CHAPTER ONE

INTRODUCTION

1.1            BACKGROUND OF STUDY

Tax which is a major source of public revenue has been defined as compulsory levy imposed on individual and firms by the government. Payment of tax unlike payment of price for acquisition of something of material value, implies the settlement of the tax payers civic liability to the government.

          Tax is one the most economic measure used by the governments in both developing and developed countries to encourage or discourage a particular type of activity.

          The revenue accruing from income tax is the government for its projects and expenditures tailored to its development plan and budget implementation. Personal income tax is directly imposed on income of individuals. It is usually progressive.

          Furthermore, taxes act as an instrument of social change and reform when used as creative force in economic planning and development, can change the economic system. Taxes are also used to reduce the inequality in income distribution.

          The personal income tax in Nigeria is regulated by income tax management. But the administration is vested in Joint Tax Board. The Board exercises power and duties confirmed on in by Income Tax Management Act (ITMA) and other powers agreed upon by the government of each state. The functions of the Board are well explained in s.27 of the Income Tax Management Act 1961.

          In Abia State, the state board of internal revenue is the administrative authority responsible for the administration of the individual tax laws in the state. The duties of the board in relation to income tax are to assess, collect, and account for the tax collected.

          The assessment authority is appointed for each administrative division in the state to do the job of assessment, while tax collectors, collect, and account for tax collected. The collection are divided into two; one  is appointed to collect income tax from their employees and the other category of tax collectors is allowed 5% commission on tax collected. Tax collected are transferred to the Board of Internal Revenue.

The Need For Effective Personal Tax Administration In Nigeria

A progressive personal income tax provides an income elastics source of revenue-that is revenue grows more rapidly than GNP.

          Secondly, as economics development occurs and per capita income rises at a larger proportion of the country’s income earners may enter wage employment where they can be taxed under Pay-As-You-Earn (PAYE) system.

There is need for improvement in the state for record keeping so that direct assessment is easier and the administration capacity of the tax authority may increase so that the use of personal income tax becomes more feasible.

          Furthermore, experience has shown that as development proceeds, certain sources of revenue tend to diminished or do not grow rapidly enough. It may be necessary to replace these other sources o revenue with personal income tax.

          Another factor that demand increased attention is the growing realization that the tax potential status of the agricultural sector in Nigeria has been tapped. A greater proportion of Nigeria earn their income in agricultural engagement and many people are going into large scale farming. There is need for effective personal income tax administration to realize a lot of revenue from this source.

1.2            PURPOSE OF THE STUDY

The purpose of conducting this study is to review the administration of personal income tax in Abia State with intent of finding solution to the problem associated with the administration and also  to examine the adequacy of relief and allowance granted to tax payers in the state and loopholes in the tax system.

1.3            SIGNIFICANCE OF THE STUDY

The study recommendation, the government would be able to

establish better administrative machinery in tax collection.

          Furthermore, this study will help the government in amending the tax laws where there is any ambiguity or loopholes.

          And finally, this study will also help the tax payers to know their rights and obligations as regard to payment of tax and administrative machinery on the assessment of tax is based. Thus enabling the tax payer to ascertain the amount to be paid, when, where, how and to whom it should be paid.