TAXATION POLICY

INTRODUCTION

Researchers and different authors have debated for many years about the most economically beneficial mix of property taxes for United kingdom and Nigeria. Changes to property taxation are rare and are almost always politically contentious.

 

This work discuss difference as well as the similarity between the United kingdom property taxation policies and that of the Nigerian property taxation policies in the widest possible context and also discuss the broader economic and political issues that would come into play if there were substantive similarities as well as difference between the two property tax laws.

DEFINITION

Taxes may also be defined as a “pecuniary burden laid upon individuals or property to support government expenditure. A tax “is not a voluntary payment or donation, but an enforced and compulsory contribution, exacted pursuant to legislative authority” and is “any contribution imposed by government”, whether under the name of duty, custom excise, levy or other name.

Rating originated in England as far back as the year 1601 and was given legal authority by the Poor Relief Act. The payment of rates was for the support of persons unable to maintain themselves.

The modern property tax, according to Glenn W. Fisher (2006) of Wichita State University (U.S.A.), had roots in feudal obligations owned to British and European kings or landlords. In the United Kingdom, the tax developed into system of “rates” based on the annual (rental) value of property which make property taxation in the UK as higher than all other developed countries and already formed a high proportion of the tax base.

 

TAXATION POLICY

The National Tax Policy is a document, which sets broad parameters for taxation and other ancillary matters connected with taxation. It is a clear statement on the principles governing tax administration and revenue collection. It therefore, provides a set of guidelines, rules and modus operandi that would regulate taxation in a country.

PROPERTY TAX IN NIGERIA

Taxes may be direct or indirect and may be imposed on individual basis, on entities, on assets and on transactional basis. In Nigeria, taxes are imposed on the following bases:

 

On Individuals

·        Personal Income Tax – imposed on the income of all Nigeria citizens or residents who derive income in Nigeria and outside Nigeria

·        Development Levy – a flat charge imposed on every taxable person typically within a State

 

On Companies (Corporate Entities)

·        Companies Income Tax – imposed on the profits of all corporate entities who are registered in Nigeria or derive income from Nigeria, other than those engaged in petroleum operations

 

·        Petroleum Profits Tax – imposed on the profits of all corporate entities registered in Nigeria or who derive income from oil and gas operations in Nigeria

·         Education Tax – imposed on all corporate entities registered in Nigeria

 

·        Technology Levy – imposed on selected corporate entities (telecommunication companies, internet service providers, pension managers, banks, insurance companies and other financial institutions within a specified turnover range) in Nigeria to support nationwide development of technology infrastructure and capacity

 

On Transactions

·        Value Added Tax – imposed on the net sales value of non-exempt, qualifying goods and services in Nigeria

·        Capital Gains Tax – imposed on capital gains derived from sale or disposal of chargeable assets.

·        Stamp Duty – imposed on instruments executed by individuals and corporate entities in Nigeria

·        Excise Duty – imposed on the manufacture of specified goods within the Government territory collected by the Nigeria Customs Service

·        Import Duty – imposed on the import of goods into the Government territory collected by the Nigeria Customs Service

·        Export Duty – imposed on the export of goods outside the Government territory collected by the Nigeria Customs Service.

On Assets

This includes taxes, such as property tax and other such taxes imposed on land or landed property.

 

TAXATION IN THE UNITED KINGDOM

Taxation in the United Kingdom may involve payments to a minimum of two different levels of government: the central government (HM Revenue and Customs) and local government.

Central government revenues come primarily from income tax, National Insurance contributions, value added tax, corporation tax and fuel duty. Local government revenues come primarily from grants from central government funds, business rates in England and Wales, Council Tax and increasingly from fees and charges such as those from on-street parking. In the fiscal year 2007-08, total government revenue was 39% of GDP, with net taxes and National Insurance contributions standing at 37% of GDP approximately £600 billion (using 2008 nominal GDP measured in dollars, and converting using 2009 conversion rate).

 

i.       Income tax: Income tax is the single largest source of government revenue, making up about 30% of the total, followed by National Insurance contributions at around 20%.

 

ii.     Inheritance tax: Inheritance tax is levied on “transfers of value”, meaning:

1.     the estates of deceased persons;

2.     gifts made within seven years of death (known as Potentially Exempt Transfers or “PETs”);

3.     “lifetime chargeable transfers”, meaning transfers into certain types of trust. See Taxation of trusts (United Kingdom).

 

iii.        Council Tax: Council tax is the system of local taxation used in England, Scotland and Wales to part fund the services provided by local government in each country. It was introduced in 1993 by the Local Government Finance Act 1992, as a successor to the unpopular Community Charge(“poll tax”), which had (briefly) replaced the Rates system.

 

iv.        Value added tax: The third largest source of government revenues is value added tax (VAT), charged at 20% on supplies of goods and services. It is therefore a tax on consumer expenditure.

 

v.           Excise duties: Excise duties are charged on, amongst other things, motor fuel, alcohol, tobacco, betting and vehicles.

