Tax Planning And Information Content Of Taxable Income Of Listed Companies In Nigeria

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Tax planning exploits both opportunity and loopholes in government tax policies and often involves the use of legal and professional arrangements, wherein organizations shift the burden of tax within the statutorily required limit, some of the arrangements include altering the information content of the taxable income which may distort the fairness of the financial statement. This work examined the impact of tax planning on information content of taxable income. The research adopted survey and expost-facto design. Financial statements of selected companies from Manufacturing, banking and insurance sectors, between 2003 and 2012 were analyzed. The population of the study is 240 listed companies on the Nigerian Stock Exchange market as at April, 2014. Using simple and stratified sampling techniques, fifteen companies were sampled for the study, five companies from each of the sectors under study. The hypothesis for the study states that tax planning has no significant effect on information content of taxable income, the result indicate that tax planning exerts no significant negative effect on reported earnings ( P – val = 0.930 > 0.05), the coefficient of information content is -0.080. R2

  • 067, which means that 6.7% of change in tax saving, which is the surrogate of tax planning can be attributed to information content of taxable income. The study therefore concluded that tax planning has no significant effect on information content of taxable. It was recommended that tax payers should be encouraged to reveal all available information that will assist in the detrmination of their tax liability as concealment of such is tantarmount to tax evasion.







History shows that man has to pay tax in one form or the other, that is, either in cash or kind, initially in the olden days to the chieftains and later on to a form of organized government. Before the oil boom in Nigeria, income from taxation was the major source of revenue to all level of governments. Therefore, no system can be effective whether that of the federal, state or local government unless it enjoys some degree of financial independence. This financial independence can be achieved by direct taxations, collection of levies, fines and fees, among others.


Aji (1997) in his contribution defines taxation as “compulsory contribution to support government, levied on persons, property, income, commodity and transaction mostly proportional to the amount on which the contribution is levied”. Ishola (1999) also defines taxation as “compulsory payment made by the individuals and companies to the government coffer as a percentage of their annual income primarily with the aim of raising revenue and secondly with the aim of directing the factors of production towards government

objective for that period”.

Taxation, therefore, is an imposition of levies by government on persons, companies and property for the purpose of raising funds for economic growth  and development of any country. Government on its own cannot function or perform without funds. Government needs a lot of money, which can only be obtained through taxation and other sources. The general public on its part expects services especially social services to be provided by the government through its agencies. As a result, the citizens and companies are made to be suppliers of these funds through various tax laws, acts, legislations, edicts and decrees. The existence of an efficient tax system is a necessity for every economy because it provides the necessary revenue for economic growth and development.

Public financing is the responsibility of the government and it has to encourage or develop sources of internal revenue to enable it provide the necessary social amenities to the growing population of the nation or state.


Taxes have been used as economic policy instruments of government to either reduce or increase investment in the economy in general. Hence, tax can be used as a source of stimulating investment in a desired sector of the economy.

It can also be used as a means of encouraging foreign investors to come and invest in the country. It is through taxation that the government of third world countries could finance the various government agencies and parastatals with direct government involvement. It, therefore, follows that government development projects will depend almost entirely on the level of revenue that it can generate from her citizens.

Aji (1997) emphasizes that irrespective of the ideological background on which a nation’s economy is based, taxation in its various forms have always been the major sources of revenue to the government. Enough revenue is needed for a nation to develop economically, socially and politically. Therefore, taxation becomes more important when the issue of developing countries with crude oil is considered.

Company income tax is a compulsory levy by government on the profits made by the registered companies in Nigeria. This type of tax is a sub-set of direct taxes because the incidence of payment and burden of companies income tax are borne by the companies and not transferable to third parties. The relevant tax authority charged with responsibility of assessing and collection of companies income tax among others is the Federal Inland Revenue

Services (FIRS) under the supervision of a board called the Federal Board of Inland Revenue (FBIR).

The Companies Income Tax Act is a federal law operated by the Federal Inland Revenue Service. In view of the tremendous contribution of the companies income tax to the federal common pool account called the Federation Account over the years, there is need to assess its contributions further. This study is an assessment of the revenue performance of companies’ income tax in Nigeria for a period of ten (10) years from 1994 to 2003. Presently, the three tiers of government rely heavily on the allocation from

the federation account to finance the personnel costs, overhead expenditures and to embark on developmental projects. It is against this background that the study is focused on finding out whether there is positive or negative trend in the revenue being generated from the companies’ income tax as well as its contributions to the economic development of Nigeria during the period under review.



