EFFECTIVE TAX COLLECTION IN A DIGITAL ECONOMY THE CASE STUDY OF FEDERAL INLAND REVENUE SERVICES, THE ROLE OF FIRS
1.4. The objective of the Study
1.4.1 General Objectives
The main objective of the study is to investigate the effectiveness of tax collection in a digital economy and its challenges in Abuja.
1.4.2 Specific Objectives
Specifically, study assumes the following objectives
- To investigate the changes brought by the introduction of ICT on tax collection systems in Abuja.
- To identify the impact of ICT on tax collection system;
- To assess the challenges of ICT application in the tax collection system
Review of Related Literature
“E-government refers to the automation of government-to-government and government-to citizen interactions” (Lazer, 2005). The World Bank (2007) defines e‐government “as the use of ICT to transform traditional government by making it accessible, transparent, effective and accountable”. However, Sprecher (2000) describes e-government as “the production and delivery of government services through IT applications, used to simplify and improve transactions between governments and citizens (G2C), businesses (G2B), and other government agencies (G2G)”.
The generally accepted definition is that “e-government or electronic government refers to the use of ICTs by government agencies for any or all of the following reasons: Exchange of information with citizens, businesses or other government departments; speedier and more efficient delivery of public services; Improved internal efficiency; Reduced costs or increasing revenue, and re-structured administrative processes” (Chircu, 2008).Moreover, electronic government, or e-government, is defined as “the use of information and communication technologies in government to provide public services, to improve managerial effectiveness and to promote democratic values; as well as a regulatory framework that facilitates information intensive initiatives and fosters the knowledge society” (Gant, 2008:15). In general, both developed and developing countries adopted e government because “it is cost saving, has greater accountability of the government, increases efficiency, brings shorter processing times, reduces corruption among government employees, lowers the administrative burden and as well brings greater constituency participation” (Howard, 2001; UNDESA, 2008).
“E-government denotes the application of IT to the process of government in order to facilitate the communication and interaction between citizens and businesses” (Lee et al., 2005).The term ‘interaction’ refers to government services, exchange of information, communication, transactions and system integration (Sundresan et al., 2006). “Electronic government (e-government) is generally referred to as the use of ICT for transforming public organisations to make them more accessible, effective and accountable” (Aichholzer and Gunter, 2006; Deng, 2008; Golra, 2008; Wangpipatwong et al., 2009, and Karunasena, 2012).
Some researchers and practitioners view e-government simply as the use of IT, particularly the worldwide web, through the internet and smartphones to present government information and services to the public; they also consider it to be a tool to better serve society.
These definitions focus on a range of technologies that can be used, and the definitions of e government are sufficiently broad to incorporate all forms of ICT, including mobile technology. Unlike the traditional bureaucratic model where information flows only vertically and rarely between departments, e-government links new technology with legacy systems internally and in turn, externally links government information infrastructure with everything digital. “Access to all official information and service offerings of a public agency is generally e-government’s primary focus. The most important anticipated benefits of e-government in a developing country include improved efficiency, increase in transparency and accountability of government functions, convenient and faster access to government services, improved democracy, and lower costs of administrative services” (Kamar and Ongo’ndo, 2007).
Ai et al. (2013) examined e-government and e-governance concepts and constructs in the context of service delivery. The objective of the study was to investigate the concepts and constructs of e-government and e-governance, as well as to gauge the relationship between them with regard to service delivery to citizens. The study used quantitative methods – questionnaires. “Quantitative methods are appropriate when there is a need to apply the sample data to the population in order to find patterns and current trends” (Davidson and Patel, 2003). The findings of the study revealed that the government failed to respond effectively to the needs of the citizens of Malaysia concerning quality of service delivery, as these concepts and constructs among Malaysians are still in question; e-government initiatives can only be implemented with the support and development of ICT and if the government provision is below the expectations of the services, the services provided by the government was be underutilized by the citizens. Services provided by the Inland Revenue
Board Malaysia (LHDN) include online payment of individual tax, company tax, employer tax and e-news from LHDN. However, this can only be achieved if the government looks beyond simply providing online services and focuses on portal design and functionality, which need to meet citizens’ expectations. The study has the limitation of using a small sample, which included Malaysian citizens who work in the Sarawak region. The target respondents were eligible taxpayers in the public sector and the private sector in Sarawak. The current study was use a large sample and was not be limited to a region.