 

vi.        Stamp duty: Stamp duty is charged on the transfer of shares and certain securities at a rate of 0.5%. Modernised versions of stamp duty, stamp duty land tax and stamp duty reserve tax, are charged respectively on the transfer of real property and shares and securities, at rates of up to 4% and 0.5% respectively.

 

vii.      Motoring Taxation: Motoring taxes include: fuel duty (which itself also attracts VAT), and vehicle excise duty. Other fees and charges include the London congestion charge, various statutory fees including that for the compulsory vehicle test and that for vehicle registration, and in some areas on-street parking (as well as associated charges for violations).

 

viii.   Corporate Tax: UK corporate tax revenue as a percentage of GDP compared to the OECD and the EU 15. Corporation tax is a tax levied in the United Kingdom on the profits made by companies and on the profits of permanent establishments of non-UK resident companies and associations that trade in the EU.

 

ix.        Business rates: Business rates is the commonly used name of non-domestic rates, a United Kingdom rate or tax charged to occupiers of non-domestic property. Business rates form part of the funding for local government, and are collected by them, but rather than receipts being retained directly they are pooled centrally and then redistributed.

 

x.           Business and personal taxes: Some taxes are, depending on the circumstances, paid by both individuals and companies and government

xi.        National Insurance contributions: The second largest source of government revenues is National Insurance contributions (NICs). NICs are payable by employees, employers and the self-employed and in the 2010-2011 tax year £96.5 billion was raised, 21.5% of the total collected by HMRC.

CURRENT TAX POLICY IN NIGERIA

The National (Nigeria) Tax Policy seeks to provide a set of guidelines, rules and modus operand that would  regulate Nigeria’s tax system and provide a basis for tax legislation and tax administration in Nigeria.

The Policy is an initiative of the Federal Government of Nigeria which is being driven by the Federal Ministry of Finance.

THE STATE POLICY ON TAXATION

1. The State shall direct its taxation policy make tax returns with the towards ensuring that the tax system promotes fiscal responsibility and accountability to Nigerians. Accordingly, the tax system shall reflect the principle of Fiscal Federalism by ensuring that:

 

(a)  Each tier of government benefits in the sharing of revenue  realised from its jurisdiction; and

 

(b) That there is an equitable sharing formula for taxes collected by the Government of the Federation, as provided in this Constitution.

 

2.  The Government of the Federation shall ensure a periodic review of the tax laws and administration in Nigeria.

 

3. It shall be the duty of government at all levels to ensure that:

 

a.     Revenue agencies are granted autonomy and adequate funding to meet their day to day activities.

 

b.     the right of all tax payers are recognized, whether they are Nigeria citizens or not.

 

c.      Tax evasion is eradicated, while tax avoidance is minimized at all levels of government, and

 

d.     Multiple taxation in all forms is eliminated at all levels of government

 

4. It shall be the duty of:

(a)  Every Nigeria citizen

 

(b)  every company registered under the laws of the Federal Republic of Nigerian: and

 

(c)   any other person or business entity whether resident in Nigeria or not carryout any economic activity in Nigeria

 

(d)  To register for taxes in Nigeria, declare its income and pay its taxes promptly and fully to the appropriate tax authorities.

 

5. For the purpose of subsection (3) and (4) of this section.

(a)     “Tax evasion” includes the deliberate refusal to pay taxes or make tax returns with the intention of fraudulently retaining tax revenue or concealing the actual tax status of a tax payer.

 

(b)    “Tax avoidance” includes any means by which tax liability is minimized or avoided by exploiting the loopholes in the law.

 

(c)     “Tax evasion” shall be recognized as a crime and appropriate sanctions given to offenders. While tax avoidance shall be discourage.

 

(d)    “Multiple taxation”  includes the imposition of the same or similar taxes on the same income base, transaction or person by one or more levels of government, in one or more jurisdictions.

(e)     “person and Business entity” includes sole proprietorship, partnerships, trust and any other form of business composition or organization required to register for, declare and pay taxes in Nigeria.

 

(f)      Nigeria Vs United Kingdom Current Tax Policy

 

(g)     With the coming of the British and their consequent colonization of Nigeria the countries share a great similarities in their tax system. In both countries tax are levied on personal income, companies incomes, petroleum profit, educational outfits, value added tax, capital gain tax, stamp duties, import duties, export duties and taxation of real estate property such as land and landed property.

 

(h)    The major difference between the current tax policy adopted by the two countries in the tiers of government involved in the administration of the tax. The United Kingdom use two level of government i.e. the central government and the local council while the Nigeria government inovled the three tiers of government i.e. the local, state and federal government in the administration tax.  

 

 

UNITED KINGDOM CURRENT TAX POLICY

The schedular system of taxation is the system of how the charge to United Kingdom corporation tax is applied. It also applied to United Kingdom income taxbefore legislation was rewritten by the Tax Law Rewrite Project. 

 

Under the source rule, tax is levied on a source of income or gain only if there is a specific provision taxing that income or gain. The levies to tax on income were original set out in Schedules to the Income Tax Act.

