An Examination Of The Concept Of Fiscal Federalism And Tax Legislation In Nigeria: A Case Study Of Lagos State

  • Ms Word Format
  • 115 Pages
  • ₦3000
  • 1-5 Chapters

AN EXAMINATION OF THE CONCEPT OF FISCAL FEDERALISM AND TAX LEGISLATION IN NIGERIA: A CASE STUDY OF LAGOS STATE

CHAPTER ONE

GENERAL INTRODUCTION

                1.1.      Background to the study

From remote antiquity, tax as a fiscal instrument of regulation and control is a ―necessary evil‖ that societies have been compelled to stay with. At the time of Jesus Christ, there was an established tax system that led the people to ask him if he approved the payment of tax to the old Roman Emperor, who was the imperial lord of Jerusalem[1] . In other words, since the inception of statehood, tax has been an instrument for generation of revenue in running the state.  Prior to the discovery of other sources of wealth creation like natural resources, science and technology, production and distribution of goods and services,; tax had been that loyal servant of the state.

In recent times, tax has become a viable source of revenue generation to states such that it has shown its capability of being the main revenue stay of some countries all over the world. ―Countries like Canada, the United States of America, the Netherlands and the United Kingdom are some 1examples of a tax based economy with their internal revenue generation being over 50% of their revenue base‖[2] [3] .  States[4] are beginning to accept the reality that taxation is a very good avenue for blocking the shortfall from funds transmitted from the Federation Account.[5]

The Black‘s Law Dictionary[6] defines tax ―as a reliable portion of the property and labour of the individual citizens, taken by the nation in the exercise of its sovereign rights for the support of government, for the administration of the laws and as the means for continuing in operation, the various legitimate functions of the state.‖

The New Shorter Oxford English Dictionary[7] defines tax as ―a compulsory contribution to the support of government levied on persons, property, income, commodity, transactions etc, usually at a fixed rate mostly, proportionate to the amount on which the contribution is levied.‖ Taxation is the process of compulsory exaction of the money by a public authority from individuals and corporate bodies, such monies being for public purposes[8] .

From the above definitions, we can safely say that taxes are compulsory payments levied by the government on the people (i.e. governed) so as to create revenue for the running of the apparatus of government and the provision of social amenities to the citizens of the state. They are the contributions by the people to the general revenue pool of the government.[9]

Tax policy on the other hand is the planned system of a particular country for purposes of the implementation of its tax regime. This policy affects micro and macro-economic behaviours of the citizens of the country. It comprise policies as to who to tax and how much to tax these persons. It is the tax policy that determines whether it targets, the rich, middle class or the low income earners. The decision to target each of these groups for tax purposes also have its own advantages and disadvantages. The ability to provide a policy that balances a country‘s tax regime tells the level of the effectiveness and the efficiency of a tax regime. In other words;

―… tax policies represent key resource allocator between the public and private sectors in a country. It is usually imposed on individuals and entity that make up a country. The funds provided by tax are used by the states to support certain state obligations such as education systems, health care systems, pensions for the elderly, unemployment benefits, and public transportation. A nation‘s tax system is often a reflection of its communal values or the values of those in power. To create a system of taxation, a nation must make choices regarding the distribution of the tax burden-who will pay taxes and how much they will pay-and how the taxes collected will be spent.‖[10]

 

Before the discovery of crude oil (the black gold) in Nigeria, the Nigerian economy was a tax based economy.[11] Upon discovery of the crude oil, Nigeria shifted its source of revenue to the income accruable from the exploration of crude oil and abandoned taxation or merely paid lip service to its implementation to the extent that the Nigerian budget is based on the projected selling price of crude oil in the international market; and the performance of the budget is fundamentally dependant on how much revenue is generated from the actual sale of the product. Thus, the success or otherwise of the performance of the government is dependent on how much revenue it is able to generates from the sale of crude oil. There had been no obvious problem with this fiscal policy until lately.[12] The problems arising from the over reliance on revenue generated from crude has led to the need to review other revenue options. This work is an attempt to consider the tax options available to the states under the current legal regime in Nigeria.

