Examination of the Effectiveness of Tax Identification Number (TIN) in Combating Tax Evasion in Nigeria
OBJECTIVE OF THE STUDY.
The study’s main objective is to examine the effectiveness of tax Identification Numbers in Combating tax evasion in Lagos state, Nigeria.
REVIEW OF RELATED LITERATURE
Concept of the Unique Taxpayer Identification Number
As an effort and commitment of Nigerian tax authorities to increase the revenue generation and eliminate the leakage of the taxes through evasion, the Federal Inland Revenue Services (FIRS) introduce a program called Unique Taxpayer Identification Number (U-TIN). The program is one of the basic steps set in the tax administration process to have a data base of all registered taxpayers in the country. The program was recorded as one of the mechanism toward having a pool of taxpayers‟ registration and proper unique identification.
Nevertheless, in order to certify the effective application of this scheme of registration, there is a need for clear thoughtful of the concept and idea behind its introduction.
The main and paramount contextual to the institution of U-TIN in Nigerian tax system was the necessity to change the registration of taxpayers in the country from a manual process which is uncoordinated to an electronic or computerized, structured, harmonised and coordinated system. The former (which is manual) system was unreliable, boring, cumbersome and posed a main challenge to tax authorities as well as taxpayers.
Thus, there was a need from the authorities to substitute that old system with a new modernizes and more effective system which is additionally taxpayer friendly.
The basic idea of U-TIN is to provide harmonized and coordinated taxpayer identification system that is based on computerized system and easily accessible to all relevant stakeholders‟ perspective (Ayodeji, 2014). It is a collective and integrated system for taxpayer‟s identification throughout the country and would incorporate a database meant for all registered taxpayers at both the Federal and State level (local governments are under state registration). This program would generate proper linkages within tax authorities (Federal and State) and yield cooperation and information dissemination about taxpayers thus, led to better compliance by taxpayers (Ayodeji, 2014). The followings are some of the benefits of the U-TIN system in Nigeria such as:
- Minimizing the cost and time needed for tax compliance from taxpayer by tax authorities.
- Having a single and effective taxpayer‟s data base for federal and state level.
- Expansion of tax system which is useful for national security and social planning purposes.
- A friendly tax system that is well coordinated and accessible to all stakeholders.
- Modernizes and efficient way of assessing and detecting taxpayer defaulters.
- Increase voluntary compliance and discourage tax evasion.
It is anticipated that with the introduction of the program Governments and tax authorities at all levels (both federal and state) shall collaborate to ensure the positive implementation and the evenly establishment of U-TIN system in Nigeria, in relations to funding, platforms and personnel for the organization of the system, nationwide.
Concept of Tax revenue
Tax is a mandatory levy enforced by the government which includes federal, state and local government, on the assets, goods, services, and incomes of taxpayers (Chigbu et al., 2012). Payment of taxes is a legal obligation and a necessary duty, imposed by the government on individuals and corporations to fund its operations, run public utilities and perform other social responsibilities. This makes tax to be the primary source of revenue for the government. Tax is a method of enforcing necessary levies on all assets, goods, services, and incomes of individuals, firms, businesses, companies, corporations, etc. by the government (Smatrakalev, 2006; Ojo, 2008). Tax revenue does not just make up the major means of revenue for the government but is in fact the vital part of an effort to build societies, economies and even nations. In view of this, Mckerchar and Evans (2009) stated that taxes make it possible to provide securities, provide the major needs or promotes economic development as well as validity and agreement (aiding to improve democratic, accountable and representative government). It is the major focus of every good citizen to improve and increase the image of his society; therefore, tax compliance should not be forced. However, it has been noticed over the years, that willful disobedience in paying tax has been a main issue in every society around the world (Bhatia, 2009; Stephen, 2010). Taxes can be classified majorly into two: direct and indirect taxes. Direct taxes are a form of taxes collected basically on the wealth and income of individuals and companies.
