Taxation In Nigeria And The Local Government
When it comes to government generating revenue, this is usually done through various means, one of the most pronounced means is through taxation. On this article, we will discuss the local government, the taxation system in Nigeria, merit and demerit of taxation, principles of taxation and many other factors that concerns taxation in Nigeria.
By Definition, a tax is a compulsory payment levied by the state on its citizens, businesses, companies for which no direct benefit is gotten or received. Taxes are imposed by the government to help raise revenue to finance her undertakings in the country and outside the country. The two terms usually used in connection with taxes. One is the tax based on the object which has to be taxed by the government and then the other which is the tax. The tax rate can be referred to as the amount of the tax based that has to be paid in taxes.
Reason For Tax Imposition By The Government
Taxes are imposed by the government for several reasons, below are some or all of the reasons why government tax its citizens and its corporate entities;
- To raise revenue to finance her undertakings. In order to carry out all the projects the government embarks on, she raises revenue through taxation from the citizens.
- Taxes may be imposed to encourage the domestic production of many goods. By imposing taxes on foreign goods, the government encourages the local producers to produce more since foreign equivalents become more expensive.
- Taxes may also be imposed to discourage the consumption of certain goods. Many expensive goods may be highly taxed to discourage their use in the society. Other goods with anti-social effects may also be taxed to discourage their consumption.
- Taxes are being widely used as instruments for the redistribution of incomes in the society. Where the progressive tax system is used, the rich are made to contribute more than the poor to the national purse.
- In some countries, taxes are used to reallocate resources within the country. If the country wishes to discourage the establishment of industries in a particular area, she may levy high taxes on such locations. On the other hand, she may reduce tax to encourage firms to areas without external economies.
- Taxes may also be levied to ensure that citizens become more responsible. Once citizens are made to understand that it is their money that has been used to erect certain public establishment they will know that their good upkeep is also to their benefit.
- Many Countries impose taxes to improve their balance of payment position. If custom duties imposed on foreign goods results in a fall in demand for foreign goods, then the balance of payment position may improve.
- Taxes may also be used to control the rate of inflation in a country. During inflationary periods, the government may impose additional taxes to reduce disposable incomes if that succeeds; the rate of the inflation may be brought down to manageable levels. In a recession, the government may stimulate the demand for goods by lowering taxes. That will leave individuals and firms with more income for expenditure.
The Local Government And The Taxing System
Just like the general or the federal government, the main sources of local government revenue are as follows;
- The rates payable on all rentable property in its area of jurisdiction
- charges on market stalls.
- Tolls collected from commercial vehicles using motor parks.
- Money paid by taxi cabs for authority to ply the road in the town.
- Grants from the government
- Profits from investments of the local government, for example bus services.
- Loan raised from commercial banks and from members of the public through the sale of bonds.
The local government have been finding it very difficult to raise finance to meet their needs. The problem could be tackled through increased local government involvement in self financing such projects such as;
- The erection of market in all large villages.
- The consecrations of accommodation for the public to be haired on a monthly basis.
- The establishment of agriculture farms to produce staple food stuff and an effect overhaul of the accounting and financial departments. A few official misappropriate much of the revenue collected. On the part of the government, many of the projects presently undertaken by local governments should be taken over. Such a policy will leave the governments with the projects they can effectively execute.
Additional Local Government Spending
Equally on record is built of Nigeria external debt to the Paris club and others which stood at 28.3 billion dollars, incurred between the year 1980 to 1984. The period in which states in the country indiscrimately borrowed fund in the guise of projects executions. Some state government official really have become financial exhaust pipe hence the plea by jubilee 2000 for the world bank to declare Nigeria debts as a bad debt has fallen on deaf ear for now.
The Tax System (Taxation In Nigeria)
The system of taxation as adopted by many country can be described as being progressive, regressive or proportional as the case maybe. In many countries, all the three systems are adopted to ensure that all the people are taxed.
The Progressive Tax System
A tax system is progressive if the imposed on the taxable object increases as the size of such objects increases. A tax which progressive is graduated in such a manner that the payer pays as he earns, in essence pays more as his incomes grows. Such taxes are based on the ability to pay and affect the wealthy more than the poor. Under such a system the rich not only pay more than the poor but proportationately more. Thus the system is very equitable in nature.
Merits Of A Progressive System (Taxation In Nigeria)
- This system depends on the tax payers ability to pay
- It enables the state to tax surplus incomes with the wealth in society.
- It helps to reduce inequality in society by taking more from the rich than the poor.
- It does not reduce the ability to produce because those with large incomes will always go in for greater product than the poor.
Demerit Of The Retrogressive Tax System
A tax system is retrogressive tax system is retrogressive if the tax rate takes more of poorer persons income than that of the wealthy in society. Indirect taxes are of this type.
The Proportional Tax System
A proportional tax system is one in which the tax rate is same for the people in the society. Thus, a proportational tax is one in which all the taxpayers pay the same percentage in taxation. This system results in the rich paying more in absolute terms than the poor, for example 10% on an income of N100,000 will yield different revenue to the authorities.