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ELECTRONIC TAX SYSTEM, TAX COMPLIANCE
AND REVENUE COLLECTION EFFICIENCY IN LAGOS STATE
ABSTRACT
This study
examine the electronic tax system, tax compliance and revenue collection
efficiency in Lagos state, Nigeria. The study used cross-sectional survey
design. Population of the study comprised of tax officials, SME employees,
self-employed individuals. Data were Collected through the used f structured
Questionnaire. Regression and correlation were used to analyse the data
retrieved from the questionnaire. Among the finding reveals by the study
include: there is positive and significant effect of e-tax system on the tax
compliance of self-employed, relationship exist between perceived ease of use
and e-tax system. The study recommend that E-tax system should be encourage
within the State as this will go a long way in Busting the revenue generation
in State and.
CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND OF THE STUDY
Taxation is an important source of
revenue to the government. Tax can be variously defined; Anyanwu (1997) defined
taxation as the compulsory transfer of payment (or occasionally of goods and
services) from private individuals, institutions or groups to the government.
According to Ogbonna and Appah (2012), tax is “a major source of government
revenue all over the world”. According to Chris and Elizabeth (2001) tax has
three basic features namely, a compulsory levy imposed by government, or local
authority, for public purposes and to encourage social justice. Taxation is machinery
or process in which society and communities or group of individuals are
contributing into an agreed sum which is important for the resolution,
development and administration of the public (Ogundele, 1999). Taxes are
essential contribution levied by the government on citizens and corporate
institutions for the provision of public expenditure (Nightingale, 1997).
Taxation as a fiscal tool could be used to enhance a nation’s development
process and its economic activities, thereby improving the overall level of
prosperity and economic well-being of the entire citizenry (Anyaduba, 1999).
Taxation is a tool for societal development and also a means by which the
rewards of development are redistributed (Oladiran, 2009).
When the taxpayers pay their taxes, the
government is accountable to the citizens and are accountable to make budget
decisions accessible and transparent. In developing countries like Nigeria, the
Government faces challenges and issues when it comes to revenue collection
(i.e. tax collection) which ends up leaving the government collecting a lesser
amount. According to a world bank economic report on Nigeria published on the
1st of May 2013, it was stated that 95% of the government’s budgeted
expenditure depended on its projected oil revenue based on current world oil
prices. It was also recommended in the report that the Federal Government,
through the improvement of the domestic tax system it can increase its internal
revenue and provide in the event of a fall in oil prices a financial backup
plan for the economy (The World Bank, 2013).
Globally,
Electronic Tax System has been given attention through the increase in the use
of information technology and this affects the tax administration. Nisar (2013)
argued that current problems in public taxation stress the need of developing a
system of tax assessment and collection that involves internet services.
Therefore, Electronic Tax System is an online platform whereby the taxpayer is
able to access through internet all the services offered by a financial
authority such as the registration for personal identification number, filing
of returns, payment of taxes and application for compliance certificate.
E-Filing is a process where tax documents or tax returns are submitted through
the internet, usually without the need to submit any paper return.
In United States of America, the
introduction of electronic tax administration including electronic tax filing
(e-filing) has been the largest in terms of citizens affected. Starting in the
1980s as a partnership between the Internal Revenue Service (IRS) and the tax
preparer H&R Block, the program has developed to a successful
public-private partnership. In fact, the IRS has been described as one of the
most efficient tax collection agencies in the world (Fletcher 2003). Recent
announcements by the IRS indicate that e-filing has increased at an impressive
rate since its introduction in the late 1990s. Statistical analysis shows that
e-filing for individual taxpayers increased from an average of about 23% in
1999 and approximately 60% in 2007. More recent IRS information indicates an
individual e-filing rate of 61% in 2008 and 69% in 2009 (Pippin S and Tosun
M,2014).
In South Africa, SARS e-filing is the
official online tax returns submission portal for South African Revenue Service
launched originally in 2001 through third-party companies, then expanded and
taken in-house by SARS in 2006. In the 2015/2016 tax year SARS e-filing
processed 36.80 million electronic submissions and payments which is equivalent
to 98.7% of all submissions and payments to SARS in South Africa (SAnews,2016).
