and vis-versal).

54
The hypothesis will be tested using two in 5% level of significance or 10%
confidence internal under the following condition:-
1, Accept if 2 fall outside the range of 1.96 to +1.96 ( I e 1.96<2>1.96)
2, Reject: if 2 fall outside the range of 1.96 to 1.96 in other words, the set of 2
score under the range -1.96 contribute the region of acceptance while that which
fall outside contribute to the region of rejection.

55
CHAPTER FOUR
4.0 ANALYSIS OF DATA PRESSENTATION OF FINDING
4.1 INTRODUCTION
This chapter consists of the result of the study carried out using questionnaire.
This chapter also helps in drawing conclusion to the research work.
To arrive at a decision on which to choose the likely option of the question
in the questionnaire, the research will use the mean in analyzing the data. This is
will enable him to make a decision among the option.
4.2 ANALYSING OF DATA BASE ON RESESRCH
QUESTIONNAIREAND HYPOTHESIS.
A total of 60 questionnaires were distributed but only 48 were obtain and
interpretation were based on 48 respondents, to aid the analysis and interpretation
of the result of the research findings, the demographic background on the
respondent was tested and some of the statement in other section of the
questionnaire.
AGE
Table 4.2.1
CATEGORY UNDER
30 YEARS
NO OF
RESPONDENT
PERCENTAGE
(%)
31-35 12 12.5
36-40 18 29.6
41-45 9 18.75
46-50 5 10.42
51 and above 2 4.17
Total 48 100%
Source: Researchers survey 2016

56
From the above analysis, 6 respondent are under 30, 12 are between 31-35, 18
are between 36-40, 9 are between 41-45, 5 are between 46-50, and while 2 are
between 51 and above.
4.2.2 LEVEL OF QUALIFICATION
CATEGORY NO OF
RESPONDENT
PERCENTAGE
(%)
PRIMARY SIX
GCE/O
LEVEL/SSCE
15 31.25
OND/NCE 5 10.42
HND/B.SC 20 41.62
Other
qualification
8 16.6
Total 48 100%
Source: researchers survey 2016
From the above table,15 respondent are GCE/O LEVEL/SSCE, 5 respondent are
OND/NCE , 20 respondent are HND/B.SC, 8 respondent are other qualification
and none of the respondent are primary six pupils.
4.2.3 LENGTH OF EXPERIENCE
CATEGORY NO OF RESPONDENT PERCENTAGE (%)
Under 5 years 8 16.67
6-10 years 10 20.83
11-15 years 15 31.25
16-20 years 8 10.42
21-30 years 7 9.42
Total 48 100%
Source: Research survey 2016
The above table show the length of experience acquired by the respondent, 8
respondent are under 5 years of experience, 10 respondent are 6-10 years of

57
experience , 15 respondent are 11-15 years of experience, 8 respondent are 16-20
years of experience,7 respondent are 21-30 years of experience.
4.2.3 ANALYSIS OF RESPONDENT DATA BASE ON THEIR
DEMOGRAPHIC INFORMATION QUESTIONNAIRE
SEX DISTRIBUTION
CATEGORY NO OF RESPONDENT PERCENTAGE
(%)
FEMALE 25 52.1
MALE 23 47.9
TOTAL 48 100%
From the analysis, it can be seen that 25 respondent are female I e 52.10% while
23 respondent are male I e 47.9%.
Single 15 31.25
Married 20 41.67
Window 8 16.66
Separate 5 10.42
Divorced -
Total 48 100%
From the above analysis, it can be concluded that 15 respondent are single, 20
respondent are married, 8n respondent are window, 5 respondent are separate and
none are divorce.

58
ANALYSIS OF DATA PESPECT OF RESERCHER INTREST
1: There are loopholes in the personal income tax which can be exploited.
Table 4.2.1
CATEGORY NO OF RESPONDENT PERCENATGE
(%)
Strongly agree 20 41.67
Agree 20 41.67
Disagree 1 2.08
Strongly disagree 2 4.17
Indifference 5 10.42
Total 48 100%
Source: Researcher survey 2016
It is seen from the analysis that 20 respondent strongly agree given 41.67, 20
respondent agree given 41.67 also, 1 respondent disagree given 2.08, 2 respondent
strongly disagree given 4.17, 5 respondent are3 indifference given 10.42.It can be
seen from the analysis that there bare loopholes in personal income tax which can
be exploited.
2: Internal control system will be needed in the board of internal revenue in
relation to keeping of record.
Table 4.2.2
CATEGORY NO OF
RESPONDENT
PERCENTAGE
(%)
STRONGLY
AGREE
30 62.5
AGREE 18 37.5
DISAGREE
STRONGLY
AGREE
INDIFFERENCE
TOTAL 48 100%
From the above , it can seen that the respondent agree to the fact that a good
internal control system will be needed in relation to proper record keeping,