Nisar (2006) examined e-governance in revenue collection and administration. The objective of the study was to investigate the role of e-governance in tax administration, especially when incorporating ICT technologies. A case study of the UK government department of HM Revenue and Customs was used. The study further examined the use of internet service for self-assessment, payment and the Pay As You Earn (PAYE) service for employers. The findings revealed that substantial progress has been made over recent years in developing an effective system of e-taxation by the UK government. It also identified further requirements for the use of ICT in e-taxation and potential for future direction and initiatives. The study covered only a small portion of the problems that face company income collection, and if this study were replicated in developing countries like Nigeria, the result might not be the same.
Lee et al. (2011) examined the willingness towards e-government service adoption by business users. The objective of the study was to fill a research gap by addressing the following research question: Why are some businesses more willing to adopt e-government applications to perform transactions with the government than others? The findings revealed that the willingness to adopt e-government increased when business users perceived highquality service provision in offline service channels. The study findings implied that technology may not successfully “push” potential users to adopt e-government services; offline service quality and the trust users place in the government that provides the service “pulls” users into adopting e-government. The study contributes to the existing research and practices in the field of e-government. Internet technology itself is not a sufficient condition for a successful transition into e-government services; instead, high-quality service provision in the traditional service channel must be present in order to ensure the willingness and trust of the potential users to adopt the online channel of government services.
Decman et al. (2010) examined e-government and cost-effectiveness. The study focused on investment in ICT to simplify tax procedures in Slovenia. The findings revealed that ICT expenditure is higher than cost savings for the tax authority and taxpayers. Nevertheless, several other non-financial benefits are important and should be considered, such as taxpayers’ satisfaction, better transparency, easier control and data processing. “There are several issues that must be considered when designing e-taxation and its implementation, such as planning and development at the information use level, as well as support for services offered to taxpayers” (CIAT, 2009). Therefore, the findings of Decman et al.’s (2010) study cannot be generalised. The current study was consider other non-financial benefits of e-government and e-taxation in developing countries, especially Nigeria. “Egovernment adoption to collect company income tax is important because failures on this front can in the long run seriously hinder the process of modern governance” (Gupta et al., 2004:208). E-government is an indispensable factor in achieving the objective of e-tax.
Martini et al. (2010) examined e-services in Albania. The findings revealed that egovernment in Albania is still in its early stages, and the efforts made so far towards the electronic dissemination of information have had a positive impact with respect to increased governance transparency. The study failed to indicate the method used. One of the reasons given for the low level of ICT knowledge is the lack of understanding of the benefits that ICT has to offer. This is also relevant to one of the objectives of the study under review, which is to investigate the state of company income tax with existing use of ICT in corporate income tax collection.
Overall, e-government aims to “centralize and make available a cohesive and seamless set of government services to users” (Lam, 2005: 511). Ndou (2004) and Lam (2005) revealed that the goals of e-government are to facilitate efficiency and effectiveness of government operations, thereby meeting expectations of citizens such as: cost reduction and efficiency gains, quality of service delivery to business and customers, transparency, anti-corruption, accountability, increasing capacity of government, network and community creation, which improves the quality of decision making and promotes the use of IT in other sectors of society. “E-government has developed rapidly around the world over the past decade”
(Stojanovic et al., 2006; Nasim and Sushil, 2010; Hassan et al., 2011; Zhao, 2011 cited in
Karunasena, 2012), and “this can be demonstrated by the fact that more than 98% of the United Nations member countries have some kind of e-government presence online”
(United Nations, 2010). “The rapid development worldwide in embracing e-government is due to the capacity of e-government for creating public values such as efficiency, accountability, democracy, responsiveness, and equity for citizens” (Nour et al., 2008; Karunasena 2012).