The major source of government revenue in Nigeria today is the proceeds from the sale of crude oil and gas in both local and international markets. As a matter of fact, this has been the situations in Nigeria for a long time.

Unfortunately, the incomes generated by the federal government from other sources have not been in any way comparable to the oil revenue. This development has impacted negatively on the ability of the government to perform it constitutional, social and economic responsibilities.

The dependence on the oil revenue is so much that other sources of revenue, like agriculture, manufacturing, exports and others have been neglected. At various times in the life of the country, there have been calls on the government to diversify the revenue base of the economy by exploiting other sources of revenue in order to promote economic development and reduce dependence on oil.

In the last one decade, the Nigerian economy has witnessed a number of reforms as a result of inadequacy of funds. For example, since the inception of the Obasanjo’s administration (1999 – date), there have been more moves to downsize the public service than any other administration in Nigeria. The Babangida’s administration (1985-1993) began the efforts towards the privatization of public utilities. This trend has continued under successive administrations with objective of reducing the financial burden on the federal government and repositioning the economy.


In addition, basic infrastructure like roads, basic health care, portable    water, electricity and basic education are seriously lacking in many places.   And where they exist, most of the times, they are nothing to write home    about. Inadequacy of funds has been blamed by the Federal, state and    local governments for their inability to discharge the duties in a very    satisfactory manner.

The problems are explained, in part by:

  • The incessant embezzlement of revenue generated from companies income tax by some staff of the Federal Inland Revenue Service through diversion of tax cheques into private individual bank account.
  • Collusion by government tax officials with some companies to issue under assessment of tax in order to pay less tax.
  • Outright abandonment to pursue vigorously the collection of taxes after initial issuance of notice of assessment.
  • The collapse of many companies as a result of unfavourable economic situations and social infrastructure especially the issue of energy.


It is against these backgrounds that the study is being carried out so as to                           determine whether there is positive or negative trends in revenue                 generation from companies income tax in the country during the period                           under review as a result of these problems.



The objectives of this study are:

  1. To evaluate the performance of the Federal Inland Revenue Service with respect to the administration and collection of companies income tax in


  1. To determine the trend of revenue generated via the companies income tax in Nigeria;
  2. To determine the contributions of the companies income tax to the economic development of Nigeria based on (a) and (b) above;
  3. To determine the factors which facilitate or militate against the administration and the collection of companies income tax in Nigeria;
  4. To make appropriate recommendations based on the findings of the study.




Based on the foregoing, the research questions of this study can be posed as follows:

  1. How efficient and effective has the Federal Inland Revenue Services been in the administration and collection of the companies’ income tax in Nigeria?
  2. What was the trend of the revenue generated via companies’ income tax in Nigeria between 1994 and 2003; was it on the increase or onthe decrease?
  3. What were the real contributions of the companies’ income tax to the economic development of Nigeria in the period under review?
  4. What factors encouraged or hindered the efficient administrationand collection of companies’ income tax in Nigeria during the periodunder review?



The hypothesis of this study can be stated thus:

Hypothesis 1:

Ho: There were no significant improvements in the revenue generated through the companies’ income tax by the Federal Inland Revenue Service between 1994 – 2003.

H1: There were significant improvements in the revenue generated through the companies’ income tax by the Federal Inland Revenue Service between 1994- 2003.


This hypothesis will help the researcher to determine whether the revenue generated by the Federal Inland Revenue Service actually increased or reduced in real terms in the period under review. This will then be the basis for evaluating the performance of the Federal Inland Revenue Service with respect to companies’ income tax administration and collection.


Hypothesis 2:

Ho: Companies income tax administration and its revenue generation  did not have any significant impact on the development of the  Nigerian economy between 1994 and 2003.


H1: Companies income tax administration and its revenue generation  had a significant impact on the development of the Nigerian  economy between 1994 and 2003.



The aim of this hypothesis is to measure the extent to which the companies’ income tax contributed to the economic development of Nigeria. Consequently, the outcome will be used as a basis for measuring its impacts on the economic development of the country.


Each hypothesis will be tested at 95% level of confidence. In addition, it will be two-tailed tested in both cases. Therefore, the percentage of error () allowed in both cases will be 0.05.

That is:

P = +

 = 0.05


1.6               Significance of The Study

The need to reduce the country’s over dependence on the oil and gas revenue and the need to diversify the federal government revenue generation have made this research study unique. The relevance of this study therefore, stems from the fact that it is directed towards providing solutions to the problems identified earlier thus:

The study will enables the federal government to know the present trend of revenue generated from companies’ income tax into the Federation Account, and how such performance can further be improved upon to enhance both economic and social growth. It will also pinpoint the aspect of the Companies’ Income Tax Act that needs amendment and how to formulate the necessary policies towards creating conducive environment for our limited liability companies in Nigeria. It shall further determine how the pursuits of government monetary and fiscal policies affect the companies’ performance whether positively or negatively.