59
because 30 respondent strongly given 62.5% and 18 respondent agree given
37.5%,none of the respondent disagree, strongly agree and indifference.
3: people in the rural area should be subjected to the same tax burden compared to
those in the urban area?
Table 4.2.3
(%)
STRONGLY
AGREE
6 12.5
AGREE 7 14.5
Indifference
DISAGREE 15 31.25
Strongly disagree 20 41.67
TOTAL 48 100%
From the above ,6 respondent strongly agree,7 agree , none in difference , 15
respondent strongly disagree, 20 respondent strongly disagree. It can seen that
people in the rural area should should not be subjected to the same tax as people
in the urban area.
4. the process of collecting tax clearance certificate is encouraging in the state.
Table 4.2.4
STRONGLY
AGREE
AGREE
INDIFFERENCE 5 10.42
DISAGREE 18 37.5
STRONGLY
DISAGREE
25 52.02
TOTAL 48 100%

60
From the above, it can be seen that none of the respondent strongly agree,agree,5
respondent indifference, 18 respondent disagree, 25 respondent strongly disagree
.It can be seen that the process of collecting TCC is not encourage in the state.
5: if the ability were to be instrumentally, do you think people would be willing to
pay regular?
Table 4.2.5
STRONGLY
AGREE
20 41.67
AGREE 15 31.25
INDIFFERENCE
DISAGREE 8 16.67
STRONGLY
DISAGREE
5 10.41
TOTAL 48 100%
From the above, 20 respondent agree, 15 respondent agree, none are
indifferences, 8 disagree, 5 strongly disagree. It can be seen that if the ability are
instrumentally, people would will to pay tax regular.
6: If the revenue collection from tax is used to improve the standard of living of
people, will they be willingly to pay tax?
Table 4.2.6
STRONGLY
AGREE
25 52.08
AGREE 20 41.67
INDIFFERENCE
DISAGREE 3 6.25
STRONGLY
AGREE
TOTAL 48 100%

61
From the above, it can be seen that 25 respondent are strongly agree, 20
respondent agree, none are indifference, 3 disagree, none of respondent strongly
disagree, that if the revenue tax is to improve the standard of living of people,
they will be willingly to pay tax liability.
7: the ideal of taxable person without tax clearance certificate being derived
government percentage?
Table 4.2.7
STRONGLY
AGREE
5 10.42
AGREE 8 16.7
DISAGREE 15 31.25
STRONGLY
AGREE
10 20.83
TOTAL 48 100%
From the above, it can seen that 5 respondent strongly agree, 8 respondent agree,
10 respondent indifference, 15 respondent disagree, 10 respondent strongly
disagree that taxable person without tax clearance being derived by government
patronage.
8: Adequate payment of personal income tax increase the government revenue.
Table 4.2.8
STRONGLY
AGREE
15 31.25
AGREE 15 31.25
INDIFFERENCE 12 25
DISAGREE
STRONGLY
DISAGREE
6 12.5
TOTAL 48 100%

62
From the above, it can seen that 15 respondent strongly agree,15 respondent
agree, 12 respondent indifference, none disagree, 6 respondent strongly disagree
that adequate payment of personal income tax increase the state government
revenue.
9: what are the rate of return(gain) do you expect from the tax you pay?
Table 4.2.9
(%)
Provision of
infrastructure
facilities
Creation of
employment
opportunities
Increase in standard
of education
All of the above
Total 48 100%
From the above, it shows that all the respondent, expect good infrastructure
,employment opportunities and increase in standard of education from the tax
paid.
10: Government should improve the standard of living of tax officials so that tax
collection will improve.
Table 4.2.10
STRONGLY
AGREE
48 100
AGREE
INDIFFERENCE
DISAGREE
STRONGLY
AGREE
TOTAL 48 100%

63
From the above, it show that none of the respondents agree, Indifference,
disagree, strongly agree but all the every respondent strongly agree.
11. The increase in tax relief will affects the attitude of the people towards
payments
Table 4.2.11
(%)
STRONGLY
AGREE
25 52.08
AGREE 15 31.5
DISAGREE 3 6.25
STRONGLY
DISAGREE
TOTAL 48 100%
From the above, 25 respondent strongly agree, 15 respondent, 5respondent
indifference, 3 respondent disagree and none respondent strongly disagree. It can
be seen the increase in tax relief will make citizen to pay tax.
12: personal income tax server as revenue backbone to the state government.
Table 4.2.12
STRONGLY AGREE 21 43.75
AGREE 21 43.75
INDIFFERENCE
DISAGREE 6 12.5
STRONGLY
DISAGREE
TOTAL 48 100%
From the above, it can be seen that 21 respondent strongly agree, 21 respondent
21, none of the respondent indifference, 6 respondent disagree, none of the
respondent strongly disagree.

