The Problems Of Personal Income Tax Management in Nigeria

The Problems Of Personal Income Tax Management in Nigeria


Tax has been define by many authors but in the real sense all of then are saying the same thing but according to Solomon, Solomon, It can be define as a compulsory levy on individual and non human entities (e.g companies and legal person). It involves transfer of resources or income from private sector to the public sector in order to achieve some of the major economics and social activities of government. 

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  • DIRECT TAX: Direct taxes are primarily taxes on person; they are aimed at the individual’s ability to pay as measured by his income or his net wealth. The types of direct taxes are levied on the following individual income taxes. There are taxes levied on the total personal net income in excess of some stipulated minima. They are adjusted to  take into account, the circumstance influencing  the ability to pay of the individual. Some as family status, number and ages of children financial burdens resulting from illness, etc.
  • INDIRECT TAX: Indirect taxes are usually taxes levied on commodities or sense. They are called indirect taxes because the incidence of taxation does not fall  directly in the consumer’s payers. When somebody buys an article on which indirect tax has been levied, he does not know the proportion of what he spends on the article as tax. Indirect taxes are an income-Import duties and Export duties, exercise tax and scales tax are typical example of indirect taxes. Some types of indirect taxes are discussed below:
    1. IMPORT DUTIES: These are taxes levied on goods coming into a country. In West Africa, import duties from a substantial part of government revenue these due to a number of factors, at this stage of their development West Africa countries import a variety of commodities upon which import duties are levied. Taking Nigeria as an example, in 1963 a sum of N48, 076,000 was derived from import duties. News line (2nd 1964).
    2. EXPORT DUTIES: These are taxes levied on goods which are exported into other countries such taxes are ceuted on cocoa, groundnut, hide and skin, cotton to mention but few. This also forms good source of revenue to the government in effect export duties are paid by the producers of goods exported out of the country. It is being argued taut  high export duties may make producers shift their area of production to home consumed goods which are free from taxation. However, it is confident way of taxes from the farmed who are scattered all about and who may one way or the other evade income tax.
    3. EXCISE TAX: These are levied on commodities which are sugar. At present so many articles are locally produced in some West Africa countries but it is hopped that as time goes on and the place of industrialization increase more value will.
    4. PURCHASE TAX: This is imposed on a range of selected consumer durable such as cat’s cameras, radiograms and television sets. Purchase tax is not common in West African countries, but is widely in advanced countries.
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  1. PROGRESSIVE INCOME TAX: A progressive tax is one which is levied according to the person’s ability to pay, income tax is said to be progressive because it is levied according to the income of the payer under a progressive system of  income tax, the amount of tax income, for example, if on an income of N350 a year, N35 has to be paid in income tax, this is 10% somebody earning N 600 a year pays N 72, this is 12 percent and the third man who earns N 1000 pay N 130 as tax, this is 15 percent, this progressive income tax principle; a large share is take from those who earn less. In a society where there is a great inequality of income in favour of low income earners. Although this tax system is equitable, it would it would be earlier to carry it out and have much influence on distributed income. If there is a single tax system, that is where each person is subject to one tax, which only based on his income. But in reality different types of taxes are used, taxes on income and commodities, most income taxes are made sleep progressive, that is allowance are given for married men; for children and dependent relatives. Despite the allowance given, progressive income tax does effect distribution of income in favours of those who earn less. Those who earn less pay less income tax than those who earn more.
  2. PROPORTIONAL TAX: The principal of proportional tax is that, one pays a certain proportional of ones income. If the proportion to be paid in tax is to prevent it means irrespective of what one earn, he will pay 10 percent of his income for e.g somebody who earn N 350 will pay N 35. I cannot end up this work without brief summary of the way of improve tax-system in this country, such suggestion are as follows:
    1. Educating the tax payer on the reason why they have to pay gather tax.
    2. Pigging the holes which the endears use