In the United Kingdom the source rule applies. This means that something is taxed only if there is a specific provision bringing it within the charge to tax. Accordingly, profits are only charged to corporation tax if they fall within one of the following, and are not otherwise exempted by an explicit provision of the Taxes Acts:

 

Income tax was levied under 5 schedules – income not falling within those schedules was not taxed. The schedules were:

• Schedule A (tax on income from UK land)
• Schedule B (tax on commercial occupation of land)
• Schedule C (tax on income from public securities)
• Schedule D (tax on trading income, income from professions and vocations, interest, overseas income and casual income)
• Schedule E (tax on employment income)

Later a sixth Schedule, Schedule F (tax on UK dividend income) was added.

The Schedules under which tax is levied have changed. Schedule B was abolished in 1988, Schedule C in 1996 and Schedule E in 2003. For income tax purposes, the remaining Schedules were abolished in 2005. Schedules A, D and F remain for corporation tax purposes.

 

Originally taxation of a person’s income took effect regardless of who was beneficially entitled to that income (i.e. who really got the money), but now a person owes tax only on income to which he or she is beneficially entitled.

DEDUCE OR SUGGEST POSSIBLE POLICIES THAT SHOULD BE REMOVED, INTRODUCED IN NIGERIA TO CREATE AN ENABLING ENVIRONMENT FOR EFFECTIVE PROPERTY TAXATION IN NIGERIA

The following are policies that should be introduced in Nigeria to create an enabling environment for effective property taxation: 

 

1.     Patriotism and positive tax culture: There is a need to enhance a positive tax culture. This can be done through the re-branding efforts of the ministry of information. In most developed countries, tax payment is considered a moral and civic responsibility thus tax avoidance is frowned upon. This implies that our leaders should demonstrate patriotism through leadership that is worthy of emulation by timely payment of their taxes and discharging other civic duties.

 

2.     Autonomy: What Nigeria tax system need is the issued of autonomy which should be granted to boards of internal revenue. The operation we have now as far as the federal inland revenue services (FIRS) is concerned, is an old system. Until independence is allowed in the system there wouldn’t be any way for the process to be impactful. 

 

3.     Efficient and effective Tax Administration: What the government has been trying to do now is to enforce the law. But cannot enforce the law where you want to collect money and people are not aware of which law. There is need to educate staff of some government and private organizations. Also included on this tax education are staff off FIRS, economical and financial crime commission and joint tax force on taxation. 

 

4.     The use of Computer technology: Computer technology must be combined with the political will to enforce tax collection if it is to yield potential for greater revenue. Technology without accompanying enforcement procedures will not help in increasing revenue. Computer technology can help in developing a master file system. This system assigns a unique number to each tax payer. This unique number directly aids in identifying assessing and collecting direct taxes. 

 

5.     Harmonizationof taxes to reduce double / multiple taxation on a single taxpayer: There is a need to harmonize the different taxes that are being levied by the different tiers of government so as to reduce the negative impact on the taxpayer. 

 

6.     Improving our record or database to be able to track all potential taxpayers. In Nigeria, an improvement in our tax revenue can be enhanced through a regularly updated, comprehensive database. This would enable the country to be able to track all potential taxpayers as well as to reduce incidence of tax avoidance. 

 

7.     Civic Education: Civic education was part of the educational curriculum in the early 1960s and 1970s; however there was stopped in the mid – 1980s and 90s. a re-introduction of this into the school curriculum would not only improve civic responsibility but also infuse a sense of patriotism and commitment to national ideas and interest. There should be vigorous enlightenment and public awareness about tax payment and its importance in the economy. 

 

8.     Religious Education / Responsibilities: In Nigeria, most of the citizens are religious and faithful people. Thus, with religious provisions that explicitly support fulfilling religious obligations, tax payment could be enhanced. Therefore, tax education can be encouraged to be part of religious education among the adherent. Evoking religious injunctions could elicit more voluntary compliance and reduce tax evation and avoidance. 

 

9.     Disclosure and sharing of information: There is a need for mutual cooperation among different government agencies and parastatals, this collaboration should enhance exchange of information and reduce the incidence of tax evasion as well as fraudulent tax practices. 

 

10.Beneficial / Welfare schemes:To elicit voluntary compliance, the government should be more responsible to the welfare needs of the citizens. The Nigerian tax system can effectively generate more revenue when the citizens have trust and confidence in the authority. Lagos state in recent times is generating huge revenue due to the fact that many corporate bodies and individuals feel that they can visibly feel the development impact of their contributions.

 

REFERENCES

Tomiri M.A (2001) Principle and Practice of Urban Property Taxation, Printed and Published by Business Mirror Newspapers, Ibadan Oyo State ISBN – 978-006-069-3 February, 2001

National Tax Policy Federal ministry of finance April 2012.

Roy Bahl and Johannes Linn: Urban Public Finance in developing Countries
( New York: Oxford University Press, 1992)

Wikipedia (2008). Taxation: An aspect of fiscal policy. Retrieved 22 September, 2010 from http://en.wikipedia.org/wiki/ Property_tax