SARS e-filing is a free, online process for the submission of returns and
declarations and offer other related services.
The Nigerian Tax system is surrounded by
numerous problems; therefore, the aim of E-Tax system is to provide the tax
authority a database with details of taxpayers and their transactions. An
example of E-Tax System in Nigeria is Integrated Tax Administration System
(ITAS) introduced in 2013 by the Federal Inland Revenue Service to improve tax
administration in Nigeria and improve the tax compliance process from the
manual system which is monotonous and bureaucratic. IATS has the following
features;
Online
Submission of tax returns; Taxpayers can submit their tax returns for different
taxes such as Petroleum Profit Tax (PPT), Companies Income Tax (CIT), Value
Added Tax (VAT) and Capital Gains Tax(CGT) through the portal. When the
taxpayer is registered, a taxpayer’s e-filing account is created based on the
taxes the individual or company is liable to pay.
Electronic Tax Clearance Certificate (E-TCC)
processing: Taxpayers can apply for a TCC online which will be generated by the
system. Although hard copies will still be available for collection, a system
generated TCC will be just as useful as the hardcopy. E-TCC is therefore a
platform that issues the TCC of a taxpayer.
Validation
of Tax Identification Number (TIN): The external parties can validate the TIN
of a taxpayer on the Integrated Tax Administration System (ITAS).
Automatic
Imposition of Late Filing Penalties and Interests: The system has been designed
to automatically compute and impose interest and penalty for late submission of
tax returns or late payment of taxes.
Electronic
Tax Payment: Effective on March 2015, taxpayers can pay their taxes online from
their corporate bank accounts. This application which was developed in
conjunction with the Nigeria Inter-Bank Settlement System (NIBBS) is hosted on
the respective commercial bank’s internet-banking platform. The process
requires the TIN, unique document number generated on the E-filing platform and
the necessary internet banking authentication. (PWC Nigeria, 2015)
Tax compliance is the degree to
which a taxpayer complies with the tax rules of his country. This also means
making tax payments and producing and submitting tax returns to the tax
authorities on time and in the required formats. The issue of tax compliance
has been a vibrant issue in the tax world in Nigeria. Most citizens have the
view that since the government doesn’t provide us with the basic amenities
needed, why pay taxes? This is commonest reaction you get from citizens who
evade taxes. Tax evasion cannot be totally eliminated but can be controlled by
the tax authority. A more appropriate definition of compliance could include
the degree of willingness to complying with tax laws and administration that
can be achieved without immediate threat or actual application of enforcement
activity. Tax compliance can be viewed in terms of tax avoidance and evasion.
These two are distinguished in terms of legality, tax avoidance is legal while
tax evasion is illegal. Compliance might therefore be better defined in terms of
compliance with the tax laws of the nation (James, Murphy and Reinhart 2005).
1.2 STATEMENT
OF THE RESEARCH PROBLEM
Electronic
Taxation System remains a great concern worldwide especially in developing
countries like Nigeria. Electronic Tax System was introduced by the Federal
Inland Revenue Service in 2013 to increase revenue collection, effective tax
administration, curb tax evasion, avail services to the tax payers all the time
from anywhere, improve tax compliance and reduce the costs of compliance
process. The first need of any modern government is to generate enough revenue
which the backbone of the state is. Thus, taxation is one of the most
significant source of revenue for the government (Ogbonna and Appah,2012).
The E-filing
offers many benefits to the tax authorities. To the tax authorities, e-filing
minimizes their workload and operational cost due to the submission of tax
returns online. It also reduces the cost
of processing, storing and handling of tax returns. Despite these benefits associated
with e-filing, tax authorities face some major challenges towards the
implementation of the e-filing system. One of the challenges is the public
perception of the e-filing system. After
using an e-service over the Internet, the public may find the e-service system
easy and useful or otherwise. Since the public cannot directly communicate with
tax personnel, see or touch the tax forms as the service is provided online,
the e-filing service system delivered to them may not perform as expected because
even though there are online support centres, computer illiteracy is a factor
amongst some taxpayers and these support centres cannot provide all the
relevant details at all times. The public may be burdened by the time and
effort spent learning the new system and accommodating any services failure.