 

                1.2.      Statement of the problem

In recent times, there has been lots of agitation from the federating units where crude oil is explored for ―resource control‖.12 The agitation has taken both economic and environmental dimensions.13 This call has also led to a movement towards the implementation of fiscal federalism and a need for generation of revenue from other sources owing to the consistent instability of oil prices and the challenge of the agitation for resource control.

 

The problem sought to be addressed in this work is the examination of the operation of fiscal federalism under the current constitutional framework to determine:

  1. What is the nature of fiscal federalism under the 1999 Constitution of the Federal Republic of Nigeria (as amended)?
  2. What is the extent of the powers of State Houses of Assemblies to legislate on tax matters under 1999 Constitution of the Federal Republic of Nigeria (as amended)?
  3. Does the Nigerian law prevent federating States from enacting independent laws on taxation
  4. What are the weaknesses of the existing tax laws in addressing socio-economic problems in Nigeria?

 

                1.3.      Objective of the research

This research is undertaken so as to explore the alternative to over dependence on revenue generated from the sale of crude oil by all tiers of the Nigerian Government. The aim of this work is as follows;

a.To appraise the nature of fiscal federalism under the 1999 Constitution of the

Federal Republic of Nigeria(as amended)?

 

  • The term is devised by  states in Nigeria wherein crude oil deposits are obtained, calling for the control of the revenues  generated from the resources found in their territorial boundaries.
  • Robert S. et al (2009) The case of Ken Saro-Wiwa PEN American Centre New York p. 3. Sagay I.:

“Nigeria: Federalism, the Constitution and Resource Control”. Text of speech delivered by Professor Itse Sagay (SAN), former Head of Law Department of University of Benin at the fourth sensitization programme organized by the Ibori Vanguard at the Lagoon Restaurant, Lagos available online at Urhobo Historical Society website:http:/www.waado.org/NigerDelta/Essays/ResourceControl/Sagay.html Retrieved on 25

November 2009. (2005) Timothy D: (2003) Environmental  Movements In Minority And Majority Worlds A

Global Perspective Rutgers University Press London. p. 3

  1. To determine the challenges to the implementation of effective tax administration in Nigeria, particularly the problem of tax evasion and tax avoidance.
  2. To determine the extent of the powers of State Houses of Assemblies to legislate on tax matters under Nigerian law.
  3. To examine the efficacy of tax laws enacted by Lagos State.

And finally proffer solutions to the weaknesses of tax laws and tax administration in Nigeria.

                1.4.      Scope of the research

This dissertation will attempt to review the relevant statutory enactments and case laws in this regard. Consequently, the Federal Inland Revenue Service (Establishment) Act,[13] Personal Income Tax Act,[14] Personal Income Tax (Amendment) Act,[15] Value Added Tax Act,[16] The National Tax Policy which embodies the policy drive of taxation in Nigeria will also be considered in this research.

The import, effect and limitation of the Taxes and Levies (Approved List for Collection) Act[17] viz a viz the operation of fiscal federalism in Nigeria will also be considered in this work. The Supreme Court‘s decision in Attorney General of Ogun State v. Alhaja Ayinke Aberuagba[18] as it relates to the powers of the states to enact tax laws will also be analysed.

Equally instructive on this subject are the provisions of the 1999 Constitution of the

Federal Republic of Nigeria. The provisions of Second Schedule (Part II) paragraphs 9, 18 and 19 of the Constitution, which empowers a State House of Assembly to make laws for the collection of any tax, fee or rate, or to make laws for the industrial, commercial or agricultural development of a state. The provisions of Section 4 (7) of the Constitution, which also empowers a State House of Assembly to make laws for the peace, order and good government of the state in respect of any matter that is not included in the Exclusive legislative list, or any matter included in the concurrent list or any other matter with respect to which it is empowered to make laws by the provisions of the 1999 Constitution. Some companies carrying on business in Lagos State are presently challenging the decision of the State to impose taxes on them[19] . The Federal Government is also challenging the powers of the Lagos State Government to enact the Hotel Licensing Law21, the Hotel Licensing (Amendment) Law[20] and the Hotel Occupancy and Restaurant Consumption Law[21] It is on this premise that it is considered appropriate to carry out a research on the tax system in Nigeria.