2.2. Adoption of ICT in Taxation
The advent of the internet, digital connectivity, the explosion and use of e-commerce and ebusiness models in the private sector are pressuring the public sector to rethink hierarchical, bureaucratic organisational models and customers, citizens and businesses are faced every day with new innovative e-business and e-commerce models implemented by the private sector and made possible by ICT tools and applications, requiring the same from governmental organisations Ndou (2004). The use of ICT, in general, has changed the service delivery process, business models and people’s expectations of the quality and efficiency of information. Tomsett (2008) supports the view that “the administration of any adopted taxation system should be acceptable and easy for taxpayers and efficient” (Kennedy and Sugden, 2007).
According to Ho (2002), “these new paradigms thrust the shift toward the e-tax paradigm, which emphasizes coordinated network building, external collaboration and taxpayer services”. Governments worldwide are leveraging ICT in many ways to tap potential cost savings and efficiency when providing online services to citizens. Slemrod (1990) noted that the design of an optimal tax system requires consideration not only of changes in the technology of collecting taxes but also of how technology may alter the economic environment in which governments seek to collect revenue. According to Bird and Zolt (2008), “Policymakers need to consider the impact of changes in technology on both the design of specific taxes and the relative use of different tax instruments in raising revenue”.
However, Yu (2002) stated, “Electronic commerce flourished because of the openness, speed, anonymity, digitization, and global accessibility characteristics of the internet, which facilitated real-time business activities, including advertising, querying, sourcing, negotiation, auction, ordering, and paying for merchandise”. Therefore, ICT covers any product that was store, retrieve, manipulate, transmit or receive information electronically in a digital form such as radio, television, cellular phones, computer and network hardware and software, satellite systems as well as the various services and applications associated with video conferencing and distance learning.
Hai and See (2011) examined the intention of tax non-compliance. The objective of the study was to provide a literature review on factors that affect the intention of tax noncompliance behaviour among sole proprietors. The study failed to state the method used for data collection. The findings of the study revealed that the literature review helped identify gaps for future research towards behavioural tax non-compliance intention. These gaps are unapproved tax preparers, unapproved account preparers and future expected tax costs.
However, the study failed to consider IT usage. Many small business entities are still using the services of unapproved tax preparers Liew (2004). Collin et al. (1992) recommended studying the impact of unapproved tax preparers on tax non-compliance. The unapproved account preparers need not follow the tax regulations and professional ethics set by the approved accounting board. According to Jackson and Jones (1985), “if taxpayers know [the] expected cost of tax non-compliance, then it is a factor that may change taxpayers’ non-compliance decision-making”. This is why the current study was consider tax costs; if a taxpayer wishes to evade tax, they must understand what the future expected tax costs are likely to be.
Kerr (2012) examined tax return simplification. The objectives of the study were to look at the concept of a default pre-filled tax return within the Australian context and contrast this with the system of reduced filing used in the UK and New Zealand; the study would then draw similarities with New Zealand’s personal tax summary. It explored the literature on taxpayer engagement amid the concern that taxpayers may potentially engage less with the tax system if they do not have to lodge tax returns. The findings of the study revealed that the best practice in future tax administration may be a hybrid system where elements of both reduced filing and pre-filling co-exist, and people with simple tax affairs would not have to lodge tax returns and those with arrangements that are more complex was file pre-filled returns. This study highlights that policymakers should consider it worthwhile to weigh up the merit in making such changes for a short-term solution and explore the capacity for longer-term gains. To reiterate, the benchmark of a pre-filled tax return is that a taxpayer only needs to confirm their details are correct. The study failed to consider the use of IT and whether taxpayers file their tax returns manually or via automation. Although extensive research is required to determine whether revenue authorities should continue to issue refunds to the majority of taxpayers, this current study was add to this research.