Sani and
Umar (2014), Tax evasion has been an issue of concern in the Nigerian tax
system for years. Tax evading attitude can have an adverse effect on government
funds, government’s socio-economic and political programs. This situation is
being blamed on the tax administrators by many analysts and commentators, for
not living up to expectation with regards to tax administration; others
attribute the case to the unpatriotic attitude and willingness of the taxpayers.
When the issue of tax non-compliance arises, it is expected that since
electronic tax system has been introduced, tax compliance should have increased
overtime leading to an increase in the tax revenue. Therefore, the gap between
the tax revenues to be collected and the tax revenues collected then becomes a
problem. Most taxable persons evade tax due to tax justice not achieved,
intentionally and for some other reasons leading to shortage in revenue
generation. Hence, the e-Tax system is necessary in order to capture more
taxpayers to increase the revenue of the State because the government needs
revenue in providing the basic amenities and also keeping track on these
taxpayers.
1.3
OBJECTIVES OF THE STUDY
The general
objective of this study is to examine the effect of the use and introduction of
the e-tax system on the tax compliance among self-employed taxpayers and SME
owners.
The study
was guided by the following specific objectives;
1. Examine
the effect of the e-tax system on the tax compliance among self-employed
individuals.
2. Examine
the effect of the e-tax system on the tax compliance among SME employees.
3. Examine
the relationship between the perceived ease of use and the electronic tax
system.
4. To
establish the effect of the electronic tax system on revenue collection
efficiency of the tax authority.
1.4 RESEARCH
QUESTIONS
In order to
achieve the objectives highlighted above, the following research questions were
formulated as follows:
1. To what extent does e-tax system have an
effect on the tax compliance of self-employed individuals?
2. To what extent does e-tax system have an
effect on the tax compliance of SME employees?
3. What is
the relationship between e-tax system and the perceived ease of use?
4. To what
extent does the electronic tax system have an effect on the tax revenue
collection efficiency of the tax authority?
1.5 THE
RESEARCH HYPOTHESIS
HO1: There
is no effect of e-tax system on the tax compliance of self-employed
individuals.
H02: There is no effect of e-tax system on the tax
compliance of SME employees.
HO3: There
exists no relationship between perceived ease of use and e-tax system.
HO4: There
is no effect of electronic tax system on the revenue collection efficiency of
the tax authority.
1.6
SIGNIFICANCE OF THE STUDY
The Lagos
State government relies heavily on taxes to fund its infrastructural and
recurrent development expenditure. An increase or decrease in the tax
compliance of taxpayers has a direct bearing on the economy of Nigeria as a
country.
Tax
Authority and Other Government Institutions: The study is likely to reveal the
strengths or weaknesses associated with implementation of new technology and
its benefits on tax compliance among small taxpayers, enriching knowledge to
other state government institutions planning to introduce electronic tax
system. This study will also enlighten the tax authority on how the e-tax
system has significantly increased tax compliance among SMEs and Self-employed
taxpayers, using the platform or otherwise.
Students: It
will also be of use to the student and researchers for further research study
who wish to understand the practical aspect of taxation. It will assist
students in their knowledge and appreciation of the practical E-tax system of
the government. The research will also contribute to the existing body of
literature knowledge and may form the basis for further research in the area of
E-tax system and tax compliance in Nigeria.
International
Analysts: This study will be significant to international analysts that are interested
in the electronic tax system in Lagos State and how it has impacted the tax
compliance and the effectiveness of this system in its ability of capturing
more taxpayers by comparing the system to that of developed countries.
1.7 SCOPE
AND LIMITATION OF THE STUDY
E-tax system
is referred to as the transmission of tax information directly to the tax
administration using the Internet (Edwards-dowe, we, 2008). The E-tax system
makes an effective impact on the economy toward improving the level of tax compliance
by the taxpayers and income generation. This is because of its convenient, time
saving, cost effectiveness for both the tax administrators and the taxpayers.