We will shine the torch on the federal tax laws and state tax laws with particular emphasis on Lagos State; tax administration; mode of resolving conflict and attitudinal behaviour; and tax impact in Nigeria. Experience from other jurisdiction may be drawn to explain situations in Nigerian Tax law where necessary.

 

                1.5.      Research methodology

The method adopted in this research shall be doctrinal in nature. The research material shall be based on existing legislations and case laws in the area, commentaries and views of experts on the subject as expressed in books, articles of mass media, academic journals, etcetera.

The primary data will be the existing statutes and case law on the subject, while the secondary data are the persuasive writing of academics and tax consultants and practitioners in the area. The research adopts the data and first hand information on tax administration contained in the following materials; Commissioned report of Maarten de

Zeeuw and Abdulrazaq M. T. commissioned by the United Kingdom Department For International Development on the tax performance of Lagos State[22] [23] , the various presentation of Ipaye (Special Adviser to the Governor of Lagos State on Taxation) submitted to the Chattered Institute of Taxation of Nigeria.[24] The first hand information supplied by Ochei a tax practitioner of over 25 years in his book entitled the Nigerian Taxman‘s Book,[25] data sourced from the Central Bank of Nigeria on the Budget performance of State and tax performance of Lagos State.[26] Submission by the Governor of the Central Bank of Nigeria to the House Financial Services Committee of the United States of America Congressional Hearing on the impact of the Global Financial Crisis on the Nigerian Economy28 and the Report presented to the President on the new National Tax Policy29 in preparing this research.

                1.6.      Literature review

The following books shall be of immense contribution to the writer in the cause of this research: Abdulrazaq a seasoned tax analyst wrote on the topic Principles and Practice of Nigerian Tax Planning and Management30, Adesola titled Tax Laws and Administration in Nigeria.31 Ayua contributed to the area by his very rich book titled The Nigerian Tax

Law32. These books mainly delved on the operation of taxation under the existing laws in Nigeria. No mention is made on how states could harness their tax potentials. Consequently they are not resources for the harnessing of tax powers under the Nigerian current legal regime. The Researcher intends to also draw from the fountain of the prolific guru of commercial law in the academia, Ola particularly from his book Income Tax Law and Practice in Nigeria33. This book is very rich in other areas of taxation but seem to only scratch the surface on the potential of state government in exploring tax legislation and how taxation can be an alternative source of revenue for the federating states in Nigeria. The old book of Orewa titled Taxation in Western Nigeria: The Problems of an

 

Account for 2009 which reported that Lagos State internal revenue generation accounted for 62.14 percent of its total revenue base for that year.

  • Sanusi L.S.: op cit.
  • Draft Document on the National Tax Policy, Presentation by the Presidential Committee on the National Tax Policy June 7, 2008
  • Abdulrazaq M.T. (1993):Principles and Practice of Nigerian Tax Planning and Management, Batay Law Publications Ltd., Ilorin.
  • Adesola S.M (1998) 3rd Edition Tax Laws and Administration in Nigeria, Comport Press and Publishing Company Ltd., Lagos.
  • Ayua I.A. (1996) The Nigerian Tax Law, Spectrum Law Publishing, Ibadan.
  • Ola C.S (2004) Income Tax Law and Practice in Nigeria Heinemann Educational Books (Nig.) Plc., Ibadan.

