CHAPTER ONE

INTRODUCTION
1.1 Background Of The Study
Taxation is one of the oldest and major sources of government
revenue. The history of taxation in Nigeria dates back to the pre-
colonial era. During this period, there were different systems of
taxation existing in the forms of compulsory services,
contribution of goods, money, labour and the likes, among the
various kingdoms and ethnic groups and tribes controlled by the
Obas, Emirs etc., in order to sustain the Monarch and also for
community development (ICAN,2010)
Taxation, as we know it today, was first introduced in Nigeria in
1904 by the late Lord Lugard, when community tax became
operative in the Northern Nigeria. He later made changes which
culminated in the Native Revenue Ordinance of 1917. An amending ordinance that extended the provisions of the 1917
ordinance to Southern Nigeria was passed in 1918. The first
ordinance applied to Abeokuta in Western Nigeria and to Benin-
city in Mid-Western and in 1928, it was extended to Eastern
Nigeria.

Taxation in Nigeria, in a modern sense, however, only began in
1940. A more progressive income tax Ordinance No.29 of 1943
Cap92, under which Europeans all over the country and Africans
resident in Lagos were assessed, came into operation on the 1st
of April, 1943.
The Commissioner, appointed by the Governor-General by notice
in the Gazette (now referred to as the Federal Republic of Nigeria
Gazette), was responsible for the administration of the ordinance.
By the 1st Schedule, Ordinance 39/58, it was the Federal Board
of Inland Revenue that took the place of the Commissioner (Ola,
1974).
In recent times, tax administration in Nigeria is vested in various
tax authorities depending on the type of tax under consideration.
Broadly, there are three (3) tax authorities, namely;
i. Federal Inland Revenue Service Board
ii. State Internal Revenue Service Board
iii. The Local Government Authorities
However, the organs of the Nigerian Tax Administration are listed
below;
i. Federal Inland Revenue Service Board
ii. State Internal Revenue Service Board
iii. Joint Tax Board
iv Local Government Revenue Committee
v. Joint State Revenue Committee. (ICAN, 2010)
The enabling laws in respect of each type of tax will normally
contain a provision as to the body charged with the
administration of the tax. For this purpose, the various enabling
tax laws are as follows;
i. Company Income Tax Act, Cap C21, LFN 2004, as amended,
which imposes tax on the incomes of companies other than
corporation soles and companies engaged in petroleum
operations Upstream operations)
ii. Petroleum Profits Tax Act, Cap P13 LFN 2004, which
imposes tax on the profits of companies, engaged in
petroleum operations.
iii. Education Tax Act, Cap E4 LFN 2004, which imposes
Education tax on the assessable profits of companies
registered in Nigeria.
iv. Personal Income Tax Act, Cap P8 LFN 2004, as amended,
which imposes tax on incomes of individuals and
corporation soles.
v. Value Added Tax Act, Cap V1 LFN 2004, as amended, which
imposes tax on the supply of goods and services (except
those specifically exempted or zero-rated), made by
incorporated companies and other business organizations.
vi. Stamp Duties Act, Cap S8 LFN 2004, which charges duties
on specified instruments listed in the Act.
vii. Capital Gains Tax Act, Cap C1 LFN 2004, which imposes
tax on capital gains arising from the disposal of chargeable
assets (ICAN, 2006)
According to Alhaji Kabir M. Mashi, a core success factor for
any system is its position on administrative issues.
Presently, the tax administration in Nigeria, Enugu state to
be precise, has been riddled with various limiting factors
such as;
I. Weak administrative facilities/ administrative lapses which
could result in situations such as tax evasion and tax
avoidance.
II. Corruption and mismanagement on the part of the tax
officials.
III. The problem of funding the revenue collecting agencies
which negatively impacts on efficiency and performance.
IV. Lack of adequate records from the informal sector of the
economy.
V. Inability to identify all taxable persons. (Bird, 1988).
VI. Lack of effective mechanism in place to prosecute cases of
tax evasion.

The rapid growth and development of Enugu State led to an
enhanced increase in population as well as an increasing number
of companies. Tax planning and tax management have
increasingly become complex activities due to growth in business
and the subsequent expansion in scope of operations and fiscal
size. Given the amount of data that needs to be analyzed in order
to assess and compute tax liabilities, it has become imperative
that both tax institutions and companies deploy appropriate
computer programmes in order to enhance tax planning and
administration.
The advent of Information Technology in this era has played a
major role in enhancing economic and business activities of both
the private and public institutions. While it has opened up
opportunities that have gone undiscovered or neglected, it has
saved many organizations millions of perpetual fraud through its
applications. The application of Information Technology has become increasingly necessary in Nigeria‟s tax administration as
the use of Information Technology makes for fast, easy and
accurate computation, storage and presentation/ retrieval of
data/ records.
Certain computer programmes have been created to facilitate
the computation of cumbersome data. Programmes such as
Microsoft Excel (Electronic Spread Sheet), Microsoft Access
(Database) are one of the most common examples. Other
database programmes and accounting packages which allow for
easy calculation and computation of an individual or a company‟s
tax liabilities include Peachtree Accounting, PeopleSoft System,
SQL Database, QuickBooks, Management Information Processing
System, Quikens etc.
Presently, the world has gradually become a global village and
the nexus between Nigeria and the rest of the world is the use of
Information Technology in, practically, every sector of the
economy. Therefore, in order to improve on the efficiency of tax
administration in Nigeria, it will be advisable to apply the use of
Information Technology from the basics of tax collection to the
final stage in Tax Administration.