The reason
for using Lagos State as the case study for this research is because Lagos State
is highly populated with a population of over 21 million persons (world
population review 2016), famously known as the city that never sleeps and this
indicates the large number of taxable persons that can be captured using the
e-tax system. FIRS introduced integrated tax administration system in Nigeria
in 2013 offering services like E-TCC, e-Filing, e-Payment and e-Registration to
the taxpayers. The internally generated revenue of Lagos State moved from a
monthly average of about 600 million Naira in 1999 to approximately 20.5
billion Naira in 2013, making Lagos State one of the states in Nigeria with the
highest IGR (internally generated revenue) and less dependent on proceeds the
Federation Account (LIRS, 2016).
There were
difficulties and limitations in getting sufficient secondary data because
little research has been done on Electronic Tax System. The tax officials,
self-employed individuals and SME employees filled the questionnaires in a
hurry, because they had to get back to their work activities, reducing the
quality of their answers. Time was essential in this research and this also
affecting the researcher. The tax offices were also particular about the amount
of questionnaires brought to their work stations.
1.8.
OPERATIONALIZATION OF VARIABLES
This
research is based on two variables, Independent Variable (E-Tax System) and
Dependent Variable (Tax Revenue). The dependent variable is tax revenue which
is measured using the following parameters:
Y1= Tax
Compliance (TC)
Y2= Revenue
Collection Efficiency (RCE)
X= E-Tax
System (ETS)
Y1= y1 y2 y3
Y2= y4
Y1= Tax
Compliance among Self-employed Individuals (TCSE)
Y2= Tax
Compliance among SME Employees (TCSME)
Y3 =
Perceived Ease of Use (PEOU)
Y4= Tax
Revenue Collection Efficiency (TRCE)
X=
Electronic Tax Payment (ETP)
TCSE= f
(ETS) -----------------------------------------------------------------EQUATION
1
TCSME= f
(ETS) ---------------------------------------------------------------EQUATION 2
PEOU= f
(ETS) -----------------------------------------------------------------EQUATION
3
TRCE= f
(ETS)
------------------------------------------------------------------EQUATION 4
The
relationship between E-Tax System, Tax compliance and Revenue Collection
Efficiency is expressed by the following equations:
TC, RCE= f
(ETS)
1.9
OPERATIONAL DEFINITION OF TERMS
1. TAX: This is a compulsory contribution to
state revenue, levied by the government on workers' income and business profits
or added to the cost of some goods, services and transaction.
2. E-TAX SYSTEM: This is an online platform
whereby the taxpayer is able to access through internet all the services
offered by a financial authority such as the registration for personal
identification number, filing of returns and application for compliance
certificate.
3. TAX
COMPLIANCE: This is the degree to which a taxpayer complies with the tax rules
of his country. This also means making tax payments and producing and
submitting tax returns to the tax authorities on time and in the required
formats.
4. SME: The
full meaning of SME is small and medium-sized enterprises. These are
non-subsidiary, independent firms which employ fewer than a given number of
employees. The medium-sized has less than 250 staffs, small-sized has less than
50 staffs and micro-sized has less than 10 staffs.
5.
SELF-EMPLOYED: An individual is self employed when he or she works for
him/herself instead of working for an employer that pays a salary or wage.
6.
ELECTRONIC TAX FILING: This is a process where tax documents or tax returns are
submitted through the internet, usually without the need to submit any paper
return.
7. TAX
ADMINISTRATION: This is the administration, management, conduct, direction, and
supervision of the execution and application of a government, country or
state's taxation laws and related statutes. E.g. LIRS.
8. TAX
REVENUE: Tax revenue is defined as the revenues collected from taxes on income
and profits, taxes levied on goods and services, payroll taxes, taxes on the
ownership and transfer of property, and other taxes.
9.TAXPAYERS:
This includes all taxable persons be it individuals, partnerships and corporate
bodies.
10. TAX
SYSTEM: A legal system for assessing and
collecting taxes.
11.
ELECTRONIC PAYMENT: An electronic payment (e-payment), in short, can be simply defined
as paying for goods or services on the internet. It includes all financial
operations using electronic devices, such as computers, smartphones or tablets.
(Securionpay)
12. REVENUE
COLLECTION EFFICIENCY: Revenue collection efficiency is the comparison of what
is actually performed by the tax officials with what can be achieved with the
same consumption of resources (money, time, labour, and so on).
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