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The role of Taxation in the Nigerian economy

Taxation has been one of the ways in which government is able to finance its activities.Government imposes levies on individuals, companies, organisations in the form of tax so government machinery can run constantly and continuously. There are various forms of taxes that have been imposed at all tiers of government,namely the federal government,state government and the local governments.

The role of tax cannot be underestimated at all. In some developed economies,that have no mineral resources to which they can tap into and make considerable gains.

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An effective tax system has been put in place so the government wont feel the impact of having God given natural resources.In less developed economies like Nigeria however, the tax system keeps getting reviewed from time to time and keeps getting updated.

Some of the reviews include the introduction of the tax identification number (TIN) in 2008. A whole lot of campaign, sensitisation, awareness is being put to educate the citizenry of the need to pay their taxes but a large chunk of individuals and corporate bodies still do not meet this duty.

Reasons adduced for this includes infrastructural decay, lack of database of citizens and corporate bodies,double taxation by two or more arms of government,corruption etc.

The citizenry needs to be educated that despite these pitfalls, taxes should be paid and government cannot function or perform the duty which it was elected to do without taxes.

(A) Some of the taxes collected by the federal arm of the government of Nigeria includes:

(1) Company income tax (CIT)

(2) Petroleum profit tax (PPT)

(3) Value added tax (VAT)

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(4) Personal income tax (PIT) of the armed forces, the police, people resident in the federal capital territory (fct), external affairs officers and non residents.

(5) Witholding tax (WHT) of companies only

(6) Education tax (EDT)

(7) Stamp duties

(8) Capital gains tax (CGT) in Abuja and corporate bodies.

(9) National information technology development fund levy (NITDF).

(B) Some of the taxes collected by the states of the federation includes:

– The personal income tax through pay as you earn (PAYE), direct assessment and government assessment.

– Witholding tax (strictly for individuals)

– Capital gains tax

– Stamp duties ( executed instruments by individuals)

– Road taxes,tolls

– Business premises resitration and renewal levy

– Development levy that should not be more than N100 per individual per annum.

– Street registration fees only in the capital

– Rights of Occupancy fees

– Rates in narkets

(C) Some of the taxes collectible at the local government level includes:

-Tenement rates

– Abattoir and slaughter house fees

– Liquor licences

– Marriage,birth and death registration fees

– Naming of street fees but excluding state capitals

– Shop and kiosk rates.

– Rights of occupancy fees exxluding the state capitals.

– Market and motor park fees

– Domestic animal licences

-Radio and television licences

– Parking lot chargee and fines

-Refuse disposal/ Sewage disposal fees

-Signboard and advertisement permit

– Customary,burial ground and religious places permit

– Merriment,leisure and road closure fees.

– Cattle tax

After highlighting the various taxes as done above,i hope it gives a clearer picture of what can be demanded to the readership as taxes by the three tiers of government in Nigeria.

Need we say that it is when we pay our taxes as at when due can we ask questions when the government of the day doesnt fulfill its role.The role of taxation in Nigeria is very important.without which the government of the day will gradually ground to a halt and close shop.

An example of a state in Nigeria where taxes play an important role,if not the major role in government is Lagos state.Some attribute it to the fact that it is the conmercial nerve centre of the country. Lagos state government currently generates about N23billion monthly from taxes.Whereas the federal allocation to the state monthly is under N10billion.

It is the very reason Lagos state stands tall,can provide services for its citizenry,can meet its obligation as at when due,even when other states of the federation are struggling and finding it hard to do same.If we therefore remove taxes and its role from the finances of Lagos state.

I want to leave the reader with the grim picture that will be left of the finances of the state.All this notwithstanding the statistic that only 50% of taxable adults or 4 million of the over 8million taxable individuals in the state pay tax.If we take a look at the federal government budget that is about to be passed.

That is the budget for the year 2016,revenue from various taxes is estimated at around N980billion.This is just a little above the revenue expected from crude oil,of around N900billion. This comparison is done so the reader will have a total understanding of the role of taxes as well as know that it is what keeps the machinery of government functioning.

Historically,taxes in the country were in place during the pre colonial period.it however became more standardized,effectively carried out during the colonial days in Nigeria.

Taxes in Nigeria are structured under the following headings:

– Proportional tax system:here a fixed percentage of taxpayers income ins payable as tax.Tax payable is therefore proportional to taxpayers income.an example for 3 categories of income are;

Worker     Income    percentage   Tax

A                 10,000         10             1000

B                  20,000          10           2000

C                  25,000          10          2500

– Progressive tax system:here the tax payable is graduated as income increases . That is why it is called preogressive.an example here is

Worker      Income          %              Tax

A                  10000          5                 500

B                   15000         10              1500

C                   20000        20              4000

– Regressive tax system: Here,the tax payable decreases as income increases. The regressive tax system is not commonly used,even in developed countries since this will mean revenue from taxes to the government will only continue to reduce. The most commonly used ones in Nigeria are the proportional tax system and the progressive tax system.

The incidence of tax in Nigeria is borne directly or indirectly. What we mean here is some of this taxes are referred to as direct tax while others are referred to as indirect taxes.An example of indirect taxes are Value added tax,excise duties,stamp duties.Example of direct taxes are company income tax,capital gains tax etc.

In conclusion,after a proper explanation of the various taxes paid in Nigeria,what the levels of government can ask for,what the taxes collected by government is used for.

I hope the readership have been properly educated on the role of taxation in the Nigerian economy. Although there are still very many challenges in the area of collection,and on the part of taxpayers.

We should endeavour to pay our taxes as at when due so the government can help redistribute wealth among the citizenry as well as provide safety and security and other infrastructure that will aid life and living.

Simply put,tax is the fuel that powers the machinery of government,without which there will be nothing like government and the art of governance.

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Tunde is a writer at InfoGuideNigeria.com. InfoGuide Nigeria is a team of Resource Persons and Consultants led by Ifiokobong Ibanga. Page maintained by Ifiokobong Ibanga. If you need a personal assistance on this topic, kindly contact us.

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