All levels of government need funds to finance their activities. They
must find ways of obtaining money to pay for their expenditure. Some of the
sources of finance available to the government include taxes, royalties,
levies, fines, penalties, loans, grants, and donations given to the government,
proceeds from the sale of government-owned companies, lands, buildings and
other assets, profits or surpluses made by government-owned enterprises,
dividends paid to government on shares owned in companies, interest received on
loans made by the government, rent received on government-owned properties,
income from the sale of government services, etc.
The major source of federal government revenue in Nigeria is the revenue
from the sale of crude oil. On the other hand, state and local governments in
Nigeria are financed mostly through the statutory allocations from the
federation account. Nevertheless, taxation is still a very important source of
revenue to the federal, state and local governments.
In this article, you should be able to:
· Define of tax and
taxation
· Understand the
purposes/objectives/uses of taxation
· Know the
canons/principles of taxation
Meaning of Tax and Taxation
There are quite a number of definitions of Tax and Taxation depending on
the qualities it possesses which are as follows:
Be a compulsory payment: A tax
is a compulsory payment. A levy, the payment of which is voluntary is not a tax
but a contribution or donation.
Be a payment to the Government:
Tax must be a payment to a public authority or a government. Where a tax is
paid to an individual such as a King, it must be in his capacity as embodiment
of the society or state. If not, then, it is extortion and not a tax.
Be common benefit: A tax must
be for common use. It must be for common good. This has to do with the intended
purpose(s) of the tax. Thus, where such contribution is made for the use of the
an individual, it is not a tax.
Have a known formula: the
contribution must be in accordance with a known formula. In the traditional
society, it may have flat rate or graduated according to age groups or gender.
Nowadays, rates are used.
Have distinctive beneficiary:
The beneficiary society must be a definite and distinctive one such as a
kingdom in Yoruba –land or an Emirate in Hausa land. In modern administrations,
it can be government at Federal, State or Local level. In the light of the
foregoing, the following definitions can be considered fair:
A tax is the “levy by public authorities with a tax jurisdiction, of compulsory contributions by the citizens to defray part of the cost of government activities in providing the needs of the society”.
Taxation is “the process
or machinery by which communities or groups of persons are made to contribute
in some agreed quantum and method for the purpose of the administration and
development of the society”. “Taxation is the transfer of real economic
resources from the private sector to the public sector to finance public sector
activities” Tax can simply be defined as a charge on income of individuals and
corporate bodies by the government.
More technically, tax can be defined as compulsory payment imposed by the
government through its agents on income of individuals and corporate bodies as
well as on goods and services.
A tax is a compulsory payment made by individuals and organizations to
the government in accordance with predetermined criteria for which no direct or
specific benefit is received by the taxpayer. This definition is similar to
the one given by Pritchard and Murphy.
According to them, a tax is “a payment to central government, calculated
by laid down rules for which nothing specifically usable by that taxpayer alone
is transferred.”
In Mathew’s v Chikory Marketing Board (Victoria) (1938), Chief Justice
Latham of the Australian Supreme Court defined a tax as “a compulsory
extraction of money by a public authority for public purposes”, or taxation is
raising money for the purpose of government by means of contributions from
individual persons.”
As defined by Black (1990, p. 1457), a tax is “an enforced contribution
of money or other property, assessed in accordance with some reasonable rule or
apportionment by authority of a sovereign state on persons or property within
its jurisdiction for the purpose of defraying the public expenses.
It is important to note that tax is imposed by the government and not
individuals or corporate bodies. Revenue generated from taxation is usually
used for developmental purposes. The essence of all taxes is the removal of
resources from private hands of the individual, corporate bodies, trusts,
families, societies and communities into the public sector to finance activities
that have to do with whole society.
Purposes/Objectives/Uses of Taxation
Government imposes tax not just for revenue generation but to accomplish
various economic objectives. Tax is imposed for the following reasons:
1. To cover the cost of administration, internal and external defense,
maintenance of law and order as well as social services required by the
citizens.
2. To protect companies in infant stage industries by reducing their
tariffs this will invariably reduce the cost of production relative to imported
products.
3. Are substitutes.
4. To discourage the consumption of dangerous/harmful products.
5. To control the importation, production and consumption of certain
goods and services thereby preventing dumping. This can be achieved by
increasing tax payable on such goods and services.
6. To redistribute wealth and income among various income earners through
progressive tax system. This helps to reduce income inequality.
7. To counter inflation by reducing volume of purchasing power.
8. To provide subsidies in favor of preferred sectors of the economy, e.g
agriculture and selected industries.
9. To service national debt and provide retirement benefit etc.
Canons/Principles of Taxation
For a tax system to achieve its objective, it must possess certain
principles which include:
1. Principle of Equity: A good tax system
should be equitable in the distribution of tax burden. To ensure this, person’s
ability to pay is to be borne in mind by the authority. Progressive tax system
possesses this quality.
2. Principle of Convenience: This is in
respect of timing and mode of payment. The timing and mode of payment should be
convenient to the tax payer. Any inconvenience caused by the mode of payment
and timing should be avoided.
3. Principle of Certainty: This stipulates
that the time, mode and amount to be paid should be clear to the taxpayer. The
procedure for computation should be stated.
4. Principle of Simplicity: A
good tax system should be coherent, simple and straightforward. It should be
well understood by both the tax payer and tax administrators. It should not be
complicated or ambiguous.
5. Principle of Economy: This relates
to cost of administering tax. It provides that the imposition of tax is
uneconomical if the cost of collection is in excess of revenue generated. A tax
can be considered economical if the cost of administration is not excessive so
that a loss is not incurred in the process.
6. Principle of Impartiality: This advocates
that a tax system should not discriminate between tax payers under similar
circumstances. It requires that all persons should similarly be placed under
the same condition, to pay the same tax.
7. Principle of Productivity/Fiscal Adequacy:
This recognizes that the yield from a tax should be adequate to cover
government expenditure in terms of promoting economic growth and development.
The essence of economic growth and development is to improve the living
standard of the citizens (tax payers).
8. Principle of Flexibility: A
good tax system should be responsive to changing realities especially in a
federal and democratic country where there are always changes of government. It
proposes that a tax system should be adjustable to allow for scrapping of
obsolete tax system and replacing same with meaningful tax process.
In conclusion, the discussions in this article are indispensable to
readers/students since they provide overview/background knowledge on the
concept of tax and taxation, purposes, uses as well as the principles of
taxation in Nigeria. This background knowledge is needed by readers as it will
enable them know the meaning of taxation as well as the principles governing
taxation.
The article has drawn attention to background knowledge on the concept of
tax and taxation in Nigeria. Specifically, the following aspects have been
dealt with:
· Definition of tax and
taxation
· The
purposes/objectives/uses of taxation
· The canons/principles of
taxation
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