The study will in no doubt be a working document to the Federal Inland Revenue Service in identifying the various loopholes and ways of improving the assessment, collection and effective administration of the various taxes collected from registered companies. It shall also enable the registered companies to appreciate their roles in the country’s economic development through their prompt and efficient remittance of their taxes to the government.

Finally, the study shall encourage future researcher to carry out more studies in the same area.

1.7        SCOPE OF STUDY

This study aims at assessing the companies’ income tax in Nigeria for a  10 year period (1994 – 2003), with a view to measuring the contributions of the companies’ income tax to economic development of Nigeria in terms of revenue generation.

The study will also focus on the trends of revenue generated through the companies’ income tax over the period under study in order to determine whether there have been improvements or not in the revenue generated via the companies’ income tax.

Finally, the study will cover the activities of the Federal Inland Revenue Service as the relevant tax authority in charge of the companies income tax in Nigeria. This will help the researcher to evaluate the performance of the Federal Inland Revenue Service in the period under study.



There is no research study that is free from setback or weakness. The limitations that were encountered by the researcher during the course of the study include the following:

  • The relevant tax authority’s secret syndrome which regarded some

information as official secret is a limiting factor. As a result the researcher has no option than to make use of the information contained in the Central Bank of Nigeria published Annual Report and Statement of Accounts as secondary source. So the validity of the inference depends on the reliability of the data extracted.

  • Distance to Abuja where the Headquarters of the Central Bank of

Nigeria, Federal Inland Revenue Service and Federal Ministry of Finance are situated is far for the required information. The information the researcher was able to collect after several visits were used for the purpose of the study.

This distance is also coupled with shortage of funds on the part of researcher. Despite these shortcomings stated above, the researcher was able to collect the major information needed to achieve the stated objectives of the study.






The companies Income Tax Act (No. 28) 1979 as amended by Finance

(Miscellaneous Provisions) Amendment Decree No. 3 of 1993 established the

Federal Board of Inland Revenue (FBIR) and created the Federal Inland Revenue Service (FIRS) as its operational arm to assess and collect various taxes at federal level on behalf of the federal government in Nigeria.



The Federal Board of Inland Revenue is made up of the following members:

  1. The Board is headed by an Executive Chairman who shall be a person within the service experienced in taxation to be appointed by the President of the Federal Republic of Nigeria;
  2. The Directors and Heads of Departments of the service;
  3. The officer from time to time holding or acting in the post of Director with responsibility for planning, research and statistics matters in the Federal Ministry of Finance.
  4. A commissioner of the Revenue Mobilization Allocation and Fiscal


  1. A member from the Nigeria National Petroleum Corporation not lower in rank than an Executive Director.
  2. A Director from the National Planning Commission;
  3. A Director from the Department of Customs and Excise,
  4. The Registrar – General of the Corporate Affairs Commission;
  5. The Legal adviser to the service;
  6. The Secretary (who shall be an ex-officio member of the Board) shall be nominated by the board from within the service.

Any seven members of the Board of whom one shall be the Chairman or a Director of a department within the service shall constitute a quorum before the commencement of any meeting and deliberations.


1.9.2 Powers And Duties Of The Board

Section 2 of the Act contains provisions with regards to the powers and duties of the Board as follows:

  • The due administration of the Act and the tax is under the care and

management of the Board;

  • The Board may do all such things as may be deemed necessary and expedient for the assessment and collections of the tax;
  • It shall account for all amounts collected in a manner to be prescribed by the Minister of Finance;
  • The Board may acquire, hold and dispose off any property taken as security for or in satisfaction of any tax or penalty or of any  judgment debt due to it. It shall account for any such property and  the proceeds of sale thereof in a manner to be prescribed by the  Minister;
  • The Board may sue and be sued in its official name;
  • The Board may by notice in the Federal Gazette or in writing:
  • Authorize any person to perform or exercise on its behalf, any power or duty conferred on the Board other than the powers or duties

specified in the first schedule to the Act;

  • With the consent of the Minister, authorize the Joint Tax Board to perform or exercise on behalf of the Board, any power or duty

conferred on the Board including the powers or duties specified in the first schedule to the Act.