Emergent State[27] is also helpful only for the purpose of history as it does not capture any of the current tax laws. None of these works can be taken to be a manuscript on the best approach for state governments to utilize their tax potentials.  Notwithstanding the shortcomings of these materials and other books which the writer may in the cause of this research find relevant, they will serve to give the Researcher an insight into the problem of taxation especially in the post independence era when tax was still the major source of revenue in Nigeria. Several articles written under the auspices of the Nigerian Institute of Advance Legal Studies and the Chartered Institute of Taxation in Nigeria as well as other academic forum are not left out in the course of this research. These include the article of

Abubakar entitled ―Tax Policy in Nigeria[28] , Awa and Jegede‘s ―Federal Inland Revenue Service (Establishment) Act 2007: Centralization of Tax Administration in Nigeria through the Back Door[29] , Cobham‘s ―Tax evasion, tax avoidance and development finance37, Fashola‘s ―Reengineering State Tax Administration Strategies, Systems and Processes: Lessons from Lagos State38, Festus and Okwu‘s ―Fiscal Federalism: Fiscal

Discipline and Service Delivery in Nigeria[30] , Ipaye‘s ―Road to Effective Internally Generated Revenue Collection – The Lagos State Experience‖, ―Options and Ways of Curbing Tax Evasion and Avoidance in Lagos State40. Konyin‘s ―On the Trail of a Spectre- Destabilization of Developing and Transitional Economies: A case Study of Corruption in Nigeria[31] . Odd-Helge Fjeldstad‘s ―Corruption in Tax Administration:

Lessons from institutional reforms in Uganda‖,[32] Rapu‘s ―Tax Assignment and Revenue Sharing in Nigeria: Challenges and Option[33] and Sagay‘s ―Nigeria: Federalism, the Constitution and Resource Control44 to mention a few.

                1.7.      Justification

Since the transition from Militocracy to Democracy, there has been call from various Sections of the country for a Sovereign National Conference essentially with the object of inserting in the constitution the American fiscal approach of federalism. The dwindling fortune of our major source of revenue, i.e. crude oil because  the reserve is presently depleting for every exploration and extraction that is made; the serious security risk faced by the oil explorers as a result of the criminal activities of the locals in the guise of self actualization; the movement of the investors to more competitive countries with less challenges of investment than Nigeria, like Ghana and Angola are proving to be better haven for investment because there is sufficient infrastructure to support the oil prospecting investors than there is in Nigeria for the oil prospector‘s investment. The discovery of shale oil prospecting system, the abandonment of Nigeria‘s oil by America owing to the exploitation of its shale oil are justification for a research on the exploitation of the legal mean for generating alternative source of revenue in Nigeria

Further, there is also the challenge of answering the question; what happens if the oil reserves are exhausted, since oil is a wasting resources? Moreover, the amount of revenue filtering away due to non taxation could be harnessed to augment the oil revenue and stop the consistent budget deficit that the country has been running over the years.

Moreso, Lagos State only initiated the massive drive for internally generated revenue from 1999 at the dawn of the current democratic dispensation. The potential of taxation of other states in Nigeria have never been exploited as proposed to be undertaken in the work. This make this research unique and worthy of the quest.

It is submitted that an exploration of alternative source of revenue may actually open the eyes of the federating components to the potentials of each state in the federation. Those without alternative source of revenue will be compelled to create avenue to boost the revenue base of their states as necessity has always been the mother of invention.

The above are the pressing questions/issues, which this research attempts to proffer an answer and which gives a justification for this research

1.8Organisational layout

This dissertation is divided into five chapters. Chapter one gives a general introduction to the topic, providing hints as to what the reader is to expect in the course of reading the thesis, thus, we will find the general introduction, aims and objective of the research, scope, literature review and the organizational layout of the dissertation in this chapter. Chapter two discusses the historical development of our federalism, the legal frame work of tax administration in Nigeria and the role of the court in giving effect to the fiscal provisions in the Nigerian Constitution. Chapter three encompasses the problems bedeviling the implementation of an efficient and result oriented tax system in Nigeria.

The chapter discusses the stumbling blocks on the way to an efficient utilization of taxation as a source of revenue generation in Nigeria.

Chapter four discusses the legal approach adopted, mainly by Lagos State towards exploring the legal frame work in the achievement of a most effective and efficient tax system for the federating states in Nigeria and Chapter Five, is the conclusions which contains the summary, observation and recommendation made in this work.