Githinji et al. (2014) examined the effects of information and communication technology (ICT) on revenue collection by Kenyan counties. The objective of the study was to establish the mode of strengthening domestic resource mobilization by utilizing ICT; it also reviewed information system theories and examined the impact of management information systems on revenue collection in Kenyan counties. The study utilized ICT in relation to technological theories. Additionally, it proposed efforts to be devoted to extensions of the Technology Acceptance Model (TAM) to examine county governments and to take ICT as an important tool for delivering services to citizens and businesses in terms of revenue collection systems. The establishment of an internal control system, a management information system, guaranteed strong control of the largest taxpayers and ICT infrastructure and revenue collection in county governments and utilizing the Unified Theory of Acceptance and Use of Technology (UTAUT). The study used Hofstede (1991) and culture as a system of collectively held values, and looking at culture from this angle; it differs across continents, nations, counties, sub-counties and ethnic groups. Their study found that the most comprehensive study of national cultures has been used in some revenue collection system studies, which are discussed under revenue collection system and culture and where the ultimate intent is not to control the behaviour of people in predefined ways, but to influence them to make decisions and take actions that are likely to be consistent with the county goals. They recommended that the county governments should use ICT as an important tool for delivering services to citizens, tax collection, monitoring county project and other business operations within the counties.
Dutt (2004) examined the optimization of corporate tax collection in developing countries – with potential application to Mozambique. The objective of the study was to draw attention to the potential impact of deploying best practice tax collection projects in sub-Saharan Africa. The study used a simple and operational model, which may not allow the generalisation of the study findings. The findings of the study revealed that the Mozambican government does not have the means to generate fair taxes to fight poverty; hence, fair distribution of wealth is in danger, which could lead to further tensions between South and North Mozambique. The findings also revealed that in the case of Africa and Mozambique in particular, both a top auditing team and a flat fee structure for small businesses need to respect the principles and guarantee an immediate impact in government revenue collection. The study has some limitations, such as the model possibly being used indiscriminately throughout all sectors of the economy, regardless company size. Additionally, the small and medium agricultural companies and the medium industrial companies were not included. The study also failed to consider the impact of ICT on tax collection.
In FIRS, “several technology-based initiatives have been implemented in the last six to seven years, which have yielded significant dividends in improved tax collection, increased taxpayer confidence in the tax system, increased efficiency in tax operations and reduction in leakages” (Omoigui-Okauru, 2011). However, “IT is being deployed rapidly in the delivery of public services even in developing countries such as Chile, Brazil and India with its consequent effect on society; some countries, including Nigeria, seem to be slower in pursuing e-Government practices” (Folarin and Olaniyan, 2009).
In a more recent study, Chatama (2013) examined the impact of ICT on taxation by focusing on the Large Taxpayer Department of the Tanzania Revenue Authority. The objective of the study was to investigate how the use of ICT has modernized tax administration procedures and improved revenue collection at the Large Taxpayer Department of the Tanzania Revenue Authority. The study used secondary data and literature reviews. The findings revealed that the availability of ICT infrastructure and facilities at the Large Taxpayer Department is contrary to the scholarly observation of ICT use limitations in developing countries, and Large Taxpayer Department has proven to be well equipped with ICT. Also, the taxpayers’ and tax consultants’ (firms) application of ICT has affected both the design and administration of the tax system in Tanzania. In addition, the findings of the study revealed that the impacts of ICT use can be seen in a number of ways, including; reduced administrative and collection costs; decreased need for personnel; time savings for taxpayers due to fast processing; transparency in assessment, collection, and related processes; reduced tax compliance costs; reduced communication costs; and timely access to information, which results in preventing revenue losses and improving efficiency and performance in revenue collections. The study expressed that although other factors in the economy, like increased internal trade, reduced importation and more reliance on home products, may have caused the increase in revenue collection, it is worth remembering that no matter how much the economy has prospered, if there is no good tax administration, the revenue was only disappear into wrong hands and was not be reflected in collections. If this study is carried out in another developing country with a different level of infrastructure development, the result may not be the same. The study used secondary methods, but the current study on Nigeria was use mixed methods in addition to secondary methods.