64
13: do you think Lagos state board of internal revenue has an effective procedure
for collecting personal income tax?
Table 4.2.13
STRONGLY
AGREE
AGREE
DISAGREE 18 37.5
STRONLY
DISAGREE
25 52.08
TOTAL 48 100%
It can be seen that none of the respondent strongly agree, agree, 5 respondent
indifference, 18 respondent disagree, 25 strongly disagree.
4.3 TESTING OF HYPOTHESIS
The hypothesis that are formulated are:
H0:- the pay as you earn (PAYE) system of taxation does not generate the highest
percentage of revenue for the state government.
H0:- the new collecting system does not curb the problem of tax evasion and tax
avoidance.
Testing the hypothesis using table 8 of this project, using chi- sequare.
STRONGLY
AGREE
15 31.25
AGREE 15 31.25
INDIFFERENCE 12 25
DISAGREE
STRONGLY
DISAGREE
6 12.5
TOTAL 48 100%

65
E(oi-ei)2
ei
Where o- observed
e- expected frequency
0 E Oi-ei (oi-ei) (oi-ei)
ei
15 15 0 0 0
15 15 0 0 0
12 12 0 0 0
6 6 0 0 0
31.25 31 0.0625 0.0625 2.016
31.25 31 0.0625 0.0625 2.016
25
12.5
25
12.5
0
0
0
0
0
0
4.032
X square=ca
X square tab=(r-1)(c-1)
(5-1) (2-1) 0.5
4 1 0.5
X square cal =4.032
X tab= 14.860
DECISION: X square tab is greater than x square cal, therefore we will accept
the claim.

66
4.4 INTERPRETATION OF RESULT
Recent studies had shown that the personal income tax has helped in
necessitating the economy from its depressed state to level in which the country
want, the role of taxation as a revenue generator is important. The government
development emphasis include health and teachers such as borehole water to the
urban and rural communities, rural need road and electricity.
The economy structure of the state, is designed around the mixed
economy, philosophy nut like in other parts of the federation, it is unique I e
different from the mixed economy system operation in the united kingdom. I n
Lagos state runs as a socialist structure in the sense that itn provide virtually all
social servers, where as the private sector controls the profitable means of
production and make profit through economic activities largely supported by
government and gives no social service to the people.
The presentation of data is target at the public on the existence of the
personal income impact to the Lagos state government.

67
CHAPTER FIVE
5.0. SUMMARY, CONCLUSION AND RECOMMENDATION.
5.1. INTRODUCTION
In the previous chapter, the data collected were subjected to an in depth
analysis, from various findings were shown, this section of this research study,
however present the study of the findings, out of which recommendation were
made and conclusion, the government gains sight in to what can also bring
development in to the society at large through a proper administered personal
income tax.
5.2 SUMMARY
A recurring problem with the personal income tax is the non compliance of
employment to regular their employee reunite such taxes to relevant authorities to
address this, in 2002 the government amended the 1993 personal income tax act to
make non-compliant employers liable to penalties up to #2500, as well as liable
for the payment of tax on arrears. Employers failing to keep proper records would
also face a penalty of #5000. A five this small tends to encourage tax evasion
since the penalty for being caught is lower the cost for non-compliance.
Personal income tax failed in Nigeria for lack of equitability. In spite the
fact that the self employed outnumber paid workers and that they earn as much as
four times that of the formal sector employees, the bulk of personal income tax is
paid by employees whose salaries is deducted at sources. Inadquates monitoring
by tax authorities, the dominance of informal sector activities and that many
Nigerians lives in rural areas make the coverage self-employed workers difficult.
Althought regulation were enforced in PIT Act.NO.104 OF 1993, amendment are
still made on a yearly basis. Inaddition to the fact that amendment are not
adequately informed to the public nor incorporated in the relevant legislation, the

