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EFFECTS OF INFORMATION TECHNOLOGY ON THE EFFICIENCY OF TAX ADMINISTRATION IN NIGERIA (A CASE STUDY OF ENUGU STATE BOARD OF INTERNAL REVENUE)

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Abstract

This research study examines the Effect of Information Technology on the Efficiency of Tax Administration in Nigeria, a case Study of Enugu State Board of Internal Revenue. Its main objective is to find out whether the application of Information Technology increases efficiency on tax administration. For the purpose of this study, the researcher adopted the method of survey Research Design. Data used in this research were gotten from both primary and secondary sources including questionnaires and textbooks respectively. These data were analyzed and presented in tables. Three (3) hypotheses were formulated and tested using the Analysis of variance(ANOVA) method. The findings of this research tend to show that effective tax administration resulting from the application of Information Technology leads to an increase in tax base as more potential taxpayers are drawn into the tax net when there is a conducive environment. It is recommended in this work that enlightenment campaign be made av

TABLE OF CONTENTS

Cover page i Certification ii Approval page iii Dedication iv Acknowledgement v Abstract

CHAPTER ONE: Introduction 1.1 Background of the study 1 1.2 Statement of the problem 7 1.3 Research Questions 8 1.5 Research Hypotheses 9 1.6 Significance of the Study 10 1.7 Scope of the Study 1.8 Limitation of the Study 10 1.9 Definition of Terms 11

CHAPTER TWO: Review of Related Literature 2.1 Concept of Taxation 13 2.2 Nigerian Tax System 16 2.2.1 Structure of Nigeria Tax System 17 2.2.2 Features of Nigerian Tax System 20 2.2.3 Objectives of Nigerian Tax System 22 2.3 National Tax Policy 25 2.4 Tax Laws 28 2.5 Tax Administration 33 2.5.1 Objectives of Tax Administration 34 2.5.2 Models of Tax Administration 35 2.5.3 Tax Administration 37 2.5.4 Organs of Tax Administration 38 2.5.5 Procedures of Tax Administration 48 2.6 Problems of Tax Administration in Enugu 52 2.7 Information Technology (IT) 54 2.7.1 Application of IT in Tax Administration 56 2.7.2 Benefits of IT in Tax Administration 57 References 59 CHAPTER THREE: Research Design and Methodology 3.1 Research Design 60

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3.2 Sources of Data 60 3.3 Research Instrument 61 3.4 Reliability/validity of Research Instruments 61 3.5 Population 62 3.6 Sampling Technique and Sample Size 62 3.7 Administration of Research Instruments 65 3.8 Method of Data Analysis 65

CHAPTER FOUR: Data Presentation, Analysis 4.1 Data Presentation 68 4.2 Test of Hypotheses 80

CHAPTER FIVE: Summary of Findings, Conclusion and Recommendations 5.1 Summary of findings 89 5.2 Conclusion 90 5.3 Recommendations 90 Bibliography 93 Appendix 95

CHAPTER ONE

uments listed in the Act.

vii. Capital Gains Tax Act, Cap C1 LFN 2004, which imposes

tax on capital gains arising from the disposal of chargeable

assets (ICAN, 2006)

According to Alhaji Kabir M. Mashi, a core success factor for

any system is its position on administrative issues.

Presently, the tax administration in Nigeria, Enugu state to

be precise, has been riddled with various limiting factors

such as;

I. Weak administrative facilities/ administrative lapses which

could result in situations such as tax evasion and tax

avoidance.

II. Corruption and mismanagement on the part of the tax

officials.

III. The problem of funding the revenue collecting agencies

which negatively impacts on efficiency and performance.

14IV. Lack of adequate records from the informal sector of the

economy.

V. Inability to identify all taxable persons. (Bird, 1988).

VI. Lack of effective mechanism in place to prosecute cases of

tax evasion.

The rapid growth and development of Enugu State led to an

enhanced increase in population as well as an increasing number

of companies. Tax planning and tax management have

increasingly become complex activities due to growth in business

and the subsequent expansion in scope of operations and fiscal

size. Given the amount of data that needs to be analyzed in order

to assess and compute tax liabilities, it has become imperative

that both tax institutions and companies deploy appropriate

computer programmes in order to enhance tax planning and

administration.

The advent of Information Technology in this era has played a

major role in enhancing economic and business activities of both

the private and public institutions. While it has opened up

opportunities that have gone undiscovered or neglected, it has

saved many organizations millions of perpetual fraud through its

applications. The application of Information Technology has

15become increasingly necessary in Nigeria‟s tax administration as

the use of Information Technology makes for fast, easy and

accurate computation, storage and presentation/ retrieval of

data/ records.