According to Zikmund (1994), research design is the master plan specifying the method and procedures for collecting and analyzing the needed information. In this study therefore, an ex-post facto research design was employed. This design is suitable for this study as it deals with facts and matters that had already taken place and the data were readily available for use.
The Population of the Study
The population of the study consists of the draft estimates of Lagos State government of Nigeria with particular reference to the State Internally Generated Revenue behavior in the context of total revenue accruable to the State. Parameters like internally generated revenue before TIN (IGRBT), the internally generated revenue after TIN (IGRAT), total revenue before TIN (TRBT) and Total revenue after TIN (TRAT) for various years (1997-2018) respectively would be used to capture the contribution of TIN programme on total revenue of Lagos State, Nigeria.
DATA PRESENTATION AND INTERPRETATION
Table 4.1 data on total revenue before and after the introduction of TIN and internally generated revenue before and after the introduction of TIN in billion naira.
SUMMARY, CONCLUSION AND RECOMMENDATIONS
The research was carried out to examine the effectiveness of Taxpayer Identification Number (TIN) in combating tax evasion in Nigeria (case study of Lagos State board of internal revenue). This has been proven theoretically and statistically or scientifically in chapter four and the results were consistent with apriori expectation, theories and canons of taxation and literature of past studies.
Empirically, internally generated revenue before and after the introduction of tax payer identification number (TIN) were employed as independent variables to ascertain the level of dependency of total revenue realized by Lagos State board of internal revenue which was used as proxy for tax evasion (dependent variable). From the empirical analysis, some findings were made. The findings are hereby summarized as follows:
- The correlation result revealed a positive relationship between internally generated revenue and total revenue realized by LagosState board of internal revenue both before and after the introduction of tax payer identification number.
- The Auto Regressive Distributed Lag (ARDL) Model result suggested that the introduction of tax payer identification number (TIN) had a significant positive effect in combating tax evasion in LagosState.
- The result also revealed that before the advent of tax payer identification number, the total revenue realized by LagosState board of internal revenue was very low when compared to what was realized after the introduction of tax payer identification number.
In examine the effectiveness of Taxpayer Identification Number (TIN) in combating tax evasion in Nigeria (case study of Lagos State board of internal revenue), this study adopted two different models, the first model showing the relationship between tax payer identification number and tax evasion in Lagos State before the introduction of (TIN) and the second model showed the relationship between tax payer identification number and tax evasion in Lagos State after the introduction of (TIN). From the empirical results obtained in chapter four, it is only suffices to conclude that tax payer identification number (TIN) has contributed to the curbing of tax evasion in Lagos State. The study revealed that the internally generated revenue (IGR) before the introduction of (TIN) within (1997-2007) was not significant. Also, it was revealed that the introduction of (TIN) within (2008-2018) has witnessed a tremendous increase of internally generated revenue in Lagos State. So, we reject the hypothesis that stated that tax identification number does not have a significant effect in curbing tax evasion in Lagos.
Therefore, authorities and governments at all levels should collaborate to ensure the successful application of taxpayer identification number system in Nigeria, in terms of funding, personnel and platforms for the deployment of the system nationwide.
As a result of the findings of this study, the study recommended the following:
- A holistic tax education should be carried out in order to keep the teeming taxpayers abreast of Taxpayer Identification Number programme in the state. Such as the benefit they can derive from registration for the taxpayer identification programme.
- More registration centers should be created for ease of access and registration of taxpayers for the taxpayer identification number programme as oppose to only one registration center in Uyo.
- There should be incentives for the Tax officials that are involved in the implementation of the programme to boost their productivity.
- The State Board of Internal Revenue should be properly equipped to be able to carry-out the Taxpayer identification programme in LagosState.
- The enforcement unit of the State Revenue Board should be properly empowered to monitor, enforce and prosecute any errant tax defaulters who fail to comply with the Taxpayer Identification Number programme in the State.
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