[1] An interesting reading is the content of The Gospel According to Saint Mathew Chapter 22 verse 21 related in the Synoptic Gospel also known New Testament of the Bible and the famous cliché of giving to Ceaser what is of Ceaser and to God what is of God‖

[2] Prest A. R., (1985) Public Finance in Underdeveloped Countries; Palgrave Macmillan, United Kingdom p.

[3]

[4] This term does not mean the same thing as the generally recognized entities with territorial sovereignty but the federating components in Nigeria.

[5] Orogun W. and Ezigbo O (2009). ―Nigeria: IGR –Lagos, Sokoto lead the way‖, Thisday Newspaper published on 26 July 2009 p. 1. It was reported that states like Lagos State which is in the forefront of this quest, Kano State, Edo State, Oyo State are some of the states in Nigeria giving taxation a pride of place in its Internal Revenue Generation(IRG) drive.

[6] Black H.C; (1980) 6th Edition The Black’s Law Dictionary, West Publishing Co. New York  p. 1457

[7] (1993) The New Shorter Oxford English Dictionary Vol. 2, N-Z Clarendon Press Oxford, p. 3229

[8] Per Justice Robert in the case of US v. Butler 297 US 1

[9] Odewale R. O. (2004) 2nd Edition Principles of Nigerian Taxation.  DBM Publishers, Ibadan, p. 54.

[10] Abubakar          Y.M.:      (2009)―Tax        Policy     in             Nigeria‖ Retrieved               on           June        24           2009       from  http://www.buzzle.com/articles/tax-policy-in-nigeria.html

[11] Ibid

[12] Adeniyi O. (2011) Power Politics and Death, Thisday Books, Prestige Imprint Kachifo, Nigeria p. 72 where Adeniyi observed that ―The impact of the Global Economic crisis affected commodity prizes especially the oil in 2008‖. See also the observation in the Draft National Tax Policy For Nigeria submitted to the Federal Executive Council in 2008. p.5 where it was observed that ―one of the reasons for this was Government‘s heavy reliance on revenue derived from oil, as a result little or no attention has been given to revenue from other sources, such as taxation.‖ Sanusi L.S.: (2010) “Global Financial Crisis Impact in Nigeria, Nigerian Financial Reforms and the Roles of Multilateral Development Banks and IMF.” Submission to the House Financial Services Committee of the US Congress Hearing on the Global Financial crisis. p. 1 where he stated that the ―Like  most developing countries, Nigeria felt the effect of the Financial crisis largely through trade and capital flows because of the openness of the economy and the near total reliance  on crude exports for government revenue and foreign exchange earnings‖.

[13] Cap F 36 LFN 2004

[14] Cap P8 LFN 2004

[15] Act No. 20 2011

[16] Cap V1 LFN 2004

[17] Cap T 2 LFN 2004

[18] (1985) 1 NWLR (Part 3) SC 395

[19] The unreported cases of Mas Everest Hotels Limited and another v. Attorney General of Lagos State and another (Suit No. ID/640M/2009), and Registered Trustees of the Association of Fast Food Confectioners of Nigeria & others v.  Attorney General of Lagos State and another (Suit No. FHC/L/CS/747/2009). 21 Cap H6 Laws of Lagos State of Nigeria 2003

[20] No. 23 Volume 43 Laws of Lagos State of Nigeria published in the Official Gazette in 2010

[21] No. 30 Volume 42 as contained in the Lagos State of Nigeria Official Gazette of 3rd June 2009. The Attorney General of the Federation instituted an action challenging the constitutionality/operationality of  and the Lagos State Hotel Licensing Law, Hotel Licensing (Amendment ) Law and Hotel Occupancy and Restaurant Consumption Law viz a viz the Nigerian Tourism Development Act of 1992 which is a Federal legislation made pursuant to Item 60(d) of the Exclusive Legislative List regulating ―tourist traffic‖ in the case of AG Federation v. AG Lagos (Unreported) Suit No.SC/340/2008 Judgment delivered on the 19 July 2013.