3.1. Research Design
The study problem was solved using descriptive survey design. It involves either identifying the characteristics of an observed phenomenon or exploring possible correlations among two or more phenomena. In every case, descriptive research examines a situation as it is.It does not involve changing or modifying the situation under investigation, nor is it intended to determine cause-and-effect relationships. Strategies include sampling, making observations, interviewing take on a very different form when we want them to yield quantitative data (Copper and Schindler, 2010). According to Doyle (2004), descriptive survey design also included observation studies, correlational research, developmental designs, and survey research. All of these approaches yield quantitative information that can be summarized through statistical analyses.
This study was designed in such way that enables the researcher to study problem more easily and clearly using quantitative and qualitative methods. It is structured to provide relevant information, both quantitative and qualitative, to sufficient level that would be essential for further processing. Quantitative data is expected to provide current stands and trends while qualitative one was be useful to understand people’s feelings and expectations which have linkage to the research questions raised in Chapter one.
3.2. Research Approaches
This study was used three research approaches where the researchers was determined their applicability. Research approach is the general framework for the study that links, knowledge claims, strategies of enquiry and specific methods. The research approach implicitly reflects the researcher attitude as to how knowledge is constructed and commands what method to be employed in the study. As noted in (Kothari, 2004) and (Dawson, 2002), there are three research paradigms; these are quantitative research, qualitative research, and mixed research.
3.2.1. Quantitative research approach
Quantitative research approach generates statistical data with large-scale survey research, using methods such as close-ended questionnaires and/or structured interviews. For the researcher conducting quantitative research implies the need to carefully operationalizing a theory and subsequently measuring it by means of variables and questions.
RESULTS AND DISCUSSIONS
Information from the questionnaires was entered into SPSS software to run the needed statistics. Figure 6.1 below shows part “I” of the questionnaire.
Demographic and background attributes such as gender, age, position, experience and educational background were discussed and are presented in the tables below.
CONCLUSION AND RECOMMENDATIONS
The purpose of the study was to establish the impact of adopting ICT in tax collection systems in Nigeria. The study was guided by the following research questions: What are the changes brought by the introduction of ICT to the tax collection systems? How is really the impact of ICT on tax collection system? What are the challenges of ICT application in the tax collection system?
To achieve the above, the study adopted a survey research design in order to obtain the data that is necessary, which in essence facilitated the collection of the private data as a way of getting into the research objectives. The total population of interest for the study was consist of FIRS staffs in Abuja that are 423 and Large Taxpayers in Abuja who currently total 1,146. Large taxpayers as opposed to large or small taxpayers are suited for the study because of their opercula characteristics.
The FIRS has benefited from the use of ICT in tax collections in the following ways: it has shortened lengthy and cumbersome manual procedures; ICT usage has minimised errors in return processing and in assessment; processing time and response time to taxpayers queries have been reasonably shortened; all computers at FIRS are connected through the local area network; with the introduction of ICT, revenue collection performance was in most cases more than 100%; and the use of ICT in tax collection reduces the cost of legislative enactment relating to the tax system and cost incurred in enforcing compliance of company income tax.
The study also found that the use of ICT in tax collection facilitated efficiency and effectiveness of company income tax collection operations, thereby meeting the target of revenue generation and efficiency gains; quality of service delivery to taxpayers; transparency, anticorruption and accountability; an increase in the capacity of the FIRS; network and community creation; and improvements in the quality of decision making. The use of ICT in tax collection has made it much easier for the FIRS to monitor lapses in the collection process, identify individuals who were skimming revenue and reduce the number of fraudulent clearances.