Income tax management act (ITMA) 1961 referred to as the 1961 act, this governs the taxation of individual (individual trustees,  executors, partnerships, communities and families). The act was amended by the finance (miscellaneous taxation provision) Decree 1985 1987 1990 1992 1993 1994 and 1996 company income tax act (CITA) 1979 referred to as the 1999 act which regulates the taxation of registered company. This act has also suffer some amendment. A greater percentage  of the investment is from divided  received from share held in Nigerian companies which suffer tax by deduction at   source (ie through tax with holding system. PETROLEUM  profits tax act (PPTA) 1959  as amended. The act regulate the assessment and collection of petroleum tax payable by entities that engages in the extraction and sales of petroleum on in Nigeria. Capital gain tax decree (CGTD) 1967 which was introduced by decree 44 of 1967. This decree takes care of gain accruing to any person on or after 1st April, 1967 on the disposal of fixed assets. The rate of tax is currently at ten percent. There was only one amendment to this decree in 1972 which only brought in the taxation of gain arising from the disposal of stocks and share held in Nigeria companies no reference was made to this law since 1972 until in the 1976 budget when the rate of tax was reduces from twenty percent to ten percent contained in the decree of 1967. As an example a chargeable asset sold for N 1,000 or less is exempt from the tax, where the sale proceed is slightly above N 1,000 the capital gain tax payable is the lower of the chargeable gain or half of the excess of the sale proceed over and above N 1,000.

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  1. INCOME: Taxation is the main instrument through which the government generates income for its many services such is defense, administration, subsidizing production, provision of collective good’.
  2. FIGHTING INFLATION: It could be used as a means of fighting inflation, when such inflation is caused by excessive demand ie. Demand pulls. Inflation
  3. REGISLATION OF CONSUMPTION: High taxes on goods could raise prices and discourage further consumption e.g harmful goods and vice-visa.
  4. BALANCE OF PAYMENT: High tariffs on imported goods could be a means of correcting imbalance in the balance of payment when they bring about reduced importance. This could also help to protect infant industries.


  1. Disincentive to work: Heavy direct taxation could be a disincentive to work and enterprises when such taxation demoralize the tax payer and when it leads to reduction in output. This could bring about a fall in national income.
  2. Disincentive to invest and save: Heavy company or investment taxes may discourage further investment. Such taxes on profit or income reduce the take-home pay and also savings is discouraged.
  3. Taxation may encourage inflation: Indirect taxes (taxes on goods or service) may bring about high price which could be luslationary when such high price persist.
  4. Tax Evasion and tax avoidance: High taxes may bring about widespread tax evasion and tax avoidance which may lead to a reduction in government revenue.
  5. Deserting of paid job: Taxation in Enugu where the tax system is poor has brought about some employees deserting paid job or preferring private sector to public sector or self paid job.



These are various method of tax

  1. Pay as you earn (PAYE)
  2. Writes of attachment
  3. Personal demand
  4. Court proceeding
  5. Agency
    1. PAYE: The person responsible in tax agent. It is done by reducing tax from the employees emoluments. Here the most allowance are being provided are:-


  1. PERSONAL ALLOWANCE: Decree no 25 of 1995 which provide that a personal allows of N 3000 basic plus 15% of earn income in excess N 6000 Consequently the law enforce at present is that every individual tax payer is entitled to a personal allowance of N 3000 plus 15% oF his earned income in excess of N 6000.
  2. CHILDREN ALLOWANCE: The principle act provide for an allowance of N 2500 per child for maximum of 4 children in any tax year. This has been amended through the year. The allowance is paid to unmarried children.
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iii.      DEPENDENT RELATIVE ALLOWANCE:    This was 400 at initially but now stands at N 1000 as provided for in 1999 budget and maximum of two person.

  1. INSURANCE ALLOWANCE: 1/10 of sum insured or 1/15 of the total income which ever is less, than there is wife allowance.
  2. WIFE ALLOWANCE: Taxation provision the act provides for a wife allowance of N300 on one wife only. Wife allowance was however scraper by (finance miscellaneous taxation provision) (AMENDMENT) decree No3 1990.

b). WRITES OF ATTACHMENT:      It is usually done by the tax officer. They do this by listening the tax payers and by his goods in a place where he does not reside but where the property is saturated. The right could as well be done   of the movable property of the tax defaulter when the write is issued. The tax office is armed with authority to seizes and sell where appropriate property of the advancer in satisfaction of deist.

c).      PERSONAL DEMAND:       This method is used the tax officer has published a notice under section 34 (1) of the law warning the public and stating the period which this method will be operated. This personal demand is known as tax drive.  The drive may either be at the tax payers residence or any other place  where he could  be easily found. This method could be easily done perfectly going alone with the policy mostly very early or in the evening when the victims could be easily found.

d).     COURT PROCEEDINGS:    When an assessment is made the tax payer is given a time limit with in which to pay the tax assessed. A failure beyond the stipulated date. This is of course pressed that the tax payer has been served with the notice of assessment.

c).      AGENCY: These are those tax officers agent who go to these rural areas especially in the area specified to them to carryout functions like in the primary school, market, village square and chiefs place.

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This article was extracted from a Project Research Work Topic


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