[22] Maarten de Zeeuw and Abdulrazaq T. (2005) ―Tax Policy Assessment for Lagos State Government‖ a report of the tax performance of Lagos State prepared by the State and Local Government Program (SLGP) for the Department For International Development  CNTR: 00 0512A SLGP Consultants‘ Report Number

[23] , May 2005

[24] Ipaye A.R. (2009) ―Road to Effective Internally Generated Revenue Collection – The Lagos State Experience‖ being a paper presented at the Imo State Tax Summit held on 18 August 2009, Ipaye A. R.

(2010): Speech Delivered by the special guest of honour, Mr. Ade Ipaye at The Chartered  Institute of Taxation of Nigeria Joint District Society Quarterly Meeting Held On Thursday, April 8, 2010  At The

Chartered Institute of Taxation of Nigeria Headquarters, Lagos, Nigeria, Ipaye A. R. (2011) ―Options and Ways of Curbing Tax Evasion and Avoidance in Lagos State‖ being a paper presented at the Lagos State polytechnic Alumni Association Quarterly Lecture  held at the Rennanisance Hotel Agidingbi Ikeja Lagos Nigeria on June 28, 2011

[25] Ochei, B.B.: (2008) The Nigerian Taxman’s Book, Pyramid Unit Publishers Lagos Nigeria

[26] The Central Bank of Nigeria Annual Report & Statement of Accounts for 2002 which showed that the

Nigerian Economy is changing structurally, The Central Bank of Nigeria Annual Report and Statement of

[27] Orewa G.O (1962) Taxation in Western Nigeria: The Problems of an Emergent State Oxford University Press, Ibadan.

[28] Abubakar Y. M.: Tax Policy in Nigeria published at http://www.buzzle.com/articles/tax-policy-innigeria.html – 2(2009) Retrieved on June 24, 2009

[29] Awa I, and Jegede R.O.: ―Federal Inland Revenue Service (Establishment) Act 2007: Centralization of

Tax         Administration         in          Nigeria          through         the         Back         Door‖          published          at

http://www.icmaservices.com/icmaservices/articles.com retrieved on November 28, 201137 Cobham A.: ―Tax evasion, tax avoidance and development finance‖ Working Paper Number 1229 Finance and Trade Policy Research Centre Queen Elizabeth House University of Oxford, (2005) 38 Fashola B. R.: op cit.

[30] Festus O. O. and Okwu J. N. ―Fiscal Federalism: Fiscal Discipline and Service Delivery in Nigeria‖ in

Economic           Policy          Options           for           a           Prosperous          Nation           retrieved           from

http://www.csae.ox.ac.uk./books/epopn/Fiscalfederalism.pdfon  July 25, 2011 40 Ipaye, A.R.: op cit.

[31] Konyin A. (1996-1997) ―On the Trail of a Spectre- Destabilization of Developing and Transitional Economies: A case Study of Corruption in Nigeria‖ published in Journal of International Law.

[32] Odd-Helge Fjeldstad: ―Corruption in Tax Administration: Lessons from institutional reforms in Uganda‖ Chr. Michelsen Institute Working Papers  2005:10

[33] Rapu S.C. (2006) ―Tax Assignment and Revenue Sharing in Nigeria: Challenges and Option‖ published in Central Bank of Nigeria Journal on Economic and Financial Review Vol. 44 No. 1 March 2006. P. 1 44 Sagay I.: Nigeria: Federalism, the Constitution and Resource Control‖ Text of speech delivered by Professor Itse Sagay (SAN), former head of Law department of University of Benin at the fourth sensitization programme organized by the Ibori Vanguard at the Lagoon Restaurant, Lagos available online at Urhobo Historical Society website:http:/www.waado.org/NigerDelta/Essays/ResourceControl/Sagay.html Retrieved on 25 November 2009. (2005)

LAW PROJECT TOPICS AND MATERIALS IN NIGERIA

0 Shares:
Leave a Reply

Your email address will not be published. Required fields are marked *

You May Also Like