The findings of this study revealed that use of ICT in company income tax collection has blocked the leakages in tax systems such as tax evasions, corrupt practices of tax officials and the issue of diversion of government funds to individual accounts; it has also increased company income tax compliance. Additionally, the study has shed more light on the usage of ICT in company income tax collection and identified the benefits and challenges of the e- tax payment system to FIRS and Taxpayers. It improves their attitudes towards e-tax as a means to file tax returns undoubtedly.
The following were the recommendations for improvement and further studies. These recommendations were drawn from the findings.
FIRS needs to involve Large Taxpayers while developing its systems to ensure that they take care of the needs of both the Authority and the Large Taxpayers. This was also ensure that they are user friendly and are efficient to bring advantage over manual systems and enhance tax collection.
The study acknowledges the role that technology plays in enhancing tax compliance among the Large Taxpayers and recommends that FIRS should sensitize the Large Taxpayers on the systems it has in place and how they was be of advantage to them in terms of increasing their compliance levels.
FIRS should Provide Sufficient and good ICT infrastructure like computer and internet connection in the office for better application of ICT for satisfaction of customers (taxpayers).
Leadership is one of the main driving forces for the application of ICT on TA activities. In order to effectively implement the ICT policy and program the administrative and political leaders should be committed on the issue because if the leader goes the organization goes however, if the leader sleeps the organization sleep. Therefore, government officials and workers should have common understanding and awareness about the use of ICT with in the management body of each infrastructure uses by taking action on allocating adequate budget for purchasing ICT equipment and for training facilities.
One of the critical challenges in the application of process of ICT based Tax collection system is shortage of skilled human resource. Technical skills for the implementation of ICT infrastructure as well as for using and managing ICT based Tax collection are necessary. Thus, the development of human resource is very important for the success of improved ICT in tax collection, in increasing employee productivity, transparency and government efficiency and effectiveness. Therefore, it is recommended that the FIRS should prepare and provide practical and sufficient ICT related training to the staffs to make them more competent and confidential on their work.
- Abiola, S (2010), Recent Developments in Company Income Taxation in Nigeria, Bulletin for International Taxation, Vol 65, No 1.
- Bogdan, R. C. and Biklen, S. K. (1982), Qualitative Research for Education: An Introduction to Theory and Methods, Boston: Allyn and Bacon.
- Bond, E..and Samuelson, L. (1989), “Strategic behaviour and the rules for international taxation of capital,” Economic Journal, 99: 1099-1111.
- Brandstetter, L. and Jacob, M. (2013) “Do Corporate Tax Cuts Increase
- Investments?”Arbeitskreis Quantitative Steuerlehre Quantitative Research in Taxation – Discussion Papers arqus Discussion Paper No. 153 December, 2013
- Bresnahan, T. F. (2002). Information Technology, Workplace Organization, and the
- Demand for Skilled Labor: Firm-Level Evidence. The Quarterly Journal of Economics, 339–376.
- Bruce, N. (1992), “a note on the taxation of international capital income flows,” Economic Record, 68: 217-21.
- Bryman, A. (2008), “Quantitative and Qualitative Research: Further Reflections on their
- Integration, in Research Design”, edited by de Vaus, D. Sage Benchmarks in Social Research Methods, Sage Publications, London, 355-375.
- Buettner, T. and Fuest, C. (2010), “The role of the corporate income tax as an automatic stabilizer”, International tax and Public Finance, Vol. 17(6).
- Carmines, E. G. and Zeller, R. A. (1979), Reliability and validity assessment, Sage Publications, Beverly Hills, CA
- CEFP (2007), Council of Economic and Fiscal Policy April 2007 reports.
- Chaudhry, I. S. and Munir, F. (2010), “determinants of low tax revenue in Pakistan”, Pakistan Journal of Social Sciences, Vol. 30, No. 2 (December 2010): 439-452.
- CIAT (2009), “a modern vision of the tax administration”, resolution of the 43rd CIAT