Certain computer programmes have been created to facilitate

the computation of cumbersome data. Programmes such as

Microsoft Excel (Electronic Spread Sheet), Microsoft Access

(Database) are one of the most common examples. Other

database programmes and accounting packages which allow for

easy calculation and computation of an individual or a company‟s

tax liabilities include Peachtree Accounting, PeopleSoft System,

SQL Database, QuickBooks, Management Information Processing

System, Quikens etc.

Presently, the world has gradually become a global village and

the nexus between Nigeria and the rest of the world is the use of

Information Technology in, practically, every sector of the

economy. Therefore, in order to improve on the efficiency of tax

administration in Nigeria, it will be advisable to apply the use of

Information Technology from the basics of tax collection to the

final stage in Tax Administration.

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1.2 Statement Of The Problem

For many years, tax administration in Nigeria has been

plagued with problems, most of which can be attributed to the

lack of or inadequate application of Information Technology in tax

administration.

In Enugu State, the tax institutions have not fully embraced

the use of Information Technology for record keeping. According

to BECANS Business Environment Report 1(15) (2007), there is

evidence of a manually compiled database of tax payers. Manual

Compilation involves the use of files/ folders for data storage.

When records are stored in this manner over a long period of

time, retrieval of such records can prove to be very difficult.

Records stored in this manner can be very unreliable as these

records are easily prone to manipulations.

Another major problem can be found in the method of tax

collection. The tax officials are often aggressive as they use

unorthodox methods in tax collection especially at the local

government level.

Furthermore, the identification of taxable persons has

proven to be a herculean task using the manual systems.

17The thorough application of Information Technology in tax

administration in Nigeria would be a welcome change in the

system as this will greatly enhance the efficiency in tax

administration in Enugu state in particular and Nigeria in

general.

1.3 Objective Of The Study

This research work is aimed at achieving certain objectives which

are stated below:

i. To determine if effective tax administration leads to an

increase in tax base;

ii. To ascertain whether inefficiency in tax administration

creates room for tax evasion;

iii. To find out whether the application of information

technology increases efficiency in tax administration;

iv. To know whether poor remuneration of tax personnel affects

the dispensation of taxation.

1.4 Research Questions

I. Does effective tax administration lead to an increase in

tax base?

II. Does inefficiency in tax administration create an

avenue for tax evasion?

18III. Does the application of Information technology

increase efficiency in tax administration?

IV. Does poor remuneration of tax personnel affect the

effective tax administration?

1.5 Research Hypotheses

Based on the objectives, the following researches were

formulated:

Hypothesis One

H0- Effective tax administration does not lead to an increase in

tax base.

H1- Effective tax administration lead to an increase in tax base.

Hypothesis Two

H0- Inefficiency in tax administration does not create and avenue

for tax evasion.

H1- Inefficiency in tax administration create and avenue for tax

evasion.

Hypothesis Three

H0- The application of information technology does not increase

efficiency in tax administration.

H1- The application of information technology increase efficiency

in tax administration.

191.6 Significance Of The Study

it is hoped that this work will form a major catalyst to

stimulate the initiation of a proper legislative process that will

regulate tax administration in Nigeria, particularly in Enugu

State.

Furthermore, effective implementation of information

technology in tax administration will be of immense benefit to tax

authorities. The use of information technology will invariably

reduce work hours, enhance efficiency and reduce opportunities

for corrupt practices in the system.

Finally, it is believed that the information generated from

this research will enhance the tax payers awareness on tax

issues like tax incentives and penalties for tax related offences

such as tax evasion.

1.7 Scope And Limitation Of The Study

As this research work is focused on the effect of information

technology on the efficiency of tax administration in Nigeria, with

particular reference to Enugu State, the scope of the study will be

limited to the activities of Enugu State Board of Internal Revenue

In the course of carrying out this research work, certain

limitations were encountered, they include the following:

20I. Lack of access to certain materials needed for the

research.

II. Lacks of co-operation from institutions as certain tax

institutions were not forthcoming with their record

III. Certain libraries did not have contemporary materials

for the researcher to work with.

1.8 Operational Definition of Terms

In order to avoid confusion surrounding the words, the

following technical terms have precisely been defined, as they

relate to the context of the research work.

Tax- An amount of money levied by a government on its citizens

and used to run the government, country, a state, a county or a

municipality/ local government.

Tax Evasion- This is an act whereby the taxpayer can achieve

the minimization of tax through illegal means. It involves outright

fraud and deceit.

Tax Avoidance- This arises in a situation where a taxpayer

arranges his financial affairs in a form that will make him pay the

least possible amount of tax without breaking the law.

Ordinance- A law or rule made by an authority such as a city

government.

21Stakeholders- Those persons/ entities that contribute to, and

derive benefits from, the country‟s tax system. This includes

every Nigerian citizen and resident, corporate entities,

government at all levels and government agencies.