1.2 Statement Of The Problem
For many years, tax administration in Nigeria has been
plagued with problems, most of which can be attributed to the
lack of or inadequate application of Information Technology in tax
administration.
In Enugu State, the tax institutions have not fully embraced
the use of Information Technology for record keeping. According
to BECANS Business Environment Report 1(15) (2007), there is
evidence of a manually compiled database of tax payers. Manual
Compilation involves the use of files/ folders for data storage.
When records are stored in this manner over a long period of
time, retrieval of such records can prove to be very difficult.
Records stored in this manner can be very unreliable as these
records are easily prone to manipulations.
Another major problem can be found in the method of tax
collection. The tax officials are often aggressive as they use
unorthodox methods in tax collection especially at the local
government level.
Furthermore, the identification of taxable persons has
proven to be a herculean task using the manual systems.

The thorough application of Information Technology in tax
administration in Nigeria would be a welcome change in the
system as this will greatly enhance the efficiency in tax
administration in Enugu state in particular and Nigeria in
general.

1.3 Objective Of The Study
This research work is aimed at achieving certain objectives which
are stated below:
i. To determine if effective tax administration leads to an
increase in tax base;
ii. To ascertain whether inefficiency in tax administration
creates room for tax evasion;
iii. To find out whether the application of information
technology increases efficiency in tax administration;
iv. To know whether poor remuneration of tax personnel affects
the dispensation of taxation.

1.4 Research Questions
I. Does effective tax administration lead to an increase in
tax base?
II. Does inefficiency in tax administration create an
avenue for tax evasion?
III. Does the application of Information technology
increase efficiency in tax administration?
IV. Does poor remuneration of tax personnel affect the
effective tax administration?

1.5 Research Hypotheses
Based on the objectives, the following researches were
formulated:
Hypothesis One
H0- Effective tax administration does not lead to an increase in
tax base.
H1- Effective tax administration lead to an increase in tax base.
Hypothesis Two
H0- Inefficiency in tax administration does not create and avenue
for tax evasion.
H1- Inefficiency in tax administration create and avenue for tax
evasion.
Hypothesis Three
H0- The application of information technology does not increase
efficiency in tax administration.
H1- The application of information technology increase efficiency
in tax administration.

1.6 Significance Of The Study
it is hoped that this work will form a major catalyst to
stimulate the initiation of a proper legislative process that will
regulate tax administration in Nigeria, particularly in Enugu
State.
Furthermore, effective implementation of information
technology in tax administration will be of immense benefit to tax
authorities. The use of information technology will invariably
reduce work hours, enhance efficiency and reduce opportunities
for corrupt practices in the system.
Finally, it is believed that the information generated from
this research will enhance the tax payers awareness on tax
issues like tax incentives and penalties for tax related offences
such as tax evasion.

1.7 Scope And Limitation Of The Study
As this research work is focused on the effect of information
technology on the efficiency of tax administration in Nigeria, with
particular reference to Enugu State, the scope of the study will be
limited to the activities of Enugu State Board of Internal Revenue
In the course of carrying out this research work, certain
limitations were encountered, they include the following:
I. Lack of access to certain materials needed for the
research.
II. Lacks of co-operation from institutions as certain tax
institutions were not forthcoming with their record
III. Certain libraries did not have contemporary materials
for the researcher to work with.

1.8 Operational Definition of Terms
In order to avoid confusion surrounding the words, the
following technical terms have precisely been defined, as they
relate to the context of the research work.
Tax- An amount of money levied by a government on its citizens
and used to run the government, country, a state, a county or a
municipality/ local government.
Tax Evasion- This is an act whereby the taxpayer can achieve
the minimization of tax through illegal means. It involves outright
fraud and deceit.
Tax Avoidance- This arises in a situation where a taxpayer
arranges his financial affairs in a form that will make him pay the
least possible amount of tax without breaking the law.
Ordinance- A law or rule made by an authority such as a city
government.
Stakeholders- Those persons/ entities that contribute to, and
derive benefits from, the country‟s tax system. This includes
every Nigerian citizen and resident, corporate entities,
government at all levels and government agencies.