AbstractDesign and implementation of tax assessment system is a project work aimed at developing software that will enable Enugu State Board of internal revenue assess companies to determine their PAYE.
The primary objective of this project is to study tax policy in Nigeria, with the specific objectives of examining the main tax reforms in the country; highlighting tax revenue profile and composition; analysing possible distributional impacts on the poor; discussing major problems that could prevent effective tax implementation in the country; making a proper tax assessment for companies and individuals.
So this project work is designed to explore the possible means of implementing a computerized tax assessment system using visual basic 6.0 as the platform for the software development.
CHAPTER ONE1.0 INTRODUCTION
1.1 Background of the Study
Nigeria is governed by a federal system, hence its fiscal operations also adhere to the same principle. This has serious implications on how the tax system is managed in the country. In Nigeria, the government’s fiscal power is based on a three-tiered tax structure divided between the federal, state and local governments, each of which has different tax jurisdictions. As of 2002, about 40 different taxes and levies are shared by all three levels of government.
The Nigerian tax system is lopsided, and dominated by oil revenue. The most veritable tax handles are under the control of the federal government while the lower tiers are responsible for the less buoyant ones—the federal government taxes corporate bodies while state and local governments tax individuals. While the federal government on average accounts for 90 per cent of the overall revenue annually, it only accounts for
about 70 per cent of total government expenditure. In 1995, the breakdown of total tax and levy collection of the three tiers was 96.4 per cent for the federal government, 3.2 per cent for the state and 0.4 per cent for the local government (Phillips 1997: 40). A major element contributing to this development was the prolonged military rule that had ignored constitutional provision.
Over the past four decades, the country’s revenues were largely derived from primary products. Between 1960 and the early 1970s, revenue from agricultural products dominated, while
revenue from other sources was considered as residual. Since the oil boom of 1973/4 to date, however, oil has dominated Nigeria’s revenue structure, and its share in federally collected revenue rose from 26.3 per cent in 1970 to 81.8, 72.6 and 76.3 in 1979, 1989 and 1999, respectively. Over the past two decades oil has accounted for at least 70 per cent of the revenue, thus indicating that traditional tax revenue has never assumed a strong role in the country’s management of fiscal policy. Instead of transforming or diversifying the existing revenue base, fiscal management has merely transited from one primary product-based revenue to another, making the economy susceptible to fluctuations of the international oil market.
The need to address this problem led to several tax policy reforms. The tax policy reviews of 1991 and 2003, as well as the yearly amendments given in the annual budget, were geared towards addressing this issue. But not much has been achieved. Perhaps to understand the importance of tax policy reforms, one needs to appreciate the urgency for such reforms. Why the need for tax policy reforms in Nigeria? First, there is a compelling need to diversify the revenue portfolio for the country in order to safeguard against the volatility of crude oil prices and to promote fiscal sustainability and economic viability at lower tiers of government. Second, Nigeria operates on a cash budget system, where proposals for expenditure are always anchored to revenue projections. This facilitates determining the optimal tax rate for a given level of expenditure. Thus accuracy in revenue projection
is vital for devising an appropriate framework for sustainable fiscal management, and this can be realized only if reforms are undertaken on existing tax policies in order to achieve some improvement.
Third, Nigerian tax system is concentrated on petroleum and trade taxes while direct and broad-based indirect taxes like the value-added (VAT) are neglected. This is a structural problem for the country’s tax system. Although direct taxes and VAT have the potential for expansion, their impact is limited because of the dominance of the informal sector in the country. Furthermore, the limited formal sector is supported with 2 strong unions that act as pressure groups to deter any appreciable tax increment from gross income. Fourth, the widening fiscal deficit that over the years has threatened macroeconomic stability and prospects for economic growth makes the prospect of tax reform very appealing. The ratio of deficit to GDP averaged 9.98 and 5.0 per cent for the periods 1990-94 and 1999-2001; in 1993 it was 15.5 per cent.
Fifth, the study groups on the review of the Nigerian tax system in 1991 and 2003 highlighted the need to increase tax revenue and reduce expenditure as the major fiscal issues to be addressed. As such, the primary objective of the committees was to optimize revenue from various sources within the country. Finally, the necessity to improve the tax notification procedure was underscored in order to facilitate effective evaluation of the
performance of the Nigerian tax system and to promote adequate planning and implementation. The quality of management associated with regular and
result-oriented tax reforms has a significant bearing on the overall macroeconomic performance and the distribution of resources between public and private sectors as well as within the public sector.
1.2 Statement of the Problem
Tax assessment in Nigeria has been a difficult one for years now. Company’s and individuals argue that the tax imposed on them far exceeds their income. Most at times, mega company’s runs away from paying their tax due to their connection to government. This leads to loss of revenue hence deterring the growth of the nations economy.
To this end, government is worried on the best way to implement the tax payment system. Most often the revenue collectors end up using the money collected for their personal need thereby diverting public funds.
The keeping and retrieval of accurate records on taxpayers are poorly carried out in most tax offices. Files may be misplaced; the record in them may be wrongly filled. Hence, it is not easy to obtain accurate and timely information or data. Keeping of folder for each taxpayer manually takes a lot of time and money and some of the information is redundant.
1.3 Purpose of the Study
This study is aimed at developing a database system for tax assessment in Board of Internal Revenue Enugu
1.4 Objectives of the Study
In spite of the importance of a result-oriented tax policy review for the country, attempts have not been made to assess development over the years. The primary objective of this project is to develop tax assessment software, with the specific objectives of:
i) Examining the main tax reforms in the country;
ii) Automated Tax assessment system
iii) Have a database of tax payee
v) Maintain annual tax income record
1.5 Justification of the Project
The aim of this study is to replace manual methods in tax offices. This would go a long way to eliminate the errors encountered in manual computation, which could be inimical to the people. Thus, this would help the tax officers overcome mental stress and constancy of being overworked.
The findings of this study would be useful to both government, staffs, company’s and individuals in the country.
1.6 Scope of the Study
This research work is limited to tax information system. The software developed will be carried out using Visual Basic to manage the database and at the same keep track of tax assessment information.
Due to time constraint, the software developed in this project covers tax assessment information. All other aspect of revenue collection information is not covered in this project.
It is assumed that the tax computation formula used in the software developed is correct based on the information obtained from board of internal revenue Enugu.
1.9 Definition of Terms
Tax: Tax as a compulsory extraction of money of its equivalence by public authority for public purposes enforceable by law; and it is not payment for services rendered
Databases: A systematically arranged collection of computer data, structured so that it can be automatically retrieved or manipulated. It is also called databank.
File Transfer: Any kind of computer file can be sent via the Internet from one Internet user to another. Table of accounts on spreadsheets, design by a graphic artists, music sound files etc, can all be exchanged in this way.
BIR Board of Internal Revenue
CITA Company Income Tax Act of 1990
CGT capital gains tax
CIT company income tax
FIRS Federal Inland Revenue Services
ITMA Income Tax Management Act
JTB Joint Tax Board
PIT personal income tax
PITA Personal Income Tax Act of 1993
PPT petroleum profits tax
PPTA Petroleum Profit Tax Act of 1959
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