  • Every claim, objectives, appeal, representation made by any person under the provisions of this Act shall be made in  accordance with this Act;
  • Any act, matter or thing done by or with the authority of the Board,        in pursuance of any provisions of this Act shall not be subject to            challenge on the ground that such act, matter or thing was not or


proved to be in accordance with any direction, order or instruction    given by the Minister;

  • Anything required to be done by the Board, in relation to the powers or duties specified in the first schedule, may be signified under the hand of the Chairman or of the Secretary.





1.9.3 Technical Committee of the Board

The Finance (Miscellaneous Provisions) Amendment Decree of 1993 established a technical committee of the Federal Inland Revenue Service whose membership comprises of:

  • The Executive Chairman of the Board as Chairman;
  • All the Directors and Head of Departments of the service;              (c)        The Legal Adviser in the Federal Inland Revenue Service;

(d)          The Secretary to the Board.

The Technical committee may co-opt from the service such staff as it may require for the discharge of its functions. The functions of the Technical

Committee shall be to:

  • Consider all tax matters that require professional and technical                              expertise and make recommendations to the Board;
  • Advice the Board on all its powers and duties specifically listed in                                    Section 2 of the Act and in the First Schedule of the Act.
  • Attend to such other matters as may from time to time be referred

to it by the Board.


1.9.4 Management of FIRS

The Management of the Federal Inland Revenue Service (FIRS) as part of its mission statements to achieve corporate vision and value is out to:   (i) Collect taxes according to law by as cheap as possible through     actively encouraging voluntary compliance;

  • Prosecute the tax law very vigorously thereby deterring tax evasion

and avoidance;

  • Maximize tax collections through effective and extensive coverage

of the whole country;

  • Maintain public confidence in the integrity of the tax system by administering the tax laws and regulations fairly, uniformly and courteously, and
  • Recognize the tax officials as important human assets in the                                   achievement of the set objectives.


In order to achieve the above stated mission statements, the organization place high premiums on:

  1. Human resources development;
  2. Staff motivation,
  3. Professionalism,
  4. Dedication and loyalty,
  5. Accountability and transparency;
  6. Information technology and
  7. Effective communication.


There are four (4) levels of management within the Federal Inland Revenue Service. This arrangement is put in place to promote regular supervision and monitoring of the entire system thereby facilitating performance evaluations. The four levels of managements include the headquarters, the Regional coordinating offices, the large tax offices and the Integrated Tax Offices.


(i) The Headquarters.

The Headquarters is made up of the Chairman-in-council with the seven Directors. The Headquarters is located in Abuja with a liaison office in Lagos.

There are seven Directors who are in charge of the following departments at the Headquarters.

  • Large Tax payer Department.
  • Audit Department
  • Process Operations Department
  • Tax policy, Research and Development Department
  • Regional Coordination Department
  • Administration and Supplies Department
  • Finance and Accounts Department



In addition there are some service divisions, branches and units which are headed by Head of Departments who report directly to the Executive Chairman. They are part and parcel of the Headquarters with their functions spanning throughout the entire service. These are:

  • Internal Audit
  • Legal Service

(c ) Corporate Communications, Tax Payer Education and Services.

  • Investigations and Intelligence.
  • Quality Assurance and change project coordination
  • Staff Discipline
  • Board Secretariat
  • Special Assistant to the Chairman FIRS.


The current Federal Inland Revenue Service Organizational Structure at the

Headquarters is shown in appendix 1.

(ii)    The Regional Coordinating Offices

There are seven Regional Coordinating Offices which replaced the former zonal offices namely, Lagos, Western, North West, South South, Eastern, North East and North Central Regions. The Regional Co-ordinators and located in Lagos, Ibadan, Kaduna, Port-Harcourt, Enugu, Maiduguri and Jos respectively.

(iii)         The Large Tax Offices

There are five (5) large tax offices spread across the country with two offices designated for non oil and oil and gas located in Lagos while one office each in Kano, Port-Harcourt and Abuja. These offices are headed by Tax


(iv)         Integrated Tax Offices

There are Ninety-one (91) integrated tax offices created across the seven regional offices as a way of decentralizing the administration of federal tax system and ensuring efficient and effective assessment and collections of taxes being collected by the Federal Inland Revenue Service. The numbers of integrated tax offices in each regional office are as follows:

  • Lagos Region – 16, integrated tax offices
  • Western Region –           13 integrated tax offices

( c)        North West Region –              13 integrated tax offices

  • South – South Region- 12 integrated tax offices
  • Eastern Region –           12 integrated tax offices
  • North-East Region – 9 integrated tax offices
  • North-Central Region – 16 integrated tax offices.




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