68
legal language is also ambiguous, confusing and unprofessional. There is very
little tax education in Nigeria, taxpayers are ignorant of the laws, regulatory their
taxation, and this makes disclosure difficult.
The research study is made in finding out the extent to which personal
income tax server as a source of revenue to Lagos state government, it also asses
critically through properly administered questionnaire to solicit for responses as to
the impact personal income tax as the revenue backbone of the state government.
In the course of writing this project, attempt have been made to identify,
various sources of income available to various citizen, how they are been assessed
to tax. The tax rate, the relief and the general effects on the standard of living of
the citizen.
Investigation of this study was based on the few people selected within
Lagos state internal revenue as the case study, two these local government ,as well
as staff of the state tax office, hypothesis was made and analysis based on the
collected information were obtained from both primary and secondary sources.
Textbooks, journal and other relevant document obtained, information were used
in compiling the historical background, literature review and data analysis
techniques. Analyzed data from the basis for our conclusion and recommendation.
5.3 CONCLUSION
Tax evasion avoidance is a very serious societal problem that is causing
much concern and major setback on remove collection in Nigeria. From all
indication it is show clear that if government engages in Nigeria a complete re-
organization of the tax administrative machinery, the twin problem of tax evasion
and avoidance will be reduced to a tolerable limit. It is equality important for the
various state governments to make Frantic efforts aimed at educating the tax
illiterates of their civic responsibities.

69
It can be inferred from the project that were importance of levying tax on
income that can not overemphasized because of the large ratio of income , it
contributed to the revenue of government ,moreover, money collected from taxes
is used in providing social benefits for the citizens and server as means of
distributing income between the rich and the poor.
In spite of thid justification, personal income tax inflicted upon individual
citizen such as reduction in purchasing power. (which led to tax invasion and tax
avoidance by the citizen in the state), decree in investment, low standard of living,
high cost of living, high cost of living, unemployment and low attitudes towards
establishing enterprises. All these constituted bad effect of personal income tax on
the economic well being of citizen.
Thus , it be concluded that taxation as an agent of social justices is not
justified. However, to reduce these and tax payer certain factor can be
manipulated, these include reduction in tax rate, view of available personal
granting of subsidy to citizen by government to encourage investment and the like
of all these factor can be manipulated, these include, reduction in tax rate seen
most critically because of the amount deducted by tax directly depend on the
applied.
In conclusion, for the foregoing analysis have to some extent revealed that
result of the study and subsequently the recommendation which should be
critically considered by the government, who will see the government
development project as a collective effort that should be jointly upheld and
supported , so that state will continue to be the heartbeat of our great nation
Nigeria.

70
5.3 RECOMMENDATION
The following recommendation, which may go along way to help the
government reduse the body of personal income tax on the purchasing power of
individuals and the standard of living and also taxes from the citizens. It is
however important to stress that the recommendation here are by no means to
exhaustive instead they are meant to enable government take critical look at
important things with a view in implementing some, if not all the suggestion listed
as follows:-
1) The problem of multiple taxes also needs to be urgently addressed. This
can be done by precluding states and local governments from imposing
more levies on companies and individual earnings outside those prescribed
in the statute books.
2) The setting up of Revenue Courts should be embraced by the various state
governments. These Courts should be made to impose heavy
monetary penalties and criminal sanctions.
3) A corrupt-free and efficient administrative machinery with personnel who
are adequately trained, well-equipped and motivated would enable Nigeria
to make appreciable progress in revenue diversification. Tax administration
machinery should have an effective redress and refund system so that
disputes can be settled easily and corruption checked.
4) Need to review the tax law:- Despite several effort by the government to
amend certain provision from the tax decree 1993(PTTD) which replace
TMA 1961.
5) The need to club inflation:- In spite of every effort of taxation there has
been an increasingly decrease in comes to galloping inflation in the
economy. Hence, government aim, at increasing the purchasing power can

71
not be fully accomplished unless the inflationary trend of the economy
controlled.

72
BIBLIOGRAPHY
Abdulganiy Alashe (2011) the benefit of the amendment to personal
income tax acts, Lagos learned journal.
Adebisi A.(2005) companies taxation in Nigeria including petroleum profit
tax.(4th edition), Jaa Nig.Ltd, Lagos Nigeria.
Adepoju Tejumaiye (2003) introduction to research: Sceptre print limited
Ibadan Nigeria, Oyo state Nigeria
Ande C.E (2005) essential government for senior secondary school Tonad
publisher limited, Ogun state Nigeria.
Akuntola willams Delliote (2011) “guide to the new personal income tax,
consult Nigeria
Institute of chattered accountant of Nigeria (ICAN) study pack (2006) tax
management and fiscal policy. Vi publishing limited
Ibukun Alatishe (2008) advance taxation revised edition: Olas venture,
Lagos state Nigeria
Lekan Sohyede and Sunday O. Kajola (2006) taxation principle and practice
in Nigeria. Silican publishing company, Ibadan Nigeria
Seyi Ojo (2011) fundamental principle of Nigeria tax. Sagriba tax punlican
Lagos.
Seyi Ojo (2006) student companion on Nigeria tax, publication Nigeria
Sola Abisola (2002) Nigeria taxation in focuses. Rakson Nig.Ltd.

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