Electronic Taxation and Its Challenges in Nigeria
Tax is any form charge levied on a person or an institution by a governing body or its equivalent such that defaulted payment is punishable by law. It is a form of compulsory levy which does not have a direct benefit. The imposition of taxes and the institution of taxing is as old as civilization itself cutting across religion, race and continental borders. There are different ways by which tax is collected which is peculiar to each country. For example, in the bible, tax collectors would move around the community to collect taxes from traders or mostly business men and anyone who does not comply faces serious consequences. In Nigeria, the body charged with the authority to collect taxes is the Federal Inland Revenue Service at the federal level.
The E-taxation system looks at how tax payment can be encouraged through simplification and increased efficiency in payment processing. This article looks at the concept and the workability of the E-taxation system and also its challenges in Nigeria with an attempt to recommend solutions.
The Federal Inland Revenue Service (FIRS) embarked on an Integrated Tax Administration System (ITAS) project in 2013. ITAS is aimed at enhancing tax administration and simplifying the tax compliance process in Nigeria through the use of technology.
What is E-taxation?
E-taxation simply means electronic taxation. E-taxation involves the use of technology or electronic device to compute tax, pay taxes, record of tax payer’s database amongst others in order to enhance an effective tax system. E-taxation is currently rampant and has proved successful in some developed countries like USA, Japan, Australia etc.
The E-Taxation system offers multiple solutions to the taxation system in Nigeria. The tax payers in general are more receptive to taxation as the whole process is convenient and flexible since it doesn’t require visits to the tax office or waiting on an endless queue for tax clearance certificate. Even the government as a whole would benefit from the implementation of this system as it would have the ability to properly prepare its budget based on expected income, since it has historical records and a database showing payments trends. The system can also be used by the government to measure the level of the public’s reception of changes in tax laws, rates and their responses to the changes.
E-taxation has so much it can offer, however there are some challenges that prevent the realization and feasibility in Nigeria.
• Awareness: tax awareness is relatively low in Nigeria. A good number of people do not know about taxation and how exactly to pay their taxes. This is rampant in the informal sector or sole proprietorship. In most developed countries, the tax culture is known to a large percent of its citizens. This could be seen as a result of the utilization of their taxes and enforcement of tax laws unlike in Nigeria where most tax institutions target ‘big’ companies and leaving out the informal sector.
• Lack of necessary laws: there are so many laws governing the tax system in Nigeria. The major ones are the CITA and PITA (Company Income Tax Act and Personal Income Tax Act). These acts clearly do not go in line with the E-taxation system. Since 2002 that the FIRS started making plans to modernise and automate tax administration in Nigeria, not a single statute has been enacted by the National Assembly till date to legitimise the whole process. In the USA, there exist several laws that back up electronic tax filing such as the Tax Reform Act and the Restructuring and Reform Act enacted by the US Congress with the aim of having the IRS change its organisational culture, restructure, modernise and improve taxpayers’ protection and rights generally.
• Complex Tax system: A tour through the IRS (Internal Revenue Service) website and feedback of their taxpayers reveal how detailed and easy it is to pay taxes electronically in the USA. In Japan, there is actually difficulty for foreigners in paying their taxes electronically as most of the information is written in Japanese language. It is believed that the various tax authorities in Nigeria would emulate the IRS in making the processes of electronic tax filing very comprehensive and easy to utilize.
• Lack of incentives to pay taxes:The fact that there are no direct benefits and poor utilization of taxes give Nigerians no incentive to pay taxes. What comes the mind of a typical Nigerian when he is asked to pay his taxes could be that the Government plan on enrich their selves. Take for example, the federal government’s plans on using taxes to create a railway system from Ogun state to Lagos-Ibadan and has ordered that houses within the 90cm range be demolished. These are tax payer’s houses gone without no compensation and given less than a week to move out. These victims of the government policies may not be inclined to pay their taxes as before. In a country like Nigeria where corruption and injustice thrives, there is little or no incentive to pay taxes.
• Illiteracy: this is another challenge faced by Nigeria to implement the E-taxation system. It is common knowledge that the literacy level amongst taxpayers in the USA and Japan is higher, given the period their tax authorities introduced electronic tax filing to their taxpayers. For example, the IRS introduced electronic tax filing as far back as 1986. The FIRS in Nigeria is yet to practically introduce electronic tax filing to Nigerian taxpayers it is only in the news but taxpayers throughout the Federation have not started using it to pay their taxes.
There should be awareness of taxation in Nigeria. A large percentage of Nigerians do not know about taxation. The awareness should be made to sensitize and explain how to pay taxes, what it entails and its benefits. I believe this will go a long way in encouraging taxation in Nigeria.
E-taxation should also be extended to mobile phones in form of an ‘application’, such that people can have quick access to the tax system, compute their taxes and pay their taxes at ease. Given the challenge of technology in Nigeria, it is also suggested that there should be a backup manual tax filing system. Another challenge is also illiteracy; not every Nigerian have phones and not every phone owner can comprehend easily the automated tax system. This still falls back on Tax awareness.
It is true that Nigeria is one the most corrupt countries in the world and as a result there is poor utilization of taxes. There have been series of argument on the eradication of corruption in Nigeria. However, my suggestion is that there should be proper scrutiny and a good audit system of how taxes are spent.
In conclusion, E-taxation is a recent development in Nigeria and we welcome this development as it will significantly improve tax system in Nigeria. According to the 2015 Paying Taxes Report (a joint study by PwC and the World Bank), Nigeria ranks 170 out of 189 economies on the ease of paying taxes. On the average, it takes a medium size company about 909 hours to comply with its tax obligations annually.
E-taxation if implemented would ease the tax paying system and thus increase the development in Nigeria.
UMENWEKE & IFEDIORA: The Law and Practice of Electronic Taxation in Nigeria: The Gains and Challenges
Onuiri Ernest E., Faroun Fikayo, Erhinyeme Ogheneovo, Jegede Ayodeji: Design and Development Of an E-Taxation System, European Scientific Journal May 2015 edition vol.11, No.15
Tax alert – PwC Nigeria, FIRS introduces electronic filing of tax returns and online payment of taxes February 2015