At the risk of putting the cart before the horse, it may be useful to first examine the justification for taxation before the definition of the concept. This is partly because the subject of taxation is usually a hard sell. Everyone may desire a good government but not everyone is prepared to pay for it. The aim of this article is to establish the significance and necessity of taxation in any society before considering its definition.
It is quite obvious that public services such as maintenance of national security, provisions of good roads, health care system, electricity, housing, education to mention but a few are necessary for the social and economic well-being of the people of a given society. It is also quite obvious that the discharge of these responsibilities require funding otherwise their provision cannot be reasonably guaranteed on a sustainable basis. Even where a few individual have the means, there is an extent to which such services can be provided privately without the support of the state in some ways. In essence, there are certain public services that have to be jointly provided and financed for the overall welfare and security of everyone in the society. The question then is how does the government get fund to provide these services?
There are number of ways for a government to obtain the economic resources it needs. It can seize material or manpower if it is a conquering nation or a nation drafting its youth to war. It can borrow. It can inflate the currency by printing currency or manipulating the banking system. None of these is suitable as permanent means of financing a government based upon the rule of law and consent of the governed. However, people will naturally resist sacrificing their private wealth to the public fiscal. They will want to retain and enjoy as much of their wealth during their lifetime, or preserve them for their estate for the benefit of their dependants after their death. Yet, members of the public who enjoy or desire to enjoy the benefits of security of life and properties, provision of water supply, roads, electricity and allocation of land among other things have to pay for them in certain ways. Hence, taxation was devised to provide government with regular, dependable and continuous source of revenue. A good tax system allocates the economic burden in a prescribed and understandable way that permits citizens to plan and pursue their private affairs without fear of unexpected demands. Taxation is therefore, more or less the price of the social contract between the government and the governed for the provision of basic goods and amenities. Therefore, every state, no matter how richly endowed it may be, usually requires some form of taxation from its citizens and or residents.
There is a saying that there are only two certainties in life: death and taxes. In developing countries like Nigeria, taxes have not acquired that frightening certainty status of death because of the spate of corruption and inept leadership, among other factors. While it is said that there are many different ways to die and at least an equal number of ways to be taxed, we are yet to figure out how to successfully avoid either – death or tax.
Since time immemorial, taxation has been an instrument for socioeconomic development. In particular, as a nation quests for economic transformation and rapid development, instituting a viable tax system must be seen as a desideratum. Nigeria, like most Sub-Saharan African countries, is notorious for poor economic development planning and implementation. Since independence, Nigeria has not had or developed a stable or sustainable tax culture. As a veritable instrument of government revenue, the dearth of sustainable tax culture accounts partly for the country’s structural deficiency and distortions in economic development planning. Corruption is the other large component responsible for the weak tax culture and structure. But for corruption and inept leadership (at all levels), the culture of taxation would have taken root in Nigeria. Tax would have been likened to death in certainty respects, and Nigerians would have recognized it is an unavoidable and binding obligation of good citizenship. In which case, by now we would have had a vibrant and efficient tax system.
We shall discuss the step by step approach in computing personal income tax next Friday based on the new law released in 2011.
All further enquiries and topic suggestion should be directed to kaz4sure@yahoo.com, 08126240553
Prepared by: Kazeem Ijaola AAT, ACTI, ACA
(tax expert, accounting expert)
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