AN APPRAISAL OF PAY-AS YOU EARN SYSTEM OF TAXATION IN NIGERIA (A CASE STUDY OF NSUKKA LOCAL GOVERNMENT AREA)

CHAPTER ONE

1.     INTRODUCTION

The global economic recession, which started in 1980’s as a result of decline in the economic growth of industries nation, high rate of inflation, dramatics rise in price of crude oil, increase cost of important a massive building-up of liquidity in the international capital market and unusual fluctuation in commodity prices was not fully felt in Nigeria until 1982, when the developed  countries applied a series of restructure monetary and fiscal policies to curtail the a fore-stated problems.

Seventeen years ago, precisely in 1983, the worldbank report that the continuing recession in the industrial world several constrained developed countries growth in 1982. Weakness in the price of oil created difficulties for oil exporting developing countries’’.

Reporting specifically on Nigeria, the bank stated that`` foreign exchange resource declined in 1982 from a level equivalent to three month worth. Investment, equal to about a third of gross domestics product (GDP) in 1980 –1981, has been radically reduced as both foreign exchange and government resource contract (85% of government revenue, both federal and states are direct generated from oil export).

An attempt to wriggle the country out of its financial predicament led to the initially of series of belt-tighten measure since 1982 to date. 

These measure include:

Ban on import of a large number of goods, specially taxes on luxury goods, enforcement of trick exchanges control reputation liberalized during the earlier boom, wages and ban on employment in the public sector, increased external borrowing in anticipation of oil income and of late the introduction of value added tax (v.a.t). The impact of the dwindling revenues to the federal government and this ever decreasing portion  of statutory allocation to states, has aroused tremendous interest in other source of revenue. Therefore, the hitherto relaxed tax laws are vigorously being enforced while levies of various descriptions are also being in various state of the federation.

Nsukka local government area of Enugu state is not exempted from this nation economic recession. One of the major sources of revenue to the local government, second to statutory allocation from the state and federal  government, is the personal income tax (PIT) impose on all taxable persons in the local  government. The personal income tax is allocated either through the Pay-As-You-Earn (PAYE) system in which employers of labour deduct tax due from the income of their employees and remit it to the division

In this study, my interest lies in appraising the effective and efficiency of Pay-As-You-Earn (PAYE) as a system of tax collection. The examination of the weakness interest in the system will be carried out and based on empincal observation, make suitable recommendation as to how loopholes in the system could be plugged especially at this time of wide spread awareness of the great potentials of internally generally revenues.

1. 1. STATEMENT OF PROBLEM

 The expectation of the public from governments (local, state and federal) in the developing countries are such that the later are saddle with responsibilities for the provision of various services. The 1979 nigeria constitution sec.16 (a) state. Quite clearly that ``the state shall control the national economy in such manner as to secure the maximum welfare, freedom and happiness of every citizen as the basic of social justice and equality of status and opportunities’’.

      It is in an attempt to fulfill these expectation and sometimes constitutionals requirement that government rely on, among either source, the imposition of various taxes, weather direct or indirect on the defined taxable persons in their territory. Such tax and poll tax

           These taxes are collected at source at source include taxes on dividend interest and rates. Also induction is tax on personal income tax through the Pay-As-You-Earn (PAYE) system has been effective in achieving its objectives of minimizing collection costs and reduction tax evasion  while increasing revenue to the local government. We will all look into the problem of the pay-As-You-Earn system and suggest measures to solve such problems that might be identified.

1. 1. PURPOSE OF THE STUDY

The purpose of the study can be broken down vas follows:

1. to ascertain the impact of  Pay-As-You-Earn system effectiveness on personal income tax revenue over a period of ten years.

1. To educate the truthfulness of the data provided by tax – payers in their tax return and ascertain the percentage of those who do not provide the information there in.

1. To find out weather there is any relationship between the truthfulness of information provided by tax payers in their tax returns and their age.

1. To identify the problem (if any) encountered by the internal revenue division and the employers of labour in the application of the PAYE system.

1. To find out how the employers perceive the PAYE system and the likely improvement that they would recommend.

                     On the basis of my findings, suggestion and recommendation will be made which I hope would be benefit to the local government it is also hope that future researcher in the area of the public finance would find the work a valuable source of literature.

1. 1. SIGNIFICANT

The significance of adequate revenue for a developing economy such as that of Nigeria cannot be over emphasized. This study is being conducted with a view to exposing the inherent weakness on the Pay-As-You-Earn system of taxation.

The suggestion and recommendation made on how loopholes in the system could be plugged. Especially at this time of widespread weakness of the great potential of internally generated revenue would be very beneficial to the governments.

The local government will find it very useful in drawing up revenue and other methods of taxation which will in turn check the ever dividing revenue to the government.

1. 1. STATEMENT OF THE HYPOTHENSIS

A hypothesis is a rational assumption, which subject to fast could be true or false

The following hypothesis were made as a guide for this research ho (i) The effectiveness of the Pay-As-You-Earn system has not affected personal income tax revenue.

Hi (ii) the effectiveness of the Pay-As-You-Earn system has affected  personal income tax revenue

1.5 SCOPE OF STUDY

The study shall be confined to an examination of the Pay-As-You-Earn system as in weather it is an efficient and effective method of personal income tax (PIT) collection in NSUKKA local government. It thus excludes any other system of tax revenue through Pay-As-You-Earn system with other tax revenue shall be evaluated only for the purpose of comparison.

1. 1.  LIMITATION OF THE STUDY

The  study was limited by the following constraints:

1. there was shortage of relevant texts journal and documentaries on the  subject of Pay-As-You-Earn system.

1. Some of the answer givens an opinions expressed in response to question were subjectively based due to different personal experience.

1. A study of this nature require longer period of